Dr Reddy's Laboratories (NYSE:RDY) released fourth-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.

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The full earnings call is available at https://drreddys.zoom.us/webinar/register/WN_DW56_eZ6SAGF8FWL6wa-EQ#/registration

Summary

Dr. Reddy's Laboratories Ltd reported resilient operating performance for FY26 with record annual revenues, despite product-specific challenges and one-time impacts.

The company faced a sales stock adjustment related to Lenalidomide, impacting revenues by 453 crores, and incurred additional provisions and impairments totaling over 300 crores.

Excluding these adjustments, the adjusted revenue for the quarter was 7,969 crores, showing a year-over-year decline of 6%, mainly due to lower Lenalidomide sales.

The gross margin was affected by price erosion in unbranded generics, but the company expects margins to improve over 50% in FY27 with ongoing cost efficiencies.

Strategic progress was made with regulatory approval of Semaglutide in Canada and India, and the US FDA acceptance of a biosimilar candidate for review.

The company launched 25 new products in North America and 49 in emerging markets during the quarter.

Dr. Reddy's remains focused on strengthening its core business while driving future growth in biosimilars, peptides, and consumer health.

Management is optimistic about maintaining growth momentum in its base business and achieving a 24-25% effective tax rate for FY27.

Full Transcript

Aishwarya Sita Ram, Head of Investor Relations

Good day everyone and welcome to the quarter four full year FY26 earnings call of Dr. Reddy's Laboratories Ltd. I'm Aishwarya Sita Ram, 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. M.V. Narasim, 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 as well as the year.

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, including 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 today's press release apply to all forward-looking statements made during this call.

Before we proceed, I would like to call on a few housekeeping points. All participants will be in the listen-only mode during the opening remarks. Should you need any technical assistance during the call, please use the chat function in your Zoom application. The chat, however, will not be monitored for any questions to the management. The session is being recorded and both the audio and transcript will be made available on our website. Please note that this call is the proprietary material of Dr. Reddy's Laboratories Ltd. and may not be rebroadcasted 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.

M.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 fourth quarter and full year FY26. FY26 reflected a resilient operating performance delivering highest ever annual revenues amid product-specific headwinds and certain one-time impacts. The underlying base business continued to deliver double-digit growth for the quarter as well as for the full year FY26. At the outset, I would like to highlight a few items impacting the quarter.

Number one, a sales stock adjustment or SSA related to Lenalidomide of rupees 453 crores taken as a reduction in revenue. Number two, an additional provision of 114 crores related to potential VAT liability in one of our subsidiaries included in G expenses. Impairment of 135 crores including an R&D charge of 6 crores on account of discontinuation of RD programs related to CAR T therapy as part of the portfolio prioritization. Impairment of 93 crores on account of discontinuation of a trial by our partner IMUTEP of an in-licensed asset following an interim futility analysis.

The full-year performance was further impacted by provisions related to potential VAT liability of 70 crores as well as the impact of new labor law code in India of rupees 117 crores. After factoring these items, the adjusted profit before tax was 994 crores for the quarter versus the reported number of 199 crores and for the full year 6463 crores versus the reported PBT of 5482 crores. Now I would like to discuss the underlying performance in detail.

Margins in this section are expressed as a percentage of the revenues before impact of SSA unless otherwise stated. For the reported figures, please refer to the respective earning releases. All financial figures in this section are translated into US dollars using a convenience translation rate of Rupees 93.83, the exchange rate prevailing as of March 31, 2026. Excluding SSA, the adjusted revenue stood at 7,969 crores which is 849 million US dollars for the quarter, a decline of 6% year over year and 9% on Q2 and at 34,046 crores which is 3.63 US billion dollars for the full year representing a growth of 4.6%.

The decline was primarily on account of lower Lenalidomide sales while the base business excluding Lenalidomide delivered double-digit growth on a year-over-year basis. We expect the base business to sustain its growth momentum in the years ahead. The gross margin on the adjusted revenue base after excluding the one-offs for the quarter was at 48%, lowered by 760 basis points year over year and 615 basis points sequentially and at 53.5% for the year, lower by 498 basis points year over year.

The decline in margins was largely on account of lower Lenalidomide sales and price erosion in our unbranded generics businesses. The gross margin for global generics was at 51.7% for the quarter and 57.6% for the year as a percentage of its adjusted revenues, while that for PSAI stood at 19.9% for the quarter and 17.2% for the fiscal on its reported revenues. Given our focus on cost efficiencies and productivity improvement, we expect the margins to improve and be above 50% in FY27 excluding one-off provisions mentioned earlier.

SNA spends were at 2,662 crores for the quarter, an increase of 11% year over year and 1% sequentially and 33% of the adjusted revenue base and rupees 10,435 crores for the year, an increase of 11% year over year and 31% of the adjusted revenues. The increase was primarily on account of ongoing targeted investment to support long-term growth of our branded franchise, namely the acquired NRT, consumable healthcare business, and branded NX. We expect the spend to be around the same level as FY26 for the year ahead.

The adjusted R&D spend for the quarter was 541 crores, a decrease of 26% year over year and 12% sequentially and a margin of 6.0% of adjusted revenue for the year. The spend excluding one-time labor code related provision was 2,385 crores for FY26, a decrease of 13% and 12% of adjusted revenues. The decrease reflects reduced biosimilars developmental expenditure as a significant portion of investment related to Abatacept has been completed. We expect the expense to be in the range of 7 to 8% in the fiscal ahead.

Other operating income for the quarter was 344 crores as against 247 crores in the corresponding quarter last year and rupees 763 crores in FY26 as against 436 crores in FY25. The increase during the quarter was largely on account of divestment of non-core brands in India business for net of rupees one acre in crores. The underlying EBITDA including other income stood at 1,554 crores for the quarter which is 166 million US dollars, a decline of 37% year over year and 28% sequentially and reflecting a margin of 19.5% of the adjusted revenues.

For FY26, the EBITDA adjusted for one-offs was at 8,419 crores which is 897 million dollars, that is 24.7% on the adjusted revenue base. Impairment charge for the quarter was 259 crores as compared to 77 crores during the same quarter last year. The higher charge this quarter was largely on account of discontinuation of CAR T assets and partner product FT Language mode alpha. As mentioned earlier, impairment charge for the year was 352 crores as compared to 169 crores last year.

The net finance income for the quarter was 62 crores versus 235 crores during the same quarter last year and rupees 413 crores for FY26 versus 472 crores for FY25. The decrease was primarily on account of lower foreign exchange gains in comparison to the corresponding period last year. As a result, the underlying profit before tax was at Rupees 994 crores, i.e. USD 106 million representing a margin of 12.5% and for FY26 at 6463 crores, i.e. USD 689 million, a margin of 19%.

Effective tax rate for the quarter was negative of 10.8% compared to 20.8% in the corresponding period last year, while for FY26 ETR was at 22.5% versus 25.4% in FY25. The ETR for Q4FY26 was lower primarily due to recognition of a deferred tax asset on carryforward losses in one of our subsidiaries and favorable jurisdictional mix for the quarter in comparison to the same period in the previous year. We expect the ETR to be 24 to 25% for FY27. Profit after tax attributable to the equity holder of the parent for the quarter stood at rupees 220 crores which is 23 million US dollars, a margin of 2.9% on the reported revenues and for the year 4285 crores which is 457 million US dollars, a margin of 13%. Before adjusting for one-off items mentioned earlier. Based on the company's performance, the Board recommended payment of dividend 8 rupees for the equity share of face value 1 rupee each. This is equivalent to 800% of the face value for the year ended March 31, 2026, subject to approval of the shareholders of the company. Diluted EPS for the quarter was rupees 2.64 and rupees 51.42 for FY26.

Operating working capital as of 31st March 2026 was rupees 14,434 crores which is 1.54 billion US dollars, an increase of 2,920 crores which is 31 million over 31st December 2025. Capex cash outflow for the quarter stood at four hundred and thirty-eight crores which is forty-seven million and twenty-three ninety-two crores which is 245 million for FY26. Free cash flow generated during the quarter before acquisition-related payout was 600 crores which is 64 million and 2004 crores which is 214 million for FY26.

As of March 31, 2026, we have a net cash surplus of 3271 crores which is 349 million US dollars. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 462 million hedged using a combination of forwards and risk reversal options scheduled to mature via March. These contracts are hedged at a rate of 91.37 to 93.46 per US dollar. Ruble, 1.6 billion hedged at a fixed rate of 1.12 for Russian ruble with maturity falling within the next three months.

With this, now I request Erez to take us through the key business highlights.

Erez Israeli, Chief Executive Officer

Thank you, MVN, and good day everyone. We appreciate your participation on this call today and value your continued interest in our company. During the year, we remain focused on advancing our two-pronged strategy of strengthening the base business while investing in our future growth drivers across peptides, biosimilars, consumer health, and innovation. Our FY26 performance reflected consistent disciplined execution of our strategic priorities, namely scaling the base business, advancing our key pipeline programs, and targeted business development efforts to support our growth ambitions while continuing to enhance efficiency across operations.

I'm pleased to report that in this first quarter without one of our key products, Lenalidomide, the company delivered an EBITDA margin of around 20% after adjusting for certain items indicated by MVN earlier. Launches of products offering meaningful opportunity, business development, and continued cost optimization efforts will take us closer to our aspiration of 25%. For FY26, the adjusted EBITDA margin was in the neighborhood of 20%, consistent with our stated aspirations.

Further, the underlying base business delivered double-digit growth in Q4 as well as for the full year of FY26. All geographies besides domestic recorded double-digit growth, while performance in North America was impacted due to Lenalidomide sales and one-time shelf stock adjustment related to this product. Let me now walk you through some of the key highlights of the quarter. In line with our strategic priorities, we made progress on our key pipeline assets in Semaglutide and Abatacept.

During the quarter, we are pleased to announce that Dr. Reddy's became the first company to secure regulatory approval of Semaglutide injection for type 2 diabetes in Canada, reinforcing our in-house expertise in peptide science and complex product development. Likewise, as the first company to receive approval in India for the same product in November last year, we successfully launched our brand Obeda on day one of market formation about patent expiry in India.

Our oral version of Semaglutide is being approved by the CDSCO in India. We continue to engage with ANVISA in Brazil to address its concerns related to our generics Semaglutide filing and remain committed to making this important therapy available to patients across several markets subject to approvals. Further, in February 2026, the US FDA accepted for review our BLA for the intravenous IV presentation of Abatacept biosimilar candidate following its filing in December 2025.

In line with our strategic focus to bring innovation to patients in India, we have already entered the hormone replacement therapy segment with the acquisition of Fogino Inova and Cyclopro Vinova in India. Our partner product COIAS3.02 received fast track review status. In addition, the operational integration of our acquired consumer healthcare business in nicotine replacement therapy is now largely complete. On the regulatory front, in March 2026, the US provided the BAI classification for our formulation facility FUSZ in Srikakulam, Andhra Pradesh following a GMP and Pre-Approval Inspection PAI in December 2025.

We continue to build on our leadership in sustainability. Dr. Reddy's was awarded the Gold Medal for EcoVadis for FY26, achieving its highest ever score of 80, placing us among the top 5% companies assessed globally during the quarter. We were named by the Business World among India's top five sustainable companies, ranking first in the Indian healthcare and pharmaceutical industry for 24 and 25. We've been recognized in the leadership category of the 2025 Indian Corporate Governance Code Card for the third consecutive year.

Let me now take you through the key business highlights for the quarter and the full year. Please note that all financial figures mentioned are reported in the respective local currencies. Our North America Generic Business reported revenue of $199 million for the quarter and $1.3 billion for FY26. Excluding one-time shelf stock adjustment, revenue was 251 million for the quarter, a decline of 40% and 26% sequentially, and 1.36 billion, a decline of 21% year over year.

The decline was primarily on account of Lenalidomide, but during the quarter we added seven new products to our portfolio, taking the annual total to 25 products. We aim to continue the launch momentum in the fiscal ahead. Our emerging markets reported revenue of 1,806 crores rupees in Q4FY26, reflecting a robust growth of 29% year over year and a decline of 5% sequentially, and 6,761 crores rupees in FY26, a growth of 23% year over year. The growth was led by new product launches across markets and higher volume, particularly in the rest of the world, further aided by favorable currency movements.

During the quarter, we introduced 49 new products across countries, taking the FY26 total to 129. Within this segment, our Russia business reported growth of 8% year over year and a decline of 23% sequentially in constant currency terms. Our India business posted revenue of 1,566 crores rupees in Q4FY26, delivering a robust double-digit year-over-year growth of 20% and a decline of 2% sequentially, while the full-year revenues were at 6,219 crores rupees, a growth of 16%.

This performance was largely driven by revenues from our innovation franchise, new brand launches, price increase, and volume growth. Accurate data as of March 31st, 2026, shows that we continue to outperform in the Indian pharmaceutical market (IPM) with a moving quarterly total growth of 15.2% compared to IPM growth of 11.6% and moving annual total (MAT) growth of 12.1% compared to IPM growth of 9.9%. Our IPM rank stood at 9 for the quarter and 10 for the year.

We launched 10 new brands during the quarter and 28 over FY26, reflecting our continued focus on strengthening our domestic market presence. Our European business, which includes our acquired consumer health business in nicotine replacement therapy, posted revenue of 136 million for the quarter, a decline of 3% on a year-on-year basis as well as sequentially, and 542 million for FY26, reflecting an acquisition-led growth of 77% year over year. The decline this quarter was primarily on account of price erosion in generics.

During the quarter, we launched seven new generics products across markets, taking the full-year total to 38, further expanding our European product portfolio. Our PSAI business reported revenue of 101 million US dollars in Q4FY26, resulting in a decline of 10% year over year and a growth of 10% sequentially. The decline was primarily on account of lower API volume uptake during the quarter. During the quarter, we filed 48 Drug Master Files globally, taking the total number of filings to 128 for the year.

Looking ahead, we remain focused on delivering on our strategic agenda of strengthening our core business while building future growth drivers. Underpinning this strategy is a future-ready organization structure aligned with our business model, with dedicated leadership across global generics, biologics, consumer health, and innovation, enabling sharper focus, relevant capabilities, and more effective execution across each growth pillar. Within this framework, we will continue to advance our differentiated pipeline programs such as Semaglutide and Abatacept, drive operational efficiency, and pursue value-accretive inorganic opportunities that support sustainable long-term stakeholder value. With that, I invite your questions as we move into the Q&A session.

Aishwarya Sita Ram, Head of Investor Relations

Thank you very much, Erez. 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 the 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 to 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 the chat option to reach out to us. The first question is from the line of Neha Manpuria from Bank of America. Neha, please go ahead.

Neha Manpuria, Bank of America

Yeah, thanks for taking my question. Just wondering on the shelf stock adjustment that we had in the quarter, a $50 million number for a product like Revlimid, where we knew that patent loss was coming, seems very large. So if you could just give us some color in terms of why the shelf stock adjustment was so large, given that we knew they were expecting competition in January.

Erez Israeli, Chief Executive Officer

We were also surprised by this. It was not part of any arrangement or anything like that. I cannot speak on the details of the relationship with the customers, but it came from them, I guess certain planning issues or mistakes at their end, and that's the outcome of it.

Neha Manpuria, Bank of America

Okay, understood. And my second question is on Semaglutide. Now that we have Canada approval, I think they've mentioned a 12 million unit sales across markets in FY27. Erez, in your view, what could be the competitive landscape now that Reddy's and the second player have gotten approval? When do you expect more players? And out of the 12 million, based on your assessment, what could be the rough breakup between, let's say, Canada and emerging markets?

Erez Israeli, Chief Executive Officer

So I believe that the current landscape of basically Novo Nordisk, as well as the two of us, will stay there probably for several months, and then likely that others will come. I believe that the market in Canada is give or take, it's about one-third in what we call public, one-third cash, and one-third what they call private. So it's a kind of public, private, cash. So what I believe will happen is that the reimbursement price will go over time as expected.

The launch quantities, at least in a couple of years, we should be very, very happy. Obviously, I cannot specify, but it should be very, very healthy.

Neha Manpuria, Bank of America

And given that we have had a setback in Brazil, are we still confident of the 12 million units sale for SEMA in fiscal 27, or do you think that would depend on us getting approval in Brazil as well?

Erez Israeli, Chief Executive Officer

So Brazil is part of it, and I believe it's still in that number, but the number moved by several months. So if we are still, I'm still with the same number, but probably it will every like 12 months. That will probably result in some and the beginning of FY28 as well. Specifically for the next, let's say until the end of calendar 26, I believe that the number is somewhere between 6 to 7 million units.

Neha Manpuria, Bank of America

This is for calendar 26?

Erez Israeli, Chief Executive Officer

No, this is for the markets that will get approval. And Canada will be obviously a big part of it, but it will be. This is give or take the numbers.

Aishwarya Sita Ram, Head of Investor Relations

All right, thank you so much. Thanks, Neha. The next question is from the line of Damayanti Kirai from Agen BC Dometi. Please go ahead.

Damayanti Kirai, Agen BC Dometi

Hi, thank you for the opportunity. Continuing on Semaglutide. So just to clear this, 6 to 7 million units which you expect to market, it's by end of this calendar year, right? By 26. Okay. So can you talk a little bit about your pricing strategy in the market where you'll be coming in, say, another 12 months? And specifically in Canada, after entry of the second generic, how do you position yourself versus Novo Nordisk pricing?

Erez Israeli, Chief Executive Officer

So our list price will be give or take about half of what Novo Nordisk will be. So that can be shared because it will be listed, obviously. The rest is arrangement that we have with the customer that will not be able to disclose. But let's say it will be the normal arrangement that you normally have in terms of. I'm not sure I captured. Sorry, the rest of the question. Sorry, I lost it. Can you remind me?

Damayanti Kirai, Agen BC Dometi

Yes, I was asking about the pricing strategy in all the markets where you intend to come in, say, another 12 months or so. 12 to 15 months, sure.

Erez Israeli, Chief Executive Officer

So we believe that all the prices will be, let's say, at the neighborhood of, let's say, 30.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.