DR. REDDY'S LABORATORIES-ADR (NYSE:RDY) - A GARP Candidate in Pharmaceuticals

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.

Our Peter Lynch Strategy screener lists more stocks matching these criteria and is updated daily.

Disclaimer

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.