Why Dr Reddy's Lab shares are rising?

29 Jun 2026 , 11:28 AM

Shares of Dr. Reddy’s Laboratories surprised the market on Monday as its shares surged nearly 5%, even after the US Food and Drug Administration (USFDA) issued seven observations following an inspection of its biologics manufacturing facility at Bachupally, Hyderabad. The shares of the drug-making company opened at 1,388.40 and reached a high of 1,414.90.

The rally marked the sixth consecutive session of gains for the pharmaceutical major, with the stock advancing around 11% during this period. The positive market reaction reflects investor confidence that the observations are manageable and unlikely to derail the company’s long-term growth plans.

USFDA Inspection Results

The USFDA conducted an inspection of Dr. Reddy’s Bachupally biologics facility between June 16 and June 25, concluding the audit with the issuance of a Form 483 containing seven observations.

A Form 483 is issued when inspectors identify conditions that may require corrective action. It does not represent a final regulatory action such as a Warning Letter or an import ban. Companies are given an opportunity to respond and implement corrective measures.

This inspection follows previous audits at the same facility:

• October 2023: Nine observations.
• September 2025: Five observations.

Why Investors Remained Positive

Despite the latest observations, investors focused on the broader picture rather than the headline number.

According to brokerage firm Nomura, most of the seven observations relate to the new biologics manufacturing block, while the long-standing contamination concerns involving the older manufacturing block appear to have been addressed.

This is significant because resolving historical compliance issues reduces regulatory uncertainty and improves the prospects for future approvals.

Importance of the Bachupally Facility

The Bachupally biologics unit houses two manufacturing blocks.

The older block was used for the biosimilar Rituximab, a monoclonal antibody used in the treatment of certain blood cancers. The newer block is designed for the biosimilar Abatacept, a biologic medicine used to treat autoimmune inflammatory conditions.

The facility plays a crucial role in Dr. Reddy’s biologics expansion strategy and future product pipeline.

Nomura Maintains ‘Buy’ Rating

Nomura reiterated its ‘Buy’ recommendation on Dr. Reddy’s Laboratories with a target price of ₹1,740, implying an upside potential of nearly 29% from current levels.

The brokerage believes that the latest USFDA observations are manageable and should not materially impact the company’s long-term biologics growth story.

Company Confident of Resolution

Dr. Reddy’s has expressed confidence in addressing all seven observations within the required timelines.

The company also remains optimistic about receiving regulatory approvals and launching new biologic products during the January-May 2028 period, reinforcing investor confidence in its future earnings potential.

Stock Performance

Following the positive sentiment, Dr. Reddy’s shares climbed approximately 5% to around ₹1,413, extending their strong monthly performance.

The stock has gained nearly 8.5% in June, making it the company’s strongest monthly rally since December 2024, when it rose around 15%.

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