Dr. Reddy's Laboratories Limited Q2 FY2026 earnings call

Management Statement and Operational Highlights

• Financial Performance: Consolidated revenue grew 9.8% Y-o-Y to INR 8,805 crores (USD 992 million), EBITDA margin 26.7%, profit after tax attributable to equity holders grew 14% Y-o-Y to INR 1,437 crores (USD 162 million).
• Strategic Priorities: Progressed on growing base, scaling consumer health care, innovative therapies, and biosimilars. Advanced pipeline programs like semaglutide and abatacept. Drove cost efficiencies and business development activities.
• Business Developments: Acquired Stugeron and related brands in APAC and EMEA; strengthened GI portfolio in India with launches of Tegoprazan and Linaclotide; integrated 2/3 of acquired NRT business.
• Regulatory Updates: U.S. FDA conducted inspections, with observations on rituximab biosimilar BLA and API facilities; some facilities classified as VAI; GMP inspection at FTO-11 formally closed with VAI outcome.
• Sustainability: Retained MSCI ESG Rating A, improved ESG Risk Rating from Morningstar Sustainalytics, waste management recognized with Diamond Standard, and formulation facility in Srikakulam received LEED Platinum Certification.

Segment Performance

• North American generic business: Generated revenues of $373 million for the quarter, a decline of 16% year-on-year and 7% sequentially, impacted by price erosion in selected key products, primarily Lenalidomide.
• European business: Reported revenue of $135 million for the quarter, growth of 150% year-on-year and 3% quarter-on-quarter, driven by contribution from the acquired nicotine replacement therapy portfolio and new product launches, offsetting pricing pressure. Excluding NRT, growth was 6% year-on-year and quarter-on-quarter.
• Emerging market business: Delivered revenue of INR 1,655 crores in Q2, reflecting a growth of 14% year-on-year and 18% sequentially, primarily driven by new product launches across markets and aided by favorable ForEx. Russia business grew 13% year-on-year and 18% sequentially in constant currency terms despite macroeconomic challenges.
• India business: Reported revenues of INR 1,578 crores in Q2, delivering a double-digit year-on-year growth of 13% and 7% increase sequentially, driven by new product launches, improved pricing, and higher volumes. Moved up to 9th position in India pharmaceutical market in September.
• PSAI business: Reported revenue of $108 million in Q2 FY '26, registering growth of 8% year-over-year and 13% sequentially, with R&D focus on programs offering clear differentiation and strong commercial potential, including GLP-1 molecules and biosimilars.

Guidance

• Management maintains confidence in achieving 25% EBITDA margin by FY '27, addressing Lenalidomide impact through growing base business, focusing on key pipeline assets (semaglutide, abatacept), improving operational efficiency, and exploring value-accretive acquisitions.
• Confident in launching semaglutide and abatacept as planned, with semaglutide expecting feedback from Health Canada soon and abatacept BLA submission targeted for end of 2025.
• Anticipates recovering margins by leveraging growth from new products and pipeline advancements, despite current challenges from Lenalidomide decline.

Risks

• Regulatory Risks: Potential CRLs on biologics like rituximab biosimilar; uncertainty around tariff implications for biologics in the U.S.
• Market Competition: Intense competition for semaglutide in Canada and other markets, with multiple filers and potential pricing pressures.
• Pipeline Uncertainty: Extended regulatory uncertainty or limited market opportunity for some pipeline products, requiring rationalization of certain programs.

Question and Answer

Q: On biologics sales across markets and rituximab CMO impact?

A: Erez Israeli discussed biologics launch progress in Europe and India, and CMO for abatacept tech transfer and stability but not significantly impacting rituximab timeline.

Q: On R&D earmarking for biosimilars and Aurigene, and semaglutide market risk?

A: Erez Israeli stated R&D around 7% of sales, focused on key biosimilars; semaglutide market in Canada expected to be competitive with multiple players.

Q: On NRT investment sustainability and OpEx outlook in FY '27?

A: Erez Israeli mentioned NRT investment exceeding expectations, and OpEx expected to be in 28%-30% range of revenues going forward.