Dr. Reddy’s Q4 Earnings Preview: Riding on gRevlimid Winds Amid Margin Challenges

Dr. Reddy’s Laboratories is poised to report its fourth-quarter (Q4) and full-year 2024-25 financial results on May 9, 2025, with analysts expecting robust revenue and profit growth driven by key strategic initiatives. The pharma giant’s performance will hinge on its ability to balance growth in high-margin products like gRevlimid against margin pressures in its U.S. base business and volatile stock market dynamics.

Key Financial Forecasts and Drivers

Analysts project net profit to rise 18.6% year-on-year (YoY) to ₹1,456.5 crore, fueled by strong sales of gRevlimid (a generic version of Celgene’s Revlimid, used in treating multiple myeloma) and domestic growth from partnerships like the Sanofi vaccine licensing deal. Revenue is expected to climb 17.1% YoY to ₹8,328 crore, with contributions from the acquisition of Haleon’s OTC business (e.g., Nicotinell nicotine patches) and the Nestlé joint venture in health foods.

The company’s shares have fluctuated widely, hitting a 52-week high of ₹1,421.49 in August 2024 but falling to ₹1,020 in April 2025 amid concerns over U.S. market competition. A 4% monthly rebound ahead of the earnings release suggests investor optimism, though the stock remains down 16% year-to-date.

Analysts’ Perspectives: Growth vs. Margin Tensions

Brokerages differ on the extent of margin recovery and risks:
1. Phillip Capital forecasts EBITDA margins to expand 210 basis points to 28.2%, citing cost efficiencies and gRevlimid’s $160 million Q4 sales. The brokerage highlights the Haleon OTC integration and India’s 24% YoY domestic revenue growth as growth accelerators.
2. Nuvama Institutional Equities is more cautious, projecting margins at 26.3% due to U.S. base business erosion. It estimates net profit to grow just 1.3% YoY to ₹1,324 crore, with revenue rising 13% YoY.
3. Axis Securities anticipates a 27.2% EBITDA margin, driven by incremental gains in U.S. generics and domestic vaccine sales, while Yes Securities warns of margin dilution from higher selling, general, and administrative (SG&A) expenses.

Critical Focus Areas for Investors

1. U.S. Business Performance:
2. gRevlimid’s dominance remains a $1.8 billion annual opportunity, but analysts will scrutinize whether its sales held steady amid competition.
3. The U.S. base business (generic drugs) faces pricing pressures, with HDFC Securities estimating a 3% YoY revenue decline in this segment.

4. The launch of gIxempra (a generic for Roche’s Ixempra, used in chemotherapy) could offset margin concerns if priced competitively.

5. India and Global Growth:

6. India’s domestic business, including formulations and vaccines, is expected to grow 15–24% YoY, supported by Sanofi’s vaccine portfolio and cardiology/GI drug sales.

7. Europe’s NRT (nicotine replacement therapy) business from Nicotinell is projected to add ₹500 crore in annual revenue, though margins here may lag pharma divisions.

8. Margin Dynamics:

9. Q3 FY25 saw EBITDA margins dip to 27.5% from 29.3% a year earlier due to higher SG&A costs. Investors will look for signs of stabilization or improvement in Q4.

Risks and Challenges

• U.S. Patent Losses: Competitors’ generics could further erode margins in legacy products.
• Regulatory Delays: Biosimilar approvals (e.g., in the U.S.) are critical to long-term growth but carry execution risks.
• Stock Volatility: The stock’s sensitivity to earnings misses or margin concerns could amplify post-report swings.

Conclusion: A High-Stakes Quarter for Sustained Growth

Dr. Reddy’s Q4 results will test whether its strategic bets—gRevlimid, Haleon’s OTC, and Sanofi vaccines—can offset margin headwinds and U.S. competition. With consensus estimates pointing to 18% net profit growth and ₹1,456.5 crore in earnings, the company is likely to meet growth targets. However, the EBITDA margin trajectory (whether it hits 28% or stays below 27%) will determine if shares can reclaim their 52-week highs.

If gRevlimid sales remain robust and India/Europe synergies materialize, the stock could rally toward ₹1,200–₹1,300, supported by a 15x forward P/E multiple (historical average). Conversely, a margin miss or U.S. base business underperformance could push shares back below ₹1,000.

Investors should prioritize margin recovery and dividend clarity (the Board will discuss a final dividend on May 9) as key takeaways. This quarter’s results are a litmus test for Dr. Reddy’s transition from a generic-focused firm to a diversified, innovation-driven pharma leader.