Dr. Reddy’s Q2 Review — Systematix Maintains 'Hold' Post Inline Results; Strong Performance In Ex -US Markets

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Systematix Report

Dr. Reddy's Laboratories Ltd.'s Q2 FY26 earnings were inline with our estimates. Revenue and PAT grew 10% and 6% YoY respectively. Ebitda margins declined 170bps on a YoY basis as gross margins were lower 500 bps YoY. Price erosion in North America and lower contribution from PLI incentive led to the gross margin decline.

Lower spend on research and development during the quarter aided Ebitda margins. Except North America which declined 13% YoY, other business segments showed strong growth. India, EM, EU and pharmaceutical services and active ingredients grew 13%, 14%, 17% (ex NRT) and 12% respectively.

New launches and favourable currency aided the growth.

We tweak our forecasts on Dr. Reddy's and retain hold with a target price of Rs 1156 (25x PE on FY27E EPS).

Our FY27E estimates assumes 95% erosion in gRevlimid and a $100mn incremental contribution from generic Semaglutide launch in Canada. We also assume continued restraint in operating costs.

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