Revenue
Margin
Demand
Guidance
Tone
Metrics cut 2
- FY27 semaglutide supply volume target cut to 6-7 million pens Nov-Mar (from 10-11 million original plan)
- FY27 capex guidance cut to ~₹1,800 crores (from ₹2,500-2,700 crores prior range)
Event Participants
Executives
3 Aishwarya Sitharam, Erez Israeli, M. V. Narasimham
Analysts
16 Amlan Jyoti Das, Bino Pathiparampil, Damayanti Kerai, Krishnendu Saha, Kunal Dhamesha, Neha Manpuria, Rahul Jeewani, Rupesh Tatiya, Saion Mukherjee, Shashank Krishnakumar, Sumit Gupta, Surya Patra, Tausif Shaikh, Vishal Manchanda, Vivek Agrawal, Yogesh Soni
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Consolidated revenues | ₹8,071 crores (US$853M) | -5.6% YoY, +7.4% QoQ; lower lenalidomide and semaglutide drag offset by double-digit base business growth across all geographies and favorable forex |
| Gross profit margin | 46.5% | -1,039 bps YoY, +169 bps QoQ; lower lenalidomide, ₹240 crore semaglutide API provision, higher solvent costs from Middle East conflict |
| EBITDA (incl. other income) | ₹1,009 crores (US$107M) | 12.5% margin; -1,416 bps YoY, -55 bps QoQ; ex-semaglutide provision margin 15.4%; ex-provision and Middle East ~18% |
| SG&A spend | ₹2,882 crores | +12% YoY, +4% QoQ; 36% of revenues; 75-80% of increase from adverse forex and elevated freight; absolute FY27 in line with FY26 |
| R&D spend | ₹577 crores | -8% YoY, +6% QoQ; 7.1% of revenues; lower biosimilars development expenditure |
| Profit before tax | ₹553 crores (US$58M) | 6.8% margin; ex-semaglutide provision 9.8% |
| Profit after tax | ₹443 crores (US$47M) | 5.5% margin; diluted EPS ₹5.32 |
| Effective tax rate | 21.3% | vs 26% YoY; reversal of prior tax provisions + favorable jurisdictional mix; FY27 normalized guidance 24-25% |
| Operating working capital | ₹14,353 crores (US$1.52B) | Decreased ₹81 crores over March 31, 2026 |
| Capex (cash outflow) | ₹307 crores (US$32M) | Q1 outflow; FY27 guidance ~₹1,800 crores, down from ₹2,500-2,700 crores range |
| Net cash surplus | ₹3,057 crores (US$323M) | As of June 30, 2026 |
| FX hedges | US$354M; RUB 2.8B | USD hedged at ₹92.34-94.63/USD via forwards & risk reversals maturing by Mar 2027; RUB hedged at ₹1.26 maturing within 3 months |
Geographic & Segment Commentary
- North America Generics: Revenues of US$236 million (27% of total), -41% YoY on lower lenalidomide, +19% QoQ. Base business delivered double-digit growth; launched 6 new products including first-to-market bosutinib (180-day exclusivity on 400 mg) and nintedanib. Management maintains double-digit growth for FY27 ex-lenalidomide.
- India: Revenues of ₹1,718 crores (21% of total), +17% YoY, +10% QoQ; organic growth 15.5% ex-acquisitions. IQVIA MQT +14.6% vs IPM +13.5%, MAT +13.5% vs +11.1%; IPM rank 9th for quarter, 10th for year. Launched 7 new brands; driven by innovation franchise, acquired brands, price increases, and volume.
- Emerging Markets: Revenues of ₹1,833 crores (23% of total), +31% YoY, +2% QoQ. Growth from 43 new product launches across countries and favorable currency movements.
- Europe (incl. NRT): Revenues of €131 million (18% of total), broadly flat YoY, -3% QoQ. Price erosion and NRT operating model change (rebates/discounts now netted in revenue line; profit neutral) offset by 24 new generic product launches across markets.
- PSAI: Revenues of US$91 million (11% of total), -5% YoY, -10% QoQ on lower API volume uptake. Reported gross margin 4.5% (12.9% ex-semaglutide provision). Filed 38 Drug Master Files globally.
- Branded franchises (India + Emerging Markets + NRT consumer health): 52% of overall revenues; stable margin source supporting the portfolio.
Company-Specific & Strategic Commentary
- Semaglutide franchise & API resolution: Sold 180,000 pens before supply halt (Canada + India); root cause identified; testing of API to complete ~September 22-23; commercial supplies to resume by November with 6-7 million pens (Nov-Mar) for partner OneSource and other agreements (Sandoz, Aspen intact). ₹240 crores provision taken for rejected batches, lost PLI, and associated costs; no patient risk; specifications unchanged; filed in ~30 of 80 target countries; Brazil approval expected within weeks.
- Biosimilars & biologics: USFDA Pre-License Inspection at Bachupally (June 2026) issued Form 483 with 7 observations - different from prior inspection, addressable, response submitted within timeline; covers both abatacept and rituximab. Abatacept BLA goal date mid-December 2026; subcutaneous version Feb/Mar 2028 (US) and Sept-Oct 2028 (Europe). Rituximab will be interchangeable upon approval. Denosumab BLA resides with partner; discussions ongoing.
- Innovation & access partnerships: Toripalimab crossed ₹100 crore in less than 2 years in India. Partnership with Innoviva Specialty Therapeutics for XACDURO® (hospital-acquired bacterial pneumonia) in South/Central America, Caribbean, Russia/CIS. Zoliflodacin (gonorrhoea) secured Thai FDA approval - first LMIC approval, six months after US FDA.
- Productivity & cost discipline: Sales growing double-digit vs associate costs low single-digit (10-12% productivity gap); S&M concentrated in Emerging Markets growing north of 15% with low single-digit cost growth; SG&A absolute in line with FY26.
- US tariff preparedness: 25-30% of revenues manufactured by US CMOs as a starting mitigation point; management not assigning weight to tariff tweet at this stage, expecting dialogue.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| EBITDA margin | ~20% (ex-semaglutide impacts), incl. Q2 without semaglutide | Maintained from June guidance; Q1 ex-impact ~18% vs 19% prior quarter; margin higher after November resumption |
| Semaglutide supplies | Resume by November; 6-7M pens Nov-Mar | API testing completes ~Sept 22-23; 80-90% resolution success rate; demand backed by partner orders |
| US Generics growth | Double-digit ex-lenalidomide | Already delivered in Q1; supported by 27 total launches targeted for FY27 |
| US launches | 27 targeted FY27 | Material launch expected in Q2 worth tens of millions of dollars |
| Capex | ~₹1,800 crores FY27 | Reduced from ₹2,500-2,700 crores; expected to sustain at this level next year |
| R&D spend | 7-8% of revenues | Weighted toward products post-2034 (2034-2040 launch window) |
| Effective tax rate | 24-25% FY27 | Normalized, excluding Q1 one-time reversals |
| SG&A | Absolute largely in line with FY26 | Q1 increase ~75-80% due to forex and freight; underlying cost growth low single-digit |
| Abatacept | BLA goal date mid-Dec 2026; launch upon approval | Additional GMP or BLA queries could delay; SC version 2028 |
| Brazil semaglutide | Approval in next few weeks | Prior rejection reversed; approval not expected to be impacted by API issue |
Risks & Constraints
| Risk | Context |
|---|---|
| Semaglutide API scale-up failure | Root cause identified with 80-90% success rate for resolution by late September - not 100%. Failure would delay November resumption, cut the 6-7 million pen program (already reduced from 10-11 million), and delay PLI recognition. |
| Abatacept/Bachupally approval risk | Form 483 with 7 observations considered addressable and responded, but additional GMP or BLA queries could push approval beyond the mid-December 2026 goal date; a CMO alternative would require costly post-approval supplement. |
| Middle East conflict | Solvent and freight costs impacting EBITDA ~1%; escalation means impact persists at least until December; resolution would lower solvent prices. |
| US generic price erosion | Structural low single-digit market growth; management acknowledged past R&D productivity failures (iron sucrose, conjugated estrogen, late peptides) as a factor in muted US portfolio growth over 4-5 years. |
| US tariffs on generics | Presidential tweet proposing tariffs with 2-year window; management views facility relocation in 2 years as impractical, expects industry association dialogue; US CMO footprint (25-30% of revenues) provides a starting mitigation point. |
| Denosumab partner dependency | BLA filed only from partner facility; partner has addressed FDA observations but resubmission and product direction still under discussion - timeline uncertain. |
| Canada semaglutide competition | 3-4 players expected in market; day-1 pricing already reflects multi-player dynamics (CAD 78 list, 38% retail margin, 5-6% provincial rebates); one new entrant uses Dr. Reddy's API. |
Q&A Highlights
Margin trajectory & semaglutide resumption
- Question: How do we improve from the high-teens margin toward 20% guidance, given uncertainty on semaglutide timing and volume? (Neha Manpuria)
- Answer: Excluding provision, lost sales, PLI, and Middle East impact, margin is ~18% vs 19% last quarter. Still in the neighborhood of 20%, including Q2 which will not have semaglutide; margins will be higher once supplies resume in November. (Erez Israeli)
Semaglutide: root cause, volumes, competition
- Question: Progress on root cause analysis and probability of resolution? (Saion Mukherjee)
- Answer: Root cause identified; testing and site program to complete around September 22-23; success rate 80-90%, not 100%, but confidence is relatively high. (Erez Israeli)
- Question: Pens sold and regional breakup; capacity strategy for third-party vs captive? (Tausif Shaikh)
- Answer: 180,000 pens sold before stopping, mostly Canada with some India. Theoretical API capacity north of 300 (up to 550 with expansion) - plenty for both third parties and captive use; quality, not capacity, is the constraint. (Erez Israeli)
- Question: Opportunity lost from the API issue? (Yogesh Soni)
- Answer: ~3-4 million pens of opportunity lost vs the original 10-11 million plan; 6-7 million pens target is backed by actual orders from partners. (Erez Israeli)
- Question: Canada pricing outlook with 3-4 players entering? (Amlan Jyoti Das)
- Answer: One new entrant uses Dr. Reddy's API. Day-1 pricing already reflects a multi-player market: CAD 78 list price, 38% retail margin, additional 5-6% provincial rebates where applicable; no further pricing deterioration anticipated now. (Erez Israeli)
Abatacept & Bachupally inspection
- Question: How do the 7 Form 483 observations compare with the prior 5? What type of BLA queries are coming? (Kunal Dhamesha)
- Answer: Observations are very different from prior ones and addressable; response submitted within stipulated time. No BLA queries received as of the call; December goal date intact. "To my opinion, we should get approval." (Erez Israeli)
- Question: Was abatacept filed from a CMO as well? Risk to FY28 contribution? (Tausif Shaikh, Rahul Jeewani)
- Answer: Abatacept was filed only from Bachupally (CCM5 drug substance + FFM2 fill-finish); a US CMO was considered for tariffs but dropped, and any CMO addition would be a post-approval supplement at high cost. Risks are additional GMP queries or BLA queries, either of which could delay the mid-December 2026 goal date. (Erez Israeli)
- Question: Rituximab interchangeability and denosumab status? (Shashank Krishnakumar)
- Answer: Rituximab will be interchangeable upon approval - the PLI covered both abatacept and rituximab. Denosumab BLA comes only from the partner site; in discussions with the partner on next steps. (Erez Israeli)
US portfolio & R&D productivity
- Question: US base business has been flat for 4 years despite 90-100 launches and Mayne acquisition - have we lagged peers in R&D productivity? (Rahul Jeewani)
- Answer: Price erosion has been single-to-double digit through the period; US generics is at best a low single-digit growth market. The US-developed portfolio feeds double-digit growth in Emerging Markets and Europe - the ROI is delivered globally, not just in the US. Acknowledged past complex generic failures (iron sucrose, conjugated estrogen, late peptides) and believes corrective measures are in place; R&D today is for products 10-12 years out. (Erez Israeli)
- Question: US launches for the rest of the year; materiality? (Saion Mukherjee)
- Answer: Targeting 27 total launches for FY27; a "reasonable" launch expected within the next couple of weeks (Q2) worth tens of millions of dollars. (Erez Israeli)
Costs, capex & capital allocation
- Question: SG&A QoQ is higher despite productivity measures - quantum and timing of savings? (Kunal Dhamesha)
- Answer: 75-80% of the SG&A increase is from adverse forex and elevated freight; absolute SG&A will be largely in line with FY26. Productivity is the 10-12% gap between double-digit sales growth and low single-digit associate cost growth. (M. V. Narasimham, Erez Israeli)
- Question: Capex guidance for this year and next; Middle East impact quantification? (Saion Mukherjee)
- Answer: ~₹1,800 crores FY27, expected to sustain at that level (reduced from ₹2,500-2,700 crores). Solvents and freight together impact EBITDA by ~1%; with the conflict escalating, this persists at least till December. (M. V. Narasimham)
- Question: What BD opportunities with ₹3,000 crores cash? Initial view on US tariff tweet? (Kunal Dhamesha)
- Answer: Engaged in deals across generics, innovation, and biosimilars - cash is earmarked for inorganic. Tariff tweet: "between a Tweet and reality, a lot of things likely to happen" - a 2-year window is impractical for moving facilities; IPA and US industry associations are already engaged; 25-30% of revenues come from US CMOs as a starting point. (Erez Israeli, Aishwarya Sitharam)
India, NRT & other businesses
- Question: India organic growth ex-acquisitions? Does it include semaglutide? (Vivek Agrawal)
- Answer: 15.5% fully organic ex-acquisitions; semaglutide contribution is not material to India. (M. V. Narasimham)
- Question: NRT decline - is this a trend? (Surya Patra)
- Answer: Not a trend - inventory cutoffs in some markets and timing of a Brazil tender (won but not yet sold) drove the decline; business continues to grow with very healthy margins. The operating model change (rebates now netted in revenue) is profit neutral. (Erez Israeli, M. V. Narasimham)
- Question: Biologics sales and breakeven timeline? (Sumit Gupta)
- Answer: Biologics are ~2% of overall sales; business becomes profitable the day abatacept launches. (Aishwarya Sitharam, Erez Israeli)
- Question: Any penalties for failure to supply partners? API plant status? (Krishnendu Saha)
- Answer: India orders (Torrent, USV) are covered as per agreements; no claims expected from Sandoz or Aspen. API is from Vizag CTO-6, a USFDA-approved plant; no OAI - USFDA inspected the plant this year and approval was obtained. (M. V. Narasimham)
Key Takeaway
Dr. Reddy's Q1 FY27 revenue declined 5.6% YoY to ₹8,071 crores with EBITDA margin at 12.5% (15.4% ex-semaglutide provision), reflecting lower lenalidomide sales, a ₹240 crore provision for semaglutide API challenges, and ~1% EBITDA impact from Middle East-driven solvent and freight costs. The base business grew double-digit across all geographies - India +17% (15.5% organic), Emerging Markets +31%, US ex-lenalidomide - supported by bosutinib (first-to-market, 180-day exclusivity on 400 mg), nintedanib, and 27 targeted US launches. Management maintains ~20% EBITDA margin (ex-semaglutide impacts) including Q2, with semaglutide supply resumption planned for November at 6-7 million pens through March (root cause identified; 80-90% success rate; demand order-backed). Abatacept's December 2026 BLA goal date remains intact following the Bachupally PLI response. Capex is guided at ~₹1,800 crores, tax rate 24-25%, and R&D at 7-8% of revenues. Key watch points: semaglutide scale-up success, Bachupally Form 483 outcome, Middle East conflict persistence, and US tariff developments.