Reduce Pipeline Execution Critical For Target Rs. 1,270 By Choice Broking Ltd
Pipeline Execution Critical as Revlimid Tapers
We believe DRRD is currently in an investment phase, actively strengthening its product pipeline with key launches like GLP-1 and Biosimilar products. These long-term growth initiatives, which are essential to offset the impact of Revlimid losses, along with continued pricing pressure in the US generics market, have led to higher SG&A expenses. Management expects margins to remain in the 25– 26% range in the near term, with limited scope for expansion until FY27. Given this backdrop, we revise our FY26E/FY27E EPS estimates downward by 8.2%/12.7%, respectively, and introduce FY28E estimates. We now value the company based on the average of FY27E and FY28E EPS at an unchanged PE multiple of 15x. This results in an unchanged target price of INR 1,270, implying a REDUCE (downgraded from ADD) rating on the stock.
Revenue Growth Led by Europe; Margins Miss, PAT Growth Muted
* Revenue grew 11.4% YoY / 0.5% QoQ to INR 85.7 Bn (vs. consensus estimate: INR 86.9 Bn).
* EBITDA rose 2.1% YoY / 8.8% QoQ to INR 21.7 Bn (vs. consensus: INR 23.3 Bn); margins contracted 232 bps YoY / expanded 193 bps QoQ to 25.4% (vs. consensus: 26.8%).
* PAT increased 1.3% YoY / declined 11.1% QoQ to INR 14.1 Bn (vs. consensus estimate: INR 15.1 Bn).
Pipeline Key as Revlimid Falls, NRT and Nutraceuticals Aid
Revenue contribution from Revlimid continued to decline, reflected in drop in US revenue, with a sharper decline expected from Q3 onwards. While the Nutraceuticals and NRT portfolios may partially offset this loss in the near term, we believe the company currently lacks a pipeline asset of comparable scale to fully compensate for the impact. Semaglutide is targeted for launch, with approval expected by Oct–Nov 2025. However, we believe the market is likely to be highly competitive, with several major players preparing for a Day 1 launch. Overall revenue growth, in our view, will hinge on the execution and performance of upcoming product launches, including Abatacept, which is currently in Phase 3 and targeted for CY2027.
Near-Term Margin Pressure; Recovery Expected Post-FY27
SG&A costs have increased due to higher investments in the NRT and Nutraceutical portfolios, both of which are long-term growth drivers requiring initial ramp-up spending. Combined with persistent price erosion in the US generics market, this has impacted gross and EBITDA margins. The company expects EBITDA margins to remain in the 25–26% range. In our view, meaningful margin expansion could materialize post-FY27, driven by a better product mix led by launches such as Semaglutide and Abatacept.
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