Dr Reddys Laboratories Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Record quarter, investment-heavy P&L: Revenue grew 17% YoY to an all-time high, but EBITDA margin contracted 326 bps YoY as SG&A and R&D investments ran well ahead of sales.
• The US story is more than Revlimid: North America grew 16% YoY on base-product volumes, and management insists the 4% sequential dip is normal supply-chain noise, not share loss.
• Russia is a quiet growth engine: Constant-currency growth of 27% YoY, with market-share gains as peers underinvest; management believes it can match India's growth pace.
• Biosimilars are entering the revenue phase: Rituximab won EMA authorization with a February 2025 launch, denosumab is filing in the US by calendar year-end, and abatacept targets a calendar 2027 launch.
• What to watch next quarter: Whether the promised high-value limited-competition US launches materialize in Q3, the pace of Nicotinell revenue integration, and any signal on the US FDA's response to the rituximab facility submission.

North America: The Base-Business Bet

• YoY growth driven by volumes, not just lenalidomide: Management stated the base business is growing year-on-year and pushed back on reading the 4% sequential decline as anything more than normal inventory behavior.
• Price erosion remains manageable: Single-digit price erosion in the generics portfolio was offset by increased sales volumes, keeping the top line moving up.
• High-value launches are close but not guaranteed: Management hopes to see limited-competition product launches in Q3 but explicitly declined to guarantee timing, saying only that they will come "for sure in remainder of year and FY26."
• Lenalidomide stays healthy: While management refused to quantify sales due to the settlement agreement, it characterized the contribution as "very healthy" through the remainder of FY25 and into FY26.
• The 15-20 launch cadence holds: The company expects to close the full fiscal year with 15 to 20 new launches in North America.

Israeli: "I will not read too much into that. You'll see different numbers in the next quarter."

Biosimilars & Complex Generics Pipeline

• Rituximab leads the biosimilar charge: EMA marketing authorization secured, with European launch planned for February 2025; the US FDA response for the Bachupally facility has been submitted, with likely approval in the first half of FY26.
• Denosumab filing on track: The European filing is on time, and the US filing will be submitted by the end of the calendar year, targeting an FY26 launch with an expected market position between number 3 and number 5.
• Abatacept is the next wave: Phase III is underway, with a launch targeted for the end of calendar 2026 or beginning of 2027.
• Generic Nuvaring fully impaired: A Rs. 92 crores impairment was taken on the Mayne portfolio product because the contract manufacturer cannot supply it, removing a near-term complex-generic contributor.
• Rituximab revenue potential is deliberately unguided: When asked if it could be a \$100 million-plus opportunity, management declined to quote numbers and said it did not expect it to reach that range.

Russia & Emerging Markets: The Underappreciated Driver

• Russia grew 27% YoY in constant currency: Growth was broad-based across Rx and OTC segments, with market-share gains as some peers underinvest in the region.
• The market itself is not growing in volume: Value growth is coming from price increases and the country's macroeconomic situation, but Dr. Reddy's is gaining rank within that static volume pool.
• Management sees India-like growth potential: The stated belief is that the Russia business can grow at the same speed as the India business over time, supported by continuous investment.
• Emerging Markets overall grew 20% YoY: Market-share expansion and new product revenues in Rest of World markets more than offset unfavorable forex movements.

Israeli: "Some of our peers are not investing in Russia the way we do, and we are gaining rank as we speak."

India & Consumer Healthcare: Building the Branded Base

• India grew 18% YoY, but the base is the real story: The Sanofi vaccine portfolio added incremental revenue, while the base business excluding vaccines grew nearly double-digit, driven by new brand launches.
• The Nestlé JV is a long-term play: The transaction closed in August 2024, but most Nestlé products are not yet registered in India; the intent is to bring successful global Nestlé brands into the country over time, a process that will take a couple of years to build meaningful scale and brand recognition.
• Nicotinell integration is a phased carve-out: The Haleon acquisition requires creating legal entities, sales forces, or distribution agreements country by country; more than 80% of sales will be managed by Dr. Reddy's within 12 to 14 months, with the UK starting in April.
• Revenue recognition begins in Q3: Full impact will include commissions paid to Haleon during the transition period.

Israeli: "The idea is to build the #1 nutraceutical company. Both companies see this for the long term."

GLP-1 & PSAI: The API Advantage

• PSAI grew 18% YoY to \$100 million: Volume improvement and CDMO business growth drove the top line, with most growth coming from collaborations and partners globally.
• Microwave technology is the GLP-1 moat: Management identified proprietary microwave-assisted synthesis as its biggest advantage in the GLP-1 API segment, allowing it to scale up "very, very nicely" and positioning the company as one of the most reliable suppliers to the industry.
• CDMO is a capability play as much as a revenue one: The business helps build relationships and R&D capabilities on products of the future, spanning both small and large molecules; management hopes to see triple-digit API sales in the next year or two.
• The Bio-Secure Act tailwind is real but early: More projects are coming on the biologics side of CDMO, and management believes this will translate to future business, though no revenue has been booked yet.
• Most GLP-1 launches wait on patent expiry: The bulk of the opportunity sits in the next decade, with semaglutide to be launched "once the market opens up."

Israeli: "Our main strength is on the API, as we have those certain technologies, primarily microwave, that allow us to scale it up very, very nicely. And this is probably our biggest advantage so far in this segment."

Margins & Investment Posture

• EBITDA margin fell 326 bps YoY to 28.4%: The underlying margin, excluding one-time Nicotinell acquisition costs, was 29.1%, as SG&A rose 22% YoY and R&D rose 33% YoY.
• SG&A is structurally higher and staying there: The mix shift toward India and emerging markets, which carry higher SG&A but also higher profitability, has driven the increase; management expects SG&A to stay around 28% of sales for the next year and beyond, with no significant increase from current levels.
• R&D is running at 8.5-9% of sales: Investment is directed at small molecules, biosimilars, and novel oncology assets through both internal programs and collaborations.
• The tax rate normalizes to 25%: The reported ETR of 30% included a one-time deferred tax asset reversal of Rs. 48 crores on land due to the withdrawal of indexation benefits; the adjusted ETR on underlying PBT is 25.9%, and management guided to around 25% for the full fiscal.
• Capex is tilted toward injectables, biosimilars, and peptides: Roughly 50% of capex is going to the API business to build capacity for GLP-1 and other peptides, all in India, gearing up for launches across FY25 through FY27.

Guidance & Commitments

Key Metrics