Dr Reddy’s Shares Rise 4% After Q2 Earnings as Analysts Upgrade Rating

Margin Resilience and Pipeline Hopes Lift Dr Reddy’s After Profit Decline

Investors looked beyond a steep annual profit fall, weighing sequential improvement and broker optimism about future growth drivers.

A sharp share move despite weaker annual earnings

Dr Reddy’s shares rose as much as 3.8% to ₹1,275.80 on the NSE and were up 3.2% at ₹1,269 at 10 a.m., with 33.46 lakh shares traded. The Nifty 50 was higher by 0.1% at the time, indicating that the stock’s gain was considerably stronger than the broader index’s move.

The rally followed results that were mixed rather than uniformly strong. Consolidated net profit fell 36% year on year to ₹925 crore, while revenue slipped 0.5% to ₹8,670.8 crore. Lower lenalidomide sales in North America were the main drag. However, profit rose 109% sequentially and revenue increased 7.4% from the previous quarter, offering investors evidence of a near-term recovery in performance.

North American pressure contrasts with base-business growth

North American revenue declined 23% year on year to ₹2,489 crore as lenalidomide sales weakened. The company’s base business in the region nevertheless grew 12.4%, an important counterpoint to the headline decline. For investors, the distinction matters: the quarter’s overall sales performance was affected by a specific product-related shortfall, while the underlying base business continued to expand.

The reported EBITDA margin was 20.6%, and gross margin came in at 52.1%, within the company’s guided range of 50% to 55%. Capital expenditure was ₹186 crore. These figures help explain why analysts saw some resilience in the quarter even though revenue fell short of at least one brokerage’s estimate. Still, sustaining margins will depend on how sales mix and future growth develop.

Analyst upgrades hinge on future earnings drivers

Elara Securities upgraded the stock to ‘Accumulate’ from ‘Reduce’ and raised its target price to ₹1,338 from ₹1,222. It lifted core earnings estimates for FY27-29 by 1% to 6%, while noting that second-quarter revenue was 4% below its estimate and that EBITDA margin expansion was stronger than expected. The brokerage expects margins of 17% to 18.5% for the rest of FY27 and FY28.

Systematix Institutional Research moved to ‘Buy’ from ‘Hold’ and set a ₹1,461 target price. Its view incorporates the potential approval of biosimilar Abatacept and the planned launch of the Qdenga dengue vaccine, with initial Qdenga sales factored into FY28 estimates. Choice Institutional Equities retained ‘Add’ with a ₹1,380 target price. These are brokerage expectations, not confirmed outcomes; approvals, launches and commercial traction remain execution variables.

The forecasts also differ on the path of profitability. Management reiterated confidence in keeping EBITDA margins above 20%, while Choice projected 18% for FY27 and 21.5% for FY28. That gap highlights a key question for the market: whether prospective products and business growth can translate into sustained margin improvement.

Key Highlights

• Net profit fell 36% year on year to ₹925 crore; revenue declined 0.5% to ₹8,670.8 crore.
• Sequentially, net profit rose 109% and revenue increased 7.4%.
• North American revenue dropped 23%, while regional base-business growth was 12.4%.
• EBITDA margin was 20.6%; gross margin stood at 52.1%.
• Elara and Systematix upgraded their ratings, citing earnings estimates and potential product-related growth.

Investor Note: The share-price response reflects optimism about sequential recovery and future growth prospects, but the annual profit decline and North American weakness remain relevant risks. Investors may want to track regional sales, margin delivery and progress on the cited product opportunities rather than treating brokerage targets as assured outcomes.