Dr Reddy’s margin recovery continued, but still trails peers
Standalone operating margin rose for a second straight quarter as revenue growth outpaced costs, though other income remained material to pre-tax profit.
Filed 23 Oct 2026, 17:29 IST · after market close · Dr Reddys Laboratories Ltd (DRREDDY)
Key takeaways
- Standalone operating profit grew 127.92% year on year as revenue rose 20.66% while expenses increased 8.21%.
- Operating margin expanded 9.24 percentage points year on year to 19.64%, but remained 3.08 percentage points below the Healthcare peer median.
- Net profit grew 79.65% year on year even as other income contributed 24.11% of profit before tax.
Price around the results
Revenue recovery lifted standalone operating profit
Standalone revenue grew 20.66% year on year and 8.49% sequentially, while operating profit rose 127.92% and 144.68%, respectively. The improvement followed a weak Q4FY26, when operating margin was -13.08%, and extended the recovery to 19.64% in Q2FY27. Net profit growth was slower than operating profit growth because interest rose 130.54% year on year and the tax rate increased 4.23 percentage points sequentially.
Costs supported the margin rebound, but profit quality needs watching
Expenses grew 8.21% year on year against 20.66% revenue growth, while they fell 4.51% sequentially as revenue increased 8.49%; this drove the 9.24 percentage-point year-on-year and 10.93 percentage-point sequential margin expansion. Other income fell 40.33% year on year and 50.66% sequentially, but still represented 24.11% of profit before tax. The lower year-on-year tax rate, down 2.19 percentage points, also supported net profit growth.
Margin recovery is clear, but Dr Reddy’s remains below peers
Operating margin has risen from -13.08% in Q4FY26 to 8.71% in Q1FY27 and 19.64% in Q2FY27, marking a second consecutive quarterly improvement. Among four Healthcare peers that had reported the quarter, Dr Reddy’s margin was 3.08 percentage points below the 22.72% median and ranked second from the bottom. The sequential comparison is more informative here because the preceding quarters included a sharp margin swing.
Management highlighted pipeline launches and operating issues
The presentation said the company plans to launch the QDENGA dengue vaccine in India’s private market in H1 2027 and noted its partnership with Takeda. Management said it is on track to resolve the out-of-specification semaglutide API issue, while the presentation also flags lower lenalidomide sales in North America, pricing pressure in Europe and lower API offtake in PSAI. The presentation said Aurigene’s CDMO business surpassed $100 million of revenue in the twelve months ended September 2026.
No immediate market reaction after the post-close filing
The standalone results were filed after market close, so there was no market reaction to assess yet. After the previous eight results, the stock rose five times and fell three times, with a median absolute move of 2.35%; the recent moves ranged from -1.39% to +5.21%.
Q2FY27 at a glance
Standalone figures as filed with NSE — filed ahead of third-party databases, not yet independently cross-checked.
| Line item | Q2FY27 | Q1FY27 | QoQ | YoY |
|---|---|---|---|---|
| Revenue | ₹5,573 cr | ₹5,137 cr | +8.49% | +20.66% |
| Other income | ₹217 cr | ₹440 cr | -50.66% | -40.33% |
| Expenses | ₹4,478 cr | ₹4,689 cr | -4.51% | +8.21% |
| Operating profit | ₹1,095 cr | ₹447 cr | +144.68% | +127.92% |
| Operating margin (%) | 19.64% | 8.71% | — | — |
| Interest | ₹77 cr | ₹73 cr | +5.34% | +130.54% |
| Depreciation | ₹334 cr | ₹318 cr | +5.04% | +13.20% |
| Profit before tax | ₹901 cr | ₹497 cr | +81.35% | +74.57% |
| Tax | ₹206 cr | ₹92 cr | +122.64% | +59.30% |
| Net profit | ₹696 cr | ₹405 cr | +71.93% | +79.65% |
| EPS (₹) | ₹8.35 | ₹4.86 | +71.81% | +79.57% |
Operating margin of 19.64% compares with a Healthcare sector median of 22.72% across 4 peers that have reported Q2FY27.
What management said
From the company’s own investor presentation. Each point is checked against the source document before it appears here.
This quarter
- The CDMO business under Aurigene Pharmaceutical Services surpassed $100 million in revenue during the twelve months ended September 2026.
Guidance & outlook
- Dr. Reddy's plans to launch the QDENGA dengue vaccine in India's private markets in the first half of 2027.
- The company is on track to resolve an issue involving out-of-specification batches of semaglutide API.
New initiatives
- Dr. Reddy's partnered with Takeda for India's first CDSCO-approved dengue vaccine, QDENGA.
- Dr. Reddy's expanded its collaboration with Gilead Sciences for once-yearly lenacapavir for HIV prevention in 120 countries.
- Dr. Reddy's and GARDP Foundation secured Thai FDA approval for zoliflodacin within six months of USFDA approval.
Competition
- Dr. Reddy's moved to number eight in India's pharmaceutical market for the quarter.
Problems & risks
- North America reported growth was affected by lower lenalidomide sales.
- Europe's growth was partly offset by pricing pressure and changes to the NRT operating model.
- PSAI growth was affected by lower API volume offtake.
- The company received Form 483 observations at two formulation manufacturing facilities in Andhra Pradesh.
What to watch
- Whether operating margin holds above 19.64% after two consecutive quarterly improvements.
- Whether other income’s 24.11% share of profit before tax declines.
- Progress toward management’s stated H1 2027 QDENGA private-market launch.