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Informist, Wednesday, Jul. 16, 2025

 

By Narayana Krishna

 

HYDERABAD - Pricing pressure in North America--particularly the US--is likely to weigh on the performance of Dr Reddy's Laboratories Ltd. for the June quarter, analysts said. Price erosion in the generic version of cancer drug Revlimid, a key contributor to past profitability, and intense competition in other existing portfolio are expected to result in weaker sales in the US. However, steady growth in domestic sales may provide support to overall earnings.

 

The Hyderabad-based drug maker is projected to report an over 11% on-year growth in its consolidated net profit for the June quarter to INR 15.5 billion while its revenue is seen up 13.5% on year to INR 87.4 billion, according to an average of estimates of 10 brokerages. Sequentially, the company's net profit is likely to fall 2.9% but revenue may go up 2.5%, the estimates show. The growth in the consolidated net profit is sharply lower from the 22% on-year growth during Jan-Mar. 

 

The highest net profit estimate of INR 18.5 billion is from Systematix Shares and Stocks (India) Ltd. while the lowest estimate of INR 13.7 billion is from Prabhudas Lilladher Pvt. Ltd. The revenue estimates range from a low of INR 83.0 billion by Centrum Broking Ltd. to a high of INR 92.6 billion by JM Financial Institutional Securities Pvt Ltd. Dr Reddy's will announce its Apr-Jun earnings on Jul. 23.

 

WEAK US SHOW

Dr Reddy's generic sales in the US, which accounts for nearly 50% of total generic sales, are likely to fall in the June quarter, mainly on account of pricing pressure for existing products, including its blockbuster cancer drug generic Revlimid, according to analysts.

 

The Revlimid generic opportunity in the US is fading for pharmaceutical companies due to increased competition, sharp price erosion, and the expiry of initial volume-limited exclusivity agreements.

 

As more players enter the market without restrictions, pricing pressure has intensified, shrinking both margins and overall market value. The high-profit phase, driven by limited competition, has passed, making Revlimid a lower-margin, commoditised product with declining revenue potential for generic manufacturers, including Dr Reddy's.

 

According to Centrum Broking, Dr Reddy's sales in the US are expected to slip 11% on year to $413 million, mainly due to sales of Revlimid. Kotak Institutional Equities forecasts US sales at $403 million due to lower contribution from Revlimid.

 

On other hand, Systematix expects the pharmaceutical company's business in the US to revive as it had ramped up Revlimid sales during the June quarter. For the past two quarters, Dr Reddy's had been saying that there would be meaningful contribution from the drug for next few quarters. 

 

Besides Revlimid, Dr Reddy's sales in the US are supported by a range of complex generics and niche products. Key products among them are generic Vascepa, used to reduce cardiovascular risk, and generic Suboxone, which is prescribed for opioid dependence. Other key contributors include generic Kuvan to treat phenylketonuria sypmtoms and generic Copaxone for multiple sclerosis and Vimpat for epilepsy.

 

Dr Reddy's has also launched several limited-competition products in the injectable and dermatology segments, which continue to bolster its US portfolio. Most of the portfolio drugs are facing pricing pressure due to competition.

 

INDIA & OTHER MARKETS

Analysts projected Dr Reddy's is likely to report healthy sales growth in India, led by nicotine replacement therapy and Sanofi's vaccine portfolio, besides growth in key therapy segments.

 

HDFC Securities Ltd., Nuvama Wealth Management Ltd., and Kotak Institutional Equities have all projected an 11% on year sales growth in India while Centrum sees growth at 9%.

 

In Russia, one of its key markets, Dr Reddy's is expected to clock an 18% on-year growth for the June quarter on a low base, Kotak Institutional Equities said. While revenues from the rest of the world is likely to grow 12%, pharmaceutical services and active ingredients segment may see a 9% on-year sales growth for the quarter, Kotak said. Systematix expects Europe business should also see strong on-year growth led by nicotine replacement therapy portfolio.

 

MARGIN SCENARIO

Dr Reddy's is likely to face margin pressure due to weak sales in the US and price erosion in its key products. Centrum Broking projected a 132-basis-point on-year contraction in the company's June quarter earnings before interest, tax, depreciation, and amortisation margins at 26.4%. HDFC Securities projected a 27.4?ITDA margin. According to Kotak Institutional Equities, Dr Reddy's consolidated EBITDA is likely to fall 1% on year to INR 21 billion, with the EBITDA margin falling 290 bps on year to 24.8%. For Apr-Jun last year, Dr Reddy's EBITDA margin was at 27.7%. As per the average of estimates of 10 brokerages, the company's Apr-Jun EBITDA is pegged at INR 23.3 billion.

 

Of the 21 research reports available on the company with Informist, 11 have a 'buy' or equivalent rating on the stock with an average target price of INR 1,476 while six has a 'hold' rating on the stock with a target price of INR 1,253 and four has a 'sell' rating with a target price of INR 1,168.

 

Analysts are keenly observing Dr Reddy's commentary on upcoming GLP-1 opportunity and high value launch pipeline in the US along with measures to improve cost rationalisation.

 

The stock has risen nearly 9% since the announcement of its March quarter earnings on May 9. On Wednesday, shares of Dr Reddy's ended 0.1% lower at INR 1,259.40 on the National Stock Exchange.

 

Following are the Apr-Jun earnings estimates for Dr Reddy's Laboratories Ltd. based on reports from 10 brokerage firms in the descending order by the estimate of net profit:

 

Brokerage name	Net sales	Net profit	EBITDA
	--in million rupees--
Systematix Shares and Stocks (India) Ltd	91,511.00	18,454.00	28,021.00
JM Financial Institutional Securities Pvt Ltd	92,646.00	16,462.00	25,146.00
YES Securities (India) Ltd	86,161.00	15,982.00	22,290.00
Dolat Capital Market Pvt Ltd	86,402.00	15,780.00	22,810.00
Nirmal Bang Equities Pvt Ltd	90,852.00	15,357.00	22,713.00
HDFC Securities Ltd	87,754.00	15,272.00	24,045.00
Centrum Broking Ltd	83,000.00	15,000.00	23,000.00
Kotak Institutional Equities	84,911.00	14,772.00	21,053.00
Nuvama Wealth Management Ltd	86,587.00	13,986.00	22,551.00
Prabhudas Lilladher Pvt Ltd	83,982.00	13,695.00	20,906.00
Average	87,380.60	15,476.00	23,253.50

 

 End

 

US$1 = INR 85.94

 

Edited by Subhojit Sarkar

 

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