Dr Reddys Laboratories Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Base business absorbs Lenalidomide exit: Revenue grew 4.4% YoY despite the step-down; ex-Lenalidomide, the base business delivered double-digit growth, with India up 19% and Emerging Markets up 32%.
• Gross margin resets lower, as telegraphed: Gross margin fell 505 bps YoY to 57%, dragged by the Lenalidomide cliff, price erosion, and a one-time Labour Codes provision. From Q4, Global Generics gross margin is guided to 50–55%.
• Semaglutide is the near-term catalyst stack: India launch set for March 21; Canada approval possible any time through May; Emerging Market filings underway. Management expects a short pricing window before markets turn intensely competitive.
• Biosimilar pipeline faces regulatory friction: Denosumab US and Rituximab US both hit facility-related delays, pushing likely approvals out at least six months. Abatacept filings remain on track for mid-2026 submissions.
• What to watch next quarter: The Semaglutide Canada approval decision, the trajectory of gross margin in the first quarter without Lenalidomide, and any resolution timeline on the Rituximab fill-finish line re-inspection.

Semaglutide: The Multi-Market Opportunity

• India launch imminent: The company will launch its generic Ozempic (diabetic indication) on March 21, having secured DCGI marketing authorization and local manufacturing licenses. It holds all strains and intends to eventually cover both diabetes and weight-management indications, plus the oral form.
• Canada decision in weeks to months: A Notice of Non-Compliance received in October 2025 was answered in mid-November; the goal date is approximately May 2026. Management is preparing for launch as early as Q4 FY26, with no Health Canada inspection expected.
• Substitutability disputed: Management asserts the product is absolutely substitutable at the pharmacy level and that a Health Canada spokesperson's statement to the contrary is incorrect, though no regulatory documentation was offered to settle the question.
• Emerging Markets filings underway: Filings have begun via the COPP route, extending the geographic reach beyond India and Canada.
• Pricing strategy assumes rapid commoditization: Most markets are expected to price at the lower end of the \$20–\$70 per unit spectrum. A short period of healthier prices (weeks to months) is anticipated, after which the company is preparing for a very competitive market.

Erez Israeli: "Over time, when people will get approval, we are expecting it to be a very competitive market. There will be a short period of time, which can be from weeks to months, it depends on the market, in which we can have healthier prices, but then we're preparing ourselves for a scenario of very competitive markets."

Biosimilar Pipeline: Progress and Setbacks

• Denosumab Europe launched, US delayed: European Commission and UK MHRA approvals were received, and the product launched in Germany in December. The US BLA, filed with partner Alvotech, received a Complete Response Letter citing observations from Alvotech's Reykjavik facility; the delay is at least six months, pushing a decision into Q2 FY27 or later.
• Rituximab US stuck on one line: USFDA issued a Post-Application Action Letter for the Bachupally biologics facility. One of two comments has been resolved; the remaining issue relates to a specific fill-and-finish line. A response is due in two weeks, after which a re-inspection on that line only is expected. Approval is unlikely within six months and may take longer.
• Abatacept filings on schedule: The IV BLA was filed in the US in December 2025. The European submission is planned for July 2026 with approval expected in 12 months, targeting a July 2027 launch for both IV and subcutaneous presentations across an addressable market of roughly \$2 billion. The US subcutaneous filing also targets July 2026, aiming for approval at the January/February 2028 patent expiry.
• No cross-contamination risk: The Rituximab fill-finish line issue does not affect Abatacept, which uses different lines.

India Business: Innovation-Led Outperformance

• 19% YoY growth, beating the market: India revenue grew 19% YoY, outpacing IPM growth of 11.8% on a moving-quarter-total basis. Organic growth, excluding the Stugeron acquisition, was approximately 17–18%.
• Innovation franchise is the engine: Horizon 2 innovation brands, now in their second and third year post-launch, are gaining physician recognition and market traction. Management attributes the outperformance primarily to these products.
• Sustainability of the trajectory: Management views 15–16% growth as very sustainable. Growth above 19% is possible but depends on specific scenarios, including further business development, and is not the base case for planning.
• Semaglutide adds a new layer: The March 21 India launch of generic Ozempic opens an additional growth vector within the domestic business.

Erez Israeli: "So, it's primarily the performance of the innovative products. They're actually very good products that are being really appreciated by the market."

NRT and Branded Generics: The Investment Phase

• NRT exceeding expectations: The acquired NRT business is performing ahead of internal models, with demand higher than previously anticipated. Constant-currency growth is on the upper side of single digits and could reach double digits depending on tender wins, such as in Brazil.
• Profitability holding at 25% EBITDA: Despite higher sales and associated A&P investment, EBITDA margin is currently above 25%. Management suggests 25% is a fair planning assumption going forward.
• Integration nearing completion: 85% of the acquired NRT business by value is under operational control. The next phase covers Asia-Pacific, the Middle East, and Latin America, with integration expected largely complete by fiscal year-end.
• SG&A growth to decelerate: SG&A, currently at 30% of sales excluding the Labour Codes provision, will continue to grow but at less than half the pace of top-line growth as operating leverage begins to materialize.

Regional and Segment Performance

Margin Walk and Cost Structure

• Gross margin reset: The 505 bps YoY decline to 57% reflects the Lenalidomide step-down, price erosion in unbranded generics, adverse PSAI mix, and a one-time Labour Codes provision. From Q4 onward, with Lenalidomide treated as just another molecule, Global Generics and PSAI gross margin is guided to the 50–55% range, varying by quarter.
• Labour Codes provision: A retrospective recomputation of gratuity and leave encashment for employees on payroll as of December 31, aligned with new Labour Law Codes, created a one-off hit. The ongoing impact going forward is expected to be less than 50 basis points. Adjusted EBITDA margin for the quarter was 24.8%.
• R&D spend moderates: R&D declined 8% YoY, reflecting lower biosimilar development spends as Abatacept investments are largely complete. Spend is expected to remain in the 7–8% range, with new molecules like Pembrolizumab (with Alvotech) entering the pipeline.
• Forex impact modest: There is a net-net positive impact on EBITDA margins from forex, but management describes it as not very significant and did not quantify it.

Erez Israeli: "I always advise people not to give a value to it. So, it will not confuse all of you. So, you should assume that the old arrangement from Q4 is zero."

Aurigene and CDMO: Early Traction

• Innovator API supply: Aurigene served as the exclusive API manufacturer for 2 of the 46 Novel Drugs approved by the USFDA in 2025, the result of efforts initiated roughly two years ago.
• Growth ambition: Management expects \$100+ million in growth from the CDMO business over the next 2–3 years.
• Discovery platform: Three discovery programs were delivered via the Aurigene.AI platform during the quarter.

Guidance & Commitments

Key Metrics