Dr. Reddy’s Q4 PAT Rises 22% YoY: Strong Generics Growth and Strategic Expansion Drive Momentum

Dr. Reddy’s Laboratories reported a robust end to fiscal year 2025, with its consolidated net profit after tax (PAT) surging to ₹15.93 billion in Q4, a 22% year-over-year (YoY) increase. The performance was fueled by double-digit revenue growth, strategic acquisitions, and operational discipline, though challenges such as margin pressure in generics and rising costs remain. Here’s a deep dive into the numbers and implications for investors.

Financial Highlights: Growth Amid Marginal Pressures

The company’s Q4 FY2025 revenue hit ₹85.06 billion, up 20% YoY, driven by the acquisition of the Nicotine Replacement Therapy (NRT) business and strong performances in its Global Generics and European segments. Excluding NRT, underlying revenue growth was 12% YoY, underscoring organic momentum.

However, gross margins dipped 300 basis points (bps) to 55.6%, reflecting price erosion in generics, lower manufacturing efficiency, and the loss of prior-period milestone income. Selling, General & Administrative (SG&A) expenses rose 17% YoY, primarily due to higher sales investments and personnel costs. Despite these headwinds, EBITDA increased 32% YoY to ₹24.75 billion, with a margin of 29.1%—a testament to cost control and operational leverage.

Segment Analysis: Global Generics Lead the Charge

The Global Generics segment was the star performer, with revenue up 23% YoY to ₹75.36 billion. Key highlights:
- North America: U.S. revenue grew 9% YoY, supported by 7 new product launches in Q4 (totaling 18 launches in FY2025).
- Europe: A staggering 145% YoY jump to ₹12.75 billion, with NRT contributing ₹6 billion. Underlying growth (excluding NRT) was 30% YoY, driven by strong performance in Germany and the UK.
- India: Revenue rose 16% YoY to ₹13.05 billion, aided by vaccine sales and price hikes.
- Emerging Markets: Grew 16% YoY to ₹13.98 billion, with Russia and CIS markets leading the way.

The Pharmaceutical Services & Active Ingredients (PSAI) segment also expanded, with Q4 revenue up 16% YoY to ₹9.56 billion, driven by API volume growth and new product launches.

Strategic Moves and Partnerships

Dr. Reddy’s reinforced its biosimilars pipeline through partnerships with Henlius and Bio-Thera Solutions, targeting global markets. Notably, the FDA accepted the BLA for Alvotech’s denosumab biosimilar (AVT03), and the UK MHRA approved a rituximab biosimilar. With 10 ANDAs filed in FY2025 and 76 pending approvals (including 44 Paragraph IV), the company is positioned to capitalize on U.S. market opportunities.

Operational efficiency was another focus, with the divestment of its Shreveport facility to Jaguar Labs reducing non-core liabilities. The company also maintained its IPM rank #10 in India, reflecting strong domestic market penetration.

Balance Sheet Strength and Capital Allocation

Dr. Reddy’s ended the quarter with a strong liquidity position:
- Cash and equivalents: ₹68.30 billion (up from ₹64.20 billion in Q3).
- Net debt-to-equity: -0.07 (indicating net cash surplus of ₹24.53 billion).

Capital expenditures totaled ₹27 billion for FY2025, prioritized for R&D and manufacturing capacity. Free cash flow of ₹13.27 billion after acquisitions signals financial flexibility for future M&A or shareholder returns.

Risks and Challenges

• Margin Pressure: Gross margin erosion (down 300 bps YoY) and rising SG&A costs highlight vulnerabilities in the generics business.
• Regulatory and Competitive Risks: Biosimilar launches face intense competition, and U.S. pricing dynamics remain uncertain.
• Impairment Charges: ₹1.69 billion in FY2025 impairments (vs. ₹3 million in FY2024) signal challenges in certain generic portfolios.

Conclusion: A Growth Story with Upside, but Watch the Margins

Dr. Reddy’s Q4 results reflect a company leveraging acquisitions, product launches, and partnerships to drive top-line growth. The PAT’s 22% YoY rise and strong EBITDA margins (29.1%) demonstrate operational resilience, even as gross margins face headwinds.

The Global Generics segment’s 23% YoY growth and European expansion (145% YoY with NRT) are positives, but investors should monitor whether underlying growth (excluding NRT) can sustain momentum. Strategic moves in biosimilars and API services add long-term value, while the robust balance sheet provides a buffer for market volatility.

With a Return on Capital Employed (RoCE) of 27.7% and a net cash position, Dr. Reddy’s is well-positioned to navigate challenges. However, margin trends and execution on biosimilar launches will be critical. For now, the stock’s 1-year forward P/E of 18.5x (vs. 15x in FY2024) suggests optimism, but investors should demand clearer margin stabilization before assigning a premium valuation.

In short, Dr. Reddy’s is a buy for those betting on its global expansion and pipeline execution, but the path to sustained margin recovery will determine its long-term appeal.

Data as of March 31, 2025. All figures in Indian rupees.