Dr Reddys Laboratories Ltd Q1 FY2026 Concall Summary

Key Takeaways

• Solid topline, generics erosion: Consolidated revenue grew 11% YoY, but North America Generics fell 17% on Lenalidomide price erosion and customer procurement timing.
• Lenalidomide cliff is one quarter away: The drag persists for one more quarter at similar magnitude, then drops sharply in Q3, freeing up cost structure for reinvestment.
• Semaglutide is the next growth engine: Approval expected Oct/Nov 2025, launch at LOE in January 2026; management sees "crazy" demand and is building capacity for 1 crore pens in calendar 2026.
• Margins reset, recovery path laid: Gross margin fell 350 bps YoY; EBITDA guided to 25%+ with base business north of 50%, but the Lenalidomide-to-Semaglutide transition means parameters will dip in between.
• What to watch next quarter: Semaglutide approval timing, Lenalidomide Q3 cliff magnitude, abatacept Phase III readout in November, and whether PSAI margins correct as promised.

Lenalidomide Transition & Cost Structure

• Trajectory locked in: One more quarter of similar revenue and pricing magnitude, then a sharp decline in Q3 with only residual contribution thereafter. Management declined to give specific product numbers.
• Cost tailwind being redirected: The Lenalidomide windfall was deliberately used to fund future bets (abatacept, GLP-1 franchise, facilities, NRT acquisition). Some of those investments end post-November 2025, creating a cost lever.
• Discretionary cost buffer: Management identified 500-600 bps of discretionary costs between R&D and SG&A that can be adjusted to match sales growth, but explicitly warned against modeling the full amount as savings.
• R&D flexibility: Current R&D at ~7% of sales, guided to 7-7.5% for FY26, but can flex to 6% or higher depending on P&L performance. Near-term launches are unaffected since those products are already committed or filed.

Israeli: "Hopefully, we don't need it, because if the growth will allow us to invest more, eventually, we want to invest because we want to create additional for the future. And we want to be a growing company for many, many years."

Semaglutide & GLP-1 Franchise

• Approval and launch timeline: ANDA approval expected between end of October and beginning of November 2025; launch at loss of exclusivity in early January 2026 for the US market.
• Canada opportunity: No patent in Canada, only data exclusivity expiring January 2026. Launch possible if manufacturing and approval timelines align; only generic Ozempic initially, with Wegovy submission to follow during the year.
• Rest of World: Calendar 2026 launch across 87 markets; key markets India, Brazil, and Turkey after March 2026.
• Capacity build: 1 crore pens for calendar 2026 (mostly FY27), 1.2 crore pens for FY27. Management sees potential upside of 30-40% but rules out doubling in that period.
• Competitive positioning: Once scale-up is complete, products will be competitive with all competitors including China. API manufactured in-house, initial launches through a partner using Dr. Reddy's API; own FTO-11 capacity from FY28.
• Portfolio depth: This is described as the beginning of a decade-long GLP-1 journey; the full portfolio spans 26 products.

Israeli: "the demand for this product looks crazy and so far the indication in places that we started to speak to people can confirm this that the demand is there."

Biosimilars & Complex Generics Pipeline

• Abatacept (Orencia® biosimilar): Phase III readout expected November 2025; BLA submission planned after positive data. IV formulation launch targeted for beginning of calendar 2027, subcutaneous one year later due to IP.
• Pembrolizumab (Keytruda® biosimilar): Strategic collaboration with Alvotech for co-development, manufacturing, and commercialization. Targeting launch in many markets including the United States; Phase III exemption plus collaboration structure means net investment is limited.
• US biosimilar sequencing: Denosumab launch planned one year prior to abatacept to prepare the commercial team; then pembrolizumab and daratumumab follow; rituximab through the Fresenius partnership.
• Liraglutide: Planning to launch in coming quarters; Saxenda® expected to be first-to-market or among the first in some geographies.
• R&D spend disconnect: Current R&D reduction does not affect near-term launches; the spend is relevant for products launching 10-12 years from now.

Geographic & Segment Performance

• India strategy shift: Growth driven by launching innovative assets (Beyfortus™ RSV vaccine, Sensimune™) rather than branded generics, which will see only normal price adjustments with minor volume growth.
• NRT integration progressing: UK and Nordics integration complete; next phase onboarding Canada, Australia, and select Western European countries. Acquisition is exceeding expectations with brand growth accelerating from single digits.
• Europe outlook: Double-digit growth expected; hard to specify if 15% or 20% per quarter, but biosimilar launches and operating leverage support the trajectory.

Israeli: "We decided... that we will not focus on branded generics. At the time, we believe that the growth in India will come primarily by introducing innovative products which are better than the standard of care that is used today in the market."

Margins & Financial Framework

• Gross margin pressure: 350 bps YoY decline driven by generics price erosion (primarily Lenalidomide) and lower operating leverage, partly offset by better product mix. FY26 gross margins expected at similar levels to Q1.
• SG&A trajectory: Full year SG&A guided to 28-29% zone; Q1 increase reflects strategic investments in consumer healthcare (NRT and Nestlé JV for nutraceuticals), with other SG&A broadly flat YoY.
• EBITDA framework: 25% or north of it; base business EBITDA always north of 50%; semaglutide gross margins even higher. In the period without Lenalidomide and before Semaglutide scales, parameters will be lower.
• PSAI margin correction: Gross margin decline from mid-twenties to low teens attributed to internal sale dynamics (less internal sales means more cost allocation on external sales per accounting); expected to correct in coming quarters.
• Capex and BD capacity: FY26 capex similar to last year at ₹2,500-2,700 crores cash outflow, directed at peptides and biosimilars. Financial capacity of $2-2.5 billion available for BD; actively working on growth opportunities.
• Tax rate: Normalized ETR expected around 25% for full fiscal year.

Regulatory & Other Updates

• Three USFDA inspections completed: Middleburgh API facility (2 observations, classified VAI); CTO-5 Miryalaguda API facility (2 observations, responses submitted); FTO-11 Srikakulam formulations facility (7 observations including PAI, management expects VAI).
• Delhi High Court patent case: Decision expected within a week; outcome affects Canada launch timing more than India launch timing. Worst case for India means only a two-month delay.
• Out-licensing income: ₹120 crores booked this quarter from Aurigene; not one-time, expected to recur in a few quarters each year going forward.
• CDP rating upgrade: Elevated to 'A' in Climate category; only Indian pharmaceutical company with this score, among top 2% globally.
• Aurigene CDMO ambition: Target of $250-300 million by 2030.

Israeli: "No, if at all, it's an opportunity. We are working freely in Russia, great relationship with the country, great team that we have. And if other people will put sanction on it, the sanctions are not relevant to us."

Guidance & Commitments

Key Metrics