Dr Reddy's Q1 net profit plunges 69% to Rs 443 crore on semaglutide costs

Profit takes a hit

Dr Reddy's Laboratories reported a steep 69% fall in its consolidated net profit for the first quarter of FY27, coming in at Rs 443 crore. The sharp decline was driven by inventory write-offs and lower revenue linked to its semaglutide business, the company said in its financial statement on Wednesday.

The Hyderabad-based drugmaker's revenue from operations also slipped during the quarter, though the specific figure was not immediately available. Analysts had expected a weaker performance, with the company's American Depository Receipts (ADRs) missing earnings estimates by $0.03 and revenue falling short of projections.

Semaglutide troubles

The primary culprit behind the profit crash is semaglutide, the active ingredient in popular weight-loss and diabetes drugs like Ozempic and Wegovy. Dr Reddy's had been building inventory for its own version of the drug, but manufacturing issues forced a halt in supply. The company now has to shoulder the cost of that unsold stock.

According to reports, Dr Reddy's is working to fix the active pharmaceutical ingredient (API) problem and aims to resume semaglutide supply by November. The delay has cost the company dearly in the short term, as it had ramped up production in anticipation of strong demand from global markets.

What went wrong

The company did not specify the exact amount of inventory costs, but such write-offs typically involve raw materials, work-in-progress, and finished goods that cannot be sold. For a drug like semaglutide, which has seen explosive demand worldwide, any production hiccup can lead to significant financial damage.

Dr Reddy's has been one of the few Indian firms to develop a generic version of semaglutide, and the setback comes at a time when competition in the weight-loss drug space is heating up. Rivals like Sun Pharma and Cipla are also racing to launch their own versions.

Revenue and market reaction

The company's topline also took a hit during the quarter, though the exact revenue figure was not disclosed in the initial release. The profit decline of nearly 70% is one of the steepest the company has recorded in recent years.

Investors reacted negatively, with Dr Reddy's shares coming under pressure in early trade on Wednesday. The stock had already been underperforming due to the semaglutide supply uncertainty, and the Q1 numbers did little to soothe concerns.

Looking ahead

Dr Reddy's management has indicated that the API issue is being resolved and supply should resume by November. If the company can get back on track, it could still capture a slice of the booming weight-loss drug market. However, any further delays could erode its competitive edge.

The coming months will be crucial as the company works to clear its inventory and restart production. Investors will be watching for updates on regulatory approvals and manufacturing timelines.