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Dr.reddy labs financial analysis

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its a brief introduction about dr.reddy labs

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Dr.reddy labs financial analysis

  1. 1. Dr.Reddy's Laboratories Ltd Parent Company Dr.Reddy's Laboratories Ltd Category Pharmaceuticals Sector Health care Tagline/ Slogan Life. Research. Hope USP Strong vertically integrated portfolio of products, businesses & geographies STP Product portfolio Active Pharmaceutical Ingredients (APIs), Custom Pharmaceutical Services (CPS), generics, biosimiler, differentiated formulations and News Chemical Entities (NCEs) Target Group Healthcare professionals, retail outlets Positioning Committed to providing affordable and innovative medicines for healthier lives
  2. 2. SWOT Analysis Strength 1. Company launched Peg-grafeelTM, an inexpensive variety of pegfilgrastim, used to fight infection in chemotherapy where company has sold some 1.5 million units of it. 2. Dowpharma/Chirotech acquisition provided proprietary chiral and biocatalysis technology 3.The acquisition of Beta pharma helped to introduce an array of generic products and show its presence in the European markets. 4. Has a strong workforce of over 15,000 employees Weakness 1. Discovery of drugs is a highly unpredictable business 2. Strict govt regulations and policies affects operational efficiency
  3. 3.  Opportunity:  1. Leverage Biologics & Cytotoxic Infrastructure to deal with the need of Oncology Market 2.New partnerships to develop Biosimiler business 3. Develop cost effective ways of new drug development to improve business in emerging markets.  Threats:  1.Preliminary investment for Drug discovery is very high  2. long gestational period for new drug development  3. increasingly stringent regulations for new drug development 4
  4. 4. Bargaining Power of Suppliers  The more diverse distribution channels become the less bargaining power a single distributor will have.  High levels of competition among suppliers acts to reduce prices to producers.  "Low Concentration Of Suppliers (Dr Reddys Lab)" is an easy qualitative factor to overcome, so the investment will not have to spend much time trying to overcome this issue.  The easier it is to switch suppliers, the less bargaining power they have.
  5. 5. Bargaining Power of Customers  When buyers are less sensitive to prices, prices can increase and buyers will still buy the product.  When buyers have limited information, they are at a disadvantage in negotiations with sellers.  When customers cherish particular products they end up paying more for that one product.  When there are large numbers of customers, no one customer tends to have bargaining leverage.
  6. 6. Intensity of Existing Rivalry  When industries are growing revenue quickly, they are less likely to compete, because the total industry size is also growing.  Government policies and regulations can dictate the level of competition within the industry. When they limit competition, this is a positive for Dr reddys lab. …  Large industries allow multiple firms and produces to prosper without having to steal market share from each other.  When exit barriers are low, weak firms are more likely to leave the market, which will increase the profits for the remaining firms.
  7. 7. Threat of Substitutes • Substitute is lower quality • Substantial product differentiation • Limited number of substitutes Threat of New Competitors • High sunk costs limit competition • Strong brand names are important • Customers are loyal to existing brands • Patents limit new competition
  8. 8. • Revenue from sales of active pharmaceutical ingredients and intermediates in India is recognized on delivery of products to customers from the factories of the Company. • Revenue from sales of formulation products in India is recognized upon delivery of products to distributors by clearing and forwarding agents of the Company. • Revenue from export sales is recognized when the significant risks and rewards of ownership of products are transferred to the customers, which is based upon the terms of the applicable contract Sources of revenue 9
  9. 9.  Changes in general economic conditions.  Company’s ability to successfully implement their strategy.  The market acceptance of and demand for products.  Company’s growth and expansion.  Technological change  Exposure to market risks. Risk Factors 10
  10. 10. Financial policy of DR Reddy’s Laboratories Mar '13 Mar '12 Mar '11 Mar '10 Mar '09 financial policy debt assets ratio 0.16 0.18 0.19 0.086 0.1 Interest Cover 29.55 25.22 220.9 250.76 53.32 Debt Equity Ratio 0.50 0.65 0.59 0.39 0.57
  11. 11.  2013 Net Debt/Equity ratio: 0.20  In 2012 it is running high risk with debt ratios above 0.5, this company’s financial growth is more from the borrower’s money, so it’s not completely safe over the long run. Then their assets and equity are not sufficient to fund the total liabilities.  So company increased share capital by issuing new shares through the various policy’s under the “Dr. Reddy’s Employees Stock Option Plan" and it paid long term debt about 38 million.
  12. 12.  Debt assets ratio: 0.16  Company has less than 1 debt assets ratio so its assets are less financed by debt company can utilize its borrowings the Indian pharmaceutical industry is more dependent on foreign exports so the currency exchange rate plays more important role in generating profits so company has gone for less debt to protect itself from bankruptcy.
  13. 13.  Interest Coverage ratio: 29.55  The company having amazing interest coverage ratio that is 29.55 more than 1.5 company can borrow money it can enjoy its credit worthiness.  But it is a pharmaceutical industry where they has lot of regulatory issues from its export country’s the foreign country may cancel their licenses because of small faults like Ranbaxy case. So it’s not good for the company to depend upon the debt.  May be the company patented drug alternative produced by its competitors then it leads to decrease in revenues.
  14. 14. Dividend policies: Dividend policy of Dr.Reddy’s laboratories: According to dr. reddy’s dividend policy they announce dividends every year from the 2000. Mar '13 Mar '12 Mar '11 Mar '10 Mar '09 dividend policy dividend rate 300 275 225 225 125 Dividend Payout Ratio 0.201312 0.255541 0.21315 0.224507 0.187725 dividend yield 0.56 0.83 0.71 0.98 1.5
  15. 15. Dividend rate: 300% • The company has a good dividend track report and has consistently declared dividends for the last 15 years. • On 2013 march Company paid dividend of Rs15 on every equity share of Rs5 each (300%) for FY2013 that is 2,708 million still companies has 76,564 million reserves and surplus for its growth and for its R&D operations. The dividend paid to those shareholders whose names appear on the register of members of the Company as on 16 July 2013. • Dividend rate: DPS/FVPS or TOTAL Dividend /Share capital.
  16. 16. Dividend payout: 0.2013  Company paid dividend of 0.2% from its earnings Rs1677. The reason behind that company focusing on future expansion of its business in Global Generics,  Pharmaceutical Services and Active Ingredients, Proprietary Products. To enter into these markets it has to increase investments in R&D.  DPS/EPS or TOTAL dividends/PAT
  17. 17.  Future plan of action  Commercialization of new products for which the products are under trials at development stage. Several new products have been identified after a thorough study of the market and the processes to manufacture these products will be developed in the R&D lab. Total R&D expenditure as a percentage of total turnover is 8.37% R&D total expenditure is 6900  Compare to other pharmaceutical company’s Dr.Reddy paid more dividends even though the dividend payout is very low.
  18. 18.  Dividend yielded: 0.56%  Pharmaceutical industry average dividend yield: 1.296  Compare to Indian pharmaceutical industry average dividend yield is more than DR Reddy’s dividend yield DR Reddy’s market price of share is increasing more than the other pharmaceutical company’s this is the main reason behind these to have less dividend yield compared to other companies.  DPS/MVPS or TOTAL dividends/ MARKET cap
  19. 19. Dividend rate: ended Interim % Final % Total % 1996 - 97 - 30 30 1997 - 98 - 30 30 1998 - 99 - 30 30 1999 - 00 25 5 30 2000 - 01 - 40 40 2001 - 02 100 50 150 2002 - 03 - 100 100 2003 - 04 - 100 100 2004 - 05 - 100 100 2005 - 06 - 100 100 2006 - 07 - 75 75 2007 - 08 - 75 75 2008 - 09 - 125 125 2009 - 10 - 225 225 2010 - 11 - 225 225 2011 - 12 - 275 275 2012 - 13 - 300 300
  20. 20. Share holding pattern Shareholding Pattern as on February 28, 2014 PROMOTERS HOLDING: No. of Shares % of Shares Individuals 36,88,528 2.17 Companies 397,29,284 23.36 434,17,812 25.52 PUBLIC HOLDING: Indian Financial Institutions 23,19,877 1.36 Banks 78,972 0.05 Mutual Funds 91,55,830 5.38 115,54,679 6.79 FOREIGN HOLDING: Foreign Institutional Investors 582,72,564 34.26 NRIs 22,78,120 1.34 ADRs/Foreign Nationals 294,84,715 17.33 900,35,399 52.93 Indian Public & Corporates 251,00,978 14.76 TOTAL 1701,08,868 100
  21. 21. Observations:  There is a stock split in the year 2001 for increasing the liquidity in the secondary market. As the stock price is very high the company took that decision.  There is a bonus issue of 1:1 in the year 2006 because the previous decision dint changes the market value of the share this made a desirable change in the market price.
  22. 22. Year 2013 2012 2011 2010 2009 Management Efficiency Ratio Inventory Turnover Ratio 5.552504 5.325561 4.929197 5.228936 5.634878 Fixed asset turnover ratio 2.07 1.94 1.75 1.86 1.91 Total Asset turnover ratio 0.84684 0.832986 0.807399 0.86562 0.819032 Number of Days In Working Capital 178.52 174.4 190.22 144.48 217.13 Liquidity and solvency ratio current ratio 1.518166 1.524372 1.144113 1.449349 1.280006 Quick ratio 1.558352 1.599316 1.206392 1.454345 1.35883 Debt Equity Ratio 0.2 0.23 0.24 0.1 0.12 Profitability ratio Gross profit margin (%) 19.83 23.34 18.72 19.7 14.11 Net profit margin 14.75 13.51 16.84 18.48 13.2 operating profit margin 23.54 27.84 23.5 24.76 18.95 23 Working capital and Investing policy
  23. 23. Management Efficiency  Inventory turnover ratio: Company efficiently and consistently replenished its inventory more than 5 times every year for the past 5 years.  Fixed Asset turnover ratio: For each rupee of fixed assets company generates 2.07 rupees of sales which is higher for past 5 years.  Total Asset turnover ratio: For each rupee of total assets company generates 0.8 rupees of sales which is consistent for past 5 years.  Days in Working capital: Company generates cash from its assets within 178 days in 2013. It is minimum (144) in 2010 and maximum (217) in 2009. 24 Interpretations
  24. 24. Liquidity and Solvency  Current ratio: In 2013, for each one rupee of current liability company has 1.5 rupees of current assets to cover its short term debt.  Quick ratio: In 2013, for each one rupee of current liabilities company has 1.5 rupees of liquid assets to cover short term obligations.  Debt equity ratio: Company has 1 rupee of debt for each 5 rupees of equity in 2013. 25
  25. 25. Profitability  Gross profit margin: In 2013 Gross profit margin percentage tells us that company uses 19.83% of its revenue to pay for the direct costs of making goods. The rest are used for operating expenses, interest, taxes and dividend payouts.  Net profit margin: In 2013 14.5 % of revenues translated into profits.  Operating profit margin: Net profit of 0.23 rupees is made on each rupee of sales. Profitability decreases from 2012-2013. 26

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