Dr. Reddy’s Reports Record Revenues in Q1, Signals Steady Execution Through Transition Year

The Bottom Line: Dr. Reddy’s reported record Q1 FY26 revenues of ₹85.5B (up 11% YoY) with a 26.7% EBITDA margin, driven by strong base business growth across India, emerging markets, and Europe. U.S. generics saw a decline due to price erosion and timing factors, but management reaffirmed full-year growth expectations. Strategic investments continued in complex generics, biosimilars, and peptides, with key pipeline assets like semaglutide and abatacept advancing. Despite short-term pressures, the company remains focused on long-term value creation through cost discipline, capex in biologics, and potential M&A supported by a robust ₹29.2B net cash position.

Dr. Reddy’s Laboratories kicked off FY26 with its highest-ever quarterly revenue, reporting ₹85.5 billion in Q1, up 11% year-over-year. EBITDA margin came in at 26.7%, modestly ahead of the company’s long-term 25% aspiration, and profit after tax attributable to equity holders rose 2% YoY to ₹14.2 billion.

While the Q1 performance reflected steady momentum across most markets, management recently articulated the plan for  the year ahead on the company’s recent earnings call as a period of strategic navigation - balancing near-term pressures with preparations for future growth.

Base Business Growth Remains Core Driver

Across markets, the company’s branded and unbranded generics portfolios maintained solid momentum. Revenues in India grew 11% YoY and 13% sequentially, driven by new product launches, price increases, and continued execution. Emerging Markets revenue rose 18% YoY, while Europe posted 142% growth, buoyed by contributions from the recently acquired Nicotine Replacement Therapy (NRT) business.

The U.S. generics segment declined 11% YoY, primarily due to price erosion in key products, including Lenalidomide. Management attributed part of the decline to customer order timing and maintained guidance for low-to-mid single-digit growth in the U.S. base business, with double-digit growth expected at the overall company level, excluding Lenalidomide.

Cost Flexibility and Margin Focus

SG&A spend rose 13% YoY to ₹25.6 billion, driven by strategic investments in Consumer Health and the Nestlé JV. However, other operating costs remained largely flat, underscoring management’s focus on cost discipline.

R&D spend for the quarter was ₹6.2 billion (7.3% of revenue), in line with full-year guidance of 7–7.5%, and targeted toward advancing complex generics, biosimilars, and peptides. Management has indicated that there is flexibility to optimize costs to deliver on the aspirations of 25% EBITDA margins and RoCE. Management did indicate in certain quarters the aspirations around overall growth and profitability may not hold good, but the company will return to the double-digit trajectory based on the success of the meaningful launch of semaglutide.

Capital expenditure for the quarter stood at ₹6.8 billion, with continued investments planned in peptide and biologics capabilities. Management guided to similar levels of capex as the previous year.

Semaglutide and Abatacept in Focus, But Long-Term Plays

While pipeline assets such as Semaglutide (GLP-1) and Abatacept (biosimilar) have drawn investor attention, management emphasized that these are just part of larger categories that are long-term opportunities.

Semaglutide, for which Dr. Reddy’s is one of four filers, is expected to launch in Canada in January 2026, pending regulatory approval and subject to IP clearance. The company has secured manufacturing partnerships and has invested in own API capacity, with a target of supplying approximately 10 million monthly pens to patients in calendar 2026.

Abatacept’s Phase III readout is expected in November 2025, with the filing planned for end of this calendar year. The IV version on track for a potential early 2027 launch. The company also highlighted progress in its broader peptide pipeline and biosimilar alliances, including a recent partnership with Alvotech on pembrolizumab, a Keytruda® biosimilar.

“I see that as many, many years of opportunity [ahead… we are entering a decade of GLP-1 products... So actually, [its] just the beginning of the journey,” Israeli remarked.

Positioned for Long-Term Value Creation

With ₹29.2 billion in net cash and additional borrowing capacity, Dr. Reddy’s signaled openness to M&A and in-licensing to support its growth pillars. The company reiterated its four strategic levers for FY26: base business growth, scale-up of specialized products, cost optimization, and business development.

As Revlimid winds down after Q2 and new opportunities ramp up in CY2026, Dr. Reddy’s appears to be managing the transition with a clear-eyed focus on fundamentals.

Recent News from Dr. Reddy’s Laboratories:

Dr. Reddy’s Q1FY26 Financial Results

Alvotech and Dr. Reddy’s Enter into Collaboration to Co-Develop Biosimilar Candidate to Keytruda® (pembrolizumab)

Dr. Reddy’s Q4 & Full Year FY25 Financial Results

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