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Dr. Reddy’s quarterly earnings were above our expectations on the revenue front but lower on earnings. On the revenue front, DRRD reported the highest-ever quarterly revenue of INR 80,382mn, with a robust YoY growth of 16.5% and 4.4% QoQ, the increase was mainly driven by growth in the global generic business. EBITDA reported at INR 20,765mn (+3.4% YoY and -2.5%QoQ) and the margin saw a decline of 326bps YoY and 184bps QoQ to 25.8% on account of change in the mix and one-time acquisition-related cost. PAT saw a decline of 9.5% YoY and 3.6% QoQ and stood at INR 13,419mn for the quarter. The company is focusing on strengthening its core business across the markets with a robust product portfolio.

* India business: During the quarter, India’s business grew by 17.8% YoY and 5.4% QoQ to INR 13,971mn due to the revenues from the vaccine portfolio in-licensed from Sanofi, new products launched, price increases, and increase in the sale volume. 3 new brands were launched and also integrated the nutraceutical products under the Nestle Health Science Ltd. during the quarter.

* US & Europe business: In the US, the reported revenue was INR 37,281mn with a growth of 17.6% YoY and de-growth of 3.1% QoQ, growth was supported by the increase in the sales volume, offsetting the price pressure on certain products. The price erosion was single digits during the quarter. The company expects to launch 16-20 new products in FY25. The European business saw a growth of 9.2% YoY and 9.6% QoQ, which was primarily driven by leveraging the portfolio of new products, which partly offset the price erosion.

* Margin performance: During the quarter, Gross margin came at 70.6% (-43bps YoY/- 110bps QoQ). EBITDA margin at 25.8% (-326bps YoY/-184bps QoQ), impacted by the change in the product mix and one-time acquisition-related cost. The management expects SG&A spend is expected to be in the range of 27.5%-28% and R&D to be around 8.5-9% for FY25. The R&D efforts are focused on developing complex value products, including generic injectables, peptides, and biosimilars.

* During the quarter, DRRD completed the acquisition of the Nicotine Replacement Therapy portfolio outside of the US and paid a cash consideration of GBP 458mn. The acquired portfolio consists of Nicotinell, a global leader in the NRT category with an extensive footprint in over 30 countries spanning Europe, Asia including Japan, and Latin America.

* Outlook & Valuation: Dr. Reddy’s growth story is based on the growth in the base business and high quality R&D efforts towards developing complex value products, including generic injectables, peptides, and biosimilars. We expect Dr Reddy’s Revenue/EBITDA/PAT to grow at a CAGR of 11.6%/11.5%/11.2% over FY24-27E. We have introduced FY27E and valued the stock at Sep-26E EPS and arrived at a TP of INR 1,449 (17x) with a HOLD rating on the stock

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