Dr Reddy's Labs Q1 FY27 Results (NSE: DRREDDY)
Signal: Revenue declined
The read
A weak quarter on the surface: revenue fell 6% YoY, gross margin compressed 1039bps, and PAT dropped 69%, all primarily due to the semaglutide API provision (₹2,397 Mn) and the expected step-down in lenalidomide. However, the underlying base business (ex-lenalidomide) grew high-teen double-digit across all key geographies, with India (+17%), Emerging Markets (+31%), and Europe (+13%) showing strong momentum. New product launches (Bosutinib first-to-market, semaglutide in Canada/India, Toripalimab crossing ₹100 Cr) and a healthy pipeline support the thesis. The key risk is the semaglutide supply disruption, which may persist for ~3 months. Net cash surplus remains solid at ₹30,568 Mn.
| Metric | Value | YoY | QoQ |
|---|---|---|---|
| Revenue | ₹8,070.5 Cr | -5.6% | 7.4% |
| EBIT | ₹378.4 Cr | -78.3% | |
| Net profit | ₹443.5 Cr | -68.7% | |
| EPS | ₹5.32 | -68.7% | |
| EBIT margin | 4.7% |
P&L walk
Revenue declined 5.6% YoY to ₹80,705 Mn, driven by lower lenalidomide sales in North America; gross margin compressed 1039bps to 46.5% due to adverse product mix, price erosion, semaglutide API provision, and higher solvent costs; SG&A increased 12.4% YoY to ₹28,820 Mn (35.7% of revenue) on higher personnel costs, investments, and freight; R&D down 7.7% YoY to ₹5,766 Mn (7.1% of revenue); operating profit (EBIT) fell 78.3% to ₹3,784 Mn; finance income net of expense was ₹1,734 Mn; PBT down 71% to ₹5,526 Mn; tax expense ₹1,178 Mn (ETR 21.3%, lower due to reversal of provisions); PAT attributable to parent down 68.7% to ₹4,435 Mn; EPS ₹5.32 vs ₹17.04 a year ago.
Segments
Global Generics segment (89% of revenue) declined 5% YoY driven by a 35% plunge in North America revenues (lenalidomide drop), but base business grew double-digit; Emerging Markets (+31%), India (+17%), and Europe (+13%) posted strong growth. PSAI segment grew 4% YoY. Branded businesses (India, Emerging Markets, NRT) constituted 52% of revenue, cushioning the generics decline.
Key positives
- Base business (ex-lenalidomide) delivered double-digit growth across all geographies; India +17% YoY, Emerging Markets +31%, Europe +13%.
- First-to-market launch of Bosutinib Tablets 400mg with 180-day exclusivity; launched semaglutide in Canada and India.
- Toripalimab surpassed ₹100 Cr in India in less than 2 years.
- Strong net cash surplus of ₹30,568 Mn; net debt/equity -0.08.
- R&D spend maintained at 7.1% of revenue, focused on complex generics, peptides, biosimilars.
Key concerns
- Revenue declined 5.6% YoY due to lower lenalidomide sales; North America revenue fell 35%.
- Gross margin contracted 1039bps to 46.5% due to product mix, price erosion, and semaglutide API provision.
- PAT down 69% YoY; semaglutide API provision of ₹2,397 Mn (impact of ~3% on margins).
- SG&A expenses rose 12.4% YoY, outpacing revenue growth, as % of revenue increased to 35.7%.
- Semaglutide commercial supply halted for ~3 months due to API issue; Form 483 with 7 observations at biologics facility.
Research and educational content only. Not investment advice.