DRL gears up for biosimilar push, consumer health growth post record FY25

Dr Reddy’s Laboratories (DRL) has gained 5.5% on bourses in six trading sessions since declaring the fourth quarter numbers compared with a 3.6% increase in the BSE Healthcare index. The company reported double-digit growth in revenue and net profit for the March 2024 quarter. Revenue growth was driven by the acquisition of Nicotine Replacement Therapy (NRT) portfolio from UK’s Haleon in June 2024. The next phase of growth once Revlimid sales taper after the drug goes off patent in January 2026, will be driven by biosimilars and Semaglutide portfolios.

The company is likely to post double-digit revenue growth for FY26 but EBITDA margin may shrink to 25% from 28% in FY25 due to tapering sales of gRevlimid. Given this, analysts have reduced the target prices of the stock by 6-14%. Despite cuts, the target prices were 6-18% higher than the stock price on May 09 when the quarterly result was out and continue to remain above Monday’s closing price of Rs1,219. Also, biosimilars and semaglutide offer future growth potential thereby supporting the stock price.

On a year-on-year basis, DRL’s revenue and net profit rose 20% and 21% year-on-year to Rs8,506 crore and Rs1,587 crore in the March 2025 quarter, respectively. Excluding NRT sales, revenue growth slowed to 12%. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) increased for the fifth consecutive quarter to Rs2,474.9 crore, a year-on-year 32.2% growth.

Full-year R&D investment was Rs2,738 crores, up 20% year-on-year. However, its proportion in revenue fell by 118 basis points to 8.5%. The company expects to retain the R&D expenditure in a similar range even after the gRevlimid sales normalise. It will be driven by building a differentiated pipeline spanning small molecules, biosimilars, and complex generics including peptides and cancer therapy. DRL completed 95 global generic filings, bringing the total for FY25 to 249.

The company is about to launch GLP-1 (Semaglutide) globally during the current calendar year. Abatacept, a medication used to treat rheumatoid arthritis and other autoimmune diseases, is into Phase III and the company plans to submit it for approval towards the end of 2025.

The biosimilar segment remains a key growth driver in the coming quarters. According to Axis Securities, the company’s two biosimilar drugs slated for launch in Europe have the potential to contribute $40–50 million in sales in FY26. Additionally, osteoporosis drug Denosumab, scheduled for launch in FY27, is estimated to generate $50 million in annual sales. The brokerage has cut the target price to Rs1,250 from Rs1,450 earlier, valuing the company at 17 times FY27 expected earnings.

Elara Capital has lowered its FY26 earnings estimate 10% in anticipation of lower gRevlimid sales while raising FY27 estimate by 4% in anticipation of margin stability. The brokerage has highlighted price erosion in the US market and delay in product approvals as major risks to its forecast.