Dr. Reddy's reaches its 20% margin guidance with semaglutide pens still off the shelves

In May, Dr. Reddy's Laboratories set a floor under its business: without semaglutide, the diabetes and weight-loss injection it had been selling in generic form, it planned to hold an EBITDA margin of around 20%. EBITDA here is profit before interest, tax, depreciation and amortisation, and the company's measure includes other income. In the September 2026 quarter, with its semaglutide pens still off the market after a production problem, it reported a consolidated EBITDA margin of 20.6%, even though revenue slipped from a year earlier. The reported margin is at the base the company guided to in May.

The filed results of the parent company on its own, a narrower and differently measured slice of the group, swung hard. Its operating margin, which leaves out other income, was 19.6% last quarter, against 8.7% the quarter before. The two margins are not like for like. For the group, management credited the margin to mix, with more sales from higher-margin India, emerging markets and nicotine-replacement products, to new US products, and to expenses that stayed flat.

The parent company's jump comes off a low base. The quarter before carried a provision for inventory and related costs. In the one before that, when the parent company made an operating loss, the group carried a ₹453 crore lenalidomide price adjustment and ₹259 crore of impairments. Strip those out and the business was already close to the floor: dividing the underlying EBITDA management presented in May by its adjusted revenue for that earlier quarter gives a margin of about 19.5%.

The quarter also had help from research spending. R&D fell from a year earlier to about 6% of revenue, mainly because generics development cost less. The guidance given in May was 7-8% of revenue for the year, and the finance chief said the coming quarters would land in that range. Subtracting one from the other, closing that gap would cost one to two points of margin before any offset. Chief executive Erez Israeli said other expenses would come down to make room for it. Separately, the finance chief expects higher costs for raw materials, solvents and freight, worth close to 100 basis points, to stay through the next two quarters.

Above the floor, the company's plans rest on two dated events. The first is the semaglutide relaunch. Management still expects to supply 6-7 million pens over the second half of the fiscal year, the guidance it gave in July, and to relaunch in November, subject to a successful validation of the fixed production process. On results day the finance chief said: "We still need to have the result of the validation." He added that he was confident it would succeed. The pen number has held since July, and November sits at the late end of the window given then; the test that would confirm the relaunch had not come back.

The second is abatacept, the company's biosimilar for the US market. The plant has been inspected, the company is waiting for the inspector's report, and the US regulator's goal date is 22 December. Israeli said there is a chance of a complete response letter, the regulator's formal request for fixes before approval. In May he had said the company's target for annual biosimilar sales depended on how abatacept performs.

Spending on new capacity is drifting the other way. The finance chief said capex had been guided at around ₹1,800 crore and now expects ₹1,600-1,700 crore for the year; in May the figure given was about ₹2,000 crore. At the parent company, capital work in progress, the cost of projects not yet in use, fell about 18% in the six months to September, by our arithmetic from the balance sheets, which fits projects being finished rather than new ones started.

The company has now reported a margin at the base it guided to. What it earns above that depends on a validation result, the US regulator's decision on abatacept, and whether lower spending elsewhere covers R&D as it rises back to the guided range.