Aalysis of Dr.reddys laboratory stock Brief description about the company and then going to ratio analysis and then technical analysis was made. Different technical indicators were discussed and some snapshots of plots obtained from etcharts were also attached which provides easy understanding. So after reading this we can decide on whether to buy or sell the security or a commodity

1. REDDY LABS
K.MANEEL REDDY

2. INTRODUCTION
 Multinational Pharmaceutical company based in Hyderabad
 Founded by Anji Reddy in 1984
 By the early 1990s, the expanded scale and profitability from these unregulated
markets enabled the company to begin focusing on getting approval from drug
regulators for their formulations and bulk drug manufacturing plants in more-
developed economies.
 By 2007, Dr. Reddy's had six FDA plants producing active pharmaceutical
ingredients in India and seven FDA-inspected certified plants making patent-
ready medications.
 In 2014, Dr. Reddy Laboratories was listed among 1200 of India's most trusted
brands according to the Brand Trust Report.

3. FINANCIAL DATA
 As of 2014
 Revenue:$2.3 billion
 Net income:$350 million
 No. of employees:20,000
 Market Cap :634,052.13
 Growth rate:9% approx.

4. PORTER’s FIVE FORCES
 POWER OF SUPPLIERS:MEDIUM
 Volume benefits occur
 Available locally-numerous suppliers
 Raw materials consist 50% of the costs
 INDUSTRY COMPETITION:HIGH
 Highly competitive
 Reddy Labs is the third largest company in India behind Sun Pharma and Lupin
 Reddy Labs consists about 1.5% of the entire pharmaceutical industry in India
 Lower fixed cost and higher working capital

5.  Power of buyers: LOW
 End consumers do not any buying power because of lack of information of
product.
 However, brand image exists but in the influence of doctors.
 Price sensitivity is less. Since the market itself is highly fragmented, the buyer
concentration is low
 Threat of substitutes: HIGH
 Substitute products are a competitive force as they can take away
demand or tie up those customers who choose to use the substitute instead
of your product.
 There is a generic branded drugs once patents run out and also from
alternative medicines(homeopathy) and treatments(Ayurveda)
 Barriers to entry: LOW
 Very low barriers to entry which can clearly be seen from the number of
companies in the field.
 Even Government Policies are supportive of entry but price regulation exists

6. SWOT ANALYSIS
 STRENGTHS
 Low cost of production
 Large pool of installed capacities
 Large pool of skilled technical manpower
 Increasing liberalization of government policies
 Opportunities
 Aging of the world population
 New therapy approaches
 Easier international trading
 New diagnoses and new social diseases
 Growing incomes and growing attention for health

7.  WEAKNESS
 Fragmentation of installed capacities
 Low technology level of Capital Goods of this section
 Non-availability of major intermediaries for bulk drugs.
 Very low key R&D
 THREATS
 Containment of rising health-care cost.
 High Cost of discovering new products and fewer discoveries.
 Stricter registration procedures
 High cost of sales and marketing
 Competition, particularly from generic products.
 Switching over form process patent to product patent

8. Ratio Analysis

9. P/E ratio
 P/E is short for the ratio of a company's share price to its per-share
earnings. As the name implies, to calculate the P/E, you simply take the
current stock price of a company and divide by its earnings per share
(EPS):
 Market Value per Share / Earnings per Share (EPS)
 In general, a high P/E suggests that investors are expecting higher
earnings growth in the future compared to companies with a lower P/E.
It's usually more useful to compare the P/E ratios of one company to
other companies in the same industry, to the market in general or
against the company's own historical P/E.

10. 0
5
10
15
20
25
30
35
40
45
50
March-10 March-11 March-12 March-13 March-14
47.5
25.5
20.6 19.5 20.4

11. P/BV ratio
 A ratio used to compare a stock's market value to its book value. It is
calculated by dividing the current closing price of the stock by the
latest quarter's book value per share.
 Also known as the "price-equity ratio".
 A lower P/B ratio could mean that the stock is undervalued.
 However, it could also mean that something is fundamentally
wrong with the company.

12. P/BV ratios
0
1
2
3
4
5
6
7
March-10 March-11 March-12 March-13 March-14
4
6.3
5.4
4.7
5.1

13. P/S ratio
 A valuation ratio that compares a company’s stock price to its
revenues.
 It can be calculated either by dividing the company’s market
capitalization by its total sales over a 12-month period, or on a per-
share basis by dividing the stock price by sales per share for a 12-month
period.
 Like all ratios, the price-to-sales ratio is most relevant when used to
compare companies in the same sector.
 A low ratio may indicate possible undervaluation, while a ratio that is
significantly above the average may suggest overvaluation.

14. P/S ratios
0
0.5
1
1.5
2
2.5
3
3.5
March-10 March-11 March-12 March-13 March-14
2.2
3.4
2.7
2.5
3

15. Current ratio
 A liquidity ratio that measures a company's ability to pay short-term
obligations.
 The higher the current ratio, the more capable the company is of
paying its obligations.
 A ratio under 1 suggests that the company would be unable to pay
off its obligations if they came due at that point.

16. Current ratios
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
March-10 March-11 March-12 March-13 March-14
1.9
1.1
1.5 1.5
1.8

17. Comparison of ratios with the peers
P/E ratios
20.4
37.8
23.5
8.5
0 5 10 15 20 25 30 35 40
DRL
Sun Pharma
Cipla
Aurobindo

18. P/BV ratios
5.1
6.4
3.3
2.7
0 1 2 3 4 5 6 7
DRL
Sun Pharma
Cipla
Aurobindo

19. Comparison with the sectoral
average P/E ratio
20.4
00
21.5
0
5
10
15
20
25
DRL Pharma sector

20. Technical Analysis

21. Technical Analysis
 In finance, technical analysis is a security analysis methodology for
forecasting the direction of prices through the study of past market
data, primarily price and volume.
 It is not interested in the valuation of a company.
 It is interested in Price Action i.e movement of price.
 It will analyse supply and demand of that security or commodity
 Success in trading depends on emotions and mental stiffness of
market players.

22. Technical Indicators
 There are, literally, hundreds of technical indicators used to
generate buy and sell signals.
 Let’s restrict ourselves to these.
 Simple Moving Average (SMA)
 Exponential Moving Average (EMA)
 Moving Average Convergence and Divergence (MACD)
 Relative Strength Index (RSI)

23. Simple Moving Average
 A simple, or arithmetic, moving average that is calculated by adding the closing
price of the security for a number of time periods and then dividing this total by
the number of time periods.
 Short-term averages respond quickly to changes in the price of the underlying,
while long-term averages are slow to react.
 Keep in mind that equal weighting is given to each daily price.

25. Exponential Moving Average
 A type of moving average that is similar to a simple moving average, except that
more weight is given to the latest data.
 This type of moving average reacts faster to recent price changes than a simple
moving average. The 12- and 26-day EMAs are the most popular short-term
averages, and they are used to create indicators like the moving average
convergence divergence (MACD) and the percentage price oscillator (PPO).
 In general, the 50- and 200-day EMAs are used as signals of long-term trends.

27. What should someone choose
 Simple Moving Average gives us slower turn and it is much more
smooth whereas exponential moving Average makes sharper and
quicker turns and much more jagged (rough and pointed).
 What should someone choose between Exponential and simple
moving average.
 If you are a short term trader and you want your indicator to give
fastest response(quick returns) and faster moves go with EMA.
 If someone wants better areas of support and resistance we can go
with simple moving average.

28. Moving Average Convergence
and Divergence
 An indicator that shows the relationship between two moving
averages of prices. The MACD is calculated by subtracting the 26-
day exponential moving average (EMA) from the 12-day EMA. A
nine-day EMA of the MACD, called the "signal line", is then plotted
on top of the MACD, functioning as a trigger for buy and sell signals.

29. Red - Signal
Grey - MACD

30. Time to sell and buy
 when the MACD falls below the signal line, it is a bearish signal, which indicates that it
may be time to sell.
 Conversely, when the MACD rises above the signal line, the indicator gives a bullish
signal, which suggests that the price of the asset is likely to experience upward
momentum.
 When the security price diverges from the MACD. It signals the end of the current
trend.
 When the MACD rises dramatically - that is, the shorter moving average pulls away
from the longer-term moving average - it is a signal that the security is overbought
and will soon return to normal levels.

31. Relative Strength Index(RSI)
 A technical momentum indicator that compares the magnitude of
recent gains to recent losses in an attempt to determine
overbought and oversold conditions of an asset. It is calculated
using the following formula:
RSI = 100 - 100/(1 + RS*)
*Where RS = Average of x days' up closes / Average of x days' down
closes.

33.  An asset is deemed to be overbought once the RSI approaches the
70 level, meaning that it may be getting overvalued and is a good
candidate for a pullback. Likewise, if the RSI approaches 30, it is an
indication that the asset may be getting oversold and therefore
likely to become undervalued.