DR. REDDY'S LABORATORIES-ADR (NYSE:RDY) emerged from our Peter Lynch-inspired screen as a potential candidate for long-term investors seeking growth at a reasonable price (GARP). The company, a global player in pharmaceuticals, meets several key criteria for sustainable growth, profitability, and sound financial health.
Why RDY Fits the GARP Approach
Strong Historical Growth: RDY has delivered a 5-year EPS growth rate of 23.6%, well above the 15% minimum threshold in our screen. This indicates a track record of consistent earnings expansion.
Reasonable Valuation: With a PEG ratio (5Y) of 0.81, the stock appears reasonably priced relative to its growth. A PEG below 1 suggests the market may not be fully accounting for its growth potential.
Healthy Profitability: The company’s return on equity (ROE) stands at 16.8%, exceeding the 15% benchmark, reflecting efficient use of shareholder capital.
Low Debt: A debt-to-equity ratio of 0.02 signals minimal reliance on borrowing, aligning with Lynch’s preference for conservatively financed companies.
Solid Liquidity: A current ratio of 1.92 indicates sufficient short-term asset coverage for liabilities.
Fundamental Highlights
Our fundamental analysis report assigns RDY a rating of 6/10, noting strengths in profitability and financial health. Key takeaways:
Profit Margins: Operating margin of 21.3% and profit margin of 17.3% rank above most industry peers.
Efficiency: ROIC of 14.5% and ROA of 11.4% reflect effective capital allocation.
Valuation: While the P/E of 19.1 is slightly elevated, it remains below the industry average.
Considerations
Slowing Growth: Analysts project a modest EPS decline of -2.1% annually in coming years, which warrants monitoring.
Dividend: The yield is low at 0.6%, though the payout ratio remains sustainable.
For investors focused on durable growth with a margin of safety, RDY presents a compelling case.
This is not investing advice! The article highlights observations at the time of writing, but you should conduct your own analysis before making investment decisions.