Dr. Reddy’s FY25 Surge: Generics Giant Navigates Challenges with Strong Growth

Dr. Reddy’s, India’s leading global generics and biosimilars manufacturer, has delivered a robust set of financial results for its fiscal year 2025 (FY25), ending March 31, 2025. The company’s Q4 performance and full-year results highlight strategic wins in expanding its portfolio, leveraging acquisitions, and overcoming headwinds like price erosion. Here’s a deep dive into the numbers and what they mean for investors.

Key Financial Highlights

• Revenue Growth: Full-year revenue surged 17% YoY to ₹325,535 crore, driven by acquisitions (notably the Nicotine Replacement Therapy (NRT) business) and strong launches in North America and Europe. Excluding NRT, underlying revenue grew 12%.
• Profitability: Profit after tax (PAT) rose 2% YoY to ₹56,544 crore, while EBITDA jumped 11% to ₹92,133 crore. Gross margins dipped to 58.5% (from 58.6% in FY24) due to pricing pressures in generics, but EBITDA margins held steady at 28.3%.
• Geographic Strength: Europe saw explosive growth (75% YoY) thanks to NRT, while North America grew steadily (12% YoY). Emerging markets, including Russia, added 13% YoY.

Segment Performance: Where the Growth Is

1. Global Generics (GG):
2. Generated ₹289,552 crore (+18% YoY), with NRT contributing ₹12,020 crore. Underlying growth (excluding NRT) was 13%, reflecting strong launches in the U.S. and Europe.

3. Management noted 18 U.S. product launches in FY25, including seven in Q4, driving volume growth.

4. Europe:

5. Revenue skyrocketed 145% YoY in Q4 (to ₹12,750 crore) due to NRT. Excluding NRT, growth was still robust at 30% YoY. Germany and the U.K. were standout markets.

6. India:

7. Revenue grew 16% YoY to ₹53,734 crore, fueled by vaccine sales and price hikes. The domestic market remains a stable cash cow.

Strategic Moves & Partnerships

Dr. Reddy’s has been aggressive in expanding its biosimilars pipeline and global reach:
- Biosimilars: Collaborations with Henlius (HLX15 daratumumab biosimilar) and Bio-Thera Solutions (ustekinumab/golimumab biosimilars) aim to capture high-margin markets in the U.S. and Asia. The FDA’s acceptance of Alvotech’s denosumab biosimilar (AVT03) is a key win.
- NRT Acquisition: The $1.4 billion buy of NRT assets from Japan Tobacco has already paid dividends, contributing ₹12,020 crore in FY25.
- Regulatory Milestones: U.K. MHRA approval for a rituximab biosimilar and FDA clearance for AVT03 signal progress in bringing cost-effective treatments to market.

Challenges & Risks

• Price Erosion: Generics face relentless pricing pressure, especially in the U.S. and Europe, squeezing gross margins. The Q4 gross margin fell to 55.6%, down 300 bps YoY.
• Cost Inflation: SG&A expenses surged 22% YoY to ₹93,870 crore due to sales investments and rising personnel costs. R&D spending also climbed 20% to ₹27,380 crore.
• Impairment Charges: ₹1,693 crore in impairments (vs. ₹3 crore in FY24) reflect write-downs on underperforming products in India and Europe.

Management Outlook & Investor Takeaways

CEO G V Prasad emphasized “double-digit growth across businesses”, citing:
- Pipeline Momentum: 10 new ANDAs filed in FY25 (76 pending approvals), with 44 Paragraph IV patents.
- Inorganic Growth: The NRT acquisition and potential future deals will fuel top-line expansion.
- Operational Efficiency: Free cash flow (₹13.3 billion FY25) and a net cash surplus (₹24.5 billion) provide flexibility for R&D and acquisitions.

Conclusion: A Stock to Watch for Pharma Bulls

Dr. Reddy’s FY25 results underscore its resilience in a challenging generics market. Key positives include:
- Revenue Diversification: NRT and biosimilars now account for significant growth, reducing reliance on traditional generics.
- Balance Sheet Strength: Net cash and disciplined capital allocation position the company to capitalize on M&A opportunities.
- Global Footprint: Europe’s 75% revenue jump and U.S. launches highlight its ability to scale in high-margin regions.

However, investors must weigh these positives against risks like margin compression and regulatory hurdles. The stock’s valuation (trading at ~21x FY25 PAT) appears reasonable given its growth trajectory. With FY26 guidance likely to focus on biosimilars, partnerships, and NRT synergies, this could be a long-term winner in the generics-to-specialty pharma transition.

Final Verdict: For investors seeking exposure to a pharma leader with global ambitions and a solid balance sheet, Dr. Reddy’s offers a compelling blend of growth and stability—despite the bumps in the road.