Dr. Reddy's Laboratories is an Indian pharmaceutical company founded in 1984 with total revenue of Rs. 10,863.90 Cr in FY 2018-19. The document analyzes Dr. Reddy's financial ratios over 5 years compared to industry average company GlaxoSmithKline, finding that while Dr. Reddy's has low debt and good liquidity, it lags in efficient use of assets and inventory/receivables management. The analysis concludes Dr. Reddy's has overall financial health but needs to improve profitability and asset utilization to match industry standards.

1. FINANCIAL ACCOUNTING
PROJECT
Main Company: Dr Reddy’s Laboratories, Proxy Company: GlaxoSmith
GROUP: 7
ABHINAV JOHN (19DM009)
ADITYA YADAV (19DM019)
AMOLI KAPOOR (19DM029)
ANUJA CHATTERJEE (19DM039)
ARUSHI GARG (19DM050)
VANSHIKA CHAUHAN (19DM060)

2. Introduction
Founded in 1984 in Hyderabad, India, Dr. Reddy’s Laboratories is a multi-national pharmaceutical
company with total revenue of Rs.10,863.90 Cr. (FY 2018-19). With a market capitalisation of $5.84
Bn, it is one of the major pharmaceutical company in our country which provides affordable and
innovative medicines. It has a huge range of products including medications, API,critical care,
diagnostic kits and biotechnology products. In 2017 it was ranked 91 in Fortune India 500 and was
listed in Forbes Global 2000 list. Dr. Reddy’s Laboratories markets its product over severalcountries
with main focus on India, U.S.,Europe and Russia. It was first Indian pharma company to export
Norfloxacin and Ciprofloxacin to Europe and the Far East. It has now expanded it wings from
medicine to health and patient-centricity. The key factors of its success are implementation of
efficient new product development process,high standard of corporate governance and controlling the
entire value chain.
Industry Average: It defines as the average of the returns of the stocks in the industry over the
designated time frame. This parameter is important for investors to analyse the value of a company
before making any investment. Investors apply industry averages to financial ratios from a company’s
financial reports they can understand a company’s profitability or possibilities for growth.
Here we have taken Indian subsidiary of another global pharmaceutical giant GlaxoSmithKline
(U.K.) i.e. GlaxoSmithKline pharmaceutical ltd. (HQ in Mumbai) as a proxy for industry average
analysis in compare with Dr. Reddy’s Laboratories. With a revenue of Rs. 3,230.01 Cr (FY 2018-19),
it is one of the major market player in Indian pharmaceutical industry. It was ranked 337 in Fortune
India 500 list,2016 and listed in both BSE and NSE. It produces prescription medicines and vaccines.
Prioritizing its performance, innovation and trust, it has been able to maintain its reputation since
1924.

3. RATIO ANALYSIS:
SOLVENCY RATIO
1) Debt Equity Ratio: It indicates the proportion of funds that are acquired through long-term
borrowings in comparison to shareholder’s funds. A ratio of 2:1 is considered as safe and
since Dr.Reddy’s debt equity ratio for previous five years has been within this range i.e. 0.03
to 0.09, we can say that the company is able to meet its long-term liabilities as most of the
funds for the company are financed through equity. Also, we are able to understand that our
main company is enjoying a leverage in the industry as its debt equity ratio is even less than
that of the industry.
2)Current Ratio: Current Ratio too plays a significant role in determining the position of the company
to pay its current liabilities within an year. Except for the year 2018, Dr Reddy has been able to
maintain its current ratio at a ratio which exceeds the ideal 2:1, inspite of there being high fluctuations
within the industry.
0.00
0.03
0.06
0.09
0.12
0.15
0.18
2015 2016 2017 2018 2019
DEBT EQUITY RATIO
Dr. Reddy's Laboratories GlaxoSmithKline Pharmaceutical Ltd

4. This shows that Dr Reddy labs is a stable company and will be able to pay off both its current as
well as non-current obligations in time.
ACTIVITY RATIO:
1) Total Asset Turnover: It indicates how much of the assets are being used in operations so as
to generate revenue for the company. Dr Reddy lags behind from the industry in its ability to
make efficient use of its assets. This shows that the management decisions taken in respect of
assets are hampering the revenue generating capacity of the assets so employed
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2015 2016 2017 2018 2019
CURRENT RATIO
Dr. Reddy's Laboratories GlaxoSmithKline Pharmaceutical Ltd

5. 2) Receivable Turnover and its collection Period: It show that Dr Reddy lab lacks decision
making ability in respect of how to utilise its Assets. It indicates that the Sales Policy of the
management is inefficient. The company has no-doubt improved its collection period over
five years but it still has to go a long way to come in terms of the industry.
Not Keeping a good watch over how and when cash is collected from its trade receivables or an
undue delay in collection brings in higher risk of bad debts and chances of higher expenses of
collection.
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2015 2016 2017 2018 2019
TOTAL ASSET TURNOVER
Dr. Reddy's Laboratories GlaxoSmithKline Pharmaceutical Ltd
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
2015 2016 2017 2018 2019
RECEIVABLE TURNOVER
Dr. Reddy's Laboratories GlaxoSmithKline Pharmaceutical Ltd

6. 3)Inventory Turnover and its collection period: The overall industry suffers with high collection
period, but the collection period of Dr Reddy is even higher than that of Industry. This shows that
that the management team is unable to efficiently utilise the inventory of the company. The
inventory is sold at a low pace,and a large amount of such inventory remains idle in the go-down
of the company.
This again increases the storage costs, blocks the funds, and cause loses to the company if such
goods expire or become unsaleable.
PROFITABILITY RATIO:
1) Profit After Tax Margin: It is a crucial ratio for any company as it helps in measuring the
overall efficiency of the business operations. There has been minor fluctuations in PAT
Margin for both the industry as well as the Company over these five years wherein the profit
margin has declined from 14.35% to 13.60% in case of the industry and from 16.78% to
12.02% in case of our company. The decline in case of our company is more than that of the
industry which is reason to worry.
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
2015 2016 2017 2018 2019
INVENTORY TURNOVER RATIO
Dr. Reddy's Laboratories GlaxoSmithKline Pharmaceutical Ltd

7. From the trend analysis we observe that the company has tried to reduce its trade receivable from
2015 till 2019 which is a step taken towards a positive direction. However, a reduction In cash and
cash equivalent shows that company is not willing to keep more than a certain amount in its business.
It has also finished off its short term loans and advances. This shows that the management team is
well-aware about the loopholes in its strategies and is taking corrective actions to be able to come in
line with the industry.
ALARMING SIGNAL
We observe that the collection period in case of trade receivables and holding period in case of
inventory is too high both in case of industry as well as the main company. Since the company deals
in supplying medicines therefore such a long holding period is dangerous both for the company as
well as its customers This increases the storage cost, blocks the funds of the company. Long
collection periods results in lack of liquidity, increases both the risk from bad debts and the expenses
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
2015 2016 2017 2018 2019
PAT MARGIN
Dr. Reddy's Laboratories GlaxoSmithKline Pharmaceutical Ltd

8. of collection. Therefore we can say that attention on part of managers to these assets may help the
company in avoiding undue expenses that may arise in such scenario.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment Recognition and measurement Items of property, plant and equipment
are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost
includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-
constructed assets includes the cost of materials and other costs directly attributable to bringing the
asset to a working condition for its intended use. Borrowing costs that are directly attributable to the
construction or production of a qualifying asset are capitalised as part of the cost of that asset. When
parts of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of property, plant and equipment. Gains and losses upon disposal
of an item of property, plant and equipment are determined by comparing the proceeds from disposal
with the carrying amount of property, plant and equipment and are recognised in the statement of
profit and loss. The cost of replacing part of an item of property, plant and equipment is recognised in
the carrying amount of the item if it is probable that the future economic benefits embodied within the
part will flow to the Company and its cost can be measured reliably. The costs of repairs and
maintenance are recognised in the statement of profit and loss as incurred. Items of property, plant
and equipment acquired through exchange of non-monetary assets are measured at fair value, unless
the exchange transaction lacks commercial substance or the fair value of either the asset received or
asset given up is not reliably measurable, in which case the asset exchanged is recorded at the
carrying amount of the asset given up.
INVENTORIES:
Inventories consist of raw materials, stores and spares,work-in-progress and finished goods and are
measured at the lower of cost and net realisable value. The cost of all categories of inventories is

9. based on the weighted average method. Cost includes expenditures incurred in acquiring the
inventories, production or conversion costs and other costs incurred in bringing them to their existing
location and condition. In the case of finished goods and work-in-progress, cost includes an
appropriate share of overheads based on normal operating capacity. Stores and spares consists of
packing materials, engineering spares (such as machinery spare parts) and consumables (such as
lubricants, cotton waste and oils), which are used in operating machines or consumed as indirect
materials in the manufacturing process. Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and selling expenses. The factors
that the Company considers in determining the provision for slow moving, obsolete and other non-
saleable inventory include estimated shelf life, planned product discontinuances, price changes,
ageing of inventory and introduction of competitive new products, to the extent each of these factors
impact the Company’s business and markets. The Company considers all these factors and adjusts the
inventory provision to reflect its actualexperience on a periodic basis.
QUALITY OF EARNINGS
The quality of earnings of Dr. Reddy Laboratory is high as a major proportion of income comes from
revenue from providing affordable medicines. They have a total revenue of Rs.10,863.90 Cr for the
year ending on March 2019. Global Generics offer more than 350 high quality generic drugs at
reasonable price. Revenue from Global Generics and Biologics is 123 billion. 24 billion of its revenue
comes from Active Pharmaceuticals Ingredients and Custom Pharmaceuticals Services wherein they
bring the molecules first into the market. They earn whopping 7 billion from propriety products as
well.
FINAL VERDICT
The company has a steady revenue stream. The debt to equity ratio is low and the leverage that it
enjoys shows that the company has an overall credit worthiness for borrowing money on long term
basis. The company has sound liquidity which means that it can easily pay debt as per its preference

10. to its creditors. However,we consider that the management team of Dr. Reddy’s still needs to work
on its strategies and policies in order to be able to efficiently utilize its assets. The company is lagging
behind the industry in terms of its profitability. However it can achieve higher profitability with slight
reduction in its expenses and more focus should be paid towards creating policies that help in
improving the credit worthiness of the firm. On assessing whether to lend Dr. Reddy or not after
analysis of financial health of the company through its financial statement of past years the judgement
we arrived is to provide loan to the company.
MANAGEMENT DISCUSSION ANALYSIS
Dr. Reddy Laboratory are committed towards providing affordable and innovative medicines for
healthier lives. As any integrated global pharmaceutical enterprise they operate through three key core
business segments:
1. Global Generics wherein branded and unbranded prescription medicines, over-the-counter
pharmaceutical products are covered
2. PharmaceuticalServices and Active Ingredients which accounts for Active Pharmaceutical
Ingredients And Custom PharmaceuticalServices.
3. Proprietary Products which comprises of differentiated formulations focusing on certain key
medical needs. Through their portfolio of products and services they operate in multiple
therapeutic areas- gastro intestinal, pain management, oncology, cardio vascular and cento
nervous system.
Their strategy includes achieving self sustainability, streamlining and optimizing global cost
structure to create profitable growth for each of its businesses. They focus on increasing the
market share. Dr. Reddy’s generic formulation business addresses the urgent need of the people
by offering more than 200 high quality generic version of expensive innovative medicines at a
fraction of the cost, generic formulations include tablets, capsules, injectables and topical creams.

11. They are able to provide medicines at affordable cost as they themselves manage the entire value
chain from producing the active ingredients to developing formulations to distributing them
through streamline supply chain.