Dr. Reddy's Laboratories stock gets a Citi upgrade as margins face a test

Dr. Reddy's Laboratories stock is navigating a sharp earnings reset after Q1 FY27 net profit fell 68.7 percent year over year to INR 443.5 crore. On September 29, 2026, Citi upgraded the shares to Buy and raised its target from INR 1,040 to INR 1,450, putting execution and margin recovery at the center of the investment case.

Citi sees earnings recovery

As CNBC TV18 reported on September 29, 2026, Citi lifted its rating from Sell to Buy and increased the target to INR 1,450 from INR 1,040. The brokerage expects Abatacept and Semaglutide Canada to add USD 350 million to USD 400 million to revenue over FY27 to FY29.

Citi also projects EBITDA margin expansion from 14 percent in FY27 to 20 percent in FY29, while raising its EPS estimates by 2 percent for FY27, 5 percent for FY28 and 19 percent for FY29. The target change is material, but the latest operating figures show why the recovery still depends on delivery.

Q1 figures expose the pressure

According to Sahi on September 29, 2026, revenue from operations fell 5.5 percent year over year to INR 8,070.5 crore in Q1 FY27. India revenue moved in the opposite direction, rising 16.76 percent year over year to INR 1,717.7 crore, while EBITDA margin declined to 12.5 percent from 26.7 percent.

The quarterly decline was linked to lower generic Revlimid sales and a INR 239.7 crore provision connected with semaglutide API inventory and related costs. That contrast gives the stock a clear split: domestic growth is improving, while the North American earnings base remains under pressure.

Margin target sets the test

ET Now reported that management expects a 20 percent EBITDA margin in FY27 and a return toward 25 percent over the longer term. The comparison with the 12.5 percent Q1 margin means the FY27 objective requires a 7.5 percentage point improvement.

Market capitalization stood at USD 10.7 billion as of September 30, 2026. The company is also preparing for biologics milestones, with Nomura highlighting a potential USFDA response for the biologics plant and an Abatacept action date of December 18, 2026, according to Moneycontrol.

Listing and investor dates

Dr. Reddy's Laboratories is listed on the NSE under DRREDDY and belongs to the Nifty 50, according to NSE India. The stock's ADR trades on the New York Stock Exchange under RDY, while the latest quarterly evidence uses the Indian reporting currency.

The central valuation question is whether margin recovery can close the gap between the Q1 EBITDA margin of 12.5 percent and management's FY27 target of 20 percent. Citi's higher target reflects that potential, but the 68.7 percent profit decline keeps the earnings transition firmly in view.