Dr. Reddy’s Q1 FY27: Base business grew, but semaglutide and costs hit margins

Dr. Reddy’s Laboratories reported consolidated revenue of INR 8,071 crore in Q1 FY27, down 6% year-on-year but up 7% sequentially. The reported numbers were shaped by two non-trivial headwinds: a sharp decline in lenalidomide sales in North America versus last year, and a semaglutide API related issue that led to an inventory and cost provision of INR 240 crore.

Profitability followed the same pattern. EBITDA was INR 1,009 crore and the EBITDA margin was 12.5%. Management disclosed that excluding the semaglutide API related impact, EBITDA margin would have been 15.4%. Profit after tax attributable to equity shareholders came in at INR 443 crore (PAT margin 5.5%).

Operationally, the quarter reinforced how Dr. Reddy’s has evolved into a more diversified pharma business. Branded businesses across India, Emerging Markets and consumer health (NRT) accounted for 52% of revenues. At the same time, the quarter also highlighted that complex programs like semaglutide can create volatility when scale-up or quality issues emerge.

The quarter in one table

Revenue mix: broad-based growth, with North America volatility

Dr. Reddy’s reported segment revenue split shows Global Generics remains the mainstay while the PSAI business continues to be a meaningful second engine.

Global Generics revenue was INR 7,199 crore (89% of total), down 5% year-on-year and up 9% quarter-on-quarter. PSAI revenue was INR 852 crore (11%), up 4% year-on-year but down 7% sequentially.

Within Global Generics, the geographic mix was balanced, with strong growth in India and Emerging Markets.

North America delivered INR 2,205 crore, down 35% year-on-year but up 26% sequentially. Management attributed the year-on-year decline largely to lower lenalidomide sales. Importantly, it reiterated that the underlying base business excluding lenalidomide delivered double-digit growth, supported by volumes and new launches.

Europe contributed INR 1,444 crore, up 13% year-on-year and marginally down 0.6% sequentially. The company highlighted a change in the operating model for the nicotine replacement therapy business after integration. Rebates and discounts are now recognized net of revenue, lowering the reported revenue line, but management described the change as profit neutral because the corresponding economics sit in SG and A.

India revenue was INR 1,718 crore, up 17% year-on-year and 10% sequentially, aided by new brand launches, acquired portfolios, pricing, and volumes. On the call, management stated organic growth excluding acquisitions was about 15.5%.

Emerging Markets revenue was INR 1,833 crore, up 31% year-on-year, supported by launches and favorable forex. The company introduced 43 new products across countries and filed 25 new filings in the quarter.

Semaglutide: the key swing factor for FY27 execution

The defining event of the quarter was the semaglutide API related disruption. The company disclosed that certain batches were out of specification due to an issue associated with the API. It booked a semaglutide API related impact of INR 240 crore, which included inventory provision and associated costs.

On the earnings call, management provided operational milestones. It stated it has identified the root cause and started remediation activities. The plan is to complete all testing around September 22-23 and resume semaglutide commercial supplies by November. Management also emphasized there is no risk to patients who consumed the product.

The scale of the semaglutide opportunity, and therefore the importance of resumption, was also discussed. Management stated it sold about 180,000 pens before supplies were paused and indicated the opportunity loss was about 3 to 4 million pens, assuming supplies resume in November. It also guided that it could supply 6 to 7 million pens between November and March, supported by partner demand and multiple market approvals.

This guidance matters because it frames why profitability in the second half could look different from the first quarter. Dr. Reddy’s said it remains confident of a strong second half of the fiscal with the resumption of semaglutide supplies.

Profitability bridge: semaglutide provision and logistics costs

Beyond semaglutide, the quarter faced cost pressure from the Middle East conflict. Management disclosed that higher solvent and freight costs impacted EBITDA by close to 1%. It also said this elevated level could persist at least up to December if the conflict continues.

Gross margin was 46.5% in Q1 FY27. Excluding the semaglutide API related impact, gross margin would have been 49.4%.

SG and A was INR 2,882 crore, up 12% year-on-year, driven by personnel costs, forex movement, branded investments, and elevated freight costs. R and D was INR 577 crore and stood at 7.1% of revenue, aligned with management’s stated range.

Pipeline and launches: complex generics and biosimilars milestones

The quarter included several notable product and regulatory updates.

In North America, the company launched six products and filed five ANDAs and one NDA in Q1 FY27. It highlighted a first-to-market launch of bosutinib 400 mg with 180-day exclusivity. It also launched nintedanib, a complex generic used in lung disease.

In biosimilars, a key near-term milestone is abatacept IV. The USFDA completed a pre-license inspection at the Bachupally biologics facility and issued a Form 483 with seven observations. The company said it responded within the stipulated timelines and that the goal date for abatacept remains mid-December 2026, with no BLA queries received as of the call.

What to track from here

Three themes stand out from Dr. Reddy’s Q1 FY27 commentary.

First, the underlying base business across geographies is performing better than the reported headline suggests, particularly in India and Emerging Markets. Second, semaglutide remains the largest swing factor for second-half revenue and margin recovery, with management targeting a November restart. Third, regulatory and quality execution is critical, not only for semaglutide but also for biologics programs like abatacept, where the inspection outcome and follow-through will determine timelines.

For FY27, management also provided clear operating markers: capex of around INR 1,800 crore, an effective tax rate of 24% to 25%, and R and D in the 7% to 8% range. With net cash of about INR 3,058 crore, it also reiterated that it is actively pursuing business development and in-licensing opportunities.

The quarter was uneven, but the next milestones are concrete and time-bound. If semaglutide supply resumes by November and the company sustains base business growth, the second half becomes the real proving ground for margin normalization and execution credibility.