Dr Reddy’s: Nomura flags 37% upside on branded shift

What changed in Nomura’s view

Shares of Dr Reddy’s Laboratories rose more than 1% on Monday after Nomura published a bullish note on the company. The brokerage maintained a Buy rating and set a target price of ₹1,740 per share, implying an upside of nearly 37% from the previous close. Nomura also said it has hiked its target price by almost 9% to ₹1,740 from ₹1,600 while retaining the Buy call. The key argument is not only growth, but a perceived improvement in earnings quality as the company pivots beyond traditional generics. Nomura believes the shift toward branded generics and consumer healthcare can support earnings growth and drive a re-rating in valuation multiples. The brokerage linked this to a changing revenue mix and a broader push to build brand-led businesses across markets. It also flagged that management restructuring reinforces this strategy.

From a generics-heavy profile to a brand-led mix

Dr Reddy’s has long been known as a generics company, where revenues can depend on a limited set of large opportunities and pricing cycles. Nomura’s note frames the current strategy as a move toward two steadier areas: branded generics and consumer healthcare. Branded generics are generic medicines sold under a trusted brand name and can carry better margins than plain-vanilla generics. Consumer healthcare includes everyday products such as vitamins, supplements, and over-the-counter remedies bought without a prescription. Nomura said recent acquisitions are largely aimed at strengthening the branded portfolio. The brokerage also sees the pivot as a “quality upgrade”, because a steadier earnings stream often attracts higher valuation from investors. In Nomura’s framing, the shift reduces reliance on a few big generic drugs and spreads income across more products.

Why acquisitions and restructuring matter in this strategy

Nomura said Dr Reddy’s has been acquiring niche assets and aims to scale them up by leveraging existing infrastructure and deriving cost synergies. It estimated that acquisitions completed over the past five years could contribute around one-quarter of the company’s revenues in FY26. In the domestic business, Nomura highlighted the company’s foray into the niche hormone replacement therapy segment and described these acquisitions as earnings- and value-accretive. It cited Progynova as a leading brand in the estradiol represented pharmaceutical market, with strong physician equity and brand recall. As per IQVIA MAT December 2025, Progynova recorded sales of ₹100 crore, and Nomura referenced a 2.9 times EV/sales multiple for the deal. The brokerage also noted that Dr Reddy’s has been expanding its domestic portfolio through acquisitions, in-licensing, and partnerships as part of its domestic growth strategy.

Costs rise near term, but Nomura expects mix benefits

Nomura expects the company’s expanding commercial footprint to increase costs by around 4% to 5% of sales. The brokerage’s central case is that better product mix and stronger market positioning could more than offset the additional spending over time. It expects the revenue mix shift toward branded products to support stronger earnings growth and eventually a higher valuation multiple. Separately, a Nomura/Instinet note attributed a rise in SG&A to new initiatives, including clinical trials for biosimilars. It highlighted increases in employee expenses (up 16%), legal and professional fees (up 22%), selling and advertisement (up 28%), and freight costs (up 40%). That note also said capital expenditure is forecast to more than double to ₹2,500 crore in FY25, including investments in peptide (GLP-1) APIs and injectables. Put together, Nomura’s broader view is that near-term pressure is the cost of building capabilities that can support longer-duration earnings.

A clearer target mix: 60% branded contribution by FY29

Nomura expects growth in the company’s branded business to lift profit margin and improve operating leverage. In its report, Nomura estimated branded products’ contribution could rise to nearly 60% of the total mix by 2028-29 (Apr-Mar), from 48% in FY22. It said this revenue mix change should support sustainable earnings growth and drive a re-rating of the valuation multiple. The brokerage also expects sales from domestic and emerging markets to be strong over the medium term. At the same time, it acknowledged near-term pressure on the US generics business. The investment case, as laid out by Nomura, is that branded medicines and consumer healthcare can help diversify earnings away from a handful of large generic opportunities.

Where Semaglutide, biosimilars, and pipelines fit

Nomura and other brokerage commentary in the provided notes repeatedly pointed to GLP-1 and biosimilars as meaningful optionality. One note cited a planned launch of generic Semaglutide in Canada to enter the GLP-1 market, while another flagged that Semaglutide approval from Health Canada was expected imminently. Dr Reddy’s also indicated upcoming launches include Semaglutide in India by March 21 and in Canada between February and May, alongside other pipeline progress. Nomura noted it has not factored in upside from an Abatacept biosimilar launch, and said this could potentially present a 30% upside to its FY28 and FY29 earnings estimates. Another update said the company plans to file its biosimilar Abatacept by end-December 2025. Nomura also referenced the Canadian semaglutide market as being estimated at $1.0 to $1.5 billion, with limited competition expected after a 2026 patent expiry.

What the latest numbers and operating trends show

Dr Reddy’s reported robust performance in Q3 FY26, supported by emerging markets and India, even as North American generics declined. Emerging markets revenue grew 32% year-on-year and India grew 19%, and the company cited a 21% growth in the Russian market. Nomura said results exceeded its cautious estimates, with sales, EBITDA, and PAT coming in 7%, 21%, and 18% higher, respectively, in that quarter. It attributed the beat to stronger-than-expected contributions from gRevlimid, limited impact from GST rate changes in India, and lower overhead spending. The company also said it remains committed to maintaining R&D spend in the 7% to 8% range. Nomura’s notes also reflect investor focus on how gRevlimid-related contributions evolve in FY26 and beyond, and what replaces that profit pool.

Key calls and assumptions at a glance

Market impact and why this matters for investors

The immediate market reaction was modest but positive, with the stock up more than 1% on the day of the note. For investors, the larger point is Nomura’s emphasis on a re-rating, not just an earnings upgrade. A business mix with a higher share of branded generics and consumer healthcare typically has lower volatility than pure-play generics, according to the brokerage’s argument. Nomura explicitly linked diversification to stability, saying broader exposure reduces dependence on a few large generic opportunities. It also tied management restructuring and acquisitions to execution, suggesting the company is building the organisation needed for brand-led growth. The same set of notes also shows that the market is watching near-term US generics pressure and the cost line as spending rises. Nomura’s Buy call ultimately rests on the view that steadier, brand-led earnings deserve a higher valuation multiple over time.

Conclusion

Nomura’s latest stance on Dr Reddy’s combines a higher target price of ₹1,740 with a clear thesis: a shift toward branded generics and consumer healthcare can improve earnings durability and support a valuation re-rating. The brokerage acknowledges higher costs linked to expansion but expects the resulting product mix and positioning to offset this over time. It also highlights optionality from GLP-1 and biosimilars, including Semaglutide-related opportunities and an Abatacept biosimilar filing planned by end-December 2025. Near term, investors are likely to track how the branded mix evolves, how the US generics business performs, and whether the company’s pipeline and acquisition-led portfolio additions translate into steadier earnings.