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Profit Fell 36% — and the Stock Jumped 5.5%: Dr Reddy's Paradox Explained

2026-10-26

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Direct answer

Dr Reddy's Laboratories shares rose 5.41% to Rs 1,296 on the NSE on Monday, October 26, 2026 — making the stock the Nifty 50's top gainer — even though the company had just reported a 36% year-on-year fall in consolidated net profit to Rs 925 crore for Q2 FY27. The rally was driven by a stronger-than-expected margin recovery, a 109% sequential jump in profit, and a wave of analyst target upgrades focused on two near-term catalysts: semaglutide supplies resuming in November and a U.S. decision on biosimilar abatacept expected in December.

What happened

Dr Reddy's reported its September-quarter (Q2 FY27) results on Friday. Consolidated net profit fell 36% year on year to Rs 925 crore, while revenue declined 0.5% to Rs 8,670.8 crore, primarily because of lower lenalidomide sales in North America. On the headline numbers alone, it looked like a weak quarter — and a reason for the stock to fall, not rise.

The stock did the opposite. It opened at Rs 1,260 on Monday, touched an intraday high of Rs 1,299.50, and was trading up 5.41% at Rs 1,296 by 12:08 p.m., according to The Hindu BusinessLine. Traded volumes reached 58.04 lakh shares worth Rs 735 crore, with buy orders outpacing sell orders 61 to 39. In the Nifty 50 gainers list, Dr Reddy's led the index at +5.51%, well ahead of the next names.

Why it's blowing up: the quarter looked very different sequentially

The key to the paradox is the direction of travel, not the year-on-year comparison. Sequentially — versus the June quarter — net profit rose 109% and revenue increased 7.4%. EBITDA margin stood at 20.6% on the reported basis cited by Moneycontrol, with analysts pointing to an adjusted EBITDA margin recovery of around 19–19.5%, a meaningful sequential improvement driven by a favourable business mix, cost efficiencies, operating leverage and forex tailwinds.

In other words, investors were not buying the comparison with last year, when lenalidomide sales were stronger. They were buying the recovery from the previous quarter, and the evidence that profitability was better than feared. Nomura said EBITDA and profit after tax beat its estimates by 14% and 5% respectively, even as revenue marginally missed expectations.

Management added to that confidence by guiding for margins above 20% in the second half of FY27.

What analysts said

Brokerage reaction was mixed on valuation, but broadly positive on the margin story:

  • Nomura retained Buy, with a target of Rs 1,730 — the most bullish on the Street — while cutting its FY27–FY29 earnings estimates by 29%, 12% and 7%, citing one-time charges, lower semaglutide sales and the discontinuation of Novartis brands in India.
  • Citi maintained Buy and raised its target to Rs 1,510 from Rs 1,450, citing broad-based margin strength.
  • BofA Securities maintained Buy with a Rs 1,480 target, citing stronger gross margins and abatacept's potential.
  • HSBC retained Buy with a Rs 1,375 target.
  • Jefferies upgraded the stock to Hold from Underperform and raised its target sharply to Rs 1,320 from Rs 1,040.
  • JPMorgan upgraded to Neutral with a Rs 1,270 target, after the stock had underperformed the Nifty Pharma Index by roughly 14 percentage points year to date.
  • Kotak retained Reduce with a revised Rs 1,220 target, flagging full valuations and execution risks, while Goldman Sachs maintained Sell with a Rs 1,150 target, citing uncertainty around the semaglutide opportunity in Canada.

That split — bullish targets well above the price alongside Sell and Reduce calls — is exactly why the move drew so much attention: the same quarter produced both the day's biggest index gain and some of the Street's most cautious notes.

The two catalysts everyone is watching

First, semaglutide. Analysts expect commercial supplies to resume in November 2026, a restart Jefferies and HSBC both flagged as a near-term catalyst.

Second, abatacept. A U.S. FDA approval for the biosimilar abatacept IV is expected around December 2026. Analysts note abatacept alone accounts for over 10% of FY28 earnings estimates, which makes its approval timeline one of the biggest single variables in the stock's story.

Separately, the company disclosed DCGI approval for its immunotherapy Zytorvi (toripalimab) in advanced esophageal squamous cell carcinoma — its second approved indication in India.

What's next

The next tests are dated and specific: semaglutide supply resumption in November, the abatacept decision expected in December, and whether second-half margins hold above the 20% level management guided for. If those land, the bull case behind targets like Nomura's Rs 1,730 and Citi's Rs 1,510 gets support. If they slip, the cautious case — full valuations after a 5.5% one-day jump, and earnings estimates already being cut — will look stronger. This post reports what happened and why markets reacted; it is not a recommendation to buy, sell or hold any security.

FAQ

Why did Dr Reddy's shares rise if profit fell 36%?
Because the fall was year on year, driven by lower lenalidomide sales in North America, while profit more than doubled sequentially (+109%) and margins beat analyst estimates. Investors reacted to the recovery, not the annual comparison.

What were Dr Reddy's Q2 FY27 results?
Consolidated net profit was Rs 925 crore, down 36% year on year but up 109% quarter on quarter. Revenue was Rs 8,670.8 crore, down 0.5% year on year and up 7.4% sequentially, with EBITDA margin at 20.6%.

What are the next catalysts for Dr Reddy's?
Resumption of semaglutide commercial supplies targeted for November 2026, and U.S. FDA approval for biosimilar abatacept IV expected around December 2026. Management has also guided for margins above 20% in the second half of FY27.

What do analysts think after the results?
Views are split. Nomura (Buy, Rs 1,730), Citi (Buy, Rs 1,510) and BofA (Buy, Rs 1,480) are bullish on the margin beat, while Kotak (Reduce, Rs 1,220) and Goldman Sachs (Sell, Rs 1,150) flag full valuations and execution risks.

Sources