DRL stock plummets despite 10x profit jump; brokers unimpressed

Shares of pharma company Dr Reddy’s have plunged more than 6.5 per cent on Thursday. This stock was at the top of the list of falling stocks in Nifty-50.

The surprising thing is that on Wednesday evening the company announced its fourth quarter results which showed that during the quarter the profit of the company increased almost 10 times. But despite that, the stock has seen a decline. The company’s profit in Q4 has increased from Rs 87.5 crore to Rs 959.5 crore, while the market was expecting a profit of around Rs 1,100 crore.

The profit base is very small. Apart from this, strong performance in the developed markets has also supported the profits. The company’s income during the quarter has increased by 15.8 percent from Rs 5,436.8 crore to Rs 6,296.8 crore. Operating margin has increased from 23.9% to 25.9%. But brokers are not happy with the company’s performance and have made major changes in the stock ratings, targets after the results.

Brokers are worried about growth due to sluggish performance of core business and reduction in contribution of Revlimid’s generics to results. Broking house Nuvama has downgraded the stock rating and reduced the target by 10 per cent to Rs 4,200. Similarly, Prabhudas Lilladher has also downgraded the rating to Reduce and fixed the target by 8% to Rs 4,500. Motilal Oswal feels that the growth of FY24 will decrease due to the high base of FY23, hence maintains a neutral rating and target of Rs 4,500. Goldman Sachs also maintains a neutral rating on the stock with a target of Rs 4,750.