Dr Reddy's Labs Q2 profit may sink 59%, US sales seen down 20%

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26 Aug, 2025 12:21

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Performance of Dr Reddy's Laboratories in July-September quarter is expected to be weak as profit is likely to plunge 59 percent year-on-year to Rs 298 crore on poor operational performance.

According to analysts polled by CNBC-TV18, revenue during the quarter is seen falling 14 percent to Rs 3,426 crore on yearly basis. US business may decline by around 20 percent YoY.

Higher competition in base business in US for drugs such as Valcyte, Vidaza generic etc, lack of new launches in US market, warning Letter by USFDA on 3 plants and cancellation of McNeil contract (US-based consumer healthcare company) may impact revenue growth in Q2.

Dr Reddy's Labs had mentioned in Q1FY17 that contract with McNeil would begin tapering off over next two quarters and impact would be USD 25 million.

Analysts say Rest of the World Markets is likely to show steep YoY decline led by low sales in Venezuela.

In fact, in Rest of the World Markets, Venezuela revenue was down 53 percent YoY in Q1 as there were no sales and Rest of the World contribution reduced to 4 percent from 11 percent earlier.

Russia and CIS may decline during the quarter but Russia can grow in constant currency. Pharma services & active ingredients may remain muted due to warning letter on 3 plants.

However, domestic business in Q2 is likely to grow at around 12-14 percent YoY, better than 10 percent in Q1.

EBITDA (earnings before interest, tax, depreciation and amortisation) may fall 45.7 percent to Rs 619.8 crore and margin may shrink 1050 basis points to 18.1 percent on yearly basis due to slowdown in US sales and higher remediation costs.

Commentary on USFDA warning letter on 3 plants will be closely watched.

Overall analysts are not expecting growth in FY17 as it is expected to be a 'wash-out' year due to issues such as US pricing pressure, lack of approvals and overhang of USFDA warning letter on 3 plants.

After Q1FY17 earnings, Credit Suisse had downgraded to underperform from neutral; Jefferies - underperform from hold; Macquarie - downgraded to neutral; CLSA - to outperform from buy; and Religare - to sell from hold.