Dr Reddy's shares: Semaglutide woes to trigger EPS cuts; Should you buy, sell or hold?

Shares of Dr Reddys Laboratories Ltd (Dr Reddy's) have remained under pressure since pharma major announced a temporary suspension on commercial supplies of Semaglutide injections after identifying an out-of-specification (OOS) impurity during the API scale-up validation process, necessitating process optimization and revalidation before commercial production can resume.

To recall, shares of Dr Reddys Labs have tanked nearly 10 per cent in the last one week, as the stock settled at Rs 1,236, commanding a market capitalization of Rs 1.03 lakh crore. However, the stock has remained largely flat in 2026 and last one year period.

According to market participants, Dr Reddys is facing a temporary disruption in semaglutide API production due to impurities in batches made using a new manufacturing process. Despite the near-term disruption, analysts believe timely production resumption and execution of the product pipeline will be crucial for restoring growth momentum.

Brokerages expect the issue is operational rather than regulatory, but have trimmed earnings estimates and target prices, citing delayed sales, potential market share loss and margin pressure. However, most expect production to resume later this year and remain positive on the company's long-term growth prospects.

Nirmal Bang Institutional Equities cut our FY27E semaglutide revenue assumption to $75 million from $144 million, reflecting a five-month supply halt spanning July-October and a revenue profile weighted to Q3FY27E and Q4FY27E. This lowers our FY27E revenue by 1.8 per cent taking FY27E Ebitda margin to 21.8 per cent. It left our FY28 estimates broadly unchanged.

"We remain constructive on Dr Reddy's, as this appears to be an operational scale-up issue, rather than a compliance event. No regulatory action, product recall, or cGMP concern is involved. The management is yet to identify the root cause and the November restart timeline hinges on timely resolution and successful process validation," it with a 'hold' rating and a target price of Rs 1,335.

Dr Reddy’s has paused semaglutide API manufacturing at captive plant after impurities were found in recent batches manufactured using the new, high-yield process link. Management expects to rectify the issue and resume production by September 2026, with market supplies restarting in November 2026, said ICICI Securities, but trimmed its EPS estimates by 5-10 per cent for FY27-FY28.

"Products manufactured via the new process are yet to be sold; therefore, there is no risk to existing batches being recalled. Canada and India are the two largest generic semaglutide markets for Dr Reddy’s and this supply disruption could hamper near-term sales, requiring the company to dedicate more resources to regain market share," it said with an 'add' rating and a target price of Rs 1,340.

Dr Reddy's revised guidance of 6-7 million pens in 2HFY27 implies FY27 volumes closer to 8 million, said Emkay Global. "Three key risks have clearly emerged post the development: resumption and scale-up in volumes don’t materialize by 2HFY27; the market landscape meaningfully deteriorates by the time Dr Reddy’s enters; the uncertainty around how partner-driven volumes will play out," it said.

This phenomenon might not play out again over the next 12 months in the event of a negative development linked to Abatacept—the key driver of FY28/FY29E earnings—also emerging going forward, Emkay added retaining a 'reduce' rating with a target price of Rs 1,300.

The temporary disruption could diminish Dr. Reddy's first-mover advantage, allowing competing players to enter the market earlier and potentially moderating pricing power and market share gains over the medium term, said Systematix Institutional Equities. "We revise our FY28 Semaglutide revenue estimate to $100mn, leading to a revision in our FY28 EPS estimate to Rs. 63.5 and a reduction in our target price to Rs 1,398," it added and downgraded the stock to a 'hold' tag.

"We lower our FY27E-29E core EPS estimates by 11-15 per cent, given the lower contribution from Semaglutide and consequent margin pressures. Quick resolution of the Semaglutide API issues, and in-time approval of biosimilar abatacept will be key upside risks." said Elara Capital. It reduced our target price to Rs 1,283 and downgraded the stock to 'reduce' from 'accumulate' tag.

Dr Reddys's has been reporting OPM at 15-16% ex gRevlimid. Scale up in Sema along with reducing opex will be key to achieved 19-20% OPM. Further timely launches like bAbatacept can accelerate profitability from H2FY28E, said PL Capital. "We maintain our 'accumulate' rating on stock with target price of 1400," it said, citing delay in re-entry of Semaglutide beyond H2FY27 will be key risk.