Intrinsic value of Dr. Reddy's Laboratories ADR - RDY

Previous Close

$36.07

  Intrinsic Value

$17.18

stock screener

  Rating & Target

str. sell

-52%

Previous close

$36.07

 
Intrinsic value

$17.18

 
Up/down potential

-52%

 
Rating

str. sell

We calculate the intrinsic value of RDY stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 6.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -8.98
  2.50
  2.75
  2.97
  3.18
  3.36
  3.52
  3.67
  3.80
  3.92
  4.03
  4.13
  4.22
  4.29
  4.36
  4.43
  4.49
  4.54
  4.58
  4.62
  4.66
  4.70
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
Revenue, $m
  2,108
  2,161
  2,220
  2,286
  2,359
  2,438
  2,524
  2,617
  2,716
  2,823
  2,937
  3,058
  3,187
  3,324
  3,469
  3,622
  3,785
  3,956
  4,138
  4,329
  4,531
  4,744
  4,968
  5,204
  5,453
  5,714
  5,990
  6,280
  6,585
  6,905
  7,242
Variable operating expenses, $m
 
  1,748
  1,796
  1,849
  1,908
  1,972
  2,041
  2,116
  2,196
  2,282
  2,373
  2,466
  2,570
  2,680
  2,797
  2,921
  3,052
  3,190
  3,336
  3,491
  3,653
  3,825
  4,006
  4,196
  4,397
  4,608
  4,830
  5,064
  5,309
  5,568
  5,840
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,906
  1,748
  1,796
  1,849
  1,908
  1,972
  2,041
  2,116
  2,196
  2,282
  2,373
  2,466
  2,570
  2,680
  2,797
  2,921
  3,052
  3,190
  3,336
  3,491
  3,653
  3,825
  4,006
  4,196
  4,397
  4,608
  4,830
  5,064
  5,309
  5,568
  5,840
Operating income, $m
  202
  413
  424
  437
  451
  467
  483
  501
  520
  541
  563
  592
  617
  644
  672
  701
  733
  766
  801
  838
  877
  919
  962
  1,008
  1,056
  1,107
  1,160
  1,216
  1,275
  1,337
  1,403
EBITDA, $m
  371
  584
  600
  618
  637
  659
  682
  707
  734
  763
  794
  826
  861
  898
  937
  979
  1,023
  1,069
  1,118
  1,170
  1,224
  1,282
  1,343
  1,406
  1,474
  1,544
  1,619
  1,697
  1,779
  1,866
  1,957
Interest expense (income), $m
  14
  16
  17
  19
  20
  21
  23
  24
  26
  28
  30
  32
  35
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  72
  76
  81
  86
  92
  97
  103
  109
Earnings before tax, $m
  219
  396
  407
  419
  431
  445
  460
  477
  494
  513
  533
  560
  582
  606
  632
  659
  687
  717
  749
  783
  818
  855
  895
  936
  980
  1,026
  1,074
  1,125
  1,178
  1,234
  1,293
Tax expense, $m
  39
  107
  110
  113
  116
  120
  124
  129
  133
  138
  144
  151
  157
  164
  171
  178
  186
  194
  202
  211
  221
  231
  242
  253
  265
  277
  290
  304
  318
  333
  349
Net income, $m
  180
  289
  297
  306
  315
  325
  336
  348
  361
  374
  389
  409
  425
  443
  461
  481
  502
  524
  547
  571
  597
  624
  653
  683
  715
  749
  784
  821
  860
  901
  944

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  269
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  3,291
  3,096
  3,181
  3,275
  3,379
  3,493
  3,616
  3,749
  3,891
  4,044
  4,207
  4,381
  4,565
  4,761
  4,969
  5,189
  5,422
  5,668
  5,928
  6,202
  6,491
  6,796
  7,117
  7,456
  7,812
  8,187
  8,581
  8,997
  9,433
  9,893
  10,376
Adjusted assets (=assets-cash), $m
  3,022
  3,096
  3,181
  3,275
  3,379
  3,493
  3,616
  3,749
  3,891
  4,044
  4,207
  4,381
  4,565
  4,761
  4,969
  5,189
  5,422
  5,668
  5,928
  6,202
  6,491
  6,796
  7,117
  7,456
  7,812
  8,187
  8,581
  8,997
  9,433
  9,893
  10,376
Revenue / Adjusted assets
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
Average production assets, $m
  1,324
  1,357
  1,394
  1,436
  1,481
  1,531
  1,585
  1,643
  1,706
  1,773
  1,844
  1,920
  2,001
  2,087
  2,178
  2,275
  2,377
  2,485
  2,598
  2,719
  2,845
  2,979
  3,120
  3,268
  3,424
  3,589
  3,762
  3,944
  4,135
  4,336
  4,548
Working capital, $m
  230
  631
  648
  668
  689
  712
  737
  764
  793
  824
  857
  893
  931
  970
  1,013
  1,058
  1,105
  1,155
  1,208
  1,264
  1,323
  1,385
  1,451
  1,520
  1,592
  1,669
  1,749
  1,834
  1,923
  2,016
  2,115
Total debt, $m
  736
  497
  530
  566
  606
  650
  698
  749
  804
  863
  926
  993
  1,064
  1,140
  1,220
  1,305
  1,395
  1,490
  1,590
  1,696
  1,808
  1,925
  2,049
  2,180
  2,317
  2,462
  2,614
  2,775
  2,943
  3,121
  3,307
Total liabilities, $m
  1,434
  1,195
  1,228
  1,264
  1,304
  1,348
  1,396
  1,447
  1,502
  1,561
  1,624
  1,691
  1,762
  1,838
  1,918
  2,003
  2,093
  2,188
  2,288
  2,394
  2,506
  2,623
  2,747
  2,878
  3,015
  3,160
  3,312
  3,473
  3,641
  3,819
  4,005
Total equity, $m
  1,857
  1,901
  1,953
  2,011
  2,075
  2,145
  2,220
  2,302
  2,389
  2,483
  2,583
  2,690
  2,803
  2,924
  3,051
  3,186
  3,329
  3,480
  3,640
  3,808
  3,986
  4,173
  4,370
  4,578
  4,796
  5,027
  5,269
  5,524
  5,792
  6,074
  6,371
Total liabilities and equity, $m
  3,291
  3,096
  3,181
  3,275
  3,379
  3,493
  3,616
  3,749
  3,891
  4,044
  4,207
  4,381
  4,565
  4,762
  4,969
  5,189
  5,422
  5,668
  5,928
  6,202
  6,492
  6,796
  7,117
  7,456
  7,811
  8,187
  8,581
  8,997
  9,433
  9,893
  10,376
Debt-to-equity ratio
  0.396
  0.260
  0.270
  0.280
  0.290
  0.300
  0.310
  0.330
  0.340
  0.350
  0.360
  0.370
  0.380
  0.390
  0.400
  0.410
  0.420
  0.430
  0.440
  0.450
  0.450
  0.460
  0.470
  0.480
  0.480
  0.490
  0.500
  0.500
  0.510
  0.510
  0.520
Adjusted equity ratio
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  180
  289
  297
  306
  315
  325
  336
  348
  361
  374
  389
  409
  425
  443
  461
  481
  502
  524
  547
  571
  597
  624
  653
  683
  715
  749
  784
  821
  860
  901
  944
Depreciation, amort., depletion, $m
  169
  171
  176
  181
  186
  192
  199
  206
  214
  222
  230
  234
  244
  255
  266
  277
  290
  303
  317
  332
  347
  363
  380
  399
  418
  438
  459
  481
  504
  529
  555
Funds from operations, $m
  156
  461
  473
  486
  501
  517
  535
  554
  574
  596
  619
  643
  669
  697
  727
  758
  792
  827
  864
  903
  944
  988
  1,034
  1,082
  1,133
  1,186
  1,243
  1,302
  1,364
  1,430
  1,499
Change in working capital, $m
  -166
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  69
  73
  76
  80
  85
  89
  94
  98
Cash from operations, $m
  322
  445
  455
  467
  480
  494
  510
  527
  545
  565
  586
  607
  632
  657
  685
  713
  744
  777
  811
  847
  885
  926
  968
  1,013
  1,060
  1,110
  1,162
  1,217
  1,275
  1,336
  1,400
Maintenance CAPEX, $m
  0
  -161
  -165
  -170
  -175
  -181
  -187
  -193
  -200
  -208
  -216
  -225
  -234
  -244
  -255
  -266
  -277
  -290
  -303
  -317
  -332
  -347
  -363
  -380
  -399
  -418
  -438
  -459
  -481
  -504
  -529
New CAPEX, $m
  -184
  -33
  -37
  -41
  -46
  -50
  -54
  -58
  -63
  -67
  -71
  -76
  -81
  -86
  -91
  -96
  -102
  -108
  -114
  -120
  -127
  -134
  -141
  -148
  -156
  -164
  -173
  -182
  -191
  -201
  -212
Cash from investing activities, $m
  -277
  -194
  -202
  -211
  -221
  -231
  -241
  -251
  -263
  -275
  -287
  -301
  -315
  -330
  -346
  -362
  -379
  -398
  -417
  -437
  -459
  -481
  -504
  -528
  -555
  -582
  -611
  -641
  -672
  -705
  -741
Free cash flow, $m
  45
  251
  253
  255
  259
  264
  269
  275
  282
  290
  299
  306
  316
  327
  339
  351
  365
  379
  394
  410
  427
  445
  464
  484
  505
  528
  552
  577
  603
  631
  660
Issuance/(repayment) of debt, $m
  244
  30
  33
  37
  40
  44
  48
  51
  55
  59
  63
  67
  71
  76
  80
  85
  90
  95
  100
  106
  112
  118
  124
  131
  138
  145
  152
  160
  169
  177
  186
Issuance/(repurchase) of shares, $m
  -235
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -4
  30
  33
  37
  40
  44
  48
  51
  55
  59
  63
  67
  71
  76
  80
  85
  90
  95
  100
  106
  112
  118
  124
  131
  138
  145
  152
  160
  169
  177
  186
Total cash flow (excl. dividends), $m
  34
  281
  285
  292
  299
  308
  317
  327
  337
  349
  362
  373
  388
  403
  419
  436
  455
  474
  494
  516
  539
  563
  588
  615
  643
  673
  704
  737
  771
  808
  846
Retained Cash Flow (-), $m
  64
  -44
  -52
  -58
  -64
  -70
  -76
  -82
  -88
  -94
  -100
  -107
  -113
  -120
  -128
  -135
  -143
  -151
  -160
  -168
  -178
  -187
  -197
  -208
  -219
  -230
  -242
  -255
  -268
  -282
  -297
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  237
  233
  234
  236
  238
  241
  245
  250
  255
  261
  267
  274
  283
  292
  301
  312
  323
  335
  347
  361
  375
  391
  407
  424
  442
  462
  482
  503
  526
  550
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  227
  213
  204
  194
  184
  175
  166
  156
  147
  137
  127
  117
  107
  98
  88
  79
  70
  62
  53
  46
  39
  32
  27
  22
  17
  13
  10
  8
  6
  4
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Dr. Reddy's Laboratories Limited is a pharmaceutical company that is engaged in providing medicines. The Company operates in three segments: Global Generics, Pharmaceutical Services and Active Ingredients (PSAI), and Proprietary Products. The Global Generics segment includes manufacturing and marketing prescription and over-the-counter finished pharmaceutical products ready for consumption by the patient, marketed under a brand name (branded formulations) or as generic finished dosages with therapeutic equivalence to branded formulations (generics). PSAI segment includes the Company's business of manufacturing and marketing active pharmaceutical ingredients and intermediates (API) or bulk drugs. Proprietary Products segment focuses on the research, development and manufacture of differentiated formulations and new chemical entities. These products fall within the dermatology and neurology therapeutic areas, and are marketed and sold through its subsidiary, Promius Pharma, LLC.

FINANCIAL RATIOS  of  Dr. Reddy's Laboratories ADR (RDY)

Valuation Ratios
P/E Ratio 33.2
Price to Sales 2.8
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 18.6
Price to Free Cash Flow 43.3
Growth Rates
Sales Growth Rate -9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.2%
Cap. Spend. - 3 Yr. Gr. Rate 3%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 4.4%
Total Debt to Equity 39.6%
Interest Coverage 17
Management Effectiveness
Return On Assets 6%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. 11.7%
Return On Equity 9.5%
Return On Equity - 3 Yr. Avg. 16.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 55.6%
Gross Margin - 3 Yr. Avg. 57.7%
EBITDA Margin 19.1%
EBITDA Margin - 3 Yr. Avg. 23%
Operating Margin 9.6%
Oper. Margin - 3 Yr. Avg. 15.5%
Pre-Tax Margin 10.4%
Pre-Tax Margin - 3 Yr. Avg. 15.6%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 12.2%
Effective Tax Rate 17.8%
Eff/ Tax Rate - 3 Yr. Avg. 21.7%
Payout Ratio 28.3%

RDY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RDY stock intrinsic value calculation we used $2108 million for the last fiscal year's total revenue generated by Dr. Reddy's Laboratories ADR. The default revenue input number comes from 2017 income statement of Dr. Reddy's Laboratories ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our RDY stock valuation model: a) initial revenue growth rate of 2.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for RDY is calculated based on our internal credit rating of Dr. Reddy's Laboratories ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Dr. Reddy's Laboratories ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of RDY stock the variable cost ratio is equal to 80.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for RDY stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Dr. Reddy's Laboratories ADR.

Corporate tax rate of 27% is the nominal tax rate for Dr. Reddy's Laboratories ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the RDY stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for RDY are equal to 62.8%.

Life of production assets of 8.2 years is the average useful life of capital assets used in Dr. Reddy's Laboratories ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for RDY is equal to 29.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1857 million for Dr. Reddy's Laboratories ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 165.213 million for Dr. Reddy's Laboratories ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Dr. Reddy's Laboratories ADR at the current share price and the inputted number of shares is $6.0 billion.

RELATED COMPANIES Price Int.Val. Rating
PFE Pfizer 36.64 28.44  sell
NVS Novartis ADR 84.66 35.31  str.sell
SNY Sanofi ADR 43.92 48.60  hold
TEVA Teva Pharmaceu 15.70 58.78  str.buy
CRIS Curis 0.830 0.03  str.sell
AMGN Amgen 177.38 97.61  sell

COMPANY NEWS

▶ Top 10 Generic Pharmaceutical Companies In 2017   [Dec-13-17 11:37AM  Insider Monkey]
▶ Doctor Reddy's posts 2Q profit   [05:04AM  Associated Press]
▶ Dr. Reddys Q2 and H1 FY18 Financial Results   [04:32AM  Business Wire]
Financial statements of RDY
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.