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Performance of ex-Revlimid US business key

Result Synopsis

Revlimid may have just ebbed QoQ on account of some degree of weak seasonality in Q4 even as ex-Revlimid US business posted a decline due to likely timing issues in supplies. Revlimid would continue to cast a long shadow on US business as we reckon FY24 contribution could be in the ballpark of US$500mn vs ~US$300mn in the PY (our estimate). Domestic business declined on reported basis but excluding the divested brands, management indicated India growing in double digits. We raise Revlimid contribution in FY25 and FY26, ending the last year before it goes generic at ~US$250mn vs US$150mn earlier. Albeit some of the extra Revlimid cash is going in to higher R&D over next 2 years as alluded on the earnings call primarily on clinical trials for biosimilars. We tweak India growth to 11% from 9% earlier in FY25 which along with change in R&D/Revlimid estimates results in a ~7% rise in FY25 estimate though FY26 is largely unchanged as Revlimid boost and R&D increase largely offset each other; retain Reduce as we roll over to FY26 with increase in PE to 21x from 19x earlier as Revlimid dependence declines in FY26 (ex-Revlimid FY26 EPS is 20% lower). Our revised TP is Rs5,950 (earlier Rs5,580) based on 21x FY26 EPS.

Result Highlights

* Weakness in ex-Revlimid US business leads to revenue decline in US

* India sales lower YoY but excluding divested brands, revenues running at healthy double digit growth

* Rest of the segments – Europe, EM and API business post modest 5-8% YoY increase

* Margin up 35bps YoY on better gross margin performance; higher SG&A and weaker sales lead to lower but inline margin at ~25%

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