- Dr Reddys Q2 revenue fell 1.5% YoY to Rs 8,698 crore with EBITDA margin above estimates
- EBITDA declined 13.9% YoY to Rs 1,731 crore but margin beat estimate at 19.9% vs 14.9% expected
- North America sales dropped 23% YoY while India, emerging markets and Europe sales rose YoY
Dr. Reddy's Laboratories Ltd.'s September-quarter performance surprised positively on margins, with EBITDA exceeding estimates despite revenue broadly meeting expectations. Citi, Jefferies, HSBC and BofA Securities retained positive ratings, while Jefferies upgraded the stock to Hold from Underperform. Goldman Sachs maintained Sell and Kotak Securities retained Reduce, flagging concerns about the sustainability of earnings growth.
Analysts attributed the margin recovery to a better product mix, operating leverage and cost efficiencies, with the outlook hinging partly on the resumption of semaglutide supplies and progress on abatacept.
Dr. Reddy's Laboratories Q2 Highlights (YoY)
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- Revenue declined 1.5% year on year to Rs 8,698 crore from Rs 8,828 crore.
- EBITDA fell 13.9% year on year to Rs 1,731 crore from Rs 2,010 crore.
- EBITDA margin declined to 19.9% from 22.8% a year earlier, but exceeded the estimate of 14.9%.
- Net profit fell 31.3% year on year to Rs 925 crore from Rs 1,347 crore.
- North America sales declined 23% year on year to Rs 2,489 crore, while rising 13% sequentially.
- India sales rose 17% year on year to Rs 1,851 crore.
- Emerging markets sales increased 24% year on year to Rs 2,060 crore.
- Europe sales rose 1% year on year to Rs 1,394 crore.
- FY27 capital expenditure guidance was reduced to Rs 1,600–1,700 crore from around Rs 1,800 crore earlier.
North America sales declined 23% year on year to Rs 2,489 crore, a smaller fall than the 32–35% decline expected by the Street, while sequential sales rose 13%. India revenue increased 17% to Rs 1,851 crore, within management's guided growth range of 14–18%. Emerging markets revenue rose 24% to Rs 2,060 crore, while Europe sales increased 1% to Rs 1,394 crore. Management expects semaglutide supplies to resume in November 2026 and remains confident of sustaining EBITDA margins above 20%, with a potential improvement beyond 21% as semaglutide sales recover.
Here's what brokerages are saying after Dr. Reddy's Laboratories announced Q2 results
Citi
- Maintained 'Buy'; Target Price Raised To Rs 1,510 From Rs 1,450
- Described the quarter as a strong beat, with broad-based margin strength.
- Said an improved product mix, operating leverage and cost efficiencies drove the sharp margin recovery.
- Found the Q2 margin performance encouraging but retained conservative assumptions for the second half.
- Noted that management expects margin strength to sustain in H2.
Kotak Neo
- Maintained 'Reduce'; Target Price Raised To Rs 1,220 From Rs 1,125
- Said margins had reclaimed lost ground.
- Noted that the potential upside from semaglutide and abatacept launches in H2 was already factored into valuations.
- Flagged limited sustainable earnings drivers.
Jefferies
- Upgraded To 'Hold' From 'Underperform'; Target Price Raised To Rs 1,320 From Rs 1,040
- Said EBITDA exceeded estimates by 15% despite revenue being broadly in line.
- Highlighted strong performance in the core India and rest-of-world businesses, alongside a sequential recovery in the US.
- Expects semaglutide supplies to resume in November 2026 and US approval for biosimilar abatacept in December 2026.
- Raised FY28 and FY29 earnings per share estimates by 5–7%, factoring in the product launches and higher margins in the base business.
- Said improving margin prospects limit downside, although valuations remain a consideration.
HSBC
- Maintained 'Buy'; Target Price At Rs 1,375
- Said the company remained on track to resume semaglutide supplies.
- Highlighted better product mix and new US launches as factors supporting gross margins in Q2.
- Expects commercial semaglutide supplies to resume in November 2026.
- Identified execution as key to gaining market share.
- Flagged the semaglutide relaunch and FDA approval of abatacept as key catalysts.
BofA Securities
- Maintained 'Buy'; Target Price At Rs 1,480
- Said the large earnings beat was aided by stronger gross margins.
- Highlighted the achievement of margins close to 20% in Q2 without semaglutide.
- Identified abatacept approval as a key catalyst.
Goldman Sachs
- Maintained 'Sell'; Target Price Raised To Rs 1,150 From Rs 1,100
- Said Q2 margins surprised positively.
- Flagged uncertainty around the size of the semaglutide opportunity in Canada.
- Raised FY27–FY29 earnings per share estimates by up to 4%.
- Attributed the adjusted EBITDA margin beat to stronger gross margins and cost savings.
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