Dr Reddy’s Q2FY25 earnings preview: Expectations of steady revenue growth but margins under pressure

Indian pharma giant Dr Reddy’s Laboratories is set to release its Q2 FY25 financial results on Tuesday, November 5. Analysts expect the company to report solid year-on-year revenue growth driven by its India business and the contribution of its high-margin Revlimid product in the US. However, profit growth may see challenges due to cost pressures and muted US base sales.

Revenue Growth Driven by India and Emerging Markets

Dr Reddy’s is projected to report a fourteen per cent year-on-year revenue increase to Rs 7,854 crore in Q2FY25, building on the prior year’s base of Rs 6,903 crore. The Indian market, bolstered by organic growth and new in-licensed products from partnerships like Sanofi and Bayer, is likely to achieve a fifteen per cent year-on-year growth. Emerging markets, such as the CIS regions and Latin America, are also expected to perform positively with steady gains, although Russia and other CIS nations might witness mild weakness.

In the US, base business sales may face downward pressure due to persistent pricing challenges, despite stable Revlimid sales. Analysts at Zee Business estimate that while Dr Reddy’s may face lower revenues from its US portfolio, Revlimid sales, contributing around $125 million, are likely to provide critical support.

Profit Margins Expected to Tighten Amid Cost Pressures

Despite growth in revenue, profit margins may be constrained this quarter. Zee Business analysts anticipate EBITDA margins around 28.3 per cent, marking a slight year-on-year decline due to elevated R&D investments and higher operational costs. EBITDA is expected to see a modest increase of ten per cent year-on-year to Rs 2,220 crore, while net profit might contract slightly, by approximately 2.7 per cent year-on-year, to Rs 1,443 crore. Margins may continue facing pressure as Dr Reddy's prioritizes investment in long-term projects, including speciality drugs and R&D for new generics, along with expansion in growth-centric markets.