Research Report

On

Finlatics Research Insight – IV

Presented By – Dishant Khaneja

 Company Overview

Dr. Reddy’s Laboratories is an Indian pharmaceutical manufacturer. The company is engaged in

manufacturing and marketing of 190+ medications, 60+ APIs, as well as diagnostic kits and
other biotechnology products. Company recorded revenue of Rs. 4,449cr (+10.4% YoY), largely
driven by Global Generics (+19.9% YoY) and PSAI (+6.6% YoY) in Q4FY20. R&D expenditure
stood at Rs. 419cr (~9.5% of sales). EBITDA grew 14.9% YoY to Rs. 951cr, as EBITDA margin
expanded by 90bps to 21.4%. Adjusted net profit surged 68.5% YoY to Rs. 782cr (vs. Rs. 464cr in
Q4FY19) on higher sales in US and Europe market. Strong pipeline and new product launches
are the key positives. Additionally, smooth operation ahead of VAI from US FDA for the
company’s facilities should support topline growth over the medium term. Hence, we upgrade
our rating to BUY on the stock with a revised target price of Rs. 4,344 based on 23x FY22E adj.
EPS.
Shareholding Pattern
 Management of the company

Satish Reddy is the Chairman of Dr. Reddy's Laboratories. He joined the company in 1993 and since then has
held positions of increasing responsibility. Satish led the organization's transition from a unit- focused
manufacturer of APIs (active pharmaceutical ingredients) to a company that moved up the value-chain with a
diverse product portfolio of Finished Dosage Formulations. He oversaw the expansion and establishing of a
Satish Reddy strong footprint for Dr. Reddy's finished dosage products in Russia, CIS countries and other emerging markets.
Chairman

G V Prasad leads the core team at Dr. Reddy’s that has contributed significantly to its transformation from a
mid-sized domestic operation into a worldwide pharmaceutical conglomerate. After taking over fulltime as the
CEO in 1990, he has steered the company on a path of continuous growth; leaping from $50 million to $2.5
billion in revenues. He has led the global expansion of the company, especially into developed markets,
GV Prasad
through both organic and inorganic moves.
Co-Chairman & MD

With over 25 years of experience, Erez is an accomplished leader with a proven track record of achievement.
He has held several leadership positions that have contributed significantly to the performance of companies
he worked for. Prior to Enzymotec, he completed 23 years with Teva Pharmaceuticals Limited, where he held
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 Other Key
Managerial
Personnel

SWOT Analysis
Strengths
- Leadership in Chosen Spaces: Dr. Reddy’s continue to strengthen their market presence
and build leadership positions in each of the segments they operate in, with a well-crafted
strategy. The firm is also exploring inorganic growth opportunities to accelerate access to
high-quality and affordable medicines to patients globally, and, in the process, create value
for all their stakeholders.
- Operational excellence and continuous improvement: To achieve industry-leading growth
in its chosen spaces, Dr. Reddy’s is augmenting their capabilities in manufacturing, supply
chain and quality by deploying tools and systems, digital technologies and data analytics.
These initiatives are improving productivity and building better customer connect, while
permeating the culture of quality, compliance, safety, and execution excellence in every
function, unit and location of the company.
- Patient-centric product innovation: The company has put in place an enhanced R&D and
technology-driven platform to address the evolving needs of patients, physicians and
caregivers, through the development of innovative products, services and digital business
models.

Weakness
- Decline in Quarterly Net Profit with falling Profit Margin (YoY).
- Major fall in TTM Net Profit.
 - Limited success outside core business – Even though Dr. Reddy's Laboratories Limited is
one of the leading organizations in its industry it has faced challenges in moving to other
product segments with its present culture.
- High attrition rate in work force – compare to other organizations in the industry Dr.
Reddy's Laboratories Limited has a higher attrition rate and have to spend a lot more
compare to its competitors on training and development of its employees.
- There are gaps in the product range sold by the company. This lack of choice can give a
new competitor a foothold in the market.

Threats
- Regulatory issues: While USFDA scrutiny in 2020 has declined on account of the Covid-
19 pandemic, in 2019, Indian pharmaceutical companies had received 19 warning
letters, out of the 41 issued by the USFDA, the most in four years. Post Covid-19,
pharma players may potentially see an increase in USFDA inspections, thereby
increasing regulatory risk.
- Rising raw material can pose a threat to the Dr. Reddy's Laboratories Limited
profitability.
- New technologies developed by the competitor or market disruptor could be a serious
threat to the industry in medium to long term future.
- As the company is operating in numerous countries it is exposed to currency
fluctuations especially given the volatile political climate in number of markets across
the world.

- Changing consumer buying behavior from online channel could be a threat to the
existing physical infrastructure driven supply chain model.

Opportunities
- Addressing unmet nutritional needs of patients in India: To accelerate access Celevida,
we launched the nutritional drink by sharing it with more than 3,000 healthcare
practitioners across India.
- Accelerating access to important drugs: The NAG team leveraged its relationships with
wholesalers and distributors, shipping the product as quickly as possible to areas
throughout the country hardest hit by the opioid epidemic.
- Addressing demand for high-quality, affordable generics in China: Dr. Reddy’s became
the first foreign generics company to receive approval for an existing product,
Olanzapine, under the QCE system.
- Enabling access to safe sartan APIs to customers worldwide: Dr. Reddy’s have
significantly increased their manufacturing capacities for key sartan APIs such as
Valsartan, Losartan K and are on track to further enhance these capacities by the end of
FY2021.

Competitor Analysis
 Conclusion and way forward for the company

The company foresee strong growth for CDMOs in the coming years on the back of continued
growth in the pharmaceutical industry and companies striving to reduce their fixed costs
through outsourcing their manufacturing activities. On their part, CDMOs are expected to make
additional investments to boost their capacities and capabilities in anticipation of future
business. With a renewed global focus on (i) cost and process optimization for manufacturing
and distribution functions; (ii) disruptive technologies revolutionizing almost every aspect of
reaching patients; and (iii) Artificial intelligence (AI) and machine learning promising to provide
efficient solutions for utilizing and deriving value out vast swathes of data, the company looks
forward to – transform manufacturing through continuous innovation by investing in
continuous processes and flow chemistry in a bid to establish Economies of Scale, Drug pricing
reforms and consolidation of generic players by aligning the local drug prices with those outside
and imposing penalties on manufacturers for not participating in negotiations, increasing supply
chain security through advances in serialization, increasing scrutiny of drug manufacturing
quality.