3rd Quarter Analysis Report: Dr. Reddy's Laboratories Limited (SELL; Estimated Price: Rs. 2200/share)

The 3^rd quarter results of Dr. Reddy’s Laboratories have been declared on 29^th January, 2015.

Here is an interpretation made on the basis of these results and the company’s performance in a nut shell. 

3^rd quarter can be called as tough for the company though the overall profits are not looking straight towards the ground, but have declined as compared to the 3^rd quarter of 2013. The overall Revenue has increased by 8.05% at ₹3843.1 crores as compared to ₹ 3533.76 crores for the same quarter of previous year.

Other Expenses related to the cost of sales, of the company have almost increased up to 2.8% at 18.01% of the Net Income in this quarter as compared for the same at 15.21% in 2013. The Gross Profit of this quarter has shown a rise of 1.77% at 62.30% of the Net Income as compared to the same of 60.53% in 2013. But as we move downward, looking at Sales, General and Administrative Expenses, they are showing a lift of 1.53% at 31.08% of the Net Income from 29.5% of the same quarter of 2013. A rise has shown in the R&D Expenses by 3.6% at 12.03% of the Net Income in comparison with the Q3 of 8.43% in FY2013-2014. Other Expenses have also shown a nominal hike of .45% at 0.95% of the Net Income as compared to that of 0.5% of the same Quarter in previous year. This hike in almost all the expenses has pulled the Operating Profit to 20.14% of the Net Income as compared to 24.46% in quarter 3 of 2013. Further there is a commendable increase in the Net Finance income of the company in this Quarter having 2.82% of the Net Income which was only 0.04% in the Q3 of 2013.

If we take a look to the Profit Before Tax, it has reduced to 20.14% of the Net Income as compared to the quarter 3 results of 2013 in which it was standing at 24.46% of the Net Income At the same time, looking at the Net Profit of the company, the Net Profit has slipped from 24.63% in Q3 of 2013 to 23.10% of the Net Income in Q3 of 2014. Here, the Net of Finance Income proved as a saviour to maintain the respectable Net Profit of the company. If we compare Net Finance Income with the Quarter3 of 2013, the company just received ₹1.47 crores from this section and there is almost 70% rise of this income in the current quarter. A huge investment has been made by the company in Research and Development department, which can give the company a lead in future.

Overall, the growth of the Company has suffered which has led us to revisit our growth projections. We have used Discounted Cash Flow model to arrive at valuation for the Company. Our estimated price of Dr. Reddy’s Laboratories Limited is around ₹2200/share. Current Market Price is ₹ 3200/share.

Ratio comparison between the two quarters y-o-y

Particulars	Quarter3 2013-14	Quarter3 2014-15
Gross Profit	60.53%	62.30%
Sales, General and Administrative Expenses	29.55%	31.08%
Research and Development Expenses	8.43%	12.03%
Operating Profit	24.46%	20.14%
Finance Expense/ Income NET	0.04%	2.82%
Profit Before Tax	24.63%	23.10%
Tax Expense	28.96%	30.66%

 

Trend of Items over the past 7 quarters

Our previous report: Analysis Report : Dr. Reddy’s Laboratories Limited (Estimated Price : Rs.2600 per share) 

About the Author

This report has been authored by Ayush Soni. Ayush is pursuing his MBA from Institute of Management, Nirma University, Ahmedabad, Gujarat, India.

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