Dr. Reddy's: quarterly profit plunges 68.7% on one-offs, but cash flow and leverage remain under control

25 августа Dr. Reddy's раскрыла результаты за первый квартал 2026 финансового года. Выручка снизилась на 5,6% год к году до 80 705 млн INR, EBITDA упала на 61,1% до 8 405 млн INR, а чистая прибыль – на 68,7% до 4 435 млн INR. Акции торгуются с мультипликатором EV/EBITDA 17,4 против среднего за три года 13,5, что делает их скорее непривлекательными на текущем уровне.

Key takeaways

— Revenue declined 5.6% in Q1 2026, continuing the slowdown trend after 20.1% growth a year earlier

— EBITDA margin fell to 10.4% from 25.3% a year earlier due to one-off expenses and weak operational dynamics

— Net profit dropped 68.7% to INR 4,435 million, reflecting negative operating leverage

— Operating cash flow turned negative at minus INR 927 million, but capex declined to INR 3,702 million

— Net debt rose by INR 13.3 billion over the year to INR 47,566 million, yet the ratio to EBITDA over 12 months stands at 0.83

— Dividend yield over the trailing twelve months is 0.7%, below the key rate and unattractive to investors

— EV/EBITDA multiple of 17.4 exceeds the three-year average of 13.5, limiting upside potential

Attractiveness

Key figures, INR bn

Revenue declined 5.6% in Q1 2026, continuing the slowdown trend after 20.1% growth a year earlier

In Q1 fiscal 2026, Dr. Reddy's revenue was INR 80,705 million, 5.6% lower than the same quarter a year earlier. This continues the slowdown: Q4 2025 saw 20.1% growth, Q3 2025 only 4.4%, and now the trend has turned negative.

The revenue decline reflects pressure on key markets and likely one-off factors such as loss of exclusivity on certain products. The company did not disclose segment details in the report, so precise reasons are unclear, but the trend is evident: after a period of strong growth, a correction phase has begun.

EBITDA margin fell to 10.4% from 25.3% a year earlier due to one-off expenses and weak operational dynamics

EBITDA for Q1 2026 was INR 8,405 million, 61.1% lower than a year earlier. The EBITDA margin contracted to 10.4% from 25.3% in Q1 2025 – a sharp deterioration in operational efficiency.

Such a significant margin decline points to a combination of one-off expenses, possibly related to quality costs or legal disputes, and weak revenue dynamics. Operating profit was only INR 3,033 million, confirming pressure on the core business.

Net profit dropped 68.7% to INR 4,435 million, reflecting negative operating leverage

Net profit in Q1 2026 fell to INR 4,435 million from INR 14,178 million a year earlier. The 68.7% decline significantly outpaces the revenue drop, demonstrating high operating leverage: when sales decline, fixed costs pressure profits.

Net margin contracted to 5.5% from 16.6% in Q1 2025. This is the lowest level in recent years, making the shares vulnerable to further deterioration in the operating environment.

Operating cash flow turned negative at minus INR 927 million, but capex declined to INR 3,702 million

In Q1 2026, operating cash flow was minus INR 927 million – a rare occurrence for Dr. Reddy's. This is related to seasonal payments and likely changes in working capital, although the company did not disclose details.

Capital expenditures declined to INR 3,702 million from INR 10,147 million a year earlier, partially offsetting weak cash flow. Nevertheless, free cash flow remains negative, limiting the ability to pay dividends and reduce debt.

Net debt rose by INR 13.3 billion over the year to INR 47,566 million, yet the ratio to EBITDA over 12 months stands at 0.83

At the end of Q1 2026, Dr. Reddy's net debt stood at INR 47,566 million, up INR 13.3 billion over the year. On a quarterly basis, net debt declined by INR 1.1 billion, indicating some improvement, but the overall trend remains upward.

The ratio of net debt to EBITDA over the trailing twelve months is 0.83 – a moderate level that does not threaten financial stability. However, if weak operational dynamics persist and free cash flow remains negative, leverage could increase.

Dividend yield over the trailing twelve months is 0.7%, below the key rate and unattractive to investors

Over the trailing twelve months, Dr. Reddy's paid dividends yielding 0.7% at the current price. This is significantly below the key rate, making the shares unattractive for income-oriented investors.

Given negative free cash flow in Q1 and weak profit, the likelihood of increasing dividends in the near term is low. The company may maintain payouts at the current level, but this will not be a driver for the share price.

EV/EBITDA multiple of 17.4 exceeds the three-year average of 13.5, limiting upside potential

The current EV/EBITDA multiple is 17.4, 28% above the three-year average of 13.5. This means the market values the company more expensively than the average over the past three years, despite deteriorating operational performance.

On the portal's model, the upside of the share is minus 29% from the current price, confirming overvaluation. P/E over the trailing twelve months is 28.8, also above historical levels given the profit decline.

Valuation on the latest reported figures

Bottom line

The Q1 2026 report showed a sharp deterioration in operational performance: revenue declined 5.6%, EBITDA fell 61.1%, and net profit dropped 68.7%. One-off factors likely played a key role, but weak revenue dynamics and negative operating cash flow are concerning. Leverage remains moderate, but rising debt and low dividend yield do not add attractiveness. The shares trade at a premium to their own history, making them rather unattractive at the current level.