Dr Reddy's earnings for the second quarter of fiscal 2027 showed a sequential recovery in sales and margins, although revenue remained below its year-earlier level as lenalidomide competition weighed on North America. Results released on October 23, 2026, put consolidated revenue at INR8,671 crore, down 1.5% year over year but up 7.4% from the previous quarter. Management expects to resume semaglutide supply in November, subject to successful validation.
Key Takeaways
- Gross margin recovered to 52.1%, but remained below its year-earlier level.
- India and emerging-market growth contrasted with weaker North American generics sales.
- Semaglutide supply validation and a December abatacept regulatory decision are the next major milestones.
Table of Contents
- Dr Reddy's earnings show recovery, not a full rebound
- India and emerging markets offset North American weakness
- Margin targets face continuing cost pressure
- Semaglutide restart and abatacept decision set the timetable
- Conclusion
Dr Reddy's earnings show recovery, not a full rebound
For the quarter ended September 30, 2026, gross margin rose 562 basis points from the preceding quarter to 52.1%. It was still 254 basis points below the year-earlier level, underscoring the difference between a sequential recovery and a return to previous profitability.
EBITDA, including other income, reached INR1,783 crore, representing a margin of 20.6%. Management attributed the improvement to new product launches and a more profitable business mix. Chief Financial Officer Mannam Narasimham said new US launches carried gross margins above the company average.
Lower lenalidomide sales remained the principal drag on consolidated revenue. Management nevertheless reported double-digit growth in the underlying business excluding lenalidomide across North America, emerging markets and India.
| Item | Details |
|---|---|
| Profit before tax | INR1,228 crore for the September 2026 quarter. |
| Profit after tax | INR925 crore; net margin of 10.7%. |
| Diluted earnings per share | INR11.1 for the quarter. |
| Operating working capital | INR14,650 crore at September 30, up INR297 crore from June 30. |
| Capital expenditure | INR186 crore during the quarter. |
| Net cash surplus | INR2,502 crore at September 30, 2026. |
India and emerging markets offset North American weakness
North American generics revenue fell 29% year over year to USD264 million, though it increased 12% sequentially. India revenue rose 17% to INR1,851 crore, while emerging-market revenue increased 84% to INR2,059 crore.
Europe revenue declined 6% year over year to EUR127 million, reflecting price erosion and operating-model changes following the integration of the nicotine replacement therapy business. Chief Executive Erez Israeli said the revised model meant lower sales but higher profit, with two more quarters of similar effects expected.
The business became part of Dr Reddy's through the completed acquisition of Haleon's non-US nicotine replacement therapy business, announced on September 30, 2024. That transaction provides the historical background to the current integration discussion.
Israeli expects nicotine replacement therapy sales to grow at a high-single-digit to double-digit rate, but said overall European growth would not be significant this fiscal year.
Margin targets face continuing cost pressure
Narasimham said the company is targeting gross margin in the 55% range. Israeli reiterated confidence in sustaining EBITDA margins above 20%, with an ambition to reach 25%. Those figures are management targets rather than achieved quarterly results.
Higher costs for key starting materials, solvents and outbound logistics were already affecting profitability. Management estimated an EBITDA impact of close to 100 basis points and expects that pressure to persist through the third and fourth quarters.
Research and development spending was 6% of revenue in the September quarter, down 10% year over year. Narasimham expects spending to return to 7%–8% of revenue in coming quarters. Selling, general and administrative expenses stood at 32% of revenue, a proportion management expects to remain broadly stable this year.
Semaglutide restart and abatacept decision set the timetable
Israeli said the company remained confident of restarting semaglutide supply in November 2026, pending successful validation. The main constraint had been scaling up active pharmaceutical ingredient production for its partner. Most initial volumes are intended for Canada, with smaller allocations to Latin America and Africa.
The company reported semaglutide approvals in 10 countries and plans to launch in 89 markets. Those plans do not mean supply has resumed or that all intended markets have approved the product.
For the abatacept biosimilar, management identified December 22, 2026, as the US Food and Drug Administration's target decision date. Israeli said the Bachupally plant had been inspected and the company was awaiting the establishment inspection report. Dr Reddy's is preparing for a December launch, conditional on approval.
Conclusion
Dr Reddy's earnings show a stronger sequential operating performance, but annual sales pressure and higher input costs remain constraints. The next scheduled milestones are the planned November semaglutide supply restart, subject to validation, and the December 22 abatacept regulatory decision.
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