Dr.Reddy's leaves a bitter taste

Dr.Reddy’s Lab is the top loser on the BSE since the opening bell today. The stock price slipped 10% to Rs.2995. Though it has recovered since then, it remains firmly in the red, down almost 9%.

The reason is obviously the poor show for Q1FY17 and post this, most brokers and analysts have downgraded the stock. For the first quarter, the company’s consolidated net profit falling by a sharp 76% (YoY) at Rs.153 crore. This was mainly on account of a dismal quarter in USA, loss of business in Venezuela, price erosion, warning letters from US FDA delaying new launches and overall very weal operational matrix. Its revenue also declined 14% at Rs.3222 crore.

The market is more spooked because the current quarter  saw a 20% fall in its US business topline and its EBIT margins fell to 4%. But more than this, the management has already warned that coming months do not really look all that great as apart from USA, its other businesses are also showing troubled headwinds.

Following this, foreign brokerage Jefferies pulled down the target price of the stock to Rs.2850 with sharp cuts in FY18 estimates. Credit Suisse has also downgraded the stock and cut target price to Rs.2750.