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Looking past the headline numbers and adjusting for multiple one-offs, 4QFY26 EBITDA margin for Dr Reddy’s (14.5%) was ~400bps lower vs street estimates (EBITDA miss of ~25% vs street/our estimates). We have been of the view that the debate around the magnitude of the Semaglutide opportunity for Dr Reddy’s is only meaningful if the ex-gRevlimid quarterly US base settles at USD230- 240mn. While the US base business figure, adjusted for one-offs, was in that range in 4Q, we believe that 1QFY27 sales alone can help conclude if this is a reasonable quarterly run rate to work with. Besides, this quarter’s gross margin performance clearly points to sharp pricing pressures in the core US base business which we have been highlighting in the past, and which are now wellacknowledged. The management’s confident commentary—double-digit growth in North America in FY27 (ex-Semaglutide, ex-gRevlimid), 6-7mn Semaglutide pen sales in CY26, and gross margin recovery to >50% in FY27—could prevent meaningful consensus earnings downgrades for now. However, in the absence of concrete positives, our cautious stance on the name remains unchanged. We roll-forward to Mar-28E earnings, which we cut by ~5%, and introduce FY29 estimates. We retain REDUCE on Dr Reddy’s with a Mar-27 TP of Rs1,200.

US much weaker-than-expected; superlative domestic performance continues

US sales, excl the shelf stock adjustment for gRevlimid, at USD235mn, were still meaningfully below expectations. Domestic growth at 20% YoY was ahead of expectations, with the contribution of acquired brands not being meaningful in 4Q. The miss in EBITDA was primarily driven by lower gross margin (~48% adj; ~400bps below our estimate). Adjusted gross margin for global generics was 51.7% (vs 57.4% in 3Q).

KTAs from the earnings call

1) The company does not expect additional competition in Canada in Semaglutide for the next several months. The Canada market is equally split between the public, private, and cash channels (price regulation is applicable in the public channel). Semaglutide will be priced at half of Novo’s list price in Canada (the floor price will be USD25 per pen in most markets).

2) Global biosimilar sales stand at ~USD100mn, with the segment expected to see breakeven post launch of Abatacept; expect approval for IV Abatacept by early CY27. The filing for the subcutaneous version in the US is expected in CY26 (delayed in Europe). US Abatacept sales are equally split between the IV and the subcutaneous versions (IV share is much lower in Europe).

3) The company expects to launch Semaglutide in >50 markets in CY26 and in >80 markets in the next 12 months; ~50% of the pens will be sold via partners. The company also has a partnered Semaglutide filing in Brazil and expects to receive approval for the clone product in parallel with its own initial submission.

4) SG&A spend is expected to be flattish YoY in absolute terms, in FY27; expect R&D at 7-8% of sales.

5) See 27 new product launches in the US in FY27.

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