(DRREDDY) Q2 FY27 Dr Reddy's Profit Doubles Quarter-on-Quarter Even as Revenue Slips
A sharp sequential profit recovery was driven by easing one-off costs, but year-on-year declines in revenue and margins highlight persistent US pricing pressure.
Dr Reddy's Q2 FY27 profit more than doubled from the previous quarter to ₹913 crore, though revenue dipped 1.5% year-on-year. The rebound follows a severe margin squeeze, but the core US business remains under pressure.
For Dr Reddy's Laboratories, the September quarter was a story of recovery from a painful low. After a dismal first quarter marred by a costly semaglutide provision, the company's profitability staged a strong comeback. Yet the underlying challenge remains: its largest market, North America, is still shrinking, pulling overall revenue down from last year's levels.
Revenue for Q2 FY27 stood at ₹8,698 crore, a slight 1.5% dip from the same period last year. Profit, however, more than doubled sequentially to ₹913 crore, a 110% jump from the June quarter. The net profit margin recovered to 10.5%, a significant improvement from 5.4% in Q1 but still well below the 15.1% margin of a year ago.
Revenue (₹ Cr)
Profit (₹ Cr)
Net Profit Margin (%)
| Metric | CurrentQ2 FY27 | PreviousQ1 FY27 | Same quarter LYQ2 FY26 |
|---|---|---|---|
| Revenue (₹ Cr) | 8,697.8YoY -1.5% | 8,099.8 | 8,828.3 |
| Profit (₹ Cr) | 913.2YoY -32% | 435.6 | 1,336.8 |
| Net Profit Margin (%) | 10.5YoY -30% | 5.4 | 15.1 |
Why profit rebounded while revenue slipped
The quarter's profit surge is largely a bounce from an exceptionally weak base. According to CNBC-TV18, the prior quarter was hit by a ₹240 crore provision related to a semaglutide API impurity issue and elevated freight costs from Middle East supply disruptions. With those one-off impacts easing, margins normalized. The revenue decline, however, points to a structural headwind. The company's North America business fell 23% year-on-year, which CNBC-TV18 and ET Now attribute primarily to lower sales of lenalidomide, the generic version of cancer drug Revlimid. As exclusivity fades and competition rises, this high-margin product's contribution continues to erode.
The growth engines working underneath
Beneath the consolidated dip, the underlying base business showed resilience. Excluding lenalidomide in North America, the company reported double-digit growth across most geographies, as noted in a TradingView report. India revenue grew 17% year-on-year, supported by chronic therapy demand. Emerging Markets, led by Russia, grew 24%, aided by new launches and favourable currency movements. The company is actively launching new products to fill the gap. It launched six products in North America and 27 across Emerging Markets during the quarter, according to the CNBC-TV18 report. The focus is shifting to complex generics and biosimilars for future growth.
How long the transition lasts
Management's guidance suggests the profitability recovery has room to run, but the revenue transition will be multi-quarter. The company, as reported by Moneycontrol, expects to resume semaglutide supplies in November 2026, targeting sales of 6-7 million pens in the second half of FY27. This could provide a meaningful boost. Furthermore, the potential US FDA approval of its biosimilar abatacept in December is a key catalyst. Analysts at Nomura, cited by Moneycontrol, believe its launch could boost FY28-29 earnings by approximately 30%. The company is guiding for a base-business EBITDA margin around 20% for FY27.
Key Points
- Profit rebounded sharply by 110% quarter-on-quarter to ₹913 crore, mainly due to the absence of the large semaglutide provision that weighed on Q1.
- Consolidated revenue declined 1.5% year-on-year, pressured by a 23% drop in North America sales as lenalidomide contribution faded.
- Underlying business health was stronger, with India and Emerging Markets posting double-digit growth, offsetting US weakness.
- The near-term outlook hinges on the successful ramp-up of new growth drivers, specifically the relaunch of semaglutide and the approval of biosimilar abatacept.
- The company maintains a robust financial position with a net cash surplus, providing stability during this transition.
Hexa Perspective
The quarter confirms Dr Reddy's is in a managed transition. The severe margin compression of the past two quarters appears to be bottoming out, setting a cleaner base for the second half. However, the stock's valuation at a 30% discount to the industry P/E reflects the market's caution. Investors are weighing the certainty of declining legacy revenues against the promise of the new pipeline. The next few quarters will test execution: can semaglutide and new US launches generate enough dollar revenue to not just replace but grow beyond the lenalidomide hole? The 20% EBITDA margin target is a near-term checkpoint, but sustainable re-rating needs visible revenue acceleration from these new specialties.
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