Dr Reddy’s Reports 7% Rise in Q2 Net Profit
Dr Reddy’s Laboratories on October 24 announced its second-quarter results for FY26, posting a 7 percent year-on-year increase in net profit to ₹1,347.1 crore.
The company’s earnings, however, fell short of analyst estimates, primarily due to intense competition in the North American market for its generic version of the blockbuster cancer drug Revlimid (lenalidomide).
Despite the miss in profit, investors were encouraged by the robust revenue growth and strategic portfolio performance, underscoring the company’s resilience in challenging markets.
Revenue Growth Outpaces Estimates
Dr Reddy’s revenue from operations rose nearly 10 percent YoY to ₹8,828 crore in Q2 FY26, exceeding analysts’ estimates of around ₹8,700 crore.
The company had reported ₹8,038 crore in revenue for the same quarter in the previous fiscal year, indicating steady growth despite pressures in the U.S. market.
“Growth in Q2 was driven by momentum in branded markets and steady contributions from the Nicotine Replacement Therapy (NRT) portfolio, which helped offset the decline in U.S. lenalidomide sales. We remain focused on strengthening our core business, advancing key pipeline assets, driving productivity and pursuing business development initiatives,” said Dr Reddy’s Co-Chairman & MD G V Prasad.
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Challenges in the U.S. Market
The North American generic segment remains highly competitive, particularly for Revlimid, where price erosion and multiple market entrants have impacted margins. Analysts note that this has been a key factor restraining net profit growth, even as revenues from other segments offset some of the pressure.
Dr Reddy’s continues to focus on diversifying its U.S. portfolio and strengthening its branded and emerging markets operations, aiming to reduce reliance on single blockbuster generics.
Segmental Performance and Branded Growth
Branded Markets: Dr Reddy’s saw consistent growth in branded formulations across India and select emerging markets, contributing significantly to revenue.
Nicotine Replacement Therapy (NRT) Portfolio: The company’s NRT products helped cushion the decline in U.S. sales, reflecting diversification in its therapeutic portfolio.
Global Generics: Revenue from international generics was affected by stiff competition in key molecules, but overall performance remained steady due to gains in emerging markets and newly launched products.
Research & Development: The company continues to invest in pipeline assets, focusing on oncology, dermatology, and biosimilars, which are expected to drive medium-term growth.
Analyst Commentary on Dr Reddy’s Q2 Results
Brokerages have provided mixed assessments of Dr Reddy’s performance:
Motilal Oswal highlighted that while net profit missed estimates, revenue growth and contributions from the branded portfolio remain encouraging.
ICICI Securities noted that U.S. Revlimid competition will continue to be a near-term headwind, but pipeline initiatives and emerging market expansion offer growth visibility.
Analysts suggest that earnings momentum is expected to improve in the second half of FY26, driven by new product launches and global expansion strategies.
Investor Takeaways: Strategic Focus and Diversification
Investors looking at Dr Reddy’s Q2 performance should note the following key points:
Revenue Diversification: Strong contribution from branded and NRT segments mitigates U.S. generic pressures.
Pipeline Growth: Continued focus on oncology, dermatology, and biosimilars enhances future earnings potential.
Global Expansion: Efforts to expand in emerging markets reduce reliance on the highly competitive U.S. generics market.
Operational Efficiency: Cost optimization and productivity improvements remain central to maintaining profitability.
Analysts recommend that long-term investors consider Dr Reddy’s resilience and strategic initiatives, even as near-term earnings may remain volatile due to U.S. market dynamics.
Conclusion: Q2 Missed Estimates but Fundamentals Remain Strong
Dr Reddy’s Q2 FY26 results reflect a mixed bag: while net profit rose 7 percent YoY, it missed analyst expectations, primarily due to U.S. generic competition.
However, revenue growth, branded market momentum, and strategic pipeline investments provide a strong foundation for medium- and long-term growth.
As the company navigates competitive pressures in North America and strengthens its global portfolio, investors are likely to focus on pipeline progress, emerging market expansion, and margin sustainability in the coming quarters.
