Dr.

Reddy’s Laboratories
Pharmaceutical Sector

Overview
Dr. Reddy's Laboratories is an Indian multinational pharmaceutical company located
in Hyderabad, Telangana, India. The company was founded by Anji Reddy, who previously
worked in the mentor institute Indian Drugs and Pharmaceuticals Limited. Dr. Reddy's
manufactures and markets a wide range of pharmaceuticals in India and overseas. The
company has over 190 medications, 60 active pharmaceutical ingredients (APIs) 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 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. In 2014, Dr. Reddy Laboratories was listed among 1200 of India's
most trusted brands according to the Brand Trust Report 2014, a study conducted by Trust
Research Advisory, a brand analytics company.

Snapshot of company’s global presence:

Sector wise performance:

Shareholding Pattern

Holder's Name No of Shares % Share Holding

No. of Shares 166269279 100%

Promoters 44458528 26.74%

Foreign Institutions 49176668 29.58%

Banks Mutual Funds 18906254 11.37%

Others 36669012 22.05%

General Public 12430224 7.48%

Financial Institutions 4245539 2.55%

GDR 383054 0.23%

Dr. Reddy's Laboratories specializes in developing, producing, and selling pharmaceutical products.
Net sales break down by activity as follows:
- sales of generic medications (79.9%): brand-name or generic prescription medications and OTC
medicines;
- sales of active ingredients (15.7%). The group also supplies customized pharmaceutical services;
- other (4.4%): sales of generic biopharmaceutical products, development of molecular agents, etc.

Net sales are distributed geographically as follows: India (18.8%), the United States (45%), Russia
(9.9%) and other (26.3%).

Number of employees: 21,650

Financial Report for year 2020:

 Consolidated revenues for FY2020 were ₹ 174.6 billion, or a 13% growth over the
previous year. This was on top of an 8% growth in FY2019.
 Consolidated gross profit was ₹ 94 billion, which was 13% greater than the previous
year. This, too, came over and above a 9% growth in FY2019.
 Earnings before interest, taxes, depreciation and amortization (EBITDA) increased to ₹
46.4 billion, or an increase of 36% compared to the previous year - on top of a 42%
growth in FY2019.
 Profit before taxes (PBT) was ₹ 18 billion, which was 20% lower than ₹ 22.4 billion
earned in the previous year. This was largely on account of impairment charges taken on
a set of product intangibles.
 Profit after taxes (PAT) was ₹ 19.5 billion, versus ₹ 18.8 billion in FY2019 - representing a
growth of 4%.
 Diluted earnings per share (EPS) was ₹ 117.40 in FY2020, versus ₹ 113.09 in FY2019.
Snapshot of company’s financials for year 2020:

SWOT Analysis

Strengths:
 Efficient in managing Assets to generate Profits - ROA improving since last 2 year
 Growth in Net Profit with increasing Profit Margin (QoQ)
 Company with Low Debt
 Strong cash generating ability from core business - Improving Cash Flow from operation for
last 2 years
 Company able to generate Net Cash - Improving Net Cash Flow for last 2 years
 Annual Net Profits improving for last 2 years
 Book Value per share Improving for last 2 years
 Company with Zero Promoter Pledge
 FII / FPI or Institutions increasing their shareholding

Weaknesses:
 Decline in Quarterly Net Profit with falling Profit Margin (YoY) 
 Major fall in TTM Net Profit

Opportunities:
 Big Deal (Insider and SAST) buys last month greater than 1% of total shares
 Brokers upgraded recommendation or target price in the past three months 
 Negative to Positive growth in Sales and Profit with Strong Price momentum
 Threats:
 Red Flags: Firms linked to ongoing regulatory investigations/legal cases 
 Stocks with high PE (PE > 40)

Competitive Analysis:
Competitors:
Major Competitors for Dr. Reddy’s Lab are Ranbaxy, Sun Pharma, Lupin, Cipla etc.

Presence PAT (In Million Rs) Gross Profit Margin(%)

Strong presence in the lifestyle therapeutic 29,831 23.09

Sun Pharma
segments

Generic pharmaceuticals products and Active 9,228 14.5

Ranbaxy
Pharmaceutical Ingredients

Strong presence in anti-infective, cardiovascular 13,142 24.34

Lupin
and asthma

Presence in formulations and bulk drugs 15,449 22.14

Cipla
manufacturing

Dr. Reddy’s Presence across the value chain, global generics, 16,776 19.98
Lab Pharma Services and Active Ingredients business

According to above data we can say that, Dr. Reddy’s Lab has a large scope in expanding its
PAT by improving its presence in other medicinal factors like lifestyle therapeutic segments,
anti-infective, bulk drugs manufacturing etc. Also, compared to other competitors, gross
profit margin for this company is quite low.

Business Strategy:
Reddy’s lab Ltd is currently focusing on:

Securing Bio-similar opportunities: Biosimilars are generic versions of biopharmaceutical

(often called biotech) drugs that are approved by regulatory authorities following the patent
expiry of innovator products. The active drug substance is either made of a living organism
or is derived from a living organism. However, entries into such regulated markets
necessitate clinical trials to prove efficacy of the biosimilar candidates. To address this, the
Company has entered into an alliance with Merck Serono, a division of Merck KGaA,
Darmstadt, Germany. Merck KGaA is a global pharmaceutical company with proven
expertise in developing, manufacturing, and commercializing biopharmaceuticals and
chemical compounds.

Investing in Technology Platforms: Ever increasing rigor in product development coupled

with large scale competition in the commoditized generics space necessitates Dr. Reddy’s to
enter niche areas where there are good sales potential with relatively limited competition.
This involves introducing complex and difficult to make molecules which in turn, requires
acquiring and nurturing of specialized and unique technology platforms.

This is what led to the acquisition of OctoPlus N.V; a Leiden (Netherlands) based
service/specialty pharmaceutical companying FY2013. OctoPlus has significant in-house
expertise in development and creation of micro-spheres and liposomes using certain
polymer based technologies that enhance and enable controlled-release of the active
pharmaceutical ingredient into a human body. Going forward, the Company expects to
achieve major benefits from this entity.

Increasing R&D Investments: The ability to produce complex generics and develop niche
capabilities are pivotal to drive the next wave of growth. The Company is consciously
investing in R&D activities to build such capabilities. Dr. Reddy’s R&D spend over the last
three years has been in the range of 6% to 6.8% of consolidated revenues. As we build a
larger pipeline of complex generics, differentiated formulations and biosimilars— some of
which may also require clinical trials—we envisage our R&D spend to substantially increase
and be in the range of around 7% to8% of consolidated revenues.

Building Productive Infrastructure to Deliver Future Growth

Dr. Reddy’s has seen considerable revenue growth in the last few years. To cater to this
increase in volume and complexities in the product portfolio, the Company has been
systematically investing in its productive infrastructure. It has invested close to R36billion in
the last five years to increase capacity in existing infrastructure and create new capacities in
oral solids, injectable facilities and biosimilars, among others.

Sustainability

Dr. Reddy’s Laboratories Ltd. has taken many initiatives to sustain the health of the planet
and people. Dr. Reddy’s plays a significant role in improving safety, health as well as helps in
resources optimization and energy conservation. The company in year 2012 met 30% of the
total water conservation by recycled water and 7% of the energy requirement by use of
Renewable Energy. In addition to this, the company strives to minimize Greenhouse Gas
Emission by recreating, restructuring their processes. Dr. Reddy’s has taken many initiatives
to expertise the resources, enhance patient care and make quality medication affordable for
cancer patients. Some of the initiatives are Sparsh, Lymphoma Awareness Campaign, Smart
Woman, PromOTE India.

Future Prospects
Some insights for the coming years from management discussion & analysis (MD&A) and
con calls are as follows.

 The financial position is expected to deteriorate due to extraordinary expenses

related to Covid-19 outbreak like sanitization of facilities, disrupted supply chains,
inflation-related costs etc. The company, however, reported a strong growth
momentum in its key markets of India and the US. However, exposure to the Chinese
market may be detrimental to the company in the near future.
 Dr Reddy’s Labs has Collaborated With FUJIFILM, Global Response Aid For Avigan
(Favipiravir) for Covid-19. This gives them the exclusive rights of manufacturing and
to sell and distribute Avigan in all countries other than Japan, China and Russia.
 The legal process with respect to a penalty on innovator for delaying g-suboxone
launch is ongoing and would take a few more months to resolve. No significant
payments are expected to be made by the company.
 Dr Reddy’s Laboratories Ltd. has announced the launch of Abiraterone Acetate
Tablets which is a generic version of Zytiga. The market size for the generic version in
the U.S. is approximately $454 million. This can be a big revenue driver for the
company in the near future.