Dr Reddy's Laboratories Q1 2027 Earnings Call Transcript

Dr Reddy's Laboratories (NYSE: RDY ) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call. This content is powered APIs. 6% decline in revenue for Q1 FY27, primarily due to reduced lenalidomide sales and challenges related to semaglutide API, which impacted EBITDA margins negatively.

The company's underlying base business demonstrated healthy double-digit growth across key geographies, such as North America, supported by new product launches and favorable currency movements. Strategic initiatives included launching complex generics like bosutinib and nintedanib in the US and securing semaglutide approval in Canada for type 2 diabetes treatment. The company faced operational challenges, including inventory provisions and higher costs due to Middle East conflicts, but remains optimistic about resuming semaglutide supplies by November.

Management reiterated confidence in a strong second half of the fiscal year, expecting to maintain close to 20% margins with the resumption of semaglutide supplies. Dr Reddy's Laboratories is pursuing growth in peptides, biosimilars, consumer health, and innovation, with ongoing business development initiatives to enhance organic growth. Full Transcript Aishwarya Saram, Head of Investor Relations Everyone, and welcome to the Q1 FY27 earnings call of Dr Reddy's Laboratories. We appreciate your continued interest in our company.

I'm Aishwarya Saram, Head of Investor Relations at Dr Reddy's. Joining us today are members of the leadership team, Mr. Erez Israeli, our Chief Executive Officer, and Mr. V.

Narasim (MVN), our Chief Financial Officer. Our quarterly financial results have been published earlier today and are available on our website. For your reference, we will start today's call with MVN providing an overview of our financial performance for the quarter. Following that, Erez will share his insights on key business highlights as well as the company's strategic outlook.

We will then open the floor for questions. All commentary and analysis during this call are based on our IFRS consolidated financial statements. Please note that certain non-GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release.

I would like to remind everyone that the safe harbor provisions outlined in our press release today apply to all forward-looking statements made during this call. Before we proceed, I would like to call out a few housekeeping points. All participants will be in listen-only mode during the opening remarks. Should you need any technical assistance during the call, please use the chat function on your Zoom application.

The chat will not be monitored for any questions to the management. The session is being recorded, and both the recording as well as the transcript will be made available on our website shortly. Please note that this call is the proprietary material of Dr Reddy's Laboratories and may not be rebroadcast or quoted in any media or public forum without prior written consent from the company. With that, let me hand the call over to MVN to present the financial highlights for the quarter.

Over to you, MVN. V. Narasim, Chief Financial Officer Thank you, Aishwarya. Greetings to everyone on the call.

It is my pleasure to walk you through our financial performance for the first quarter of FY27. 5% for the quarter, reflecting the impact of lower lenalidomide revenues, which contributed to the corresponding period last year, as well as a provision of 240 crores for inventory and other costs associated with the recent semaglutide API-related challenges. Notably, the underlying base business, excluding lenalidomide, continued to deliver healthy double-digit growth across all key geographies, including North America, supported by new product launches and favorable currency movements. 66, the exchange rate prevailing as of June 30, 2026.

4% on a sequential basis. Strong performance across key markets, further aided by favorable forex, was offset by lower lenalidomide sales. NRT revenues declined primarily due to change in operating model post integration, under which rebates and discounts are offered to distributors and recognized net of revenues as compared to the transition period when sales were managed by the seller Haleon. This change in operating model is profit neutral.

5%, a decrease of 1,039 basis points year over year and an increase of 169 basis points sequentially. The decline in margins during the quarter was largely on account of lower lenalidomide sales, semaglutide API-related provision mentioned earlier, as well as higher solvent costs on account of the Middle East conflict. 5% for PSAI. 9%.

82 crores, an increase of 12% year over year and 4% sequentially, accounting for 36% of revenues. The year-over-year increase was primarily driven by higher personnel costs due to annual increments, adverse forex movement, targeted investments in the branded business, as well as elevated freight costs arising from disruptions related to the Middle East crisis. 1% of revenues and reflecting lower biosimilar development expenditure as compared to the previous year. 5% of revenues.

4%. 8%. 8%. 3% compared to 26% in the corresponding period last year.

The ETR for the quarter was lower primarily due to reversal of previously recognized tax provisions no longer required consequent to the favorable resolution of the tax assessment pertaining to earlier years, and the favorable jurisdictional mix for the quarter in comparison to the same period in the previous year. 25% on the revenues before adjusting for the semaglutide API-related provision mentioned earlier. Diluted EPS for the quarter is rupees 5, 32 paisa. 52 billion US dollars, a decrease of 81 crores over 31st March 2026.

Capex cash outflow for the quarter stood at 307 crores, which is 32 million US dollars. Cash flow during the quarter before acquisition-related payout was -216 crores, which is negative 23 million. As of 06-30-2026, we have a net cash surplus of 3,057 crores, which is 323 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: US$354 million hedged using a combination of forwards and risk-reversal options scheduled to mature by March 2027.

63 per US dollar. 26 per Russian ruble with maturity falling within the next three months. With this, I now request Erez to take us through the key business highlights. Erez Israeli — Chief Executive Officer Thank you, Adrienne, and good day to all of you.

We appreciate you joining us today and thank you for your continued interest in our company. We remain consistent in our strategic priorities and committed to delivering goals and profitability through disciplined execution as the operating environment continues to evolve. We are focused on strengthening our base business and building future growth engines in peptides, biosimilars, consumer health and innovation, while pursuing targeted business development initiatives to augment our organic growth efforts. The underlying base business delivered healthy double-digit growth across all key geographies, including North America.

The quarter's EBITDA margins were adversely impacted by semaglutide-related challenges, including lower sales, provision for rejected batches, loss of production-linked incentives and other associated costs, as well as the conflict in the Middle East. Excluding this impact, we estimate that the EBITDA margin would have been in the high teens. We are working towards resolving the issue and are planning to resume semaglutide commercial supplies by November. Importantly, there is no risk to any patient who has consumed the product.

Patient safety and product quality remain our highest priorities and will continue to guide us in every decision we make. We remain confident of a strong second half of the fiscal and, with the resumption of semaglutide supplies, the strength of our base business and our ongoing productivity initiatives will continue to support double-digit base business growth and steady margin improvement. Let me now walk you through some of the key highlights of the quarter.

We commercialized a few key complex generic products, including the anti-cancer drug bosutinib, a first-to-market launch with 180 days of generic drug exclusivity for the 400 milligram strength, and nintedanib, used in the treatment of lung disease in the United States. In Canada, we're the first company to secure approval for the launch of semaglutide for the treatment of type 2 diabetes. We launched oral semaglutide in India and remain committed to building this important metabolic franchise, complemented by nutrition offerings such as Elevita GLP Plus.

Through our collaboration with Nestlé, we continue to make progress bringing innovation to patients in underserved markets. Through partnership, our in-licensed novel therapy Vitoripalimab for treatment of nasopharyngeal carcinoma has entered the 100 crore club in less than two years of launch in India. During the quarter, we partnered with Inoriva Specialty Therapeutics to develop and commercialize DUO, used in treatment of hospital-acquired bacterial pneumonia, in selected markets across South and Central America, the Caribbean, Russia and CIS countries.

Through our collaboration with GARDP and our subsidiary Origin Pharmaceutical Services, we achieved an important milestone in our access agenda by securing TFDA approval for zoliflodacin, a first-in-class treatment for uncomplicated gonorrhea. The approval came just six months after the US FDA approval, making Thailand the first LMIC country to approve the product. On the regulatory front, the US FDA completed a pre-license inspection (PLI) at our biologics manufacturing facility in Bachupally, Hyderabad, in June 2026 and issued a Form 483 with seven observations, which we already responded to well within the stipulated timelines.

Our commitment to good governance and sustainability continues to be recognized globally. During the quarter, we celebrated 25 years of our New York Stock Exchange listing, reinforcing our distinction as the first non Indian pharmaceutical company listed at the Exchange as well as our commitment to global best practices in governance, compliance and capital market access. FTSE Russell placed us in the top 1% worldwide, while Times-Statista ranked us 165 globally and 5 among Indian companies among the world's most sustainable companies. Let me take you through the key business highlights for the quarter.

Please note that all the financial figures mentioned are reported in their respective local currencies. Our North America generics business reported revenue of $236 million for the quarter, accounting for 27% of our overall revenue and reflecting a decline of 41% year over year and a growth of 19% sequentially. The year-on-year decline was primarily on account of lower revenue of lenalidomide; the underlying base business delivered double-digit growth aided by new product launches during the quarter.

During the quarter, we launched six new products in the region, including complex generics such as bosutinib and nintedanib, and we remain on track to bring more such products to the market as we progress through the year. Our branded franchise, including India, emerging markets and consumer health business, nicotine replacement therapy, or NRT, together accounted for 42% of overall revenues and remain an important source of stable margins for the company. Our emerging markets business recorded revenue of 1,833 crore, accounting for 22% of our overall revenues and reflecting a robust growth of 31% year on year and 2% quarter on quarter.

Growth was driven by new product launches across the cost markets and favorable currency movement. During the quarter, we introduced 43 new products across countries. Our India-based revenues were 1,788 crore, accounting for 21% of our overall revenues and delivering robust double-digit year-on-year growth of 70% and 10% sequentially. This performance was primarily driven by the innovation franchise, new launches including acquired brands, price increase and volume growth.

5% for the IPM. 1% for the market, our IPM rank stood at 9 for the quarter and 10 for the year. We launched seven new brands during the quarter, further enhancing our domestic presence. Our European business, which included NRT, posted revenue of $131 million for the quarter, accounting for 18% of our overall revenues.

Revenues were broadly in line with the corresponding period last year and declined 3% sequentially on account of price erosion as well as the impact of operating model changes post NRT integration, offsetting the contribution from new product launches in generics. During the quarter, we launched 24 new generic products across markets, further expanding our European product portfolio. Our PSAI business reported revenues of $91 million, accounting for 11% of the overall revenues. Revenues declined 5% year over year and 10% sequentially, primarily on account of lower API volume uptake.

During the quarter, we filed 38 drug master files globally. We remain focused on strengthening our core business while building the next wave of growth across peptides, biosimilars, consumer health and innovation. We'll continue to advance key products such as semaglutide and abatacept, improve operational efficiency and pursue value-accretive business development opportunities to drive long-term value creation. With that, I invite your questions as we move into the Q&A session.

Aishwarya Saram, Head of Investor Relations Thank you very much. We will now begin the question-and-answer session. To join the question queue, please use the Raise Hand option available on the bar at the bottom of your Zoom application. If you wish to exit the question queue, you may click on the Lower Hand option.

Participants are requested to not ask more than two questions at a time and rejoin the queue in case of any incremental queries. I would like to reiterate that the chat will not be monitored for any questions to the management; however, in case of any technical concerns, please do feel free to use that option. The first question is from the line of Neha Manturia from Bank of America. Neha, please go ahead.

V. Narasim, Chief Financial Officer Just the technicalities. The first part of the question, if you can repeat. We heard you from the middle.

Okay? Neha Manturia, Analyst at Bank of America My question was that we had given a guidance of 20% margins excluding sema. So just wanted to get a sense of how we improve, you know, the current high teens margin that you've indicated adjusted for sema and the Middle East impact, given that you're still uncertain about, you know, when sema comes back and how much it comes back in the second half. V.

5 and we take out the impact of what we provide plus in here that what we did not sell, just to make sure that, and in addition to PLI and the rest of the stuff, what I said the high teens, it's actually around 18%. Okay. So this quarter, the equivalent of the 19% last quarter is 18% for this quarter. We are still—I maintain what we discussed a few weeks ago—that we are in the neighborhood of the 20% and likely to stay, and that's what we are saying we will do in the next quarter, including the quarter next quarter which will not be with semaglutide.

So that's still the case, to be in the neighborhood of the 20%. As we will resume, because with assumption that we will come back with semaglutide in November, of course under this assumption the margins will be higher than that. So we are maintaining what we have discussed in June. Neha Manturia, Analyst at Bank of America Understood.

And second question is on the US business.