DRREDDY Q2 FY27 Earnings Call: Semaglutide Relaunch On Track For November, Guides 20%+ H2 EBITDA Margin

DRREDDY held its Q2 FY27 earnings call on October 23, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

Lenalidomide Drag Masks Double-Digit Base Growth

• Revenue of Rs.8,671 crore (US$905 million) — down 1.5% YoY but up 7.4% QoQ; excluding lenalidomide in North America, the underlying base business delivered double-digit growth, aided by new launches and favorable forex.
• EBITDA (incl. other income) of Rs.1,783 crore at 20.6% margin — down 614 bps YoY on lower lenalidomide sales, up 806 bps QoQ; Q1 FY 2026-2027 margins had been hurt by a provision tied to semaglutide API-related challenges.
• Gross margin at 52.1% — up 562 bps QoQ, down 254 bps YoY; Global Generics at 56.2%, PSAI at 11.8%.
• PAT of Rs.925 crore (US$97 million) at 10.7% margin — PBT Rs.1,228 crore at 14.2% margin; effective tax rate rose to 25.6% from 22.2% YoY on adverse jurisdictional mix; diluted EPS of Rs.11.1.
• Finance income fell to Rs.90 crore from Rs.290 crore QoQ — CFO MV Narasimham attributed this to balance-sheet forex exposure, with the ruble spot-rate movement between June and September producing a P&L debit in Q2 FY 2026-2027.
• Net cash surplus of Rs.2,502 crore (US$261 million) as of September 30, 2026; operating working capital at Rs.14,650 crore, up Rs.297 crore vs June 30, 2026; cash capex of Rs.186 crore in the quarter.
• SG&A at Rs.2,808 crore (32% of revenue) — up 6% YoY on annual increments, adverse forex, and elevated freight costs from Middle East crisis-driven supply chain disruptions; R&D at Rs.524 crore (6% of revenue), down 16% YoY.

Two Blockbuster Launches Define the Next 12 Months

• Semaglutide relaunch on track for November 2026 (Q3 FY 2026-2027) — subject to successful validation; the API scale-up problem is solved and all required API shipped to the fill-and-finish partner, with drug-product validation taking ~3 weeks. Validation results remain pending.
• Approvals in ~10 countries; launch target raised to 89 markets — updated from the earlier >70 countries reference; no amendment to the regulatory file required, though some approvals were delayed because samples could not be shipped during the scale-up fix.
• Abatacept US goal date of December 22, 2026 — the Bachuvali plant has undergone the USFDA inspection and the company awaits the report; CEO Erez Israeli acknowledged "there is a chance" of a CRL in December 2026 (Q3 FY 2026-2027), with the analyst positing a ~2-month delay in that scenario.
• Abatacept subcutaneous US approval expected in 4Q FY28 and non-US approvals for both indications in 1Q FY28; the sub-Q filing is planned in the February–March 2027 window, possibly around April 2027 (Q4 FY 2026-2027).
• Abatacept fair market share assessed at 15-25% (period unspecified) for the IV version, assuming approval — management sees lower price sensitivity as a medical-benefit product; meaningful ramp-up expected only ~6 months post-approval.
• Non-US Abatacept opportunity — analyst Amlan Das cited the reference drug's non-US market at roughly $1 billion; Europe is a very important market, to be launched a little after the US, manufactured at the Bajpale facility.
• Semaglutide device guidance of 6-7 million pens for FY 2026-2027 — Brazil launch likely at the beginning of Q4 FY 2026-2027; for FY28-FY29 the CEO maintained a "very tentative" 12-15 million pens run-rate estimate, dependent on Dr. Reddy's and partner market-share success.

India Accelerates; Europe and API Lag

• North America revenue of $264 million (29% of total) — down 29% YoY on the lenalidomide comparison but up 12% QoQ; base business ex-lenalidomide grew strong double digits; 6 products launched including first-to-market Sugamadex injection.
• India revenue of Rs.1,851 crore (21% of total), up 17% YoY — quarterly growth of 21% vs IPM's 14.7% and MAT growth of 19.4% vs market's 13.2%; IPM rank improved to 8 for the quarter per IQVIA September 2026 data; 4 brands in IPM top 50 new launches.
• Emerging markets revenue of Rs.2,059 crore (24% of total), up 24% YoY — driven by new launches including acquisitions and favorable currency; 27 new products introduced across countries in Q2 FY27.
• Europe (incl. NRT) revenue of €127 million (16% of total), down 6% YoY — on generic price erosion and operating model changes post NRT integration; ex-NRT Europe expected to grow in single digits in FY 2026-2027, with no return to double-digit growth in FY 2026-2027.
• PSAI revenue of $88 million (10% of total), down 19% YoY — on lower API volume uptake; merchant API declining as buyers of peptides prefer finished goods; CDMO delivered double-digit growth; 28 drug master files filed globally.
• NRT revenue flat over Q1–Q2 FY 2026-2027 — distorted by the business-model change post carve-out from Helion (direct/distributor sales replacing Helion handling margins); management expects high-single-digit to possibly double-digit NRT growth (period unspecified), with distorted YoY comparisons persisting through Q3–Q4 FY 2026-2027.
• Branded franchise (India, EM, NRT) at 53% of revenue — providing a stable margin foundation.

20%+ in H2 FY27; 25% Ambition Restated

• Management confident of 20%+ EBITDA margins in H2 FY 2026-2027 — and 21%+ if the semaglutide launch succeeds; the CEO called 20-21% "not impressive," reiterating the 25% ambition (period unspecified) as the company recovers from lenalidomide.
• War-driven cost increases hit EBITDA by close to 100 bps in Q2 FY 2026-2027 — across KSMs, solvents, and outward logistics; management expects this cost trend to continue through Q3 and Q4 FY 2026-2027, but does not anticipate further increases beyond current levels absent new geopolitical issues.
• Gross margin guidance reiterated in the 50% range (period unspecified) — CFO confirmed the analyst's assumption that Q2 FY 2026-2027 marks the bottom; CEO added margins "will only go better from here."
• R&D spend expected at 7-8% of revenue in coming quarters of FY 2026-2027 — per CFO MV Narasimham, versus the lower 6% in Q2; R&D to rise in H2 FY 2026-2027, offset by lower other expenses.
• SG&A expected to stay around 32% of revenue through coming quarters of FY 2026-2027 with only small changes, as cost productivity initiatives become visible.
• CapEx guidance trimmed to Rs.1,600-1,700 crore for FY 2026-2027 — lower than the earlier ~Rs.1,800 crore full-year guidance; H1 FY 2026-2027 spend was below the typical run-rate.
• ~Rs.1,370 crore swing in "other assets and liabilities" cash flow — driven primarily by the SSA claim payment; the $50 million provision was booked in Q4 FY 2025-2026 with the cash outflow occurring during H1 FY 2026-2027.

Building the Next Revenue Layer

• Abatacept expected to generate hundreds of millions of dollars over the next 3-4 years (≈ FY 2027-2028 through FY 2030-2031) — per CEO Erez Israeli, explicitly dependent on Abatacept's success; pembrolizumab and daratumumab to follow within 5 years (by ~FY 2031-2032) per CFO MV Narasimham.
• CDMO plan reaffirmed at 2-3x current revenue over the next 3-4 years (by ~FY 2030-2031) — CEO stated "this is still our plan" on the current 100 million-plus base (currency unspecified); growth from double-digit innovation work, tech-transfer projects with large companies, and Phase 2/Phase 3 conventional CDMO projects.
• Origin Pharmaceutical Services (CDMO) generated over $100 million in revenue over the last 12 months — no specific timeline or materiality given for the newly signed CDMO contract's revenue kick-in.
• Rituximab biosimilar approved by USFDA — to be commercialized in the US through partner Fresenius Kabi; in Europe Dr. Reddy's holds a low single-digit share (Q2 FY 2026-2027), constrained by capacity, though the CEO does not expect a significant share change given high competition.
• Nivolumab launched in India — marking entry into biosimilar immune oncology; both Rituximab and Nivolumab developed and manufactured in-house.
• Partnerships expanded — with Takeda to bring QDENGA, India's first approved dengue vaccine, to Indian private markets in H1 2027; with Gilead Sciences for once-yearly lenacapavir for HIV prevention across 120 countries; and with the GuardP Foundation, securing Thailand approval for zolifodasin within 6 months of USFDA approval.
• China JV received first generic approval for icotene in July 2026 (Q2 FY 2026-2027) — Dr. Reddy's records only its 51% share of JV profits; selling has begun, though ramp-up status was not confirmed.

India Momentum, US Sustainability, Execution Risk

• India growth expected to stay at high double-digit levels in FY 2026-2027 — "a little bit less or a little bit more" than the current 17% run rate; CFO's goal is to grow above the IPM market by a few basis points in FY 2026-2027; CEO attributed the recent IPM acceleration primarily to semaglutide/GLP-1 launches, noting that excluding GLP-1, IPM growth would be close to single digit or high.
• US generics: management believes current numbers are sustainable — with further growth contingent on abatacept, semaglutide (to be included in North America sales), and complex generics in the pipeline; the Botocine 180-day-exclusivity SKU will decline after its 6-month window, an impact management expects to absorb without significant effect (period unspecified).
• A few complex injectable launches planned for H2 FY 2026-2027 — described as "meaningful products" for the US market, dependent on FDA approvals rather than IP outcomes; the CEO declined to name products or commit firmly to timing ("I got burned in the past"), promising details by end of FY 2026-2027.
• Abatacept CRL risk in December 2026 (Q3 FY 2026-2027) — management feels good about the product, inspection, and USFDA correspondence, but the final decision rests with the USFDA; a CRL would delay the launch by roughly 2 months per the analyst's scenario.
• FX hedging cover of US$229 million — dollar cash flows hedged via forwards and risk-reversal options maturing by March 2027 at rates of Rs.93.03-95.54 per US dollar.
• ESG and recognition — CRISIL ESG score improved to 73/100 from 66, making the company the only pharmaceutical firm in the leadership category; Finance Asia silver medal for Best Large-Cap Company in India (Asia Best Companies 2026).