Dr. Reddy's Laboratories Limited has informed stock exchanges about a tax audit decision received by its Russian subsidiary from local tax authorities, resulting in a penalty of INR 24.50 million.

Tax Audit Decision Details

Dr. Reddy's Laboratories LLC, Russia, a step-down wholly-owned subsidiary of Dr. Reddy's Laboratories Limited, received the tax audit decision on January 23, 2026, from The Interdistrict Inspectorate of the Federal Tax Service of Russia. The decision pertains to the levy of Value Added Tax (VAT) upon re-classification of marketing services as taxable services by the Russian tax authority.

Financial Impact Assessment

The Russian tax authority has quantified a penalty in the following amount:

Despite the penalty imposed, Dr. Reddy's Laboratories has stated that based on their evaluation, there is no material impact on the financials, operations, or other activities of the company.

Regulatory Compliance and Next Steps

The disclosure was made under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as required for material events affecting listed companies. The company has indicated that it will evaluate filing the necessary reply to the Russian tax authority in response to this tax audit decision.

The communication was signed by K Randhir Singh, Company Secretary, Compliance Officer & Head-CSR, and was addressed to major stock exchanges including the National Stock Exchange of India, BSE Limited, New York Stock Exchange, and NSE IFSC Limited on January 24, 2026.

Dr. Reddy's Laboratories Limited announced its consolidated financial results for the quarter and nine months ended December 31, 2025, demonstrating resilient performance amid challenging market conditions. The pharmaceutical giant reported consolidated revenues of ₹87,268 million for Q3FY26, marking a 4.4% year-over-year growth, though declining 0.9% quarter-over-quarter.

Financial Performance Overview

The company's financial metrics for Q3FY26 reflect a mixed performance across key indicators:

For the nine-month period ended December 31, 2025, the company achieved revenues of ₹260,771 million, representing an 8.4% increase compared to ₹240,475 million in the corresponding period of the previous year. Net profit attributable to equity holders for nine months stood at ₹40,649 million, remaining relatively flat at 0.1% growth year-over-year.

Segment-wise Performance

The Global Generics segment remained the primary revenue driver, contributing ₹79,113 million in Q3FY26, a 7% increase year-over-year. This segment includes operations across North America, Europe, India, and Emerging Markets, with varying performance across regions.

North America revenues declined 12% year-over-year to ₹29,644 million, primarily due to lower Lenalidomide sales and price erosion in key products. However, Europe showed strong growth of 20% year-over-year, reaching ₹14,476 million, driven by new generic product launches and growth in the Nicotine Replacement Therapy (NRT) portfolio.

Operational Highlights and Strategic Developments

During Q3FY26, Dr. Reddy's Laboratories achieved several significant milestones that strengthen its market position. The company entered into a strategic collaboration with Immutep for commercialization of Eftilagimod Alfa, a novel immunotherapy oncology drug, with an upfront payment of US$20 million and potential milestones of up to US$349.5 million.

The company launched Hevaxin®, a novel recombinant vaccine for Hepatitis-E virus prevention in India, and received marketing authorization for Semaglutide injection from the Drugs Controller General of India. Additionally, 85% integration of the acquired Consumer Healthcare business in NRT was completed by December 2025.

Financial Impact of Regulatory Changes

A significant factor affecting the quarter's performance was the implementation of India's New Labour Codes, effective November 21, 2025. The company recognized an incremental cost of ₹1,170 million towards employee benefits during Q3FY26 due to changes in wage definitions and employee benefit obligations under these new regulations.

Profitability and Margin Analysis

Gross margin for Q3FY26 stood at 53.6%, declining 505 basis points year-over-year, primarily due to reduced Lenalidomide sales, price erosion in generics businesses, and the one-time provision related to new Labour Codes. Excluding the one-off provision, gross margin would have been 54.1% of revenues.

EBITDA for the quarter was ₹20,493 million, representing 23.5% of revenues, compared to 27.5% in the corresponding quarter of the previous year. The company maintained its focus on disciplined execution of strategic priorities including base business growth, pipeline advancement, and operational efficiencies.

Outlook and Management Commentary

Co-Chairman & Managing Director G V Prasad commented on the results, stating that growth in Q3FY26 was supported by continued momentum in branded businesses, aided by favorable forex movements, thus offsetting the impact of lower Lenalidomide sales. The company continues to focus on disciplined execution of strategic priorities to create long-term value for stakeholders.

The company's strong balance sheet position is reflected in its net cash surplus of ₹30.7 billion as of December 31, 2025, with a negative net debt to equity ratio of (0.08), indicating a robust financial position for future growth investments and strategic initiatives.

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