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Dr Reddys Laboratories Ltd

| Q2FY26 Earnings Call

NEUTRAL SENTIMENT

Report Source

⬤24th Oct 25

Summary : Dr. Reddy's reported Q2FY26 revenue growth driven by acquired consumer healthcare and forex, despite Lenalidomide sales decline and US generics price erosion, while advancing key pipeline products and strategic initiatives.

Management Perspective positive : We are pleased to report a consistent performance in Q2FY26, marked by double-digit growth and steady profitability. I'm very confident about it [Abatacept BLA submission]. I'm confident that we will sell the product [Semaglutide].

Concall Report Analysis & Insights

Business Overview

  1. Consolidated revenues grew 9.8% year-over-year to $992 million in Q2FY26.
  2. Overall growth was supported by acquired consumer healthcare business and favorable forex.
  3. Gross profit margin decreased to 54.7% due to lower Lenalidomide sales and US Generics price erosion.
  4. EBITDA for the quarter stood at $265 million, with a margin of 26.7%.
  5. Net cash surplus was $310 million, reinforcing balance sheet strength.

Future Growth Prospects

  1. Focus on growing base business, key pipeline assets like Semaglutide and Abatacept.
  2. Strategic collaborations and value-accretive acquisitions to support long-term growth.
  3. Semaglutide injection approval recommended in India by Subject Expert Committee.
  4. Positive EMA opinion received for denosumab biosimilar candidate.
  5. Expansion of NRT business integration to Southern Europe, Israel, and Taiwan.

Management Insights

  1. Delivered steady performance in Q2 with double-digit growth and profitability, excluding US generics.
  2. Strengthened innovation-led portfolio through strategic collaborations and new product launches.
  3. Driving initiatives to enhance cost efficiencies across operations for sustainable growth.
  4. Confident in achieving 25% EBITDA margin within the next two years despite Lenalidomide impact.
  5. Actively pursuing strategic collaborations and partnerships to enhance innovation ecosystem.

Signs of Skepticism

  1. Analysts questioned the US business growth trajectory beyond Lenalidomide and Vascepa.
  2. Uncertainty regarding the market formation and potential price erosion for Semaglutide in Canada.
  3. Repeated analyst questions on the margin outlook beyond Revlimid's contribution.
  4. Concerns about the second unsuccessful PAI and CRL for Rituximab biosimilar facility.

Risk Factors

  1. US generics faced pressure from product-specific price erosion and lower Lenalidomide sales.
  2. Regulatory challenges for Rituximab biosimilar with a Complete Response Letter from USFDA.
  3. Bachupally biologics facility received a Form 483 with five observations from USFDA.
  4. Mirfield API facility received a Form 483 with seven observations from USFDA.
  5. Anticipated competitive market and potential price erosion for Semaglutide in Canada.

Good To Know

  1. R&D spend was $70 million, a 15% year-over-year decline, due to reduced biosimilar development spends.
  2. Operating working capital increased by $0.4 million over Q1FY26 to $1.5 billion.
  3. Generated free cash flow of $118 million during the quarter.
  4. Retained MSCI ESG Rating of 'A' and improved Morningstar Sustainalytics' ESG Risk Rating.
  5. Formulations facility at Srikakulam received LEED Platinum certification.

Key Drivers

  1. New product launches across markets.
  2. Semaglutide approval in Canada.
  3. Abatacept BLA submission.
  4. Acquired NRT business integration.

Key Analyst Discussions

Competitive Environment

  1. Analysts asked about the stabilization of price erosion in the US generics market.
  2. Questions on the competitive intensity and market deterioration for Semaglutide in Canada.
  3. Inquiries about the number of filers for Semaglutide in Canada and its impact on pricing.
  4. Discussion on the competitive landscape for biosimilars in Europe and Emerging Markets.

Market Trends & Consumer Behavior

  1. Questions on key drivers for maintaining double-digit growth trajectory in ex-US markets.
  2. Inquiries about specific therapeutic areas of focus in the India market.
  3. Discussion on the demand for peptides on the API side.

Financial Highlights

  1. Analysts inquired about the US base business performance post-Revlimid sales decline.
  2. Questions were raised on the margin outlook and the target of 25% EBITDA margin for FY27.
  3. Analysts asked about the expected gross margin range for the PSAI segment (20-25%).
  4. Queries on the impact of acquired Stugeron® brand on India business growth.
  5. Questions about the sustainability of operating expenditure levels in FY27.

Product Composition

  1. Questions regarding the US product pipeline, especially complex generics and meaningful launches.
  2. Inquiries about the confidence in obtaining approvals for Semaglutide and Abatacept.
  3. Discussion on the legal status and litigation with Novo on Semaglutide in India.
  4. Questions about the manufacturing strategy for Abatacept, including CMO use.
  5. Queries on the fill-and-finish capacity for Semaglutide and other GLP-1 molecules.

Strategic Considerations

  1. Questions on the strategy for R&D focus, particularly on biosimilars and non-generics.
  2. Inquiries about the revenue contribution from the acquired Stugeron® brand.
  3. Discussion on the strategy to outpace market growth in India through innovation and acquisitions.
  4. Questions about the global product strategy for Tocilizumab biosimilar.