DRL Q2FY25- SALES UPBEAT BUT MARGINS UNDER PRESSURE; COMMENTARY OPTIMISTIC

News: Revenues grew ~17% YoY to ₹ 8038 crore driven by 17% growth in the US to ₹ 3728 crore and 18% growth in India to ₹ 1397 crore. Other geographies also did well with Russia growth of 18% to ₹ 690 crore and RoW growth of 32% to ₹ 560 crore. Growth in Europe was subdued at 9% to ₹ 580 crore due to decline in the UK. EBITDA grew 3% YoY to ₹ 2077 crore and margins declined 326 bps to 27.7% surpassing marginal 42 bps decline in GPM (70.6%) mainly due to significant jump in SG&A expenses (up 22%) on account of investment in new business initiatives, costs related to NRT business acquisition besides higher R&D spend (up 120 bps to 9.1%).  Net profit was down ~10% YoY to ₹ 1342 crore.

Views: The growth across geographies was mainly driven by new launches, a strategy spelled out by the management few years ago that the company will keep the launch momentum simultaneously across global markets. The management has guided for 20 launches in the next two years in the US, many of which will be complex launches. 50% of the new launches would be from Peptides / Injectables / Oncology / Biosimilars category and the idea is to fill the possible void after the complete genericization of gRevlimid. India growth was mainly on account of acquisition of Sanofi vaccines portfolio (ex of which the growth was 9-10%). The management expects double digit growth excluding acquisitions. R&D is expected to be around ~8.5-9% of the revenues with ~36% earmarked for biosimilars and innovative arm Aurigene. For GLP-1 opportunities globally, the company is targeting entire value chain starting from API manufacturing. Overall, we believe DRL’s capability of complex launches on a consistent basis across geographies to be the key determinant for overall performance. Recent acquisition of Nicotine Replacement Therapy brands, launch drug-free migraine device in Europe and JV with Nestle for nutraceuticals are some unique deals the success of which would be keenly watched for. Also in focus would be the margins trajectory.

Impact: Positive