Dr. Reddy’s Q1 Results Review: Systematix Maintains 'Hold' Rating On Weak U.S. Performance
Potential approval of a high value complex generic on the same lines as gRevlimid can be a positive surprise, adds the brokerage.
Dr. Reddy's has identified multiple levers - Cost control, generic Semaglutide launch in Canada and ramp up in CDMO/Consumer business to offset the erosion. Ramp up in biosimilar business should reflect from FY28 onwards. The cost control lever is likely to be one of last resort, in case the other levers fail to play out as expected.
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Systematix Report
Dr. Reddy's Laboratories Ltd.'s Q1 FY26 were below our estimates owing to weaker than expected performance in North America led by price erosion and lower offtake for gRevlimid. Dr. Reddy's reported Ebitda for the quarter stood at Rs 2,2783 million which was higher 5% YoY but lower 8% QoQ.
We estimate normalized (ex Revlimid) Ebitda to be Rs 1,300 to 1,500 crore for the quarter, translating to normalized EPS of Rs 9 to 10 per share.
Dr. Reddy's has identified multiple levers - Cost control, generic Semaglutide launch in Canada and ramp up in CDMO/Consumer business to offset the erosion. Ramp up in biosimilar business should reflect from FY28 onwards.
The cost control lever is likely to be one of last resort, in case the other levers fail to play out as expected.
We currently estimate generic Semaglutide to contribute about $100 million in annual sales in FY27 and we believe Dr. Reddy's potentially needs more than 5-6x of this number to offset the gRevlimid erosion.
Over the last few years, Dr. Reddy's has made meaningful investments in growth platforms, but the horizon over which these should pan out may be longer (FY28 onwards).
Potential approval of a high value complex generic on the same lines as gRevlimid can be a positive surprise. We tweak our forecasts and retain Hold with a price target of Rs 1,159 based on 25x FY27E EPS.
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