Dr. Reddy`s Laboratories Ltd. - ADR

Financial performance: revenue down, margins hit by semaglutide + Middle East-related cost - Q1 FY27 revenue: INR 8,071 cr (~$853m), -5.6% YoY; +7.4% sequentially. - EBITDA margin: 12.5% (reported), with a major drag from semaglutide-related issues (inventory/other cost provision INR 240 cr) plus conflict-related higher solvent and freight costs. - Underlying base business (ex-lenalidomide): “healthy double-digit growth” across key geographies (esp. North America) supported by new launches and FX. - Good to note: aside from the semaglutide drag, EBITDA margin would have been “in the high teens”; management explicitly linked margin deterioration to identifiable items rather than structural decline.

Margin outlook / forecast: still targeting ~20% EBITDA excluding semaglutide - Management’s guidance stance: EBITDA margin “in the neighborhood of ~20%” even excluding semaglutide, and expects the next quarter also not to be with semaglutide to stay near that level. - Clarification from management: after removing the semaglutide provision + other non-sold/associated costs, the normalized margin was ~18% this quarter; they expect to hold around ~20% going forward. - Key uncertainty: timing/extent of semaglutide recovery still affects reported margins, but management believes normalized profitability is on track.

Semaglutide: operational issue understood; resumption plan by November; patient safety emphasized - They sold ~180,000 pens before stopping; provision covers rejected batches, loss of production, and incentives/costs (mainly for Canada and some India). - Root-cause program timeline: activities aimed to finish API testing around mid/third week of September 2026, then supply to partners. - Commercial resumption expectation: management plans to resume semaglutide commercial supplies by November (confidence stated; not 100% certainty). - Pen sales recovery expectation: supply profile indicates ~6–7 million pens between November and March (demand expected to remain strong, though market share may be pressured during the downtime). - Risk narrative: they say no patient safety risk; files/specs remain unchanged so they do not anticipate delays in other applications (e.g., Brazil)—issue is API batch/spec compliance at scale. - Surprising / negative: they estimate losing ~4 months of sales due to the interruption (impact between ~10–11 down to ~6–7 million pens).