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# Dr Reddy's Q2: Lenalidomide Fades, the Margin Follows
- URL: https://www.moatmarginresearch.com/dr-reddys-q2-lenalidomide-base-business/
- Published: 2026-10-24T06:32:56.000Z
- Updated: 2026-10-24T06:32:56.000Z
- Description: Dr Reddy's revenue fell 1.5% in Q2 FY27 as US lenalidomide sales faded; North America fell to ₹2,489 crore and the EBITDA margin to 20.6% from 26.7%.
- Author: A K Karthikeyan
- Tags: Moat Insights

**Dr Reddy's Laboratories had revenue of ₹8,671 crore in the September quarter, down 1.5% from a year earlier. The company is clear about why: "Reported YoY growth declined 1.5% due to lower lenalidomide sales". The fall hit the most profitable part of the business. North America revenue dropped to ₹2,489 crore from ₹3,241 crore, and the EBITDA margin to 20.6% from 26.7%. Underneath, the company reports double-digit growth in what it calls the base business, and recovery from a weak June quarter.**

## The quarter in numbers

| IFRS consolidated  | Q2 FY27      | Q1 FY27      | Q2 FY26      | Source |
| ------------------ | ------------ | ------------ | ------------ | ------ |
| Revenue            | ₹8,671 crore | ₹8,071 crore | ₹8,805 crore | \[D\]  |
| Gross margin       | 52.1%        | 46.5%        | 54.7%        | \[D\]  |
| SG&A, % of revenue | 32.4%        | 35.7%        | 30.0%        | \[D\]  |
| R&D, % of revenue  | 6.0%         | 7.1%         | 7.0%         | \[D\]  |
| EBITDA margin      | 20.6%        | 12.5%        | 26.7%        | \[D\]  |
| Diluted EPS        | ₹11.1        | ₹5.3         | ₹17.3        | \[D\]  |
| RoCE, annualised   | 9.5%         | 5.3%         | 21.9%        | \[D\]  |

EBITDA was ₹1,783 crore and profit attributable to shareholders ₹925 crore, 10.7% of revenue (\[D\]). June was hit by a ₹240 crore provision for inventory and other costs related to a semaglutide API issue (\[D\]); against that low base, the September quarter looks much better. Against a year ago, it is clearly worse.

## Where the revenue moved

| Business         | Q2 FY27 revenue | What the deck says                                      | Source |
| ---------------- | --------------- | ------------------------------------------------------- | ------ |
| North America    | ₹2,489 crore    | "Declined YoY due to lower lenalidomide sales."         | \[D\]  |
| Emerging markets | ₹2,059 crore    | growth from launches, acquisitions and favourable forex | \[D\]  |
| India            | ₹1,851 crore    | double-digit base-business growth                       | \[D\]  |
| Europe           | ₹1,393 crore    | the exception to double-digit growth                    | \[D\]  |

North America fell about 23% (our arithmetic, ₹3,241 crore to ₹2,489 crore). The company says its US base business, excluding lenalidomide, grew 12.4% against 2.1% for the US generics market (\[D\]). Branded businesses (India, emerging markets and NRT) are now 53% of revenue (\[D\]).

## Moat and margin

**Focus moat: the US pipeline.** A generics company's moat is the next wave of hard-to-make or first-to-file products. Dr Reddy's lists 77 ANDAs and 3 NDAs pending, including 47 Para IV filings and 27 first-to-files (\[D\]). In the quarter it got USFDA approval for a rituximab biosimilar, launched sugammadex injection first to market, and had generic semaglutide approved in 10 countries (\[D\]). Its CDMO arm, Aurigene Pharmaceutical Services, passed $100 million of revenue in 12 months (\[D\]).

**Margin: one product's profits are leaving.** Gross margin fell 2.6 points and EBITDA margin 6.1 points from a year ago (our arithmetic), while SG&A rose as a share of revenue. That is what losing a high-margin product looks like: revenue nearly flat, profit down by a third.

**Compliance.** The deck discloses two new Form 483s after USFDA pre-approval inspections in October, with 2 and 3 observations, at its FTO-11 and FTO-9 formulation plants in Andhra Pradesh, which it will answer in time (\[D\]). It also says it is "On track to resolve issue associated with semaglutide API, where certain batches were found to be out of specification" (\[D\]).

**MoatSCORE** (Moat Screener, first pass): Dr. Reddy's Laboratories 5.23, AMBER+. For comparison, Sun Pharmaceutical 5.03, Cipla 5.57 and Lupin 5.50 (\[MS\]).

## A related-party appointment

The board appointed Akhil Ravi as Head, API and Services, and a member of the Management Council from 13 November. The filing says he "is a related party to the Company, being the sonin-law of Mr. G V Prasad, Co-Chairman and Managing Director" (\[M\]).

## The bear case

- **The profit gap is large**: EPS fell from ₹17.3 to ₹11.1 and RoCE from 21.9% to 9.5% in a year (\[D\]).
- **Half-year revenue fell 3.5%** (\[O\]), so this is not one weak quarter.
- **Regulatory flags are piling up**: two new 483s in October and the semaglutide API batches.
- **A family member** of the co-chairman now runs the API and services business.

## The case for

- **Base business growth**: 12.4% in the US excluding lenalidomide, against a 2.1% market (\[D\]).
- **Branded markets** are now more than half of revenue (\[D\]).
- **A net cash surplus** of ₹2,502 crore (\[D\]).
- **A deep filing pipeline**: 47 Para IV and 27 first-to-file opportunities (\[D\]).

## What to watch

1. North America revenue after lenalidomide, quarter by quarter.
2. Responses to the October Form 483s at FTO-11 and FTO-9.
3. Whether gross margin returns toward the 54.7% of a year ago as semaglutide and biosimilars scale.

## Sources

- **\[D\]** [Dr. Reddy's, Q2 FY27 results presentation](https://nsearchives.nseindia.com/corporate/DRREDDY%5F23102026173751%5FSEintimation%5FInvestor%5Fpresentation%5F23102026%5F1.pdf) (NSE)
- **\[O\]** [Dr. Reddy's, board outcome and results release](https://nsearchives.nseindia.com/corporate/DRREDDY%5F23102026184026%5FSE%5FIntimation%5FOutcome%5F23102026%5FSigned.pdf) (NSE)
- **\[M\]** [Dr. Reddy's, change in senior management](https://nsearchives.nseindia.com/corporate/DRREDDY%5F23102026184253%5FSE%5Fintimation%5FReg30%5Fchange%5Fin%5Fmgt%5F23102026%5FSigned.pdf) (NSE)
- **\[MS\]** [Moat & Margin, Moat Screener](https://www.moatmarginresearch.com/moat-screener/) and [How MoatSCORE works](https://www.moatmarginresearch.com/moatscore/)

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> Educational research, not investment advice. Every figure above is drawn from Dr. Reddy's own filings, read from the primary documents on 24 October 2026; derived figures are our arithmetic, labelled as such. MoatSCORE read live from the Moat Screener on 24 October 2026\. No buy/sell recommendations, no price targets, no share prices. Moat & Margin is not a SEBI-registered Research Analyst or Investment Adviser.