Dr Reddy's profit drops 69.10% YoY as revenue and margins fall
Lower lenalidomide sales hurt North America, while higher interest and depreciation added to the earnings pressure.
Filed 22 Jul 2026, 16:18 IST · after market close · Dr Reddys Laboratories Ltd (DRREDDY)
Key takeaways
- Consolidated net profit declined -69.10% YoY to Rs 435.6 cr as revenue fell -5.51%.
- Operating margin narrowed 3.44 percentage points YoY because expenses declined only -0.95%, slower than revenue.
- Other income contributed 64.20% of pre-tax profit, making the quarter's earnings quality weaker.
Price around the results
Revenue improved sequentially but remained below last year
Consolidated revenue rose 7.33% QoQ, and operating profit increased 11.69% as expenses grew 5.93%, slower than sales. The YoY picture was weaker: revenue fell 5.51% and operating profit declined 16.79%. Management said North America revenue was lower YoY because of reduced lenalidomide sales.
Cost structure and below-the-line items drove the earnings gap
Expenses declined only 0.95% YoY against the 5.51% revenue fall, narrowing operating margin by 3.44 percentage points. Interest expense rose 51.20% and depreciation increased 12.71%, adding pressure below operating profit. The 21.30% tax rate was lower than 25.99% a year earlier and cushioned net profit, while other income accounted for 64.20% of pre-tax profit.
Margin recovered QoQ but stayed below the sector median peak
Operating margin increased 0.99 percentage points QoQ after declines in Q3FY26 and Q4FY26, ending a two-quarter slide but remaining below the 28.81% recorded in Q1FY26. Dr Reddy's 25.37% margin was 0.73 percentage points above the 24.64% median for the eight Healthcare peers that had reported. Management said Europe faced pricing pressure and changes to its NRT operating model.
Pipeline activity continued despite pressure in key markets
Management said the company partnered with Innoviva Specialty Therapeutics to develop and commercialise XACDURO in select emerging markets. It also said COYA 302 received USFDA Fast Track Designation for ALS, while Dr Reddy's filed for European approval of abatacept IV. The presentation said the company launched Celevida GLP+ with Nestlé and made a first-to-market US launch of bosutinib 400mg with 180-day exclusivity.
The initial stock reaction was milder than its typical move
The stock fell 1.39% on the first session after the results, after opening down 6.92%, and was down 2.52% by the next session. Its eight-result history shows five rises and three falls, with a median absolute move of 2.35%, so the initial closing decline was smaller than its typical reaction despite the sharp opening gap.
Q1FY27 at a glance
Consolidated figures as filed with NSE — cross-checked against an independent source.
| Line item | Q1FY27 | Q4FY26 | QoQ | YoY |
|---|---|---|---|---|
| Revenue | ₹8,100 cr | ₹7,546 cr | +7.33% | -5.51% |
| Other income | ₹355 cr | ₹475 cr | -25.39% | +22.18% |
| Expenses | ₹6,045 cr | ₹5,707 cr | +5.93% | -0.95% |
| Operating profit | ₹2,055 cr | ₹1,840 cr | +11.69% | -16.79% |
| Operating margin (%) | 25.37% | 24.38% | — | — |
| Interest | ₹126 cr | ₹106 cr | +18.73% | +51.20% |
| Depreciation | ₹537 cr | ₹557 cr | -3.68% | +12.71% |
| Profit before tax | ₹553 cr | ₹195 cr | +183.19% | -70.99% |
| Tax | ₹118 cr | ₹-22 cr | — | -76.23% |
| Net profit | ₹436 cr | ₹221 cr | +96.84% | -69.10% |
| EPS (₹) | ₹5.33 | ₹2.65 | +101.13% | -68.72% |
Operating margin of 25.37% compares with a Healthcare sector median of 24.64% across 8 peers that have reported Q1FY27.
How the stock reacted
| Window | Stock | vs NIFTY |
|---|---|---|
| Results day | -1.39% | -0.87% |
| Next session | -2.52% | — |
Volume on the results session was 2.35× its 20-day average.
What management said
From the company’s own investor presentation. Each point is checked against the source document before it appears here.
New products
- Dr. Reddy’s made a first-to-market US launch of bosutinib 400mg with 180-day exclusivity.
New initiatives
- Dr. Reddy’s partnered with Innoviva Specialty Therapeutics to develop and commercialise XACDURO across select emerging markets.
- COYA 302 received Fast Track Designation from the USFDA for ALS treatment.
- Dr. Reddy’s filed a Marketing Authorisation Application for abatacept IV with the European Medicines Agency.
- Dr. Reddy’s launched Celevida GLP+ nutrition offerings through its collaboration with Nestlé.
Competition
- The presentation compares Dr. Reddy’s growth with the US generics market excluding lenalidomide.
- Dr. Reddy’s reported consistent double-digit growth and outperformance versus the Indian pharmaceutical market.
Problems & risks
- North America revenue declined year over year because of lower lenalidomide sales.
- Europe faced pricing pressure and changes to the NRT operating model.
What to watch
- Whether revenue recovers from the -5.51% YoY decline tied partly to lower lenalidomide sales.
- Whether operating margin holds above 25.37% after the 0.99-percentage-point QoQ recovery.
- Whether other income remains close to its 64.20% share of pre-tax profit.