On Wednesday, BofA Securities maintained its Buy rating on Dr. Reddy's Laboratories Ltd. (DRRD:IN) (NYSE: RDY) stock with a steady price target of INR1,530.00. The firm's assessment follows Dr. Reddy's reported second-quarter revenue growth of 17%, surpassing BofA and other street estimates which projected an increase of 12-13%. This growth was supported by strong performance across all business segments of the company.
Dr. Reddy's exhibited a robust adjusted EBITDA of Rs23 billion, which translates to a margin of 28.6%, against the consensus of Rs21.5 billion. This financial achievement came despite a 17% quarter-over-quarter increase in research and development expenses and continued high levels of selling, general and administrative (SG&A) costs from the previous quarter.
The company's profit after tax (PAT) stood at Rs12.6 billion, aligning closely with consensus estimates, even after accounting for one-time factors including a deal related to nicotine replacement therapy (NRT), deferred tax assets (DTA) for an over-the-counter (OTC) joint venture, and a DTA reversal due to a change in indexation benefit.
Despite Dr. Reddy's shares underperforming compared to its peers year-to-date, the firm highlighted several positive factors. These include sustained momentum outside the United States, upcoming high-value product launches in the U.S. starting from the third quarter, expansion in the global OTC market, and potential in biosimilars and GLP-1 treatments in the medium term, which are expected to mitigate the impact from the anticipated gap in revenue from gRevlimid in fiscal year 2027.
In light of these developments, BofA Securities has adjusted its earnings per share (EPS) estimates for fiscal years 2025 and 2026 by 3-5%. The price objective for the company's American Depository Receipts (ADRs) has been slightly modified to $18.30, factoring in foreign exchange considerations. The firm reaffirmed its Buy recommendation for investors, signaling confidence in Dr. Reddy's future performance.
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