STOCK ANALYSIS – DR. REDDY’S LAB
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CONTENTS
Introduction
Company profile Financials Fundamental analysis Fundamental factors Technical Analysis Pivot Point Daily chart
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Introduction Established in 1984, Dr. Reddy's Laboratories Ltd. is an integrated global pharmaceutical company, committed to providing affordable and innovative medicines for healthier lives. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products – Dr. Reddy’s offers a portfolio of products and services including Active Pharmaceutical Ingredients (APIs), Custom Pharmaceutical Services (CPS), generics, biosimilars, differentiated formulations and News Chemical Entities (NCEs Dr. Reddy's Laboratories Ltd. (NSE: DRREDDY, BSE: 500124, NYSE: RDY) is an integrated pharmaceutical company focused on providing medicines through its three business segments: Global Generics segment, Pharmaceutical Services and Active Ingredients (PSAI) segment and Proprietary Products segment. Dr. Anji Reddy had worked in the publicly-owned Indian Drugs and Pharmaceuticals Limited, Hyderabad. Reddy's manufactures and markets a wide range of pharmaceuticals in India and overseas. The company has over 190 medications, 60 active pharmaceutical ingredients for drug manufacture, diagnostic kits, critical care, and biotechnology products. Dr. Reddy's began as a supplier to Indian drug manufacturers, but it soon started exporting to other less-regulated markets that had the advantage of not having to spend time and money on a manufacturing plant that that would gain approval from a drug licensing body such as the U.S. Food and Drug Administration (FDA). 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. This allowed their movement into regulated markets such as the US and Europe.
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STOCK INFORMATION Sector
Pharmaceuticals
Market cap
Rs. 273.02B
Face value
Rs. 5
Book value Eps(ttm basis) 52 week h/l Reserve
Rs. 349.49 Rs. 69.34 Rs. 1699.65/ 1387 5830.20 (cr)
Dividend yield Managing director Listed at P/E (ttm)
0.68 Satish reddy NSE/BSE/LSE 23.23
SHARE HOLDING PATTERN (in %) Promoter FII DII Others Total
11-SEP 25.61 26.32 14.42 33.65 100
11-JUN 25.62 24.81 14.70 34.87 100
10-MAR 25.65 25.90 14.01 34.44 100
DIVIDEND SUMMARY Announcement Date 13-05-11 06-05-10 18-05-09 20-05-08 18-05-07 8-06-06
Effective Date 30/6/2011 2/7/2010 3/7/2009 4/7/2008 6/7/2007 7/7/2006
Dividend Type Final Final Final Final Final Final
Dividend (%) 225.00 225.00 125.00 75.00 75.00 100.00
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Financials Balance Sheet of Dr. Reddy’s Lab (Rs. Cr.) Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Sources Of Funds Share Capital
84.60
84.40
84.20
84.10
83.96
Reserves & Surplus
5935.60
5830.20
5174.90
4727.70
4289.40
Shareholders Funds
6020.20
5914.60
5259.10
4811.80
4373.36
Secured Loans
0.70
0.80
2.60
3.40
1.92
Unsecured Loans
1444.10
562.40
637.70
458.90
327.98
Total Debt
1444.80
563.20
640.30
462.30
329.90
Total Liabilities
7465.00
6477.80
5899.40
5274.10
4703.26
Application Of Funds Gross block
3025.00
2425.70
2157.30
1750.21
1291.19
Less : revaluation reserve
-
-
-
-
-
Less : accumulated depreciation
1334.00
1110.10
946.50
762.80
609.15
Net block
1691.00
1315.60
1210.80
987.42
682.04
Capital WIP
570.40
745.40
411.20
245.71
280.61
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2462.00
2652.70
1865.10
2080.71
966.99
Current assets, loans & advances
4563.70
3647.30
3870.40
3348.01
4028.55
Less : current liabilities & provisions
1822.10
1883.20
1458.10
1387.74
1254.93
Total net current assets
2741.60
1764.10
2412.30
1960.27
2773.62
Miscellaneous expenses not written
-
-
-
-
-
Total
7465.00
6477.80
5899.40
5274.11
4703.26
Key Ratios Ratios
Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Op Profit Margin(%)
22.35
25.19
20.05
15.07
31.69
Net Profit Margin(%)
16.47
17.91
13.05
13.26
28.27
Current Ratio
2.41
2.35
2.71
3.40
3.81
Debt Equity Ratio
0.17
0.11
0.11
0.09
0.19
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Key Extracts North American business which contributed 28%, grew by 42% due to new product Launches including 3 Para-IVs and increase in market share of existing products. Market share gains in key products – Gemzar, Arixtra, Exelon & Fexofinadine OT. Russia & CIS which contributed 9%, grew by 23% (30% in constant currency terms) on back of significant volume growth in key brand India business which contributed 15%, grew at a lower rate of 9% compared to industry rate of 13-14%. The lower growth was on account of lack of new launches and intense competition in existing product Although North American business, to witness growth of ~19% CAGR (FY11- FY13) due to new product launches and increase in MS of existing product. Already launched 9 new products including 4 SKU’s from its Bristol’s penicillin facility acquired from GSK in Sept’11 1. Para – IV’s such as 2. Olanzapine (20mg) – Market size of US$900 mn, launched on Oct 25Th 2011, under 180-days unshared exclusivity 3. Olanzapine ODT – Market size of US$80mn, launch to be under 180-days exclusivity with 2 other players 4. Ziprasidone – Market Size US$800m,expected in Mar12’(Shared with two other companies). 5. Growth may be seen in coming quarters from company’s Bristol facility.
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Fundamental View Management reinforced its FY2013 revenue guidance of US$2.7bn, with RoCE of 25%. DRL has revised its earlier revenue guidance of US$3bn to US$2.7bn by FY2013E with RoCE of 25%. Growth would be driven by the US business, uptick in the domestic formulation and Russian markets and increased contribution from GSK’s alliance. We expect the company’s net sales to post a 13.3% CAGR to Rs9,584cr and adjusted EPS to record a 22.7% CAGR to Rs 96.0 over FY2011-13
Tax rate for FY2012 is expected to be 17% of PBT in the coming quarters on account of DRL’s Baddi facility completing its five-year tax exemption.
The PSAI segment registered 28% y/y growth, majorly led by 48.0% y/y growth in the European market. North America posted 31% y/y growth. India, on the other hand, grew by 15.0% y/y during the quarter.
On its USFDA import alert for its Mexico facility, management stated that USFDA is reviewing the case and expects USFDA to re-inspect in the near to medium term
During the quarter, DRL launched three products in the domestic market, which grew modestly by 9% y/y. The biosimilar market reported growth of 22% y/y. For its biosimilar foray, management plans to collaborate with a global company. R&D cost was at 6.4% in Q2FY12 which the company has guided to increase to 7.58% during H2FY1
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Technical View Pivot Points (Daily) SCRIPT
R4
R3
R2
R1
P
S1
S2
S3
S4
Dr Reddy
1805
1745
1684
1653
1624
1593
1563
1503
1442
Pivot Points (Weekly) SCRIPT
R4
R3
R2
R1
P
S1
S2
S3
S4
Dr Reddy
1873
1792
1711
1667
1630
1586
1550
1469
1388
Moving Averages Moving Averages
20 Day
50 Day
100 Day
200 Day
Daily
1561
1515
1525
1557
Weekly
1526
1586
1464
1050
Fibonacci Retracement % Levels
0.0%
23.6%
38.2%
50.0%
61.8%
76.4%
100%
Weekly
1854
1504
1284
1105
929
708
359
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Chart Analysis
Dr Reddy has been in downtrend since the starting of this year to present as it has made a downward channel formation
and
recently its has breached its upward
resistance line and stock has rallied to the levels of 1685 and at this point the stock is taking the support of its 50 day SMA at 1586 level. The stock is working well with its Fibonacci retracement of uptrend from 386 (09) to 1854(2010) and on a broader chart took support of 100 day SMA which is a positive signal for the stock in coming weeks. Dr Reddy’s Lab in the near term may see some profit booking and may test 23.6% retracement level though given overall its upside momentum and positive view on pharma sector, it may break the upside crucial level of 1700 in coming weeks and breaking of which the stock could rally to its all time high of 1854 and further more. Though on the downside, crucial level of 1500 and 1280 will act as a major support. .
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