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Dr Reddy's Laboratories Ltd ADR

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Morningstar Rating for Stocks Fair Value Economic Moat Capital Allocation

Dr. Reddy's Ends Fiscal Year With Strong Growth and Solid Margin Improvement

Business Strategy and Outlook

Dr. Reddy’s is one of the largest generic drug manufacturers in the world. Global generics make up over 85% of the firm's sales, and along with other generics manufacturers, it continues to suffer low- to mid-single-digit erosion year over year in developed markets like North America and the majority of Europe. Because price and margin headwinds exist predominantly in small-molecule oral tablets that are easy to produce, we expect Dr. Reddy’s future pipeline to focus on complex generics—drugs that have complex formulations, dosage forms, or are injected or have more complex administration. Complex generics are more difficult to manufacture which by nature limits competition. And since price, volume, and margin are highly dependent on the competitiveness of a drug, complex generics pave an opportunistic road for Dr. Reddy’s. A fourth of its North American sales comes from complex injectables and we expect this number to increase as the company prioritizes these offerings. But other players in the industry are employing a similar strategy so success in this area relies on the company’s ability to seek out profitable drugs and efficiently launching them to market.

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