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Result Synopsis

Dr Reddys’ continues to benefit from Revlimid, potentially better traction in acquired Mayne Pharma portfolio amidst a backdrop of benign pricing environment in US. Management continues to hunt for assets as well as increase R&D (absolute + % of sales) to make use of Revlimid cash. Biosimilar monetization remains far out, beginning FY27 to make up for the likely loss of Revlimid sales in FY25 and FY26 compared to run rate in current fiscal. Domestic business is expected to emerge from brand rationalization phase in Q4 and would clock double digit growth from next year. Near term prognosis is completely linked to Revlimid which would be keenly eyed as other peers (notably Aurobindo) are set to enter the market. We tweak FY24/25 estimates and introduce FY26 forecasts but lower our rating to Reduce based on an unchanged target PE of 19x on FY25 EPS. We lower Revlimid contribution beyond FY25 with a likely paucity of similar sized large product/s that can fill the void (reckon will open up in FY26).

Result Highlights

? Revlimid drives beat yet again as contribution remains meaningful QoQ coupled with new launches

? Lower volumes in core business led to ~5% YoY growth in domestic business

? Favourable exchange rates and new launches aided Europe which grew 16% YoY

? PSAI business was up in double digit YoY excluding covid product sales in base quarter

? Margin at 28% was below our estimate on lower gross margin and higher SG&A along with increased R&D

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