Dr. Reddy’s Laboratories Q1 Earnings Call Highlights

Dr. Reddy’s Laboratories (NYSE:RDY) reported a year-over-year revenue decline and sharply lower profitability for the first quarter of fiscal 2027, as lower lenalidomide sales and semaglutide API-related challenges weighed on results. Management said the company’s base business, excluding lenalidomide, continued to grow at a double-digit rate across key geographies.

Chief Financial Officer M. V. Narasimham said consolidated revenue for the quarter was INR 8,071 crores, or $853 million using a convenience translation rate of INR 94.66 per dollar. That represented a 5.6% decline from the prior year and 7.4% sequential growth. EBITDA, including other income, was INR 1,009 crores, or $107 million, with an EBITDA margin of 12.5%.

Narasimham said the quarter included a provision of INR 240 crores for inventory and other costs tied to recent semaglutide API-related challenges. Excluding that provision, EBITDA margin would have been 15.4%, while gross margin would have been 49.4% instead of the reported 46.5%.

Semaglutide Issues Weigh on Margins

Chief Executive Officer Erez Israeli said the quarter’s EBITDA margin was affected by “semaglutide-related challenges,” including lower sales, rejected batches, lost production-linked incentives and associated costs, along with the impact of the Middle East conflict. He said that excluding those effects, EBITDA margin would have been in the “high teens.”

Israeli said Dr. Reddy’s is working to resolve the semaglutide API issue and plans to resume commercial supplies by November. He also said there is “no risk to any patient who has consumed the product,” adding that patient safety and product quality remain the company’s top priorities.

During the question-and-answer session, Israeli said the company sold 180,000 semaglutide pens before stopping supplies. He said Dr. Reddy’s still expects, assuming the issue is resolved on schedule, to supply 6 million to 7 million pens between November and March. He characterized the opportunity lost from the disruption as about 3 million to 4 million pens, assuming supplies resume in November.

Management said the root cause of the API issue had been identified, and Israeli estimated the chance of a successful resolution at roughly 80% to 90%, while cautioning that the outcome was not guaranteed. The company expects to complete testing around the third week of September, according to Israeli.

Financial Performance and Cost Pressures

Gross profit margin fell 1,039 basis points year over year and rose 169 basis points sequentially. Narasimham attributed the decline primarily to lower lenalidomide sales, the semaglutide API-related provision and higher solvent costs linked to the Middle East conflict. He later said solvent and freight cost impacts on EBITDA were close to 1% and could remain elevated at least through December if the conflict continues.

SG&A expenses rose 12% year over year and 4% sequentially to INR 2,082 crores, or 36% of revenue. Narasimham said the increase was driven by higher personnel costs after annual increments, adverse foreign exchange movement, targeted investments in branded businesses and higher freight costs. R&D expense declined 8% year over year to INR 577 crores, representing 7.1% of revenue, reflecting lower biosimilar development spending.

Profit before tax was INR 553 crores, or $58 million, for a margin of 6.8%. The effective tax rate was 21.3%, down from 26% in the year-earlier period. Narasimham said the lower rate reflected the reversal of previously recognized tax provisions after a favorable resolution of an earlier-year tax assessment and a favorable jurisdictional mix. Profit after tax attributable to equity holders was INR 443 crores, or $47 million, and diluted earnings per share were INR 5.32.

As of June 30, 2026, Dr. Reddy’s had a net cash surplus of INR 3,057 crores, or $323 million. Capital expenditure cash outflow for the quarter was INR 307 crores. Narasimham said full-year capital expenditure is expected to be around INR 1,800 crores, down from a prior range of roughly INR 2,500 crores to INR 2,700 crores in earlier years.

Base Business Growth and Product Launches

Israeli said the company remains focused on strengthening its base business and building future growth engines in peptides, biosimilars, consumer health and innovation, while pursuing targeted business development. He said management continues to expect double-digit base business growth and steady margin improvement, with a stronger second half of the fiscal year helped by the expected resumption of semaglutide supplies.

• North America generics: Revenue was $236 million, representing 27% of overall revenue. Sales declined 41% year over year due primarily to lower lenalidomide revenue but rose 19% sequentially. Israeli said the underlying base business delivered double-digit growth, aided by new product launches.
• Emerging markets: Revenue was INR 1,833 crores, up 31% year over year and 2% sequentially, driven by new launches and favorable currency movement. The company introduced 43 new products across countries.
• India: Revenue was INR 1,780 crores, up 17% year over year and 10% sequentially. Management cited innovation products, new launches, acquired brands, price increases and volume growth. Excluding recent acquisitions, Israeli said India growth was 15.5% organically.
• Europe and NRT: Israeli said the nicotine replacement therapy business remains profitable and growing, though revenue was affected by inventory timing, a Brazil tender timing shift and an operating model change after integration.
• PSAI: Revenue declined 5% year over year and 10% sequentially due to lower API volume uptake. The company filed 38 drug master files globally during the quarter.

Dr. Reddy’s launched six new products in North America during the quarter, including complex generics bosutinib and nintedanib. Israeli said bosutinib was a first-to-market launch with 180 days of generic drug exclusivity for the 400-milligram strength. In Canada, the company became the first to secure approval for semaglutide for type 2 diabetes, and it launched oral semaglutide in India.

Biosimilars, Regulatory Updates and Outlook

The U.S. Food and Drug Administration completed a pre-license inspection at Dr. Reddy’s biologics manufacturing facility in Bachupally, Hyderabad, in June 2026 and issued a Form 483 with seven observations. Israeli said the company responded within the stipulated timeline and believes the observations are addressable. He said the goal date for abatacept remains mid-December 2026 and that the product can launch upon approval.

Israeli clarified during the call that abatacept was filed from Dr. Reddy’s Bachupally site, not from a contract manufacturing organization. He said the company has filed the intravenous version in the U.S. and Europe, while the subcutaneous version is expected in 2028, likely around February or March in the U.S. and September or October in Europe.

On potential U.S. tariffs on generics, Israeli said he did not see a reason for concern at this stage, calling the recent comments an opening for discussion and noting that details remained uncertain. Management also said 25% to 30% of the company’s revenues are manufactured by contract manufacturers in the U.S.

Israeli said Dr. Reddy’s is engaged in business development discussions across generics, innovation and biosimilars, with the company’s cash balance available for inorganic growth opportunities. He reiterated that the company remains focused on operational efficiency, semaglutide and abatacept execution, and long-term growth across peptides, biosimilars, consumer health and innovation.

About Dr. Reddy’s Laboratories (NYSE:RDY)

Dr. Reddy’s Laboratories Ltd. is an India‐based multinational pharmaceutical company that develops, manufactures and markets a wide range of pharmaceutical products and services. Established in 1984 by the late Dr. Kallam Anji Reddy, the company has grown into a diversified healthcare enterprise offering generic and proprietary medicines, active pharmaceutical ingredients (APIs), biosimilars and custom research and manufacturing services (CRAMS). Its portfolio spans therapeutic areas such as oncology, cardiovascular care, dermatology, gastroenterology and pain management.

The company’s core activities include the development and commercialization of cost‐effective generic treatments for branded drugs that have lost patent protection, along with in‐house research into innovative molecule development.