DRREDDY

faces headwinds in near-term

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’s Q1FY26 revenue rose 11% YoY, primarily buoyed by the acquisition of the Nicotine Replacement Therapy (NRT) business in Europe, which contributed ₹670 crore, masking slower core growth. → Excluding the inorganic NRT addition, underlying sales grew just 2.6%, with India, Europe, and Emerging Markets performing well, but this was offset by an 11% sales decline in the North American segment due to severe price erosion of Revlimid and shipment timing issues for Suboxone. → Margins took a hit, with EBITDA contracting as a result of an unfavorable product mix and ongoing pricing headwinds in the US, partially cushioned by lower R&D spending. → Revlimid’s contribution is set to shrink further, with management forecasting a steady Q2 followed by a sharp drop, increasing near-term earnings uncertainty until the Semaglutide injectable launch in Canada (Jan’26) and subsequent rollouts elsewhere. → Medium-term growth catalysts include the Semaglutide launch (planned 10–12 million pen capacity by CY27), progress in biosimilars through collaborations with Alvotech (including Keytruda and denosumab biosimilars), and a rising consumer health business (nutraceuticals via the Nestle JV). → While valuation appears reasonable, the immediate outlook remains clouded by margin pressure as Revlimid wanes, with EBITDA margins likely to stabilize around 24% over the medium term and a strong balance sheet potentially enabling more acquisitions.