Where Dr Reddy’s Laboratories Limited (NSE:DRREDDY) Stands In Terms Of Earnings Growth Against Its Industry
After looking at Dr Reddy’s Laboratories Limited’s (NSEI:DRREDDY) latest earnings update (31 December 2017), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings. View our latest analysis for Dr. Reddy’s Laboratories
Did DRREDDY beat its long-term earnings growth trend and its industry?
I look at the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This blend enables me to examine different companies in a uniform manner using the most relevant data points. For Dr. Reddy’s Laboratories, its most recent earnings (trailing twelve month) is ₹9.91B, which, in comparison to last year’s figure, has risen by a fairly muted 2.58%. Since these figures may be fairly nearsighted, I have determined an annualized five-year figure for DRREDDY’s earnings, which stands at ₹16.90B This shows that, even though earnings growth from last year was positive, over the past couple of years, Dr. Reddy’s Laboratories’s earnings have been diminishing on average.
Why is this? Let’s examine what’s occurring with margins and if the entire industry is experiencing the hit as well. Revenue growth over the past few years, has been positive, nevertheless earnings growth has been falling. This means Dr. Reddy’s Laboratories has been increasing expenses, which is hurting margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the IN pharmaceuticals industry has been growing, albeit, at a subdued single-digit rate of 6.38% over the prior twelve months, and a substantial 14.03% over the past five. This means any uplift the industry is profiting from, Dr. Reddy’s Laboratories has not been able to reap as much as its industry peers.
What does this mean?
Though Dr. Reddy’s Laboratories’s past data is helpful, it is only one aspect of my investment thesis. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company. There could be variables that are impacting the entire industry hence the high industry growth rate over the same time frame. I suggest you continue to research Dr. Reddy’s Laboratories to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for DRREDDY’s future growth? Take a look at our free research report of analyst consensus for DRREDDY’s outlook.
Financial Health: Is DRREDDY’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
