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Dr Reddy’s Laboratories shares experienced a notable decline of 6% following the release of its Q3 financial results. The pharmaceutical major saw its stock price fall significantly during morning trading on Friday after the results were announced. For investors looking to invest in stocks, these results provide insights into both opportunities and challenges in the pharmaceutical sector.

Key highlights of the Q3 results

Dr Reddy’s Laboratories reported a 2% year-on-year growth in its consolidated profit after tax (PAT), which reached ₹1,413.3 crore for the quarter ending December 2024. This figure was a slight increase compared to the PAT of ₹1,378.9 crore in the same quarter last year. The company’s performance can be a point of consideration for those planning to invest in stocks within the pharma sector.

Revenue for the quarter grew by 16% year-on-year to ₹8,359 crore, driven by new product launches and operational efficiencies. However, challenges such as pricing pressure in the US market and declining revenues from its key drug, Revlimid, impacted overall performance.

Declining revenue from North America

Revenue from North America, Dr Reddy’s largest market, rose by just 1% year-on-year to ₹3,380 crore. While new launches contributed to volume growth, lower pricing for certain products offset these gains. A sequential decline in revenue was also attributed to reduced sales of Lenalidomide, the generic version of Bristol-Myers Squibb’s Revlimid.

Revlimid, a significant revenue driver for Dr Reddy’s in recent years, has seen reduced contributions due to increasing competition and an impending patent expiry in January 2026. This decline has prompted investors to re-evaluate their decision to invest in stocks in the pharmaceutical space.

Operational challenges impact margins

Despite revenue growth, the company’s operational challenges affected its profitability. The EBITDA margin for the quarter shrank to 27.5%, compared to 29.3% in the same period last year. Factors such as pricing pressures in the US market and declining contributions from key products like Revlimid were cited as primary reasons for this margin contraction.

The company remains focused on finding new growth drivers and revenue streams to counter the expected decline in Revlimid sales over the coming years.

Analysts’ perspectives on Dr Reddy’s performance

Market analysts noted that Dr Reddy’s underlying revenue growth for the quarter was 7.5% year-on-year, with North America’s flat sales being a significant factor. Analysts highlighted incremental competition for its top products and higher selling, general, and administrative (SG&A) costs as key challenges.

Some analysts believe that while Dr Reddy’s remains in an investment phase, the catalysts for significant growth are likely to materialise in FY27 or beyond. They also noted potential opportunities from the Semaglutide product line in Canada and other international markets.

Q3 earnings call insights

During the earnings call, the management reiterated its confidence in overcoming challenges related to declining Revlimid revenue. The company highlighted its focus on launching new products, improving operational efficiency, and leveraging growth opportunities in emerging markets.

Dr Reddy expects margins to remain stable at approximately 25%, with flexibility on SG&A and research and development (R&D) expenditures. The company is also optimistic about its ability to address patient needs through improved access, affordability, and innovation.

Stock Price Update

At 10:20 AM on Friday, the shares of Dr Reddy’s Laboratories Limited were trading 4.54% lower at ₹1,230.80 per share as compared to the previous close of ₹1,290 per share on the National Stock Exchange (NSE).