Company Analysis Report On DR - REDDY'S

1
INDEX
S.NO CONTENTS PAGE NO.
1. Dr.Reddy’s Company History 10-12
2. Dr.Reddy’s Statistics 13-14
3. Dr.Reddy’s Logo 15-16
4. Dr.Reddy’s Tie-ups & Annual 17-18

Turnover
5. Dr.Reddy’s Organization Structure 19-22
& Managemant
6. Dr.Reddy’s Financial Statements: 23-33
• Profit and Loss Accounts
• Balance Sheets
7. Dr.Reddy’s Ratio Analysis 34-48
8. Conclusion 49
9. Bibliography 50-51
2
DR.REDDY’S
COMPANY
HISTORY
3
HISTORY:
Dr. Reddy's Laboratories Ltd. is one of India's leading pharmaceutical companies with
global ambitions. The company has departed from the Indian pharmaceutical market
mainstream of copying patented drugs to pursue the development of its own--patentable--
molecules. As such, the company has already achieved success with a number of
promising anti-diabetic molecules. At the same time, Dr. Reddy's is pursuing a share of
the lucrative, but highly competitive, U.S. generics market, including the higher-margin
"branded generic" market. Dr. Reddy's operates through several strategic business units,
including: Branded Finished Dosages; Generic Finished Dosages; Bulk Actives; Custom
Chemicals; Biotechnology; Diagnostics; Critical Care; and Discovery Research. A leader
in its domestic market, the company is also active on the international scene, which
accounted for 64 percent of the company's total sales of Rs 18 billion ($392 million) in
2003. North America contributed 32 percent of sales, while Russia added 28 percent. The
rest of the company's international revenues were generated through the Asian, African,
and South American markets. Dr. Reddy's is led by founder and Chairman Dr. Anji
Reddy and CEO (and Reddy's son-in-law) G.V. Prasad. Dr. Reddy's Laboratories was the
first Asian pharmaceutical company, excluding Japan, to list on the New York Stock
Exchange.
Bulk Actives to Generics in the 1980s:
In 1970, the Indian government, then led by Indira Ghandi, abrogated laws respecting
international pharmaceutical patents. The move, meant to reduce the cost of providing
healthcare to India's large and exceedingly poor population, had the effect of
supercharging the country's pharmaceutical sector. With a long history in process
chemistry, and a large and highly educated pool of scientists, the sector quickly became
experts at reverse-engineering, and then copying, the drugs developed by the world's
large multinationals.
4
The new industry quickly became one of the world's most energetic markets--by the
1990s, there were more than 20,000 companies operating in India's pharmaceuticals
industry. Indian producers were able to produce drugs and their components for a fraction
of the cost of their Western counterparts, and quickly found an enormous demand
throughout the developing world. Yet the highly competitive domestic market, as well as
the slender margins available from the copied--many would call them pirated--drugs
forced the Indian companies to develop highly cost-effective manufacturing and
marketing models.
Reddy remained with IDPL into the early 1970s. The change of law and the rise of new
opportunities in the pharmaceutical industry, however, encouraged him to set up his own
business, and in the mid-1970s, Reddy founded a company for producing and selling bulk
actives--the basic ingredients of drug compounds--to pharmaceutical manufacturers.
Reddy's clientele soon featured a host of national and multinational companies, such as
Burroughs Welcome and others.
In the early 1980s, however, Reddy sought to aim higher and establish himself as a
manufacturer of finished products. In 1984, Reddy founded Dr. Reddy's Laboratories,
using $40,000 of his own, backed by a bank loan for $120,000. Reddy jumped into the
market of producing copies, taking advantage of the 1970 law. As he told Forbes: "We
are products of that. But for that, we wouldn't be here. It was good for the people of
India, and it was good for this company."
The company achieved another crucial milestone in 1987 when it gained U.S. FDA
approval for its ibuprofen formulation. That approval, which was coupled with the all-
important FDA certification of its factory, marked the start of the company's international
formulations exports.
Risking on Research in the 1990s
By the early 1990s, Reddy's, like its Indian counterparts, boasted a wide range of
"copied" drugs in its portfolio. International sales were also becoming an increasingly
important part of the company's total revenues, a trend boosted by the company's entry
5
into the Russian market in 1991. That country later grew into one of the company's
primary export markets.
Reddy's shift initially met with skepticism from the Indian community. As Reddy told the
Financial Times: "I made a statement in Bangalore in 1993. I said: 'Don't think that
because we don't have millions of dollars we cannot invent new drugs. Don't shy away
from this.' But nobody had the conviction that an Indian company could discover
anything."
Nonetheless, for its research and development effort, Reddy's adopted a standard practice
among even the largest multinationals, that of developing "analogue" preparations of
existing drugs. By slightly altering the composition of a molecule or preparation, Reddy
would be able to present a new drug, which was sufficiently different chemically to
achieve a separate patent.
The shift into research represented only one prong of Dr. Reddy's ambitions. In its
determination to become a player in the global market, the company moved to end
production of illegal copies and instead shift its operations to the manufacture of--legal--
generic drugs. In 1994, the company placed a rights issue of $48 million in order to
construct a new facility dedicated to producing generic drugs capable of meeting the
legislative requirements of Western markets. The company also opened a U.S. subsidiary
in New Jersey that year.
By 1995, Reddy's initial research and development efforts had already paid off, as the
company filed its first patent application for a new and promising anti-diabetes
formulation. The company successfully completed laboratory testing on the drug, an
insulin sensitizer dubbed balaglitazone by 1997. Yet, lacking the funds to engage in its
own clinical testing, the company placed the patent up for grabs, and licensed it to Novo
Nordisk in 1997. This marked a first for an Indian-developed drug. The following year,
Novo Nordisk acquired the license for Dr. Reddy's second insulin sensitizer, ragaglitazar.
Going Global in the 21th Century
6
The year 1997 marked a new era for Dr. Reddy's. In that year, the U.S. FDA adopted new
rules, designed to encourage the growth of the generic drugs market in the United States,
which provided a six-month exclusivity period for the first company to gain approval to
market newly available drugs in a generic form. Dr. Reddy's decided to get in on the
action--as an estimated $60 billion of drugs was expected to outgrow their patents over
the next ten years--and in 1997 the company filed an abbreviated new drug application
(ANDA, used for registering a drug in its generic formula) for a generic version of the
popular anti-ulcer medication Zantac.
Buoyed by its early success, Dr. Reddy's moved to expand its operations at the turn of the
century. In 1999, the company made a new acquisition, buying up American Remedies
Limited, based in Chennai, boosting its formulations capacity. That year, also, the
company set up a research and development subsidiary, Reddy US Therapeutics, in
Atlanta, Georgia, placing part of its drug discovery effort closer to the U.S. market.
In 2000, the company made another important acquisition, this time of Cheminor Drugs
Limited, which enabled Dr. Reddy's to claim the number three spot among Indian
pharmaceutical companies. That year, the company launched the commercial distribution
of its first generics in the United States. Back home, the company's research efforts had
paid off with the filing of an Investigational New Drug Application for an anti-cancer
molecule developed in the company's labs.
Dr. Reddy's global ambitions now took it to the New York Stock Exchange, where the
company listed its stock in 2001, becoming the first Asian pharmaceutical company
outside of Japan to do so. The company clearly revealed its ambitions, as Reddy told
Business Week: "We want to be a truly innovative company discovering and marketing
drugs the world over." That year, the company scored a new success in its research
activities, licensing a second-generation anti-diabetic molecule to Novartis in a deal
worth some $55 million. Meanwhile, on the generics front, the company was lifted when
its application for a 40mg generic version of the popular anti-depressive Prozac was
awarded a 180-day exclusivity period. That period generated some $56 million--nearly all
profit--for the company.
7
The year 2002 also marked the company's first overseas acquisition, when it paid £9
million to acquire the United Kingdom's BMS Laboratories Ltd. and its marketing and
distribution subsidiary Meridian Healthcare Ltd. That purchase enabled the company to
expand into the U.K.--and ultimately European--generics market.
At the end of 2002, Dr. Reddy's scored a new victory in the U.S. market, when it
successfully defeated lawsuits lobbied by Pfizer to prevent the Indian company's
marketing of its own variant of the pharmaceutical giant's Novasc. The company then
began preparations to introduce its version of the drug in 2003. Yet the new compound
was expected to mark a new step for the company, as it became determined to enter the
higher-margin branded generics category.
Dr. Reddy's backed this change in strategy with a new portfolio of drugs, including the
filing of an ANDA for fexofenadine HCI (better known as Allegra, from Aventis) in
April 2003. In July of that year, the company scored a new victory when it was granted
tentative FDA approval to develop and market generic versions of the Bristol Myers
Squibb drug Serzone. Dr. Reddy's appeared well on its way to achieving its goal of
becoming a global pharmaceutical company.
Principal Subsidiaries: Aurantis Farmaceutica Ltda (Brazil; 50%); Aurigene Discovery

Technologies Inc. (U.S.A.); Aurigene Discovery Technologies Limited; Cheminor Drugs
Limited; Compact Electric Limited; Dr. Reddy's Exports Limited (22%); Dr. Reddy's
Farmaceutica Do Brazil Ltda.; Dr. Reddy's Laboratories (EU) Limited (U.K.); Dr.
Reddy's Laboratories (Proprietary) (South Africa); Dr. Reddy's Laboratories (UK)
Limited; Dr. Reddy's Laboratories Inc. (U.S.A.); DRL Investments Limited India;
Kunshan Rotam Reddy Pharmaceutical Co. Limited (China; 51%); OOO JV Reddy
Biomed Limited (Russia); Pathnet India Private Limited (49%); Reddy Antilles N.V.
(Antilles); Reddy Cheminor S.A. (France); Reddy Netherlands B.V.; Reddy
Pharmaceuticals Hong Kong Limited; Reddy Pharmaceuticals Singapore; Reddy US
Therapeutics Inc.; Zenovus Biotech Limited. `
8
Principal Competitors: RPG Enterprises; GlaxoSmithKline Consumer Healthcare Ltd.;
East India Pharmaceutical Works Ltd.; Cipla Ltd.; Concept Pharmaceuticals Ltd.;
Khandelwal Laboratories Ltd.; Dabur India Ltd.
DR.REDDY’S
STATISTI
CS
9
STATISTICS:
Public Company
Incorporated: 1984
Employees: 5,796
Sales: Rs 18.01 billion ($391.8 million) (2003)
Stock Exchanges: Bombay New York
Ticker Symbol: RDY
NAIC: 325412 Pharmaceutical Preparation Manufacturing
Address:
7-1-27, Ameerpet
Hyderabad, Andhra Pradesh 500 016
India
Telephone: 91-40-373-1946
Fax: 91-40-373-1955
http://www.drreddys.com
10
DR . REDDY’S
LOGO
11
COMPANY LOGOS:
New logo:
Old logo:
12
DR.REDDY’S
TIE-UPS
&
ANNUAL
TURNOVE
R
13
NATCO PHARMA, DR REDDY’S IN CANCER DRUG TIE-
UP:
16 April 2009,
Mumbai: Drug maker Natco Pharma Ltd said on Wednesday it has entered into an
agreement with Dr Reddy’s Laboratories Ltd to jointly develop and sell generic cancer
products.
Dr Reddy’s will pay an undisclosed amount upfront for securing the rights to sell the
products and for capacities to make the drugs, Natco said in a statement to the stock
exchange, adding the firms also have a profit-sharing agreement in place.
The deal covers oral and injectible drugs, including paclitaxel, the generic form of
Abraxis Bioscience’s breats cancer drug Abraxane.
Natco will exclusively supply the drugs to Dr Reddy’s, which will sell them globally, it
said. The deal could be expanded to include more products, Natco added.
Natco shares ended up 8.9% at Rs71.30 in a firm Mumbai market.
RECENT TURNOVER OF THE COMPANY:
Hyderabad, May 18, 2009:
(IANS) City-based drug major Dr Reddy’s Laboratories Monday reported 89 percent

jump in net profits to Rs.850 crore ($167 million) in 2008-09 from Rs.450 crore the year
before.
The total income of the company grew 39 percent to Rs.6,940 crore last fiscal from
Rs.5,000 crore in 2007-08, the company said in a regulatory filing.
Dr Reddy’s, which booked a forex loss of Rs.63.4 crore for the fiscal, owed its growth to
the successful launch of the generic version of GlaxoSmithKline’s Imitrex in November
2008. The drug is used to treat migraines.
14
DR.REDDY’S
ORGANISAT
ION
STRUCTU
RE
&
15
MANAGEME
NT
16
ORGANIZATION STRUCTURE AND MANAGEMENT:
Board of Directors:
Dr Reddy’s Board of Directors comprises eminent individuals from diverse fields. The
Board acts with autonomy and independence in exercising strategic supervision,
discharging its fiduciary responsibilities, and in ensuring that the management observes
the highest standards of ethics, transparency and disclosure.
Our directors are experts in the diverse fields of medicine, chemistry and medical
research human resource development, business strategy, finance, and economics. They
review all significant business decisions, including strategic and regulatory matters.
Every member of the Board, including the non-executive directors, has full access to any
information related to our company.
Committees appointed by the Board focus on specific areas, take decisions within the
authority delegated to them and make specific recommendations to the Board on matters
in their areas or purview.
Whole time directors:

1. Dr. Anji Reddy,
Chairman.
2. G V Prasad,
Executive Vice Chairman and Chief Executive Officer.
3. Satish Reddy,
Managing Director & Chief Operating Officer.
Committees of the Board:

Committees appointed by the Board focus on specific areas and take informed decisions
within the framework of delegated authority, and make specific recommendations to the
Board on matters in their areas or purview. All decisions and recommendations of the
committees are placed before the Board for information or for approval.
17
We have six Board-level Committees, namely
• The Audit Committee

• The Compensation Committee
• The Governance Committee
• The Shareholders' Grievance Committee
• The Investment Committee
• The Management Committee
The members of the Committees of Board are as under:
Audit Committee:
Dr. Omkar Goswami (Chairman)
Kalpana Morparia
Ravi Bhoothalingam .
Management Committee:
Satish Reddy (Chairman)
G V Prasad
Ravi Bhoothalingam
Compensation Committee:
Ravi Bhoothalingam (Chairman)
Kalpana Morparia
Dr. JP Moreau.
Investment Committee :
G V Prasad (Chairman)
Ravi Bhoothalingam
Satish Reddy.
18
Governance Committee :
Anupam Puri (Chairman)
Dr. Omkar Goswami.
Shareholders' Grievance Committee:

Ravi Bhoothalingam (Chairman)
G V Prasad
Satish Reddy.
Management Team:
The Management Council is the top tier of our company's management structure.
The management of Dr. Reddy's has developed and implemented policies, procedures
and practices that attempt to translate our company's vision, mission and purpose into
reality. The management also identifies, measures, monitors and controls the risks factors
in the business and ensures safe, sound and efficient operation.
The Management Council meets every quarter under the chairmanship of the CEO.
19
DR.REDDY’
S
FINANCIA
L
STATEMEN
TS
20
21
FINANCIAL STATEMENTS:
Businesses report information in the form of financial statements issued on a periodic

basis. GAAP requires the following four financial statements:
• Balance Sheet - statement of financial position at a given point in time.

• Income Statement - revenues minus expenses for a given time period ending at a
specified date.
• Statement of Owner's Equity - also known as Statement of Retained Earnings or
Equity Statement.
• Statement of Cash Flows - summarizes sources and uses of cash; indicates
whether enough cash is available to carry on routine operations.
Balance Sheet:
The balance sheet is based on the following fundamental accounting model:
Assets = Liabilities + Equity
Assets can be classed as either current assets or fixed assets. Current assets include cash,
accounts receivable, marketable securities, notes receivable, inventory, and prepaid assets
such as prepaid insurance. Fixed assets include land, buildings, and equipment. Such
assets are recorded at historical cost, which often is much lower than the market value.
Liabilities represent the portion of a firm's assets that are owed to creditors. Liabilities
can be classed as short-term liabilities (current) and long-term (non-current) liabilities.
Current liabilities include accounts payable, notes payable, interest payable, wages
payable, and taxes payable. Long-term liabilities include mortgages payable and bonds
payable.
Equity is referred to as owner's equity in a sole proprietorship or a partnership, and

stockholders' equity or shareholders' equity in a corporation. The equity owners of a
22
business are residual claimants, having a right to what remains only after the creditors
have been paid.
Income Statement:
The income statement presents the results of the entity's operations during a period of
time, such as one year. The simplest equation to describe income is:
Net Income = Revenue - Expenses
Revenue refers to inflows from the delivery or manufacture of a product or from the
rendering of a service. Expenses are outflows incurred to produce revenue.
Income from operations can be separated from other forms of income. In this case, the
income can be described by:
Net Income = Revenue - Expenses + Gains - Losses
where gains refer to items such as capital gains, and losses refer to capital losses, losses
from natural disasters, etc.
Cash Flow Statement:
The nature of accrual accounting is such that a company may be profitable but
nonetheless experience a shortfall in cash. The statement of cash flows is useful in
evaluating a company's ability to pay its bills. For a given period, the cash flow statement
provides the following information:
• Sources of cash
• Uses of cash
• Change in cash balance
The information used to construct the cash flow statement comes from the beginning and
ending balance sheets for the period and from the income statement for the period.
23
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.3.2005
Amount
Particulars
(Rs.)
Income
Sales Turnover 1,625.6
Excise Duty 76.80
Net Sales 1,548.76
Other Income -8.41
Stock Adjustments 29.62
Total Income 1,569.97
Expenditure
Raw Materials 574.04
Power & Fuel Cost 43.21
Employee Cost 178.66
Other Manufacturing Expenses 47.43
Selling and Admin Expenses 546.35
Miscellaneous Expenses 25.48
Preoperative Exp Capitalised 0.00
Total Expenses 1,415.17
Operating Profit 163.21
PBDIT 154.80
Interest 12.73
PBDT 142.07
Depreciation 92.46
Other Written Off 5.23
Profit Before Tax 44.38
Extra-ordinary items 0.00
PBT (Post Extra-ord Items) 44.38
Tax -21.10
Reported Net Profit 65.46
Total Value Addition 841.14
Preference Dividend 0.00
Equity Dividend 38.26
Corporate Dividend Tax 5.37
Per share data (annualised)
Shares in issue (lakhs) 765.19
Earning Per Share (Rs) 8.55
Equity Dividend (%) 100.00
Book Value (Rs) 271.05
24
Amount
Particulars
(Rs.)
Income
Excise Duty 98.71
Net Sales 2,003.26
Other Income 95.98
Expenditure
Raw Materials 792.87
PBDIT 413.05
Interest 24.63
PBDT 388.42
Depreciation 111.33
Extra-ordinary items -0.01
Tax 52.64
Total Value Addition 930.04
Shares in issue (lakhs) 766.95
25
Amount
Particulars
(Rs.)
Income
Excise Duty 89.66
Net Sales 3,783.26
Other Income 233.95
Expenditure
Raw Materials 1,144.82
Operating Profit 1,327.35
PBDIT 1,561.30
Interest 51.96
PBDT 1,509.34
Depreciation 133.50
Profit Before Tax 1,357.68
PBT (Post Extra-ord Items) 1,357.66
Tax 188.99
Reported Net Profit 1,176.86
Total Value Addition 1,334.32
Shares in issue (lakhs) 1,679.12
26
Amount
Particulars
(Rs.)
Income
Excise Duty 84.51
Net Sales 3,343.89
Other Income 197.29
Expenditure
Raw Materials 1,347.33
PBDIT 779.99
Interest 14.69
PBDT 765.30
Depreciation 161.99
Tax 108.88
Total Value Addition 1,507.73
Shares in issue (lakhs) 1,681.73
Balance Sheet of Dr.Reddy’s Laboratoriesas on 31.3.05
27
Liabilities Amount (Rs.)
Total Share Capital 38.26
Equity Share Capital 38.26
Share Application Money 0.00
Preference Share Capital 0.00
Reserves 2,035.82
Revaluation Reserves 0.00
Networth 2,074.08
Secured Loans 3.27
Unsecured Loans 269.96
Total Debt 273.23
Total Liabilities 2,347.31
Assets
Gross Block 1,004.22
Less: Accum. Depreciation 441.68
Net Block 562.54
Capital Work in Progress 60.13
Investments 358.46
Inventories 303.81
Sundry Debtors 417.64
Cash and Bank Balance 41.09
Total Current Assets 762.54
Loans and Advances 387.70
Fixed Deposits 850.64
Total CA, Loans & Advances 2,000.88
Deffered Credit 0.00
Current Liabilities 451.50
Provisions 183.18
Total CL & Provisions 634.68
Net Current Assets 1,366.20
Total Assets 2,347.33
Contingent Liabilities 189.19
Balance Sheet of Dr.Reddy’s Laboratories as on 31.3.06
28
Reserves 2,223.79
Networth 2,262.14
Secured Loans 145.13
Total Debt 923.87
Assets
Net Block 561.82
Investments 911.36
Inventories 443.10
Total Current Assets 1,049.82
Loans and Advances 723.61
Deferred Credit 0.00
Provisions 174.70
Total CL & Provisions 798.95
Contingent Liabilities 2,409.27
29
Reserves 4,289.40
Networth 4,373.36
Secured Loans 1.92
Total Debt 329.90
Assets
Net Block 682.04
Investments 966.99
Inventories 487.58
Sundry Debtors 1,055.70
Loans and Advances 1,028.56
Fixed Deposits 1,308.11
Provisions 522.97
Total CL & Provisions 1,254.93
30
Reserves 4,727.72
Networth 4,811.81
Secured Loans 3.40
Total Debt 462.31
Assets
Net Block 987.41
Investments 2,080.71
Inventories 640.93
Loans and Advances 1,272.02
Provisions 601.38
Total CL & Provisions 1,387.74

31
DR.REDDY’S
RATIO
ANALYSI
S
32
RATIO ANALYSIS:
When it comes to investing, analyzing financial statement information (also known as

quantitative analysis), is one of, if not the most important element in the fundamental
analysis process. At the same time, the massive amount of numbers in a company's
financial statements can be bewildering and intimidating to many investors. However,
through financial ratio analysis, you will be able to work with these numbers in an
organized fashion.
Financial ratio analysis is the calculation and comparison of ratios which are derived
from the information in a company's financial statements. The level and historical trends
of these ratios can be used to make inferences about a company's financial condition, its
operations and attractiveness as an investment.
Financial ratios are calculated from one or more pieces of information from a company's
financial statements. For example, the "gross margin" is the gross profit from operations
divided by the total sales or revenues of a company, expressed in percentage terms. In
isolation, a financial ratio is a useless piece of information. In context, however, a
financial ratio can give a financial analyst an excellent picture of a company's situation
and the trends that are developing.
A ratio gains utility by comparison to other data and standards. Taking our example, a
gross profit margin for a company of 25% is meaningless by itself. If we know that this
company's competitors have profit margins of 10%, we know that it is more profitable
than its industry peers which is quite favourable. If we also know that the historical trend
is upwards, for example has been increasing steadily for the last few years, this would
also be a favourable sign that management is implementing effective business policies
and strategies.
33
Among the dozens of financial ratios available, we've chosen 30 measurements that are
the most relevant to the investing process and organized them into six main categories as
per the following list:
1) Liquidity Measurement Ratios
- Current Ratio
- Quick Ratio
- Cash Ratio
- Cash Conversion Cycle
2) Profitability Indicator Ratios
- Profit Margin Analysis
- Effective Tax Rate
- Return On Assets
- Return On Equity
- Return On Capital Employed
3) Debt Ratios
- Overview Of Debt
- Debt Ratio
- Debt-Equity Ratio
- Capitalization Ratio
- Interest Coverage Ratio
- Cash Flow To Debt Ratio
34
4) Operating Performance Ratios
- Fixed-Asset Turnover
- Sales/Revenue Per Employee
- Operating Cycle
5) Cash Flow Indicator Ratios
- Operating Cash Flow/Sales Ratio
- Free Cash Flow/Operating Cash Ratio
- Cash Flow Coverage Ratio
- Dividend Payout Ratio
6) Investment Valuation Ratios
- Per Share Data
- Price/Book Value Ratio
- Price/Cash Flow Ratio
- Price/Earnings Ratio
- Price/Earnings To Growth Ratio
- Price/Sales Ratio
- Dividend Yield
- Enterprise Value Multiple
It is imperative to note the importance of the proper context for ratio analysis. Like
computer programming, financial ratio is governed by the GIGO law of "Garbage
In...Garbage Out!" A cross industry comparison of the leverage of stable utility
35
companies and cyclical mining companies would be worse than useless. Examining a
cyclical company's profitability ratios over less than a full commodity or business cycle
would fail to give an accurate long-term measure of profitability. Using historical data
independent of fundamental changes in a company's situation or prospects would predict
very little about future trends. For example, the historical ratios of a company that has
undergone a merger or had a substantive change in its technology or market position
would tell very little about the prospects for this company.
Credit analysts, those interpreting the financial ratios from the prospects of a lender,
focus on the "downside" risk since they gain none of the upside from an improvement in
operations. They pay great attention to liquidity and leverage ratios to ascertain a
company's financial risk. Equity analysts look more to the operational and profitability
ratios, to determine the future profits that will accrue to the shareholder.
Although financial ratio analysis is well-developed and the actual ratios are well-known,
practicing financial analysts often develop their own measures for particular industries
and even individual companies. Analysts will often differ drastically in their conclusions
from the same ratio analysis.
Let us now practically work on some of the important formulas in ratio analysis taking
values from the four year statements we have in the previous papers:
1) Liquidity Measurement Ratios
Liquidity ratios attempt to measure a company's ability to pay off its short-term debt
obligations. This is done by comparing a company's most liquid assets (or, those that can
be easily converted to cash), its short-term liabilities. In general, the greater the coverage
of liquid assets to short-term liabilities the better as it is a clear signal that a company can
pay its debts that are coming due in the near future and still fund its ongoing operations.
On the other hand, a company with a low coverage rate should raise a red flag for
investors as it may be a sign that the company will have difficulty meeting running its
operations, as well as meeting its obligations.
36
A) Current Ratio:
The current ratio is a popular financial ratio used to test a company's liquidity (also
referred to as its current or working capital position) by deriving the proportion of current
assets available to cover current liabilities.
The current ratios of the consecutive four years are:
Year Value
2005 3.15
2006 3.00
2007 3.21
2008 2.41
CURRENT RATIO
3.5
3
2.5
2
1.5 VALUE
1
0.5
0
2005 2006 2007 2008
37
INTERPRETATION:
The current ratio is used extensively in financial reporting. However, while easy to
understand, it can be misleading in both a positive and negative sense - i.e., a high current
ratio is not necessarily good, and a low current ratio is not necessarily bad. Here the current
ratio is satisfactory in the years 2006,and good in the year 2008.
B) Quick Ratio:
The quick ratio - aka the quick assets ratio or the acid-test ratio - is a liquidity indicator
that further refines the current ratio by measuring the amount of the most liquid current
assets there are to cover current liabilities. The quick ratio is more conservative than the
current ratio because it excludes inventory and other current assets, which are more
difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.
The Quick Ratios of consecutive four years are:
Year Value
2005 2.59
2006 2.43
2007 2.81
2008 1.94
38
QUICK RATIO
2.5
1.5
value
1
0.5
0
2005 2006 2007 2008
INTERPRETATION:
A higher ratio means a more liquid current position.it means the liquid current position of
the company is good in 2007 (2.81) and satisfactory in 2005,2006,2008. Current yr ratio
is very bad when it compared to the previous year.
2. PROFITABILITY INDICATOR RATIOS:

In the income statement, there are four levels of profit or profit margins - gross profit,
operating profit, pretax profit and net profit. The term "margin" can apply to the absolute
number for a given profit level and/or the number as a percentage of net sales/revenues.
Profit margin analysis uses the percentage calculation to provide a comprehensive
measure of a company's profitability on a historical basis (3-5 years) and in comparison
to peer companies and industry benchmarks.
Basically, it is the amount of profit (at the gross, operating, pretax or net income level)
generated by the company as a percent of the sales generated. The objective of margin
analysis is to detect consistency or positive/negative trends in a company's earnings.
39
Positive profit margin analysis translates into positive investment quality. To a large
degree, it is the quality, and growth, of a company's earnings that drive
A) Gross Profit Ratio:
The Gross Profit Ratios of consecutive four years are:
Year value
2005 4.56
2006 10.26
2007 31.55
2008 12.58
GROSS PROFIT RATIO
35
30
25
20
15 values
10
0
2005 2006 2007 2008
INTERPRETATION:
40
This ratio ratio indicates the degree to which the selling price of good per unit or in whole
may decline without resulting in losses from operations to the firm. when we observe the
above ratios there is an increase in the profit margin from 2005-2007,but a vast decline in
gross profit in the year 2008(12.58).
B) Net Profit Ratio:
The Net Profit Ratio of consecutive four year:
Year Values
2005 4.06
2006 10.08
2007 29.01
2008 13.57
NET PROFIT RATIO
41
30
25
20
15
values
10
0
2005 2006 2007 2008
INTERPRETION:
An increase in the ratio over the previous year indicates improvement in the operational
efficiency of the business. The net profit ratio in 2007(29.01) is good and 2008(13.57) is
comparatively good when compared to 2005 and 2006.
C) Operating Profit Ratio:
The Operating Profit Ratios for the consecutive four years are:
Year Value
2005 10.53
2006 15.82
2007 35.08
2008 17.42
OPERATING PROFIT RATIO
42
40
35
30
25
20
values
15
10
5
0
2005 2006 2007 2008
INTERPRETATION:
The operating profit margin is high in the firm it is considered as a good sign to the
company as its operating expenses are decreased. For the current year 2008 i.e(17.42) we
can say the company position is satisfactory as operating ratio is high than the gross
profit margin.
D)Return On Equity:
This ratio indicates how profitable a company is by comparing its net income to its
average shareholders' equity. The return on equity ratio (ROE) measures how much the
shareholders earned for their investment in the company. The higher the ratio percentage,
the more efficient management is in utilizing its equity base and the better return is to
investors.
The returns on equity shares for the consecutive four years are:
43
Year Value
2005 3.15
2006 9.33
2007 26.90
2008 9.87
RETURN ON EQUITY RATIO
30
25
20
15
values
10
0
2005 2006 2007 2008
INTERPRETATION:
Generally, the higher this ratio, the more risky a creditor will perceive its exposure in
your business, making it correspondingly harder to obtain credit. It is the return on the
amount invested in the company in the form of equity share capital. The higher is the
return will be more interest for the investor to invest in the company. Hence the current
year return on equity(9.87) is satisfactory but not good when compared to the previous
year
3) DEBT RATIOS:
44
The debt-equity ratio is another leverage ratio that compares a company's total liabilities
to its total shareholders' equity. This is a measurement of how much suppliers, lenders,
creditors and obligors have committed to the company versus what the shareholders have
committed.
To a large degree, the debt-equity ratio provides another vantage point on a company's
leverage position, in this case, comparing total liabilities to shareholders' equity, as
opposed to total assets in the debt ratio.
The Debt Equity Ratios of the four consecutive years are:
Year Value
2005 .13
2006 .40
2007 .07
2008 .09
DEBT EQUITY RATIO
45
0.4
0.35
0.3
0.25
0.2
values
0.15
0.1
0.05
0
2005 2006 2007 2008
INTERPRETATION:
The ratio compares equity percentage with total debt of the company. A lower the
percentage means that a company is using less leverage and has a stronger equity
position. This creates a confidence in the investor to invest in the company. The current
year debt equity ratio(.09) is positively good.
CONCLUSION FOR RATIO ANALYSIS:

After the examination of the above ratios given above makes it clear that the overall
performance of the company is much poorer in the current year as compared to previous
year.
CONCLUSION:
46
I here conclude my company analysis report by giving an idea on the project report in
brief.
My report consists the company history, statistics, and its organization structure and
management, which is the minimum information is to be noted. It also contains four year
consecutive income statements and balance sheets which are required for ratio analyzing.
It is really good and I am feeling great to read a public company. This helps me in
knowing an organization and its position in the business world which is compulsory to a
MBA student to know.
M.MADHU LATHA
(08211E0020)
47
BIBLIOGRAPH
Y
48
BIBLIOGRAPHY:
1. Financial Management, Dr. S N Maheshwari, Sulthan Chand & Sons.2007

2. Financial Accounting for Business Management, Ashish K. Battacharya.2007
3. Management Accounting, R P Trivedi, Pankaj Publications.2007
WEBSITES:
S.no Website
1. www.drreddys.com
2. www.investopedia.com
3. www.moneycontrol.com
4. Money.rediff.com
5. www.wikipedia.com
49

Company Analysis Report On DR - REDDY'S

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1. Dr.Reddy’s Company History 10-12

2. Dr.Reddy’s Statistics 13-14

3. Dr.Reddy’s Logo 15-16

4. Dr.Reddy’s Tie-ups & Annual 17-18

6. Dr.Reddy’s Financial Statements: 23-33

• Profit and Loss Accounts

Bulk Actives to Generics in the 1980s:

Risking on Research in the 1990s

Going Global in the 21th Century

Principal Subsidiaries: Aurantis Farmaceutica Ltda (Brazil; 50%); Aurigene Discovery

RECENT TURNOVER OF THE COMPANY:

Hyderabad, May 18, 2009:

(IANS) City-based drug major Dr Reddy’s Laboratories Monday reported 89 percent

Whole time directors:

Committees of the Board:

• The Audit Committee

The members of the Committees of Board are as under:

Shareholders' Grievance Committee:

Businesses report information in the form of financial statements issued on a periodic

• Balance Sheet - statement of financial position at a given point in time.

The balance sheet is based on the following fundamental accounting model:

Assets = Liabilities + Equity

Equity is referred to as owner's equity in a sole proprietorship or a partnership, and

Net Income = Revenue - Expenses

Net Income = Revenue - Expenses + Gains - Losses

Cash Flow Statement:

Balance Sheet of Dr.Reddy’s Laboratoriesas on 31.3.05

Balance Sheet of Dr.Reddy’s Laboratories as on 31.3.06

Balance Sheet of Dr.Reddy’s Laboratories as on 31.3.07

Balance Sheet of Dr.Reddy’s Laboratories as on 31.3.08

Contingent Liabilities 1,892.55

When it comes to investing, analyzing financial statement information (also known as

1) Liquidity Measurement Ratios

- Cash Conversion Cycle

2) Profitability Indicator Ratios

- Profit Margin Analysis

- Effective Tax Rate

- Return On Capital Employed

- Interest Coverage Ratio

- Cash Flow To Debt Ratio

- Sales/Revenue Per Employee

5) Cash Flow Indicator Ratios

- Operating Cash Flow/Sales Ratio

- Free Cash Flow/Operating Cash Ratio

- Cash Flow Coverage Ratio

- Dividend Payout Ratio

6) Investment Valuation Ratios

- Per Share Data

- Price/Book Value Ratio

- Price/Cash Flow Ratio

- Price/Earnings To Growth Ratio

- Enterprise Value Multiple

1) Liquidity Measurement Ratios

The current ratios of the consecutive four years are:

The Quick Ratios of consecutive four years are:

2. PROFITABILITY INDICATOR RATIOS:

A) Gross Profit Ratio:

The Gross Profit Ratios of consecutive four years are:

GROSS PROFIT RATIO

B) Net Profit Ratio:

The Net Profit Ratio of consecutive four year: