Dr. Reddy’s: Nomura’s Analysis of the Pharma Stock, Does the Future Look Promising?

Synopsis: Nomura sees about 21 percent upside in Dr Reddy’s, driven by early generic entry, a $1 billion opportunity, and biosimilar pipeline, despite near-term margin pressure and earnings decline.

The article outlines the rationale behind Nomura’s Bullish views on this pharma company, which develops and manufactures a wide range of products, including generic medicines, active pharmaceutical ingredients (APIs), biosimilars, and complex generics.

With a market capitalization of Rs 1,10,417 crore, Dr Reddy’s Laboratories Ltd’s shares closed at Rs 1,323 per share, down by 0.52 percent from the previous day’s close. The company’s share returned 28 percent over the last five years.

Brokerage’ View

Nomura maintains a Buy on Dr Reddy’s Labs with an unchanged target price of Rs 1,600, implying an upside of about 20.9 percent, driven by strong pipeline visibility, improving margins, and growth opportunities across key global markets. 

Regulatory boost and early pricing advantage: Canada’s decision is seen as a positive signal for approvals in other markets. In the initial phase of the generic launch, higher price realization is likely, supporting financials. Nomura expects starting prices of around $60 to $90 per pen, before normalizing.

Market size and pricing normalization: At an estimated volume of 12 million pens, the initial opportunity could be about $700 million to $1 billion. As competition increases, prices may settle near $20 per pen, bringing the market size closer to $250 million over time.

Market share-led long-term upside: From a medium to long-term view, growth will depend on market share gains. As an early entrant, the company can scale faster. Nomura estimates the revenue potential of about $75 million, assuming a sustainable 30 percent market share.

Biosimilar Abatacept: Next growth trigger, Abatacept a prescription medicine used to treat autoimmune diseases like rheumatoid arthritis, psoriatic arthritis, and juvenile arthritis, is emerging as a key product to watch, with potential approvals in Europe expected around mid 2027. However, due to regulatory uncertainty, Nomura has not included any upside from this product in its current estimates.

Large opportunity with re-rating potential: If approvals come through in both the US and EU, the product could deliver strong and sustained upside, especially if the company remains a sole biosimilar player for a period. Abatacept is seen as a $450 million plus annual opportunity, while steady growth in non-US markets could support a re-rating in the stock.

Dr. Reddy’s Laboratories is a prominent Indian multinational pharmaceutical company based in Hyderabad, founded in 1984 by Dr. Kallam Anji Reddy. It develops and manufactures a wide range of products including generic medicines, active pharmaceutical ingredients (APIs), biosimilars, and complex generics in areas like oncology, diabetes, and gastroenterology.

Financial Highlights: Revenue from operations rose to Rs 8,753 crore in Q3 FY26 from Rs 8,381 crore in Q3 FY25, up about 4.4 percent YoY. However, operating margin declined to 22 percent from 27 percent, down YoY. Net profit fell to Rs 1,190 crore from Rs 1,404 crore, down around 15.2 percent YoY, while EPS dropped to Rs 14.50 from Rs 16.94, a decline of about 14.4 percent YoY.

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