Hyderabad, India — July 24, 2025
Dr. Reddy’s Laboratories reported its Q1 FY26 results on Wednesday, posting a modest 1.8% year-over-year increase in net profit to ₹1,418 crore. While the pharmaceutical major saw robust revenue growth of 11.4%, totaling ₹8,572 crore, its bottom line fell short of expectations. Analysts surveyed by Bloomberg had pegged net profit at ₹1,514 crore, making the actual figure a notable miss.
📊 Key Financial Highlights:
- Net Profit: ₹1,418 crore vs ₹1,394 crore YoY
- Revenue: ₹8,572 crore, up 11.4% YoY
- Gross Margin: 56.9% vs 60.4% YoY
- Sequential Margin Improvement: From 55.6% in Q4 FY25
🔍 What Drove the Growth?
The company's revenue performance was fueled by strong gains in branded markets and its recently acquired Nicotine Replacement Therapy (NRT) portfolio.
- European sales surged 142%, largely credited to the Haleon-acquired NRT business.
- India operations grew 11%, driven by new product launches and strong execution strategies.
“We saw broad-based growth across geographies and key segments,” the company said in a statement, citing particular strength in branded markets and the CDMO (Contract Development and Manufacturing Organization) segment.
⚠️ Headwinds in North America
Despite gains elsewhere, North America revenue slipped 11%, largely due to price erosion in generic drugs, most notably Lenalidomide — a major contributor to the company’s US revenue.
Dr. Reddy’s management warned that pricing pressure in the US market may continue to intensify, impacting future profitability.
📉 Margins Under Pressure
Gross margins dropped to 56.9% from 60.4% YoY, attributed to lower operating leverage and continued price erosion in generics. However, the company did report a sequential improvement, signaling better cost management compared to the previous quarter.
🔬 Future Growth & Strategy
Looking forward, Dr. Reddy’s is doubling down on pipeline innovation, biosimilars, and productivity enhancement:
- The company is scaling up CDMO operations.
- It is collaborating with Alvotech on a biosimilar version of Keytruda.
- Dr. Reddy’s is also optimistic about the market opportunity for semaglutide, a GLP-1-based diabetes and weight-loss drug, which it plans to enter soon.
📈 Market Reaction & Analyst Views
While the Q1 net profit fell short of expectations, some brokerages remain bullish.
- HSBC upgraded the stock to “Buy”, citing growth potential from semaglutide.
- ICICI Securities maintained a “Hold” rating, citing headwinds from declining Lenalidomide revenue.
🧾 Final Take
Dr. Reddy’s Q1 FY26 results reflect a steady revenue trajectory backed by international expansion and strategic acquisitions. However, North American price pressures and margin compression present significant challenges. With investments in biosimilars, branded markets, and innovation, the company is positioning itself for sustainable long-term growth—even as it navigates near-term volatility.
