Dr Reddy's Q4 operating margin drops to 5.07% as costs rise
Revenue fell 11.51% year on year while expenses rose 9.70%, with other income at 240.36% of pre-tax profit and a -10.82% tax rate cushioning reported earnings.
Filed 12 May 2026, 16:39 IST · after market close · Dr Reddys Laboratories Ltd (DRREDDY)
Key takeaways
- Consolidated operating margin fell 18.36 percentage points year on year to 5.07% as revenue declined 11.51% while expenses rose 9.70%.
- Net profit fell 86.05% year on year to Rs 221.3 cr, despite a -10.82% tax rate and other income equal to 240.36% of pre-tax profit.
- North America revenue excluding the shelf-stock adjustment declined 38% year on year, while the stock's first-day move of -0.37% was smaller than its 3.22% median absolute post-results move.
Price around the results
North America decline drove the revenue setback
In consolidated Q4FY26, revenue declined 11.51% year on year and 13.79% sequentially. Management said North America revenue excluding the shelf-stock adjustment fell 38% year on year and 25% quarter on quarter, while Emerging Markets growth was partly offset by lower CISR volumes and price erosion in the rest of the world. The company said new launches, higher volumes and favourable forex supported Emerging Markets, and that it launched Tegoprazan in Russia during the quarter.
Margin pressure was amplified by higher costs and charges
Expenses rose 9.70% year on year and 4.34% sequentially even as revenue fell, reducing operating margin by 18.36 percentage points year on year and 16.49 percentage points quarter on quarter. Interest expense increased 61.13% year on year, while depreciation rose 22.52%, adding to the pressure below operating profit. Profit quality was weak: other income represented 240.36% of pre-tax profit, and the -10.82% tax rate reflected a tax benefit rather than a tax charge.
Q4 marked a third straight quarterly margin decline
Operating margin fell from 25.36% in Q1FY26 to 22.77% in Q2FY26, 21.56% in Q3FY26 and 5.07% in Q4FY26. This was also well below the 23.38% median margin for 48 Healthcare peers that had reported the quarter; Dr Reddy's ranked second from the bottom, with an 18.31 percentage-point gap to the median. Net profit declined 86.05% year on year and 81.40% sequentially.
Management pointed to launches, pipeline and integration
Management said the company aims to strengthen its core businesses and build future growth drivers in peptides, biosimilars, consumer health and innovation. The company said it launched generic semaglutide injection under the Obeda brand in India on day one, and plans to advance pipeline products including semaglutide and abatacept. Management also said 95% of the acquired NRT business by value had been integrated by March 2026, while the presentation flagged operational leverage, mergers and acquisitions, and in-licensing as growth and efficiency initiatives.
The initial stock reaction was within its usual range
The stock opened 1.92% lower after the results were filed after market close, but the first-day decline narrowed to 0.37%; five sessions later it was up 4.09%, with a 3.05 times volume ratio on day zero. Across the last eight result reactions, the stock rose five times and fell three times, with a median absolute move of 3.22%, making the initial response ordinary in size.
Q4FY26 at a glance
Consolidated figures as filed with NSE — cross-checked against an independent source.
| Line item | Q4FY26 | Q3FY26 | QoQ | YoY |
|---|---|---|---|---|
| Revenue | ₹7,546 cr | ₹8,753 cr | -13.79% | -11.51% |
| Other income | ₹480 cr | ₹271 cr | +77.06% | -9.02% |
| Expenses | ₹7,164 cr | ₹6,866 cr | +4.34% | +9.70% |
| Operating profit | ₹383 cr | ₹1,888 cr | -79.74% | -80.85% |
| Operating margin (%) | 5.07% | 21.56% | — | — |
| Interest | ₹106 cr | ₹94 cr | +11.97% | +61.13% |
| Depreciation | ₹557 cr | ₹521 cr | +6.93% | +22.52% |
| Profit before tax | ₹200 cr | ₹1,543 cr | -87.06% | -90.04% |
| Tax | ₹-22 cr | ₹354 cr | — | — |
| Net profit | ₹221 cr | ₹1,190 cr | -81.40% | -86.05% |
| EPS (₹) | ₹2.65 | ₹14.53 | -81.76% | -86.14% |
Operating margin of 5.07% compares with a Healthcare sector median of 23.38% across 48 peers that have reported Q4FY26.
How the stock reacted
| Window | Stock | vs NIFTY |
|---|---|---|
| Results day | -0.37% | -0.51% |
| Next session | +2.65% | — |
| 5 sessions | +4.09% | +2.89% |
| 15 sessions | -0.20% | — |
| 30 sessions | +6.34% | — |
Volume on the results session was 3.05× 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.
This quarter
- The company launched Tegoprazan in Russia during Q4FY26.
- The company reported new product launches, higher volume uptake and favourable forex as Emerging Markets growth drivers.
Guidance & outlook
- The company aims to strengthen core businesses and build future growth drivers in peptides, biosimilars, consumer health and innovation.
- The company plans to advance key pipeline products, including semaglutide and abatacept.
- The company aims to drive efficiencies through better operational leverage.
Expansion
- The company plans to augment organic growth through mergers and acquisitions and in-licensing.
New products
- The company launched generic semaglutide injection under the Obeda brand in India on day one.
- The company launched Tegoprazan in Russia.
New initiatives
- The company completed integration of 95% of the acquired NRT business by value as of March 2026.
Competition
- Dr. Reddy's India business grew 15.2% versus 11.6% growth for the Indian pharmaceutical market.
Problems & risks
- North America revenues excluding the shelf stock adjustment declined 38% year on year and 25% quarter on quarter.
- Emerging Markets growth was partially offset by lower CISR volumes and price erosion in RoW.
- Europe's momentum from new launches was moderated by pricing pressure.
- Immutep discontinued its trial of the licensed novel drug Eftilagimod alfa after a planned interim futility analysis.
What to watch
- Whether operating margin holds above 5.07% after three consecutive quarterly declines.
- Whether North America revenue excluding the shelf-stock adjustment improves from its 38% year-on-year decline.
- Whether other income remains below its 240.36% share of pre-tax profit.