Dr. Reddy's Laboratories Limited

Healthcare — Drug Manufacturers - Specialty & Generic · NSE

₹1,233.00+₹14.20 (+1.17%)

DalalBaazaar Score

52 / 100

🟡 Moderate

Verdict

CAUTION

Risk

Low

Driven by negative free cash flow, falling profits.

In simple words: Reasonable but unspectacular business quality, but sales are shrinking. Cash generation is currently the main factor to watch.

Decision support, not a buy or sell call.

As of 18 Oct 2026, 6:09 pm

Caution warranted. Multiple fundamental metrics — flagged in red below — point to either valuation stretch, leverage risk, or weakening profitability. This doesn't mean avoid the stock outright, but it does mean the burden of proof is on the growth story to justify the current price.

Understanding the Business

Company site ↗

The 60-second version of Dr. Reddy's Laboratories Limited — what it does, how it earns, and who it competes with, before any of the numbers below.

What does this company do?

Dr. Reddy's Laboratories Limited, together with its subsidiaries, operates as an integrated pharmaceutical company North America, Europe, India, Russia, and internationally.

IndustryDrug Manufacturers - Specialty & Generic

SectorHealthcare

Employees27,527

Annual revenue₹33,593 Cr

How does it make money?

Turns over ₹33,593 Cr a year. Of every ₹100 of sales, about ₹13 reaches shareholders as profit, with ₹22 left at the operating level before interest, tax and depreciation. Each of its 27,527 employees supports ₹1.22 Cr of revenue a year, the signature of a capital- or asset-led business.

EBITDA margin22.2%

Net margin12.8%

Revenue / employee₹1.22 Cr

Who are its competitors?

The closest listed comparisons in its industry are SUN PHARMACEUTICAL IND L, CIPLA LTD, DIVI S LABORATORIES LTD. These are the companies its valuation and returns are measured against elsewhere in this report.

SUN PHARMACEUTICAL IND LP/E 34.9x · ROE 14.5%

CIPLA LTDP/E 31.8x · ROE 9.8%

DIVI S LABORATORIES LTDP/E 83.0x · ROE 17.5%

What is its competitive advantage?Little sign of one

Returns on capital of 14.2% are at or below what the capital likely costs. That is the financial pattern of a business competing largely on price, where advantage has to come from execution rather than position.

ROCE14.2%

ROE8.8%

Peer median ROE14.5%

What is the outlook?

31 analysts covering the stock expect revenue to grow about 11.7% and earnings to grow about 33.9% in the year to 2028. These are estimates by people who follow the company, not a forecast for the wider industry.

Est. revenue growth+11.7%

Est. earnings growth+33.9%

Analysts31

What has been driving growth?

Sales and margins have both contributed to where profit is now. Over 3 years revenue moved +37% while net margin moved -30% relative to itself. What this cannot tell you is which products, customers or geographies did the work — that lives in the segment disclosures of the annual report.

Revenue effect+37%

Margin effect-30%

DalalBaazaar Score

52/ 100

Moderate

Weighted across six categories. Every point is explained below.

• Revenue CAGR of 11.0% is steady
✗ Profit has declined at 1.7% a year
✗ Profit is compounding slower than revenue — margins are being squeezed as the business grows
✗ Latest-year revenue growth of -5.6% is below the longer-term trend — momentum is fading
✗ Profit fell 68.7% in the latest year

Quality vs. Valuation

Company Quality

51/ 100

Average

How good the business is, ignoring the share price entirely.

Valuation

49/ 100

Fair

What you are being asked to pay, ignoring how good the business is.

A reasonable business at a reasonable price — neither the quality nor the valuation stands out in either direction.

Historical Valuation

Current P/E

31.0x

3Y Median

19.8x

40 monthly readings · mean 20.2x · range 16.7x–24.9x

Sector Median

34.9x

median of 3 sector peers

⚠️Current valuation is approximately 57% above its 3y median of 19.8x. Paying more than usual needs a reason — faster growth, a better balance sheet, or a re-rating you believe in.

🟡Against its sector it is priced broadly in line with the peer median of 34.9x.

vs. its own history

Expensive

19.8x median over 40 months · +57%

vs. sector peers

Fair

34.9x median of 3 peers · -11%

vs. generic bands

Fair

15x–35x

P/E (Trailing)

31.0x

P/B

2.68x

EV/EBITDA

14.6x

PEG

—

Dividend Yield

0.65%

What's Good / What's Bad

🟢 What's Going Well2

Very low debt
Debt/Equity of 0.19x leaves the balance sheet with plenty of headroom.
Consistently profitable
Profitable in every one of the last 4 reported years.

🔴 What Needs Attention5

Margins are compressing
EBITDA margin has slipped from 29.8% to 22.2% over 3 years.
Debt is rising
Total debt is up 474% over 3 years — worth checking what it funded.
Return on equity is falling
ROE has dropped from 19.5% to 11.4% — each rupee of shareholder capital earns less than it did.
Return on capital is falling
ROCE has declined from 26.2% to 14.2% — often a sign of competition or overexpansion.
Valuation above its historical average
At 31.0x the stock trades 57% above its own median of 19.8x.

Red Flags

2 items require attention · 2 high

🔴Debt has risen sharplyFinancial
Total debt is up 474% over 3 years, from ₹1,347 Cr to ₹7,734 Cr.
🔴Significant margin compressionFinancial
EBITDA margin has fallen 7.6 points, from 29.8% to 22.2%.

Investment Thesis

🟢 Bull CaseWhat could make this work?

Self-funding with balance-sheet headroom
Positive free cash flow of ₹1,833 Cr alongside low debt means growth, buybacks or dividends need no outside money — and a downturn can be absorbed rather than refinanced.
Earnings have proved durable
Profitable in every one of the last 4 reported years. Consistency lowers the risk that any single bad year is structural rather than cyclical.

🔴 Bear CaseWhat could go wrong?

Margins are being competed away
EBITDA margin has fallen from 29.8% to 22.2%. If the trend continues, profit falls even on flat sales — and margin decline rarely reverses quickly.
The price already assumes success
The stock trades 57% above its own median multiple. At this level the business has to deliver just to stand still, and a stumble is repriced twice — lower earnings on a lower multiple.
Returns on shareholder capital are falling
ROE has dropped from 19.5% to 11.4%. Each rupee of equity earns less than it did, so profit growth increasingly depends on raising more capital rather than on the existing base working harder.
Several serious flags at once
2 high-severity checks triggered. Individually each has an explanation; together they raise the chance that something structural is wrong rather than a one-off.

🟡 Key Things to WatchMeasurable tripwires, set against where this company stands today

1Revenue growth stays above 8% a year✓ 11.0% CAGR
Latest reported year was -5.6%. The bar is set below the established compounding rate, so ordinary variation does not trip it.
2EBITDA margin holds above 20%✓ 22.2%
Two points below today's level — enough room for noise, tight enough to catch real compression.
3Free cash flow remains positive✓ ₹1,833 Cr
Profit that never becomes cash eventually stops being profit.
4Debt / EBITDA stays below 2x✓ 1.0x
The ratio lenders write covenants against; it survives a small or negative equity base, unlike Debt/Equity.
5ROCE stays above 11%✓ 14.2%
Falling returns on capital are usually competition arriving, and show up here before they reach the margin.

Investment Checklist

6 / 12 checks passed

✗ Strong return on equity (ROE ≥ 15%)
✗ Strong return on capital employed (ROCE ≥ 15%)
✗ Healthy net margin (≥ 10%)
✗ Generates positive free cash flow
✓ Manageable leverage (Debt/Equity < 1.0)
✓ Adequate short-term liquidity (Current Ratio ≥ 1.0)
✗ Revenue growing year-over-year
✗ Profit growing year-over-year
✓ Not trading at an extreme valuation (P/E < 40x)
✓ Not buying right at the 52-week high
✓ Analyst consensus isn't majority-sell
✓ Short-term technical trend isn't bearish

Price history

Quick Metrics

3 good · 5 neutral · 3 weak

Market Cap

₹1.03 L Cr

Large Cap

Large, widely-covered business — typically the steadiest of the bands

P/E (Trailing)

31.0x

Fair

Fairly valued against the generic band

P/B Ratio

2.68x

Fair

Moderate premium to the company's book value

EPS (TTM)

₹39.74

Profitable

Profitable on a per-share basis

ROE

8.8%

Moderate

Moderate capital efficiency

ROCE

14.2%

Moderate

Moderate return on the capital in the business

Debt/Equity

0.19x

Low

Conservative leverage

Revenue Growth (YoY)

-5.6%

Shrinking

Sales are contracting

Profit Growth (YoY)

-68.7%

Falling

Profits are shrinking

Dividend Yield

0.65%

Modest

Small cash return — most of the return has to come from the price

Free Cash Flow

-₹391 Cr

Cash burning

Spending more cash than the operations bring in

More Metrics

CMP

₹1,233

P/E (Forward)

21.0x

Improving

Below the trailing multiple — the street expects earnings to grow into the price

ROA

4.0%

Average

Average asset productivity

Operating Margin

4.3%

Weak

Thin margins leave little room for error

Net Margin

10.0%

Average

Average bottom-line conversion

Current Ratio

1.90

Comfortable

Healthy short-term liquidity

Beta (vs Nifty)

0.25

Defensive

Steadier than the market

52W Range Position

42%

Mid-range

Technical Snapshot

SMA 20 / SMA 50

1212.4 / 1187.5

Bullish alignment (short > long)

Price vs SMA 200

Below

Long-term downtrend

RSI (14)

56.8

Neutral momentum

Financial Trend (4-Year)

Metric	FY23	FY24	FY25	FY26	3Y CAGR
Revenue	₹24,588 Cr	₹27,916 Cr	₹32,554 Cr	₹33,593 Cr	+11.0%
EBITDA	₹7,324 Cr	₹8,257 Cr	₹9,197 Cr	₹7,459 Cr	+0.6%
EBITDA Margin	29.8%	29.6%	28.3%	22.2%	—
PAT (Net Profit)	₹4,507 Cr	₹5,568 Cr	₹5,654 Cr	₹4,285 Cr	-1.7%
EPS	₹54.17	₹66.92	₹67.78	₹51.42	-1.7%
ROE	19.5%	19.8%	17.0%	11.4%	—
ROCE	26.2%	25.2%	22.0%	14.2%	—
Total Debt	₹1,347 Cr	₹2,002 Cr	₹4,677 Cr	₹7,734 Cr	+79.1%
Free Cash Flow	₹4,001 Cr	₹1,800 Cr	₹1,203 Cr	₹1,833 Cr	-22.9%

🟢 Revenue has grown at 11.0% a year over 3 years.

🟡 EBITDA has been broadly flat over 3 years (0.6% a year).

🔴 EBITDA Margin has fallen from 29.8% to 22.2% over 3 years (-7.6 pts).

🟡 PAT (Net Profit) has been broadly flat over 3 years (-1.7% a year).

🟡 EPS has been broadly flat over 3 years (-1.7% a year).

🔴 ROE has fallen from 19.5% to 11.4% over 3 years (-8.1 pts).

🔴 ROCE has fallen from 26.2% to 14.2% over 3 years (-12.0 pts).

🔴 Total Debt has grown at 79.1% a year over 3 years.

🔴 Free Cash Flow has shrunk at 22.9% a year over 3 years.

Balance Sheet & Cash Flow — FY2026

Total Assets

₹57,935 Cr

Total Liabilities

₹19,889 Cr

Total Debt

₹7,734 Cr

Cash & Equivalents

₹1,537 Cr

Operating Cash Flow

₹5,676 Cr

Capex

-₹3,843 Cr

Shareholding (proxy)

Institutional Holding

53.8%

Insider Holding

30.1%

Corporate Actions

Next Earnings

23 Oct 2026

Dividend Rate

₹8

Ex-Dividend Date

10 Jul 2026

Analyst Consensus

Recommendations

18 Buy · 7 Hold · 12 Sell

Target Price (Mean)

₹1,283.65

+4.1% vs CMP

Target Range

₹1,039 – ₹1,740

Peer Comparison

Company	P/E	ROE
SUN PHARMACEUTICAL IND L	34.9x	14.5%
CIPLA LTD	31.8x	9.8%
DIVI S LABORATORIES LTD	83.0x	17.5%

Recent News

2 mixed4 general

DRREDDY Share Price News: Intraday Move and Fundamentals

Univest, 13 Oct

Top 3 stocks to buy: Bajaj Finance, Dr Reddy's Lab, Grasim Industries by Sumeet Bagadia | Target price, stop-loss

Livemint, 16 OctAnalyst view

🟡Mixed / dependsBroker commentary — an opinion about the price rather than new information about the business.

Dr Reddy's Laboratories stock in focus as USFDA completes pre-approval inspection at FTO-9 plant

Business Today, 15 Oct

Dr Reddy's Labs shares tank 9% to 52-week low after Q1 show. Time to sell?

Business Standard, 23 JulResults

🟡Mixed / dependsA results event. The figures on this page update once the new statements reach the data feed, which usually lags the announcement.

Stocks to Watch Today: IDBI Bank, Dr Reddys Labs, RIL, Enviro Infra, Om Power Transmission, Bajaj...

Moneycontrol.com, 15 Oct

Dr. Reddy's Laboratories (NYSE:RDY) Shares Cross Above Two Hundred Day Moving Average - Time to Sell?

MarketBeat, 15 Oct

Watch Items

Revenue growth is negative (-5.6%) on the latest reported period — check if this is one-off or a trend.
Cross-check against the company's latest quarterly filing / investor presentation before acting.

DalalBaazaar Thesis

🟡Business QualityAdequate11.8/20

🟢Financial HealthStrong13/20

🔴GrowthWeak7.7/20

🔴ProfitabilityWeak5.8/15

🔴ValuationDemanding6.1/15

🟢RiskLow7.1/10

Unremarkable in both directions

A reasonable business at a reasonable price. Nothing here is alarming and nothing is compelling, which usually means the decision rests on things this data cannot see — the industry's direction, management's intent, and what else is available to you. 2 high-severity red flags sit above this conclusion and should be read first.

This thesis breaks if

✓Revenue growth stays above 8% a year11.0% CAGR
✓EBITDA margin holds above 20%22.2%
✓Free cash flow remains positive₹1,833 Cr
✓Debt / EBITDA stays below 2x1.0x
✓ROCE stays above 11%14.2%