Dr Reddy's Q2: Lenalidomide Fades, the Margin Follows
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
- North America revenue after lenalidomide, quarter by quarter.
- Responses to the October Form 483s at FTO-11 and FTO-9.
- 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 (NSE)
- [O] Dr. Reddy's, board outcome and results release (NSE)
- [M] Dr. Reddy's, change in senior management (NSE)
- [MS] Moat & Margin, Moat Screener and How MoatSCORE works
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.
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