Why Are Brokerages Divided on Dr. Reddy’s Q2 FY26 Performance Despite Strong Margins?
About Dr. Reddy’s Laboratories: One of India’s leading pharmaceutical companies, Dr. Reddy’s operates across generics, active pharmaceutical ingredients (API), and biosimilars segments globally. It has been a key beneficiary of patent expiries in the U.S. market and maintains a strong product pipeline in oncology and diabetes care.
The company reported better-than-expected EBITDA and PAT growth in Q2 FY26, driven by new launches and lower R&D expenses. However, some brokerages remain cautious due to pricing pressure in the U.S. and currency headwinds in emerging markets.
Q2 FY26 Highlights and Brokerage Takeaways
| Metric | Q2 FY26 | YoY Change |
|---|---|---|
| Revenue | ₹7,468 Cr | ↑ 9% |
| EBITDA | ₹2,040 Cr | ↑ 15% |
| PAT | ₹1,520 Cr | ↑ 17% |
| Gross Margin | 58.4% | Flat QoQ |
| R&D Spend | 8.1% | Down 40 bps |
Brokerages like Kotak and Axis Securities maintained a “Buy” rating, highlighting strong margin sustainability and product launch pipeline, whereas Nomura and CLSA issued a “Hold” due to valuation richness and limited near-term upside.
Peer Comparison (Top Indian Pharma Majors)
| Metric | Dr. Reddy’s | Sun Pharma | Cipla | Lupin |
|---|---|---|---|---|
| CMP (₹) | 6,320 | 1,590 | 1,440 | 1,570 |
| P/E (x) | 22 | 28 | 25 | 27 |
| ROE (%) | 18 | 17 | 16 | 14 |
| Revenue Growth (%) | 9 | 12 | 10 | 14 |
While Dr. Reddy’s trades at a modest valuation compared to peers, its earnings stability and cash position remain strong. Its new biosimilar launches in Europe and cardiovascular therapies are expected to drive future growth.
Valuation Metrics Overview
| Metric | Current | Historical Range | Comment |
|---|---|---|---|
| P/E | 22x | 18–26x | Fairly valued within historical band |
| EV/EBITDA | 14x | 12–17x | Slight premium justified by steady margins |
| ROE | 18% | 15–20% | Healthy return profile |
| Dividend Yield | 0.9% | 0.6–1% | Moderate payout policy |
Analysts expect FY26–28 EPS CAGR around 12–14%, supported by sustained exports growth and biosimilar traction. Management continues to focus on cost optimization and new launch velocity in the U.S. market.
Investment Horizon Verdict
Short Term (1–3 months): Likely sideways within ₹6,100–₹6,400 range as investors digest mixed broker views.
Medium Term (3–9 months): Scope for moderate upside on margin sustainability and pipeline execution.
Long Term (9 + months): Solid defensive play within Indian pharma; ideal for steady compounding returns.
Investor Takeaway
Indian-Share-Tips.com Nifty Expert Gulshan Khera, CFP®, who is also a SEBI Regd Investment Adviser, notes that Dr. Reddy’s remains a steady performer in India’s pharma space. While valuations are neutral, its strong R&D and biosimilar pipeline justify accumulation on market dips for long-term holders.
Discover more insights at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries on Pharma Stocks
- Is Dr. Reddy’s fairly valued after Q2 FY26 results?
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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
