Dr Reddy's Q4 Net Profit Rises 22% to ₹1,594 Cr; Shares Edge Up

• 

• 

• 

• 

• 

Dr Reddy’s Laboratories Ltd., a leading India-based pharmaceutical company headquartered in Hyderabad, announced its financial results for the fourth quarter of fiscal year 2025 (Q4 FY25, January–March 2025) on May 9, 2025. The company reported a robust 22% year-on-year (YoY) increase in consolidated net profit, reaching ₹1,594 crore, compared to ₹1,307 crore in Q4 FY24. Revenue from operations also surged by 20% YoY to ₹8,506 crore, up from ₹7,083 crore in the corresponding quarter of the previous year.

Despite these strong financials, Dr Reddy’s shares experienced only a marginal uptick, closing at ₹1,156.40 on the Bombay Stock Exchange (BSE), a modest gain of 0.67% from the previous close of ₹1,148.70. This muted stock performance comes amidst mixed views from brokerages, with some expressing optimism about the company’s growth trajectory, while others remain cautious due to concerns over margins and competitive pressures. This article delves into the details of Dr Reddy’s Q4 performance, the factors driving its financial success, the market’s response, brokerage analyses, and the company’s prospects.

Q4 FY25 Financial Performance: A Closer Look

Net Profit and Revenue Growth

Dr Reddy’s Q4 FY25 results showcased significant financial achievements. The consolidated net profit of ₹1,594 crore surpassed analyst expectations, which were pegged at around ₹1,491 crore according to a CNBC-TV18 poll. This 22% YoY growth was driven by a combination of successful product launches, increased revenues from key products in the U.S. market, and the integration of the recently acquired Nicotinell nicotine replacement therapy (NRT) business. On a quarter-on-quarter (Qoq) basis, profit after tax (PAT) rose by 13% from ₹1,413 crore in Q3 FY25, reflecting sustained earnings stability.

Revenue for the quarter reached ₹8,506 crore, marking an 8.6% YoY increase and exceeding the CNBC-TV18 estimate of ₹8,404.7 crore. The topline growth was bolstered by a 12% YoY underlying growth (excluding the NRT business) and an additional ₹597 crore contribution from the Consumer Healthcare business in NRT. Sequentially, revenue grew by 1.8% from ₹8,359 crore in Q3 FY25, indicating a period of consolidation following a strong festive season performance in the previous quarter.

Segment-Wise Performance

Dr Reddy’s operates across several key segments, with the Global Generics (GG) segment being the primary revenue driver, accounting for nearly 90% of total revenue. In Q4 FY25, the GG segment generated ₹7,536 crore, up from ₹6,119 crore in Q4 FY24, reflecting a robust 23% YoY growth. North America, a critical market for Dr Reddy’s, contributed ₹3,559 crore to GG revenues, driven by a 9% YoY growth fueled by new product launches and market share gains in key products. The integration of the Nicotinell brand and the Sanofi vaccine portfolio further strengthened the company’s performance in India, where revenues grew by 15% YoY.

The Pharmaceutical Services and Active Ingredients (PSAI) division reported revenues of ₹1,167 crore, a slight improvement from ₹1,152 crore in Q4 FY24. While PSAI growth was modest, the segment’s performance was supported by improved operational efficiencies and a focus on high-margin products.

EBITDA and Margin Expansion

Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) for Q4 FY25 soared by 58.9% YoY to ₹2,975 crore, compared to ₹1,872 crore in Q4 FY24. This figure significantly outperformed the CNBC-TV18 poll estimate of ₹2,323.7 crore. The EBITDA margin expanded by 510 basis points to 29.1%, up from 24% in the corresponding quarter of the previous fiscal year. This margin improvement was attributed to a favourable product mix, cost optimisation, and higher contributions from high-margin products like gRevlimid (a generic version of Revlimid). However, the gross margin fell by 250 basis points Qoq, marking the third consecutive sequential decline, primarily due to an unfavourable product mix and pricing pressures in certain markets/

Dividend Announcement

In addition to its strong financial performance, Dr Reddy’s board recommended a final dividend of ₹8 per equity share of ₹1 face value for FY25, subject to shareholder approval. The record date for the dividend was set for July 10, 2025, reinforcing the company’s commitment to rewarding shareholders.

Market Reaction: Why the Marginal Rise?

Despite the impressive financial results, Dr Reddy’s shares rose only marginally by 0.79% during trading hours on May 12, 2025, and closed at ₹1,156.40 on the BSE. Several factors contributed to this subdued market response:

1. Gross Margin Concerns: The sequential decline in gross margin by 250 basis points raised concerns among investors. Brokerages like Emkay Global highlighted this as a significant issue, maintaining a ‘Reduce’ rating on the stock with a target price of ₹1,050, citing the third consecutive quarter of margin contraction.
2. High Expectations: The market had already priced in strong Q4 results, given the positive pre-result forecasts from brokerages. The marginal stock movement suggests that the 22% profit growth and 20% revenue increase were largely in line with or slightly above expectations, leaving little room for a significant rally.
3. Brokerage Caution: Mixed brokerage views tempered investor enthusiasm. While some firms like Nomura were bullish, others like Citi and JPMorgan expressed scepticism about the sustainability of growth and margins, leading to a cautious market sentiment.
4. Broader Market Dynamics: The pharmaceutical sector, while resilient, faces ongoing challenges such as pricing pressures in the U.S. generics market and geopolitical risks affecting markets like Russia. These factors may have contributed to the muted stock response.e

Brokerage Views: A Mixed Bag

Brokerages offered a spectrum of opinions on Dr Reddy’s Q4 performance and future outlook, reflecting the complexity of the company’s growth trajectory. Below is a detailed analysis of key brokerage perspectives:

Bullish Views

• Nomura: Nomura maintained a ‘Buy’ rating with a target price of ₹1,575, citing a Q4 performance that exceeded forecasts. The firm noted that sales, EBITDA, and PAT beat estimates by 4%, 12%, and 33%, respectively, driven by higher-than-expected sales in North America, Europe, and Russia, as well as elevated other operating income. Nomura highlighted management’s guidance for double-digit growth in FY26 and an EBITDA margin of 25%, reinforcing its positive outlook.
• Nirmal Bang Institutional Equities: Nirmal Bang reiterated a ‘Buy’ rating with a revised target price of ₹1,540, emphasising strong growth in the Global Generics segment and the strategic acquisition of Nicotinell. The brokerage expects steady growth in the NRT category and believes Dr Reddy’s is well-positioned to capitalise on new launches and branded generics.
• Phillip Capital: Phillip Capital projected robust topline growth driven by the Haleon OTC business acquisition, Revlimid sales, and the Sanofi vaccine licensing deal. The brokerage anticipates EBITDA margins to improve by 210 basis points YoY to 28.2%, leading to a 33% YoY EBITDA growth.

Bearish Views

• Citi: Citi maintained a ‘Sell’ rating with a target price of ₹1,110, arguing that the Q4 results missed estimates due to the continued downward trend in gross margins. While acknowledging positive long-term drivers like GLP-1 and biosimilars, Citi believes achieving double-digit growth and stable margins in FY26 is a challenging target.
• JPMorgan: JPMorgan issued an ‘Underweight’ rating with a target price of ₹1,060, citing weaker-than-expected core EBITDA margins of 18% and lacklustre growth in India. The brokerage also expressed concerns about the lack of visibility on niche U.S. launches and the competitive landscape for the Semaglutide opportunity.
• Emkay Global: Emkay Global retained a ‘Reduce’ rating with a target price of ₹1,050, pointing to the sequential decline in gross margins as a major concern. The firm believes near-term expectations need recalibration due to margin pressures and competitive dynamics.s

Neutral Views

• Motilal Oswal: Motilal Oswal maintained a ‘Neutral’ rating with a target price of ₹1,330, acknowledging steady growth momentum in markets like Canada, India, and Brazil. However, the brokerage cautioned that growth could moderate post-FY26 due to the patent expiry of gRevlimid and limited visibility on new high-value products.

The divergence in brokerage views underscores the challenges and opportunities facing Dr Reddy’s. Optimistic firms focus on the company’s diversified portfolio, strategic acquisitions, and robust pipeline, while cautious analysts highlight margin pressures, reliance on Revlimid, and competitive risks.

Strategic Initiatives and Future Outlook

Dr Reddy’s Q4 performance was underpinned by several strategic initiatives that position the company for sustained growth:

1. Acquisitions and Partnerships: The acquisition of Nicotinell and the integration of Sanofi’s vaccine portfolio have bolstered Dr Reddy’s presence in the consumer healthcare and branded generics markets. The joint venture with Nestlé Healthcare further enhances its domestic growth prospects.s
2. New Product Launches: Dr Reddy’s continues to invest heavily in research and development (R&D), with a focus on complex generics, biosimilars, and peptides. The company plans to launch 25–30 new products across key markets over the next three years, including Semaglutide in Canada and other markets starting in 2026
3. Geographic Diversification: Dr Reddy’s geographically diversified revenue streams, with significant contributions from North America, India, Europe, and Russia, mitigate risks associated with market-specific challenges. The company’s focus on emerging markets and biosimilars is expected to drive long-term growth.h
4. Operational Excellence: Cost optimisation and manufacturing overhead leverage have contributed to margin expansion, despite sequential gross margin declines. The company’s ability to navigate tariff risks and resume manufacturing in the U.S., as projected by CEO Erez Israeli, will be critical for future profitability.y

Looking ahead, Dr Reddy’s management is optimistic about achieving double-digit growth in FY26, with an EBITDA margin target of 25%. However, challenges such as the impending patent expiry of gRevlimid in January 2026, pricing pressures in the U.S. generics market, and increased R&D spending could impact near-term profitability. The company’s ability to successfully launch high-value biosimilars, such as Abatacept, and expand its NRT and consumer healthcare businesses will be key to sustaining growth momentum.

Industry Context and Competitive Landscape

The Indian pharmaceutical industry has experienced significant growth post-COVID, driven by increased health consciousness and demand for affordable generics and biosimilars. According to Statista, the Indian pharmaceutical market is projected to grow substantially through 2030, providing a favourable backdrop for companies like Dr Reddy’s. However, the industry faces challenges such as regulatory scrutiny, pricing pressures in the U.S., and geopolitical risks affecting markets like Russia and Ukraine.e

Dr Reddy’s competes with other Indian pharma majors like Sun Pharma, Cipla, and Lupin, as well as global generic players. Its backwards integration in active pharmaceutical ingredients (APIS), expertise in complex generics, and growing biosimilars pipeline give it a competitive edge. However, the company’s reliance on Revlimid, which has been a significant revenue driver, poses a risk as its patent nears expiry. The successful commercialisation of new products and strategic acquisitions will be critical to maintaining its market position.

Investor Considerations

For investors, Dr Reddy’s presents a mixed investment case. The company’s strong Q4 FY25 performance, diversified portfolio, and strategic initiatives support a positive long-term outlook. Its market capitalisation of ₹96,454.70 crore and a price-to-earnings (P/E) ratio of 18.76 times suggest that the stock is reasonably valued compared to peers. The declaration of an ₹8 per share dividend further enhances its appeal for income-focused investors

However, risks such as gross margin pressures, competitive dynamics, and the post-gRevlimid growth challenge warrant caution. Investors should closely monitor updates on Dr Reddy’s biosimilars pipeline, new product approvals in the U.S., and the performance of its consumer healthcare business. Consulting with certified financial advisors is recommended before making investment decisions, as advised by Moneycontrol.

Conclusion

Dr Reddy’s Laboratories delivered a stellar Q4 FY25 performance, with a 22% YoY increase in net profit and a 20% rise in revenue, driven by new product launches, strategic acquisitions, and operational efficiencies. Despite these achievements, the stock’s marginal rise reflects investor caution due to gross margin declines and mixed brokerage views. While firms like Nomura and Nirmal Bang are bullish on the company’s growth prospects, others like Citi and JPMorgan highlight challenges related to margins and competitive pressures. Dr Reddy’s strategic focus on biosimilars, consumer healthcare, and geographic diversification positions it well for future growth, but navigating the post-gRevlimid era and pricing pressures will be critical. As the company continues to innovate and expand, it remains a key player in the global pharmaceutical landscape, offering both opportunities and risks for investors.