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Dr. Reddy’s quarterly earnings were in-line with our expectations. Healthy performance on the revenue front (at INR 72,368mn), up 4.8% QoQ and 6.6% YoY was driven by generics business in US and Europe with contribution from both base business and new product launches. EBITDA reported at INR 20,231mn (+4.4% YoY and flattish sequentially) and margin reduced by 59bps YoY and 114bps QoQ to 28% on account of investment in sales and marketing activities, digitalization capabilities and new business and innovation initiatives. PAT grew 11% YoY / -6.8% QoQ and stood at INR 13,809mn for the quarter. The company has plans to launch about 26 products in the US in next 2 years having meaningful contribution. With regards to biosimilar, it expects to come up with 6 products by April 2030 and the first to come in the beginning of CY27.

* US and Europe drove overall performance: In US, the growth was supported by the benefit of market share expansion in certain existing key products, revenue from new launches and integration of acquired portfolio which was partially offset by price erosion due to competitive environment. The company launched 4 new products in Q3FY24. The price erosion is lower compared to earlier. The company has plans to launch 26 products in the next 2 years which will have meaningful contribution (i.e. having opportunity size of tens of millions and beyond). In the Europe, during the quarter, the company launched a total of 6 products across market. Earlier this month, it entered the UK OTC consumer health market with the launch of brand allergy medication Histallay.

* India business yet to show healthy performance : During the quarter, India business grew 4.7% YoY and flattish QoQ due to lower volumes in base business. The company anticipates the base business to deliver double-digit growth in the coming quarters.

* R&D in full swing: The R&D spend for the quarter is INR 5,570mn, (USD 67mn), at 7.7% of sales (+60bps YoY and -20bps QoQ). The investments are focused on developing complex value-accretive products including several generic injectable and biosimilar, in line with patient-centric strategy to enable access and affordability. The company has done 9 global generic filing including 2 ANDAs in the US in Q3FY24.

* Bio-similars, an engine for long-term growth: The company expects to come up with 6 products by April 2030 and the first to come in the beginning of CY27. With regards to Rituximab, the FDA inspection completed on time in October 2023. The company addressed the FDA observation and did not received any additional information. It expects, the earliest approval by the end of April 2024.

* Outlook & Valuation: Dr. Reddy’s growth story is based on the following premise: 1) Sustained performance in the US and Europe on the back of new launches, growth in injectables portfolio, volume based growth in base business and moderation in price erosion; 2) Focus on the India business to deliver double digit growth and building innovative products portfolio (through in-licensing, acquisition and partnerships). We expect Dr Reddy’s Revenue/EBITDA/PAT to grow at a CAGR of 11.9%/15.5%/14.3% over FY23-26E. We value the stock at Sep-25E EPS and arrive at a TP of Rs. 6,416 (17x SepFY25E EPS) and maintain ADD rating.

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