Summary
Dr. Reddy’s Laboratories Limited - Q3 FY2026 Earnings Call Summary Wednesday, January 21, 2026 5:30 PM IST
Event Participants
Executives 3 Aishwarya Sitharam (Head – IR), Erez Israeli (CEO), M. V. Narasimham (CFO)
Analysts 10 Abdul Puranwala, Bino Pathiparampil, Damayanti Kerai, Foram Parekh, Kunal Dhamesha, Kunal Lakhan, Madhav Marda, Neha Manpuria, Shashank Krishnakumar, Shyam Srinivasan
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue | ₹8,727 crores | +4.4% YoY; growth in Branded and Emerging Markets offset by lower Lenalidomide sales and US pricing pressure. |
| Gross Profit Margin | 53.6% | -505 bps YoY; driven by lower Lenalidomide contribution, price erosion in unbranded generics, and adverse PSAI mix. |
| EBITDA Margin | 23.5% | -401 bps YoY; adjusted for one-time ₹117 crore labor code provision, underlying margin was 24.8%. |
| Profit After Tax | ₹1,210 crores | -14% YoY; decline attributed to lower high-margin Lenalidomide sales and one-time employee benefit obligations. |
| R&D Spend | ₹615 crores | 7% of revenue; -8% YoY as Abatacept development phase nears completion. |
| SG&A Spend | ₹2,692 crores | +12% YoY; reflects investments in NRT business, branded generics, and labor code provisions. |
| Global Generics GM | 57.4% | Significant contributor to overall portfolio despite tapering of exclusive product windows. |
| PSAI Gross Margin | 17.3% | Impacted by adverse product mix and price competition in the API segment. |
| Net Cash Surplus | ₹3,069 crores | Provides head-room for upcoming biosimilar launches and BD opportunities. |
Geographic & Segment Commentary
- North America: Revenues stood at US$338 million, declining 16% YoY and 9% QoQ, primarily due to lower Lenalidomide sales and persistent price erosion. Despite the decline, the company launched six new products during the quarter to bolster the base portfolio.
- India: Robust growth of 19% YoY (approx. 17-18% organic) reached ₹1,603 crores, driven by the innovation franchise (Horizon 2), price increases, and the Stugeron portfolio acquisition. The innovative portfolio now accounts for 10-15% of India sales, outperforming the general market.
- Emerging Markets: Robust 32% YoY growth to ₹1,896 crores fueled by 30 new product launches and favorable forex. Russia specifically grew 21% YoY in constant currency terms across both retail and hospital segments.
- Europe: Reported €140 million (+4% YoY), supported by the integration of the Nicotine Replacement Therapy (NRT) business and 10 new generic launches. Integration of the NRT business is 85% complete by value and expected to finalize by fiscal year-end.
Company-Specific & Strategic Commentary
- Semaglutide Pipeline: Received DCGI approval for Semaglutide injection in India with a launch target of March 21, 2026. Management responded to Canada’s Notice of Non-Compliance and expects a launch window between February and May 2026.
- Biosimilar Progress: Filed BLA for IV Abatacept in Dec 2025; Subcutaneous filing targeted for July 2026 with an expected Jan/Feb 2028 patent-expiry launch. European approval for Denosumab received in Q3 FY26, with German launch completed.
- Regulatory Status: Received a CRL for Denosumab in the US due to partner Alvotech’s facility observations; Rituximab US approval delayed due to a requirement for re-inspection of the Bachupally biologics facility.
- Innovation/BD: Partnered with Immutep for Eftilagimod Alfa (oncology) with milestones up to US$350M. Launched Hevaxin (Hepatitis-E vaccine) in India, reinforcing the shift toward innovative therapies.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Gross Margin | 50% - 55% | Post-Lenalidomide steady-state range from Q4 FY26 onwards. |
| Revenue Growth | Double-Digit | Target for all markets except the US (US guided for single-digit growth). |
| India Sales | 15%+ Growth | Sustained growth expected via innovative brand scaling and price increases. |
| EBITDA Margin | ~25% | Management aspiration for underlying profitability excluding one-offs. |
| R&D Spend | 7% - 8% | Continued investment in peptides, biosimilars, and the “Aurigene.AI” discovery platform. |
Risks & Constraints
| Risk | Context |
|---|---|
| Regulatory Delays | CRLs for Denosumab and Rituximab in the US shift expected launch timelines by 6-12 months. Management is working on re-inspection readiness for the Bachupally line. |
| Lenalidomide Cliff | Significant margin compression expected as the high-margin settlement exclusivity ends in Q4 FY26. Management has pre-emptively invested in India/Europe to bridge this GAAP. |
| Competition (Semaglutide) | Expectation of a highly competitive market in Canada and India with potential “generic” entries from the innovator (Novo Nordisk). Magnitude of price erosion remains a variable. |
Q&A Highlights
Semaglutide Launch Timelines
- Question: What are the next timelines for Semaglutide in Canada and India? (Neha Manpuria)
- Answer: India launch is fixed for March 21, 2026. Canada approval is expected between February and May 2026; management is preparing for a potential Q4 launch (Erez Israeli).
India Business Sustainability
- Question: Is the 19% growth in India sustainable or a one-off? (Damayanti Kerai)
- Answer: Growth is absolutely sustainable in the 15-18% range, driven by innovative products now reaching peak physician recognition in their 2nd/3rd year of launch (Erez Israeli).
US Biosimilar Headwinds
- Question: What is the status of Denosumab and Rituximab CRLs? (Bino Pathiparampil)
- Answer: Denosumab delay is at least 6 months depending on Alvotech’s response. Rituximab approval is unlikely in the next 6 months as management expects a re-inspection of the fill-finish line (Erez Israeli).
SG&A Trajectory
- Question: Will SG&A moderate post-Lenalidomide cliff? (Vivek Agarwal)
- Answer: Management is controlling discretionary costs; the pace of SG&A growth is expected to be less than half the rate of top-line growth (Erez Israeli).
Key Takeaway
Dr. Reddy’s delivered a resilient Q3 FY26 with 4.4% revenue growth, navigating the expected tapering of Lenalidomide contributions. While reported EBITDA margins (23.5%) were impacted by a one-time ₹117 crore labor code provision, the underlying business remained strong with 19% growth in India and 32% in Emerging Markets. Strategically, the company is pivoting toward a “Horizon 2” innovation model, evidenced by the upcoming March 2026 Semaglutide launch in India and the IV Abatacept filing. Despite regulatory delays in the US (CRLs for Denosumab and Rituximab), the company maintains a healthy net cash surplus of US$342 million to fund its 7-8% R&D intensity. Looking ahead, management expects a steady-state gross margin of 50-55% as the portfolio shifts from settlement-led gains to a volume-driven branded and biosimilar growth strategy.
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