Dr. Reddy's Laboratories is navigating a shift in its business after losing exclusivity for its cancer drug, Revlimid. Nomura analysts expect a sequential profit improvement in the first quarter of fiscal year 2027, driven by domestic growth and controlled spending. Investors are currently monitoring the company's ability to maintain long-term profit margins above 20% despite challenges in the North American market.
Dr. Reddy's Laboratories is entering a transitional phase as it adapts to the post-exclusivity era of gRevlimid, a key product that previously contributed significantly to its North American revenue. According to projections by Nomura, the company is expected to see a year-on-year decline in its North American generics business for the first quarter of fiscal year 2027. Despite this pressure, the company is leaning on growth in other international markets and strict internal cost controls to balance its financial performance.
Path to Profit Margin Recovery
A critical area for investors to follow is the company's operating profit margin, known as the EBITDA margin. For the quarter ending in June 2026, Nomura projects this margin to reach 17.4%, which is a slight improvement from the adjusted 16.7% reported in the previous quarter. While this level remains below the company's historical standards, the brokerage anticipates that margins will stabilize back above the 20% mark in the medium to long term. This recovery is expected to be supported by a shift toward higher-value branded products, disciplined management of overhead expenses, and favorable currency movements that help earnings when converted into rupees.
Domestic Market and New Product Strategy
The domestic Indian market remains a primary pillar of growth, with Nomura estimating an 18% year-on-year revenue increase for this segment. This performance is largely attributed to recent strategic acquisitions, including the Stugeron and Progynova brands. Furthermore, the company is actively expanding its footprint in the diabetes and obesity treatment space through the launch of semaglutide in India, which includes supply agreements with partners like Torrent Pharma and USV. In North America, the company is focusing on launching new products, such as generic Bosulif, to help offset the revenue gap left by the loss of exclusivity on older drugs.
Monitoring Future Growth Drivers
Looking ahead, the pace of recovery will depend on several execution factors. Investors are tracking the company's progress with semaglutide, specifically how it manages the technical complexities of scaling up production batches. Additionally, the potential of the company's biosimilar pipeline, such as abatacept, remains a significant valuation component. The final benefit of these efforts will depend on the company's ability to maintain its 50-55% gross margin guidance while balancing R&D spending with current revenue pressures. The management's commentary on these cost-saving initiatives and the ongoing stabilization of its sales mix will be the primary updates to watch in the coming quarters.