REDDY LABS

K.MANEEL REDDY

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.

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.

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

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

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

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

Ratio Analysis

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.

March-10 March-11 March-12 March-13 March-140

5

10

15

20

25

30

35

40

45

50 47.5

25.5

20.6 19.5 20.4

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.

P/BV ratios

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1

2

3

4

5

6

7

4

6.3

5.4

4.75.1

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.

P/S ratios

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0.5

1

1.5

2

2.5

3

3.5

2.2

3.4

2.72.5

3

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.

Current ratios

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0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2 1.9

1.1

1.5 1.5

1.8

Comparison of ratios with the peers P/E ratios

DRL

Sun Pharma

Cipla

Aurobindo

0 5 10 15 20 25 30 35 40

20.4

37.8

23.5

8.5

P/BV ratios

DRL

Sun Pharma

Cipla

Aurobindo

0 1 2 3 4 5 6 7

5.1

6.4

3.3

2.7

Comparison with the sectoral average P/E ratio

DRL Pharma sector0

5

10

15

20

25

20.4

00

21.5

Technical Analysis

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.

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)

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.

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.

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.

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.

Red - SignalGrey - MACD

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.

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.

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.