Today, I shall be looking at Dr Reddy’s Laboratories as I believe in the coming future there shall be an opportunity to go either long or short on the equity and that move shall be very profitable. Moreover, if you would like everyday market tips then do get in touch with us directly so that we can guide you and enhance your trading experience.
Dr Reddy’s is India’s fifth largest drug maker by sales. The firm currently has over 200 generic medicines across 80 nations. The sales from the generic medicines contribute approximately 82% of its total revenue, whilst, the remaining 18% of its revenue is contributed by the firms Pharmaceuticals and Active Ingredients segment. When analysing this stock I saw a clear discrepancy between the firm’s fundamentals and the technical price action seen in the chart. Thus, to highlight this we shall look at the fundamental facets after which we shall look at the technical aspects of the stock.
On the fundamental front, the firm’s earnings for the first quarter of 2019 were positive as the reported profit after tax stood at Rs 476 crore which was an increase of 75% from the prior quarter. Moreover, the revenue of the firm rose by 12% to Rs 3,721 crore. The revenue from the generic medicine segment from North America rose by 7% on a sequential basis. Moreover, the Indian business revenue rose by 30% to Rs 607 crore.
The firms future profit levels look positive as the firm has numerous growth drivers. The first growth driver is that the firm has a healthy pipeline of about 20 new products that are ready for launch. Moreover, in the product launch list we have two big ticket items, which are Nuvaring and Copaxone. The second growth driver is that the firm is having a robust growth trajectory in Russia plus it has commenced its entry into Africa and Latin America which shall provide the firm with a considerable boost in revenue. The third growth driver is that the firm shall benefit from the depreciating rupee as 47% of the firm’s revenue comes from sales in America. Moreover, the firm’s EPS growth estimates have been revised upwards on all platforms. The EPS is expected to grow by 36% in the financial year 2019 and 37% in the financial year 2020.
On the technical front, the equity’s price has been kicked six ways to Sunday by the market bears. I say that as last year in August the stock tumbled from a high of Rs 2,800 to a low of Rs 1,900 and that too in only one month. This left a lot of traders severely ‘out of the money’. After that we have seen the stock make many attempts to rise again, but, every time the stock ascends it hits the lower resistance line the former falling window and comes back in sharp descent. Moreover, we saw the stock now manage to break above this resistance level. However, the stock was put back into its place as it hit another key resistance level at Rs 2,646 which resulted in a bearish reversal occurring.
Overall, the stocks fundamentals and technicals have a severe mismatch as the fundamentals indicate that the price should be rising but the technicals are forcing the price down constantly. Moreover, I am sure there is going to be an excellent opportunity in the coming weeks for traders to go long or short on the stock, which shall leave them with one hell of a packet in profit terms. Lastly, if you would like market tips of what to trade now then do contact us at Go Paisa Junction. Do watch the YouTube video so as to attain a better understanding of Dr Reddy’s Laboratories.
Good luck trading.
Sandeep Singh Ahluwalia
MCSI (UK), MSc Fin (UK), MCom (India), BSc Econ (UK)
Add a Comment
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.