A

PROJECT REPORT
ON
RATIO ANALYSIS AT RADDY’S LABORATORY
 CHAPTER-1
INTRODUCTION

NEED AND IMPORTANCE OF THE STUDY:

 The study has great significance and will provide benefits to various parties
whom directly or interact with the company.

 It is important because its is beneficial to the employees and offer motivation

by showing how actively they are contributing for the company growth.

 It is beneficial to the management of the company as it provides a clear-cut

picture with to liquidity, profitability, leverage and activity ratios.
OBJECTIVES OF THE STUDY:

 To measure the overall financial position of “REDDY’S LAB”.

 To study the important aspects like liquidity leverage and profitability of the
company.

 To find out the operating efficiency of the company.

 To suggest measures for improving the performance of the company in the

light of the above.

METHODOLOGY OF THE STUDY:

After going through different methods of data collection it was decided that both
primary and secondary data are suitable for this survey

Primary data:

The primary data was collected mainly with the interaction and discussions
with the company executives.

Secondary data:

Most of the calculations are made on the financial statements of the

company and the company the financial statement for the 6 years
Some of the information regarding the theoretical aspects was collected By
referring textbooks and reference books
LIMITATIONS OF THE STUDY:

Every study is conducted with some limitations. This study is no exception.

The limitations are due to busy schedule of the higher authorities concerned. The
availability of them was difficult in order to hold discussion related to the study.

The study was conducted with in a period of 2 months, so this study may not be
in detail and full pledged.
 CHAPTER-2
REVIEW OF LITERATURE
 CHAPTER-3
COMPANY PROFILE

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.

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 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

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.

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. `

Principal Competitors: RPG Enterprises; GlaxoSmithKline Consumer Healthcare

Ltd.; East India Pharmaceutical Works Ltd.; Cipla Ltd.; Concept Pharmaceuticals
Ltd.; Khandelwal Laboratories Ltd.; Dabur India Ltd.
 CHAPTER-4
DATA 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.

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

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
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.
 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
 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
 QUICK RATIO

2.5

1.5
value

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. 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
values
15

10

0
2005 2006 2007 2008
INTERPRETATION:

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

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

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:

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:

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

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.
 CHAPTER-5
FINDINGS&CONCLUSION&
SUGGETIONS
FINDINGS:
 The Operating ratio has shown high ratio. That is 992.32 % due to the increase
in cost of goods sold and operating expenses and decrease in sales.
 This gross profit margin has increased from 2012 – 13 to 2013 – 14

 In 2012-13the company has shown negative Gross – Profit margin The current
Ratio has stood up at 1.05 in 2013-14as compared to the previous year 2012-
2013
 Quick Ratio has stood up at 0.72 in 2013-14, the increase is 35.8 % compared
to the previous year , Due to the decrease in inventories compared to the
previous year.
 Cash Ratio in the year 2013-14is 0.33
 Cash Ratio in the year 2010-11is 0.43

SUGGESTIONS
1. Company don’t maintain current ratio with the standard form. Expect 2012-
13, 2014-15 it is problem to the company. So comapany7 to take necessary actions to
meet form
2. Company haring good quick ratio i.e., it is above standard . So should
maintain in future also.

Thus, debtors are excluded from liquid assets for the purpose of computing
super quick Ratio . Current liabilities and liquid liabilities have the same meaning as
explained above . The Ratio is the most vigorous measure of the firm’s liquidity
position . However, it is not widely used in practice

CONCLUSION :
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.
 Ratio Analysis provides data for inter-firm comparison. Ratios highlight the
factors associated with successful and unsuccessful firms. They also reveal strong
firms and weak firms, over – valued and undervalued firms.
Ratio Analysis also makes possible comparison of the performance of the
different divisions of the firm. The ratios are helpful in deciding about their
efficiency or otherwise in the past and likely performance in the future.
Accounting ratios help to have an idea of the n working of a concern. The
efficiency of the firm becomes evident when analysis is based on accounting ratios.
Ratio Analysis helps in planning and forecasting. Over a period of time a firm
or industry develops certain norms that may indicate future success of failure. If
relationship.
 CHAPTER-6
BIBLIOGRAPHY
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