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Informist, Monday, Oct. 13, 2025

 

By Narayana Krishna

 

HYDERABAD - Solid growth in the nicotine replacement therapy portfolio in Europe and steady momentum in India sales are likely to support Dr. Reddy's Laboratories Ltd.'s consolidated earnings for the September quarter, according to brokerages tracking the company. Dr. Reddy's North America sales, however, are likely to come under pressure because of a fall in market share for some of its key products and pricing erosion.

 

A sharp price erosion and fall in sales due to increased competition in the generic of cancer drug Revlimid are likely to affect the company's US performance and margins on year, given the strong base of the year-ago quarter, according to analysts.

 

Dr. Reddy's is projected to report growth of nearly 11% on year in consolidated net profit for the September quarter to INR 13.9 billion, according to an average of estimates from 10 brokerages. The company's revenue for the reporting quarter is seen up 8% on year at nearly INR 87 billion, the estimates show. Sequentially, the Hyderabad-based drugmaker's net profit is seen falling 2% but revenue is seen rising 1%, according to the estimates.

 

The highest estimate for net profit of INR 14.99 billion is from Emkay Global Financial Services Ltd. while the lowest estimate of INR 10.51 billion is from JM Financial Institutional Securities Pvt. Ltd. The revenue estimates range from a low of INR 82.38 billion by JM Financial to a high of INR 91.10 billion by Kotak Institutional Equities. Dr. Reddy's will announce its Jul-Sept earnings on Oct. 24.

 

MARGIN PRESSURE

Analysts project Dr. Reddy's gross margins to be under pressure in the reporting quarter owing to price erosion and lower sales of high-margin products such as Revlimid. According to HDFC Securities, the company's gross margin for the quarter is likely to decline 276 basis points on year to 67.8% while the earnings before interest, tax, depreciation, and amortisation margin is expected to fall 119 bps on year to 25.8%. "We expect gross margin to decline on price erosion in key products and steady costs leading to lower EBITDA margin," HDFC Securities said.

 

Kotak Institutional expects a 390-bp year-on-year fall in gross margin to 66.7%, while the EBITDA margin may drop by 190 bps on year to 25.1%. Nuvama Wealth Management expects Dr. Reddy's gross margin to be 56.2% and EBITDA margin to be 25.4%. According to the average of estimates from 10 brokerages, Dr. Reddy's Jul–Sept EBITDA is pegged at INR 21.5 billion.

 

NORTH AMERICA SALES

Dr. Reddy's is expected to see a decline in its North America sales, mainly in the US, in the September quarter owing to price erosion in its base business. For a pharmaceutical company, base business includes the established generic drugs portfolio and recurring sales of existing products, excluding one-off, exclusive, and specialty products.

 

North America accounts for nearly 45% of the company's consolidated sales. Increased competition in the cancer drug Revlimid generic and subsequent price erosion are expected to drag Dr. Reddy's US performance in the September quarter down, according to analysts.

 

HDFC Securities expects the company's US revenue to decline 6% quarter on quarter owing to lower generic Revlimid sales as well as price and market share erosion in the base business. However, traction in the newly launched product generic Entresto, used to treat heart failure, may partially offset the impact of lower Revlimid sales, HDFC Securities said.

 

Motilal Oswal Financial Services expects Dr. Reddy's North America sales for the September quarter to fall 15% on year to $378 million while Kotak Institutional expects these sales to be $395 million. Dr. Reddy's North America sales in the September quarter last year were $445 million, of which Revlimid had contributed an estimated $125 million. Dr. Reddy's does not share product-specific sales numbers.

 

OTHER GEOGRAPHIES

Dr. Reddy's is expected to post healthy earnings in other geographies, including Europe, India, Russia, and other emerging markets, according to analysts.

 

In Europe, Dr. Reddy's sales growth for the September quarter is expected to be led by nicotine replacement therapy, as the company expands this portfolio to other geographies in the region. According to Nuvama Wealth, this portfolio is likely to contribute 105 million pounds sterling for the quarter to sales in Europe. Kotak Institutional expects 7% quarter-on-quarter growth in Europe sales for the quarter, led by the nicotine replacement therapy portfolio.

 

In the domestic market, Dr. Reddy's sales are expected to grow 12% year-on-year in the September quarter, Kotak Institutional said. The brokerage has projected 19% sales growth in Russia. HDFC Securities expects Dr. Reddy's India sales to grow 8% year-on-year to INR 15.16 billion. Motilal Oswal said India sales growth will be led by respiratory and pain management segment products. India sales growth is also expected to be aided by Nestle India's consumer products and Sanofi India's vaccine portfolio. Dr. Reddy's, through its joint venture with Nestle India, markets nutraceutical products in the country. It has also partnered with Sanofi India to exclusively market vaccines in the Indian market.

 

Market participants are looking for the company's comments on the diabetes and weight loss drug semaglutide's approval status in Canada, along with the outlook on in-house manufacturing capacity for pens used in drug delivery. Analysts are also seeking an update from the company on the status of approval for the rheumatoid arthritis biosimilar drug abatacept by the US drug regulator. Dr. Reddy's has not yet announced plans to introduce another high-value product to mitigate the impact of declining Revlimid sales, though analysts expect that semaglutide may fill the gap.

 

Of the 23 research reports on the company available with Informist, 12 have a "buy" or equivalent rating on the stock with an average target price of INR 1,445 while seven have a "hold" rating with an average target price of INR 1,239. The remaining four have a "sell" rating with an average price target of INR 1,206.

 

The stock has risen over 1.2% since the company announced its June quarter earnings on Jul. 23. Monday, the company's shares ended at INR 1262.40 on the National Stock Exchange, down marginally from Friday's close. 

 

Following are the Jul-Sept earnings estimates for Dr. Reddy's Laboratories Ltd. from 10 broking firms in descending order of net profit:

 

Brokerage	Net Sales	Net Profit	EBITDA
	--in million rupees--
Emkay Global Financial Services Ltd.	89,949	14,993	23,485
Kotak Institutional Equities	91,103	14,847	22,851
HDFC Securities Ltd.	86,733	14,693	22,377
Nuvama Wealth Management Ltd.	88,099	14,567	22,375
YES Securities (India) Ltd.	88,394	14,536	22,077
ICICI Securities Ltd.	85,273	14,388	21,403
Nirmal Bang Equities Pvt. Ltd.	87,478	14,130	21,869
Motilal Oswal Financial Services Ltd.	85,500	13,449	20,178
Prabhudas Lilladher Pvt. Ltd.	84,978	13,107	20,643
JM Financial Institutional Securities Pvt. Ltd.	82,376	10,509	18,076
Average	86,988	13,921	21,533

 

End

 

US$1 = INR 88.67
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Rajeev Pai

 

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