Dr Reddy’s Laboratories: 5 Reasons Why Nomura Is Bullish on This Pharma Stock

Synopsis: Nomura has maintained an “Accumulate” rating on Dr Reddy’s Laboratories Ltd, raising its target to ₹1,740, implying ~34% upside. The view is driven by a strategic shift toward branded drugs, improving margins, pricing power, and earnings quality. Lower expectations and potential US generics recovery add upside re-rating potential.

The shares of a Large-Cap company that specialises in the discovery, manufacturing, and marketing of affordable prescription medicines, generics, biosimilars, and active pharmaceutical ingredients (APIs), are in focus following Nomura’s target, with an upside potential of  34 percent.

With a market capitalization of Rs. 1,10,838.87 crores in the day’s trade, the shares of Dr Reddys Laboratories Ltd rose upto 2.1 percent, making a high of Rs. 1,329.00 per share compared to its previous closing price of Rs. 1,301.30 per share.

What Happened 

Dr Reddy’s Laboratories Ltd, engaged in the discovery, manufacturing, and marketing of affordable prescription medicines, generics, biosimilars, and active pharmaceutical ingredients (APIs), after Nomura has maintained an Accumulate rating and revised the target from Rs. 1,600 to Rs. 1,740, with an upside potential of 34 percent from the current price.

Reason for the Target

Strategic pivot towards branded business strengthens fundamentals

Strategic pivot towards branded businesses is expected to improve revenue visibility and pricing power. The shift reduces dependency on low-margin generics and enhances global brand positioning. Over time, this transition supports stronger cash flows, better margins, and more stable growth, justifying higher valuation multiples and improved investor confidence.

Muted expectations create a favorable risk-reward setup 

Muted street expectations create a favorable risk-reward setup for Dr Reddy’s earnings outlook. Lower expectations reduce downside surprises while allowing positive operational performance to drive upgrades. This dynamic improves valuation comfort for investors, as even modest beats in revenue or margins can trigger re-rating and increased institutional buying interest demand.

Upside potential versus conservative consensus estimates 

Analysts remain constructive, with upside risks emerging versus conservative consensus earnings estimates. Any improvement in US generics recovery or branded portfolio traction could lead to earnings upgrades. This gap between expectations and potential performance creates scope for positive surprise, supporting valuation expansion and medium-term share price appreciation.

Branded portfolio growth supports margin expansion

Growth in branded pharmaceutical segments is expected to significantly enhance operating margins. Branded products typically deliver higher realizations and stronger pricing power compared to commoditized generics. As mix shifts, EBITDA margins improve structurally, reducing volatility and strengthening profitability, which supports sustained earnings momentum and long-term investor confidence further.

Revenue mix shift drives sustainable earnings quality

Shift in revenue mix towards higher-value branded and specialty products is expected to improve earnings quality. This diversification reduces reliance on cyclical generics pricing pressure and enhances the sustainability of growth. Over time, a more balanced portfolio supports stable margins, better cash generation, and improved long-term shareholder returns significantly.

Can Branded Shift Drive the Next Rally?

Nomura’s view is that Dr. Reddy’s is undergoing a strategic pivot toward branded pharmaceuticals, which improves revenue visibility, pricing power, and global positioning. This shift is structurally positive because branded drugs typically generate higher margins and more stable cash flows than low-margin generics, supporting a stronger and more predictable earnings profile.

At the same time, the market setup strengthens the case for a rally, as muted street expectations create room for positive surprises. If branded portfolio growth, US generics recovery, or margin expansion exceeds conservative estimates, it could trigger earnings upgrades, valuation re-rating, and increased institutional interest, making the branded shift a potential catalyst for the next upward move in the stock

Financials & Others

The company’s revenue declined by 11.51 percent from Rs. 8,528 crores in Q4FY25 to Rs. 7,546 crores in Q4FY26. Meanwhile, Net profit declined from Rs. 1,587 crores to Rs. 221 crores in the same period.

The company said its Q4FY26 results were impacted by a shelf stock adjustment (SSA) related to lenalidomide of Rs. 453 crore, impairment of CAR-T assets and Eftilagimod Alfa totalling Rs. 227.7 crore, and provisions related to VAT liability of Rs. 114.1 crore.

The company shows a Return on Capital Employed (ROCE) of 13.6%, indicating moderate efficiency in generating profits from its total capital. Its Return on Equity (ROE) is 11.8%, reflecting decent returns for shareholders. With a Debt-to-Equity ratio of 0.20, the company has low financial leverage and maintains a conservative capital structure with limited reliance on debt.

Dr. Reddy’s Laboratories Ltd is an Indian multinational pharmaceutical company headquartered in Hyderabad, Telangana. The company started as a manufacturer of active pharmaceutical ingredients (APIs) and has since grown into a global healthcare player. It operates across many countries, including strong markets in the US, Europe, and India, supplying generic medicines, branded formulations, and over-the-counter drugs.

The company’s business is divided into key segments such as Global Generics, Pharmaceutical Services and Active Ingredients (PSAI), and Proprietary Products. It focuses on making affordable medicines accessible worldwide while also investing in biosimilars, specialty drugs, and research-driven innovation. Today, Dr. Reddy’s is considered one of India’s leading pharma exporters with a strong presence in both regulated and emerging markets.

Dr. Reddy’s reported steady progress across its strategic priorities in Q4 FY26, with key milestones in diabetes, biosimilars, and specialty therapies. The company became the first to receive approval in Canada for a generic semaglutide injection for Type 2 diabetes and also launched the product in India under the brand name “Obeda®” on day one. In addition, it secured DCGI approval for generic semaglutide tablets in India and received USFDA acceptance for review of its abatacept biosimilar (IV) biologics license application.

The company also expanded into Hormone Replacement Therapy in India through the acquisition of Progynova® and Cyclo-Progynova®, strengthening its women’s health portfolio. On the integration front, Dr. Reddy’s completed 95% integration (by value) of its acquired NRT business as of March 2026, indicating strong execution in aligning new acquisitions with its core operations.

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