INDUSTRY & GENERIC

STRATEGY ANALYSIS

Companies Chosen:
Business Analysis & Valuation

ECON F355 : BUSINESS ANALYSIS & VALUATION

COMPANY 1: CIPLA LIMITED

COMPANY 2: DR REDDY’S LABORATORIES LIMITED

NAME ID NO.
SAMEER BETHANABHOTLA 2019A4PS0797H
RAHUL KUMAR LATH 2019A4PS0966H
BALABHADRA KRISHNA 2019A4PS1500H
CHAITANYA
VEDAANG RAPARTHI 2019A8PS1259H
S NITIN 2019A4PS0977H

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ACKNOWLEDGEMENT
We would like to thank Prof. Niranjan Swain for providing us an opportunity to work on this
project, which helped us in applying our knowledge of the course in real life . We like to express
our sincere deep gratitude for his timely guidance throughout the course of this project, which
was detrimental to the completion of this project. We shall remain indebted to him for his help
and guidance throughout the course and this assignment. We are also thankful to the Economics
Department, BITS Pilani Hyderabad Campus, for creating such provisions for students to
participate in innovative, useful projects, while also giving a handson experience in applying our
knowledge to real-world data. This project has certainly developed our skills and has given us
the necessary tools to excel further in this field.

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ABSTRACT
This report analyses the pharmaceutical industry in India through in-depth industry analysis,
applying Michael Porter's 5 Forces framework. It then delves deep into the specifics by critically
scrutinizing Cipla and Dr. Reddy's and the strategies they employ to stay competitive in this
industry. Porter's Generic Strategy system is used for this review.
The report explores the Indian pharmaceutical industry from multiple dimensions to gain an
overall image of the field. We look at the major business segments of the industry: APIs,
formulations, contract research and manufacturing services. We also observe the uptrend of R&D
investment and exports across various big pharma firms in India. Then, we investigate the
composition of the pharma market and how the government regulates it. On the one hand, the
report explores the risks present in the industry, and on the other, the factors that could drive
future growth.
The potential of a firm to generate abnormal profits are determined by the five forces. The
rivalry in the pharma industry is due to lucrative growth rates and low barriers to entry. This
lucrative industry attracts a multitude of new entrants, but they're quickly forced to face industry
giants on multiple fronts. Many new firms stand to gain by making similar products. The unique
structure of this industry, moderates both the buyers’ and suppliers’ bargaining power.
There are two main types of generic strategy used by multinational firms like Cipla and Dr.
Reddy's to gain a competitive edge over other firms. These two strategies are low cost and
differentiation.
They achieve cost leadership by lowering production costs, maximizing supply chain
management, understanding regulations and legislation and improving demand forecasting
centres. They also differentiate themselves from competitors by investing heavily in marketing
and advertising, emphasizing on them being the oldest brands to create trust and awareness, and
placing a premium on the cost and accessibility of its products, resulting in significant brand
awareness and sales growth.

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TABLE OF CONTENTS
Particulars Pg.NO
1. Introduction to Pharmaceutical Industry 6

2. Pharmaceutical Industry Overview 6

2.1 Business Segments of Pharmaceutical industry in India 6
2.1.1 APIs (Active Pharmaceutical Ingredients) 6
2.1.2 Formulations 7
2.1.3 Contract Research and Manufacturing Services (CRAMS) 7
2.2 R&D Investment Trends in India 8
2.3 Exports from India 9
2.4 Composition of Indian pharmaceuticals market 10
2.5 Government Incentives & Policies in India with Respect to Pharmaceuticals 11
2.6 Growth drivers 12
2.7 Risk For Pharmaceutical Industry in India 13

3. Micheal Porter’s Five Forces Analysis 14

3.1 Introduction 14
3.2 Force 1: Rivalry Among Existing Firms 14
3.3 Force 2: Threat of New Entrants 16
3.4 Force 3: Threat of Substitute Products 17
3.5 Force 4: Bargaining Power of Buyers 18
3.6 Force 5: Bargaining power of suppliers 18
3.7 Conclusion on Porter’s Analysis 19

4. Generic Corporate Strategy Analysis on CIPLA and Dr Reddy’s Laboratories 20

4.1 Introduction 20
4.2. Overview of Cipla 21
4.3 Generic Strategy of Cipla 22
4.3.1 Cost leadership 23
4.3.2 Differentiation 24
4.3.3 Focus Strategy 25
4.3.4 Riskiness 25
4.4 Overview of Dr REDDY’S LABORATORIES LIMITED 26
4.5 Generic Strategy of Dr.Reddy’s Laboratories Ltd 26

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4.5.1 Cost leadership 27

4.5.2 Differentiation 28
4.5.3 Focus strategy 30
4.5.4 Riskiness 30

5. References 31

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1. Introduction to Pharmaceutical Industry

Our country is one of the biggest players in the global pharmaceutical and healthcare industries.It
is often referred as Pharma Capital of the World .The Indian pharmaceutical sector is now
valued at $41.7 billion and is expected to grow to $130 billion by 2030. In terms of volume
output, India ranks third in the world, and fourteenth in terms of value production. The majority
of pharmaceutical manufacture in India in 2021 will be generic pharmaceuticals, which are less
expensive than patented drugs. It also meets more than half of the world's demand for various
vaccines.

2. Pharmaceutical Industry Overview

2.1 Business Segments of Pharmaceutical industry in India

2.1.1 APIs (Active Pharmaceutical Ingredients)

Also known as bulk pharmaceuticals, APIs are the building blocks for the finished medicine that
we take. These are the chemicals that have therapeutic properties. For example, paracetamol, an
API contained in Dolo 650, is responsible for pain relief. By FY22, domestic API consumption is

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estimated to total US$ 18.8 billion. More than 60% of India's APIs are now imported from
foreign nations. Divis Laboratories and Laurus Labs are two of India's biggest API
manufacturers.

2.1.2 Formulations

As APIs are responsible for medical actions, however they cannot be taken directly due to a
variety of factors such as PH stability and odour. As a result, these API are combined with other
consumable substances known as excipients to create a medication that may be taken. With a 14
percent market share and a 13th-place ranking in terms of export value, India is one of the top
exporters of formulations in terms of volume. Cipla and Dr. Reddy's Laboratories are two of the
leading corporations in this sector.

2.1.3 Contract Research and Manufacturing Services (CRAMS)

To bring down the cost and achieve economies of scale, many pharmaceutical companies aim to
outsource their manufacturing to other companies. Companies can focus more on their primary
strategy, which is research and drug formulations, by outsourcing. CRAMS industries in India
grew at a 48 percent compound annual growth rate (CAGR) from FY15 to FY18, and are
predicted to increase at a rate of around 25% from 2018 to 2021. Companies such as Divi's Labs,
Jubilant Life Sciences.

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2.2 R&D Investment Trends in India

By investing in R&D for drug development, drug repurposing, process innovations, and digital
production, the Indian pharmaceutical industry is now attempting to advance up the global
pharmaceutical value chain. R&D investments by pharma companies have significantly been in
an upward trend from the past few years.

Lupin spent the most money on research and development in FY20, followed by Dr. Reddy's.

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2.3 Exports from India

Indian pharmaceuticals are exported to over 200 nations around the world, with the United States
being the most important market. India is the world's largest supplier of generic medications,
accounting for 20% of worldwide generic drug exports (in terms of volumes).
Pharmaceutical exports, which brought in almost $ 17 billion in fiscal year 2017, grew at a
CAGR of around 10% to $ 24 billion in fiscal year 21.Exports grew by 18 percent in fiscal year
21 due to increasing demand for pharmaceuticals related to Covid19.

Indian pharmaceuticals, including API’s, intermediates, drug formulations, biologicals, AYUSH

and herbal items, and surgical products, medical devices are exported.

North America accounted for 32.1 percent of India's pharma exports in FY20, followed by
Africa (17.96 percent) and the European Union (15.70%).

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2.4 Composition of Indian pharmaceuticals market

The pharmaceutical market can be broadly classified into two areas based on the therapeutic
effects:

Acute treatment is a part that deals with disorders that last for a brief period of time,
encompassing medicines such as pain relievers, analgesics, and antibiotics.

Chronic treatment is a sub-segment that deals with long-term treatments such as cancer, diabetes,
and so on.

In most circumstances, chronic illnesses necessitate the patient's continued use of medications
for the rest of his or her life. As a result, the chronic segment is predicted to develop substantially
faster than the acute segment in the future. Currently, more than 60% of the Indian
pharmaceutical market is acute, with the remainder chronic.

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The largest segment of the Indian pharmaceutical business is generic pharmaceuticals, which
account for more than 70% of market sales.
Over-the-counter (OTC) medications account for 21%, while patented drugs account for roughly
9%. Because of the competency in generic medications, the share of generic drugs is likely to
continue increasing, and expansion in this sector offers a huge opportunity for Indian enterprises.
Anti-Infectives (13.6 percent), Cardiac (12.4 percent), and Gastro Intestinals (11.5 percent) had
the most market share in the Indian pharma market in 2018.

2.5 Government Incentives & Policies in India with Respect to

Pharmaceuticals

The Government's Department of Pharmaceuticals introduced Pharma Vision 2020 that seeks to
make India a significant hub for drug development and innovation in end-to-end drug
manufacturing.
The government launched a Rs. 15,000 crore production-linked incentive (PLI) scheme for the
pharmaceutical industry in September 2020.

The Government of India launched a pharmaceutical policy in 2017 with the goal of making vital
medicines more cheap to the general public, hence lowering the average cost of health expenses
in India.

The government is also enticing commercial firms to establish manufacturing units in India by
establishing pharmaceutical parks. For example, in October 2019, the government announced a $
489 million investment in a pharmaceutical park in Hyderabad.

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2.6 Growth drivers

Over the next ten years, approximately 120 medications are predicted to go off-patent, with
global income ranging from US$ 80 to $250 billion. The increase in the cases of lifestyle
diseases in India may improve the sale of medications in this category.

Pharma corporations have boosted their investments in rural markets and development of better
medical infrastructure. The hospital market is predicted to grow by US$ 200 billion by 2024.
Increased patient influx from foreign countries has resulted in a surge in medical tourism.
Increased adoption of non-life insurance, especially health insurance, will promote the expansion
of India's healthcare and pharmaceutical markets.

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2.7 Risk For Pharmaceutical Industry in India

Until recently, China was one of the top countries in the production and sale of APIs to the rest
of the globe. However, with the outbreak of COVID-19 and its origin being linked to China, API
supply has suffered. This could have an impact on the pricing and availability of drugs in nations
where Beijing sells essential ingredients.
India's enormous growth in pharmaceuticals has resulted in a much larger problem of inferior or
outright counterfeit drugs. According to a recent WHO estimate, 20 % of pharmaceuticals
marketed in India are counterfeit, while India provides 35% of the counterfeit drugs flooding the
global market. This has had a very large detrimental impact on India's international reputation as
a pharmaceutical investment market.
India is a little behind the curve when it comes to creating new drugs. In addition, Indian pharma
firms face severe competition from corporations in China, Japan, and Israel, as well as negative
lobbying from ‘Big Pharma' groups, which accuse Indian enterprises of breaking patent
restrictions on a regular basis.

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3. Micheal Porter’s Five Forces Analysis

3.1 Introduction

Industry Analysis is a crucial business analysis tool to understand the position of an organization
in its chosen industry. Micheal E Porter of Harvard Business School developed a framework that
consists of five forces that determine the average profitability of an industry. The potential of a
firm to generate abnormal profits from the opportunities present is determined by this
framework.

The five forces are Rivalry among existing firms, Threat of new entrants, Threat of substitute
products, Bargaining power of suppliers, and Bargaining power of consumers. By analysing
these five forces, the firms can shape their strategy to enhance their profitability and stay ahead
of the competition from other firms in the industry. This framework also helps us to access the
attractiveness of a particular industry and helps us to find investment opportunities.

3.2 Force 1: Rivalry Among Existing Firms

In most industries, the kind of rivalry among existing enterprises in the industry has the greatest
influence on the average level of profitability. Firms compete vigorously in some industries,
driving prices close to the marginal cost. Firms in other industries do not compete on price as
intensely. Instead, they figure out how to coordinate their prices or compete on non-price aspects
like innovation,brand image.Some factors that determine the intensity of competition between
existing players in an industry are Industry growth rate,concentration and balance of
competitors,exit barriers,degree of differentiation and switching costs,etc.

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Heavy competition exist in the pharma industry. With more than 3000 companies and 11,000
manufacturing units spread across the country. Since 2005, the market has more than doubled,
and the domestic market is expected to grow threefold over the next decade. The whole pharma
sector is currently valued at $41.7 billion and will reach $130 billion by 2030. India places at
number 3 in the world in terms of volume output and 14th in terms of value production.India's
domestic pharmaceutical business rose at a CAGR of over 4.5 percent in fiscal year 21, hitting $
21 billion from around $ 18 billion in fiscal year 2017. The industry's high growth potential and
statistics make it attractive to new players.

The industry's competitiveness may be seen in the fact that the top four players in the country
have only around 20% of the market, while the top ten players collectively hold about 39%. As a
result, this industry's concentration ratio is relatively low. One important thing to keep in
memory is that the pharmaceutical industry is a steady market, and its growth rate generally
mirrors the country's economic growth by a factor of many (1.2 times average in India). Despite
the fact that volume growth has been stable over time, value growth has not kept its pace.

Another key element contributing to the business rivalry is the low entry barriers to the
pharmaceutical industry. The necessity for fixed costs is low, while the requirement for working
capital is significant.

Product differentiation is a critical component that gives businesses in any industry a competitive
advantage. However, product differentiation is impossible in the pharmaceutical industry since
India has long relied on process patents, with policies that favour imitation. As a result, cost
competitiveness, but not product differentiation, is the driving force. India continues to hold a
commanding position in the generic drugs business, with 71 % of the market share.

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3.3 Force 2: Threat of New Entrants

Attractive and Lucrative industry and the chance to capture a share in the abnormal profits of the
industry invites new firms to enter the market and increase the competition in it. This is a crucial
driver for the profitability of any industry.

Many startups emerge in the Pharmaceuticals industry as there are big payoffs available and it is
relatively easy to get funding from investors or private equity firms. Mostly the goal of the small
startups in this space is to sell out to large players in the market. This makes the Pharmaceuticals
industry attractive to new firms to enter the market. But the catch in this industry is that it has a
high gestation period which leads to difficult survival and also the strict rules and regulations set
by the government.

Companies such as Cipla, Abbott India Ltd, Sun Pharmaceuticals Ltd, Dr Reddy’s Laboratory
which were established in the 20th Century have the Early Mover Advantage and can restrict the
entry of new firms into the industry. It will be extremely difficult for the new firms to create
brand awareness among the doctors and also the consumers and involve huge marketing costs.
This is due to the already existing big players which have established their brand and have high
awareness.

National Pharmaceutical Pricing Authority (NPPA) is the body which is the price regulator in
India. A challenge to the industry is poised due to the irregular, unpredictable and arbitrary price
regulations that are set. For example, when price regulations were placed on the cardiac stents,
which made them financially unviable.

Other than high R&D costs and intellectual property obstacles, to produce and sell any drug or
food components in any of the countries the firms need to take the permission of the food and
drug regulatory department of that country. The regulatory approval process in many countries
including the US is very challenging. Obtaining all needed regulatory approvals before
advertising or selling a new drug is a long and expensive process. And with a new company

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name or brand which hasn’t been selling before it’s very difficult to gain trust with the
departments. Other than these there are patents which don't allow new companies to enter the
market without any completely new pharmaceutical drug.

3.4 Force 3: Threat of Substitute Products

Substitute products are defined as the products that have the same form as the existing products
and perform the same function. This aspect of the analysis is highly dependent on the prices and
performance of the products as they determine the willingness of a consumer to switch to other
products.

The demand will always be there in the Pharmaceutical industry and it never dries out. Due to
this factor, there will always be an advantage for the new players to enter as well as a threat from
the generic products which will be relatively cheap. Generic manufacturers have so much control
over the price of the product which gives them command in the industry.

The drug can earn abnormal profit only when it is in its patent period. Once the patent expires,
generic manufacturers come up with the same drug at lower costs since they directly copy the
formula and they don’t spend heavily on research and development on that particular drug.
Additionally, there are some alternatives to medicines and drugs which include Yoga, Mediation,
Herbal Treatment and Homeopathic Treatment.

Doctors and Physicians play a key role in the branded market or the biosimilars because the
doctors directly interact with the consumers, and they will have a significant influence on their
choice. Hence, sales and marketing should play a key role in increasing brand awareness in this
sector of the Pharmaceutical Industry.

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3.5 Force 4: Bargaining Power of Buyers

When we look at the bargaining power of buyers, basically, we look at the influence they have
on the prices of the product. Buyers' bargaining power is controlled by price sensitivity and
relative bargaining power. Price sensitivity indicates how much buyers care about haggling on
price; relative bargaining strength determines how much they will succeed in driving the price
down.

The pharma industry is unique in this scenario, the product's final consumer and the influencer,
(i.e. doctors.)are two separate people. The consumer is forced to buy what the doctor
recommends. Hospitals and healthcare organisations purchase in bulk and put pressure on
pharmaceutical makers to keep prices down.Generic drugs provide cost-effective alternatives for
innovators as well as significant savings for customers.

Because customers in the pharmaceutical sector are dispersed, there is less buyer concentration
compared to the rest of the industry, and they have little impact on product pricing. Switching
expenses are minimal for them.Therefore ,the bargaining power of Buyers in the pharma industry
is medium. However, through the NPPA, the government plays a significant role in pricing
regulations (National Pharmaceutical Pricing Authority).

3.6 Force 5: Bargaining power of suppliers

This analysis determines the extent up to which the suppliers can pressurise the firms in a
particular industry. This is almost similar to that of the power of buyers. The power of suppliers
determines the profit potential of the firm because it is directly linked to the input costs to the
firm.

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In the Pharmaceutical industry, the suppliers relatively have medium bargaining power since the
raw materials are obtained from the chemical industry and that industry is particularly huge and
there are a greater number of firms in the industry. Hence the switching costs are relatively low.
But the suppliers can always go for the forward integration which poses a threat to the other
suppliers.

3.7 Conclusion on Porter’s Analysis

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4. Generic Corporate Strategy Analysis on CIPLA and Dr Reddy’s

Laboratories

4.1 Introduction

To determine if a company's profitability is above or below the industry average we can look at
the relative position within the industry. In the long run, sustained competitive advantage
provides the foundation for above-average profitability.

A firm can seek one of two forms of competitive advantage: lower expenses than its competitors
or distinguishing itself along customer-valued characteristics in order to charge a higher price.

These methods referred to above are regarded as "generic strategies" since they may be used for
products or services in any industry and by any size business. Michael Porter originally laid them
out in his book: "Competitive Advantage: Creating and Sustaining Superior Performance“ in
1985. The generic techniques were dubbed "Cost Leadership" (no frills) and "Differentiation" by
Porter (creating uniquely desirable products and services).

Porter's generic strategies outline how a business seeks to get a competitive edge in its chosen
market. Empirical research on the financial impact of marketing strategy found that businesses
with high market share succeeded because they followed a cost leadership strategy, whereas
firms with low market share succeeded because they focused on a tiny but profitable market
niche.. The firms with a modest market share were the least lucrative. This was once known as
the "hole in the centre" problem.

Another point that emerges is that companies cannot achieve a long-term competitive advantage
by adopting a single strategy. A consistent, durable competitive advantage may be achieved by
combining distinction from competitors via distinctive product design with cost leadership
through efficient manufacturing processes.

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4.2. Overview of Cipla

Cipla Limited, based in Mumbai, India, is an Indian multinational pharmaceutical business.Cipla

principally develops medications to treat respiratory, cardiovascular disease, arthritis, diabetes,
weight control and depression; other medical problems.

It has a presence in 80+ countries delivering over 1,500 medicines across several therapeutic
areas. Cipla sells active pharmaceutical ingredients to other manufacturers as well as
pharmaceutical and personal care products. They are the largest producer of antiretroviral
medicines in the world.

In July 2020, the business obtained permission for "limited emergency use" of Remdesivir in
COVID-19 treatment of critical confirmed patients.

Khwaja Abdul Hamied established 'The Chemical, Industrial & Pharmaceutical Laboratories' in
Mumbai in 1935. On July 20, 1984, the company's name was changed to 'Cipla Limited.'

The firm offered generic AIDS and other medications to impoverished people in the developing
world, led by the founder's son Yusuf Hamied, a Cambridge-educated chemist.

Cipla has a majority promoter shareholding of 36.72%, an FII shareholding of 24.82%, a DII
shareholding of 16.26% and a public shareholding of 22.2%.

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Cipla’s one year stock price movement

Incomes in Billion Vs Financial Year

4.3 Generic Strategy of Cipla

There are two main types of strategy used by multinational firms like Cipla to gain a competitive
advantage over other firms. These two strategies are low cost and differentiation. When these
strategies are combined with the targeted audience of a firm, lead to three types of generic
competitive approaches- cost leadership, differentiation, and focus.

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4.3.1 Cost leadership

Cost leadership is the clearest and most prominent way used by firms to achieve a competitive
edge. This can be achieved by lowering cost, making the production system efficient, using a
simple design, and many other manners. Cipla achieves cost leadership by lowering production
costs and maximizing supply chain management. In addition to this, Cipla also offers discounts
and coupons to achieve the required sales for low-cost production. Cipla tries to provide
advanced medicines produced all over the globe in different factories to everyone at a very low
cost. Cipla focuses on the easy availability of its products all around the world, which helps it
gain high brand awareness and high sales, which is very important for a cost leadership
advantage.

How can Cipla lower its cost?

Cipla’s model entails the reverse engineering of new processes for the mass production of
high-quality drugs at low cost. Cipla simply reverse-engineered the process. As a result, Cipla
had a low-cost business model. Cipla also enjoys relatively cheap labor and high skilled
manpower in India. The low-cost model is
therefore enabled because Cipla need not
invest much in R & D and testing of these
drugs.

Cipla keeps its supply chain management at

maximum efficiency. Cipla has more than 34
manufacturing units in 8 different locations
across India and its presence in over 170 countries. It keeps its manufacturing process
standardized and has a very improved demand forecasting center. This helps in encouraging
consumption and achieving sales targets by emphasizing over product’s affordability and
accessibility.

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4.3.2 Differentiation

This is one of the other commonly used strategies

by a company to build a proficient edge over its
competitors. Cipla uses a little bit of differentiation
strategy along with cost leadership to achieve its
objective of maximizing its shareholder’s wealth. It
has been able to outperform major pharmaceutical
companies during the Covid-19 Outbreak
generating maximum returns during the time.

Differentiation helps Cipla expand its

customer base by emphasizing its unique
product features. Cipla invests around 5% of
its wealth into Research and Development to
get uniqueness in their product. It uses
innovation to address its customers' growing
health concerns. This combination of
differentiation and cost leadership has
helped Cipla to build a strong, loyal customer base and also helps in grabbing new demands.
Being an old brand, it uses its experience to reduce the competition pressure. Cipla heavily
invests in marketing and advertising to differentiate it from other brands. The distinct brand logo
has also helped in establishing a strong and flashy brand image in customer’s minds. Moreover,
the company uses a variety of flavors to match different tastes of consumers to delight the
customers and increase their preference of Cipla products over other brands. The quality of
products at Cipla is unmatched by any other pharma company.

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4.3.3 Focus Strategy

Focus is the third generic strategy which focuses on channeling all company resources, that is,
marketing efforts towards one small, well-defined part of the population. When a company uses
this kind of approach, it tries to build a sustainable competitive edge on that part of the customer
base. It tries to serve the needs of niche market segments by bringing medicines to them at the
lowest price possible and focusing on the taste, design, and size of its products in a way best
preferred by its customers. Cipla makes continuous changes in its design and packaging to best
meet the expectations of its customers.

4.3.4 Riskiness
Cipla exists in an ultra-competitive sector dominated by domestic and international giants. Their
market presence poses intense competition to this firm.
Its high exposure in the global markets requires it to be on the constant lookout for forex risk.
Fluctuations in the currency exchange rates can have a significant impact on the company’s
financials.
Cipla was challenged by the AHF over the steep prices of its drug for AIDS, which was out of
reach of many in need—being called out publicly like this brought negative publicity for Cipla
and shifted public opinion against it.
India, being a developing country, is highly price sensitive. High prices make their products, and
this takes a toll on Cipla’s top line

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4.4 Overview of Dr REDDY’S LABORATORIES LIMITED

Dr. Reddy's Laboratories is a global pharmaceutical company which has headquarters in

Hyderabad, Telangana. It produces and sells a wide range of medicines both in India and abroad.
It produces over 190 medicines, 60 active pharmaceutical ingredients (APIs) for drug
manufacturing, diagnostic kits, critical care, and biotechnology goods.

In September 2020, the firm announced a partnership with the Russian Direct Investment Fund
to perform phase 3 studies and produce and distribute up to 100 million doses of the Sputnik V
COVID-19 vaccine in India. After phase 3 studies, the vaccine was licenced for emergency use
in April 2021.

Dr. Reddy's began manufacturing active medicinal components in 1984, founded by Dr. Anji
Reddy. Reddy's began the process of transitioning from a supplier of medicinal chemicals to a
maker of pharmaceutical goods.

Dr. Reddy’s has a majority FII shareholding of 29.04%, an public shareholding of 28.17%, a
promoter shareholding of 26.73%, a DII shareholding of 15.73% and other’s shareholding of
0.33%.

4.5 Generic Strategy of Dr.Reddy’s Laboratories Ltd

Dr Reddy's Laboratories Ltd is a multinational corporation with a strong presence in specific

market categories. The industry's increasing rivalry has made it difficult for Dr Reddy's
Laboratories Ltd to maintain its market leadership position and grow market share without
putting in significant effort. The current business environment requires Dr Reddy's Laboratories
Ltd to gain a significant competitive edge in order to stay ahead of the pack. Dr Reddy's
Laboratories Ltd, as a worldwide brand with a significant presence around the world, has
established its competitive positioning based on a few key factors that provide it an advantage
over competitors.

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Dr. Reddy’s has adopted a robust combination of cost leadership, differentiation and focus
strategies to handle the competitive pressure in the pharma industry.

4.5.1 Cost leadership

The purpose of a cost leadership strategy is to achieve a competitive advantage through cutting
costs. Dr Reddy's Laboratories Ltd's principal generic strategy in various consumer segments is
cost leadership.

Implementation:The major goal of employing this strategy is to maintain market leadership

through effective value chain management. Dr Reddy's Laboratories Ltd maintains its market
share by focusing on the middle class, which accounts for the majority of the entire consumer
market mix in most nations. The pricing issue is often very important to middle-class consumers,
and cost leadership is the best option for meeting their needs.
Dr Reddy's Laboratories Ltd places a premium on the cost and accessibility of its products
around the world, resulting in significant brand awareness and sales growth, as well as a strong
competitive advantage. Dr Reddy's Laboratories Ltd, in addition to charging cheap prices
through cutting production costs and optimising supply chain efficiency, routinely gives
discounts and coupons to meet sales targets and counteract competitive pressure from its nearest
competition. These discount and promotional efforts are meant to raise brand awareness and

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drive consumption. Because they handle the whole value chain, from generating active
ingredients to designing formulations to delivering them through our simplified supply chain, the
company is able to keep the medications inexpensive. It takes advantage of its natural strength of
having one of India's major manufacturing bases to provide clients a significant cost advantage.
Furthermore, the company's in-depth understanding of legislation and intellectual property
assists it in bringing high-quality, regulatory-compliant medications into reach of millions of
people all over the world.

Many advantages of Dr Reddy's Laboratories Ltd's cost leadership strategy have been discussed,
including generating instant brand awareness, extending the client base, boosting consumption,
and meeting sales targets by stressing product affordability and accessibility. Although cost
leadership is highlighted as the main strategy in the analysis of Dr Reddy's Laboratories Ltd's
competitive advantage strategies, the company also uses the differentiation strategy in
conjunction with cost leadership to set the foundation for long-term competitive advantage in the
highly competitive global consumer market.

4.5.2 Differentiation
Another often utilised generic method for gaining a competitive advantage is differentiation. Dr
Reddy's Laboratories Ltd achieves business goals by combining differentiation with a
cost-cutting strategy.

Implementation:Dr Reddy's Laboratories Ltd can extend its consumer base by emphasising
unique product attributes by using differentiation as a secondary generic strategy.

The strategic goal of Dr Reddy's Laboratories Ltd's use of this strategy is to differentiate by
incorporating innovation and addressing consumers' growing health concerns. For example, to
separate itself from competitors and widen the scope of prospects within the sector, Dr Reddy's
Laboratories Ltd has expanded its product line after examining shifting consumer interests. Dr

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Reddy's Laboratories Ltd has built a strong and loyal customer base by combining differentiation
and cost leadership.

Dr Reddy's Laboratories Ltd uses a differentiation generic strategy to position its product
offerings in a way that makes them stand out and stand out from the competition. The
corporation uses distinctiveness as a technique to alleviate the pressure from other brands
because it is an established brand with a strong footing. Dr Reddy's Laboratories Ltd spends a lot
of money on marketing, advertising, and celebrity endorsements only to set itself apart from
competing brands. The Pharmaceutical company's marketing initiatives emphasize on it being
the oldest brand , having extensive experience in the sector in which it operates,and also having a
global presence.

The unique and also a distinct brand logo of Dr. Reddy’s has established a powerful brand image
with the Indian customers and other clients.This has made the essence of the brand has stayed
consistent over the years which can be recognized as a powerful differentiator the firm possesses.

The organisation also offers a wide range of flavours to meet the diverse tastes of customers and
clients from various backgrounds. It emphasizes on innovation as it is a tool to provide the
consumers and its clients with differentiated augmented services that may please them and boost
their preference for Dr Reddy's Laboratories Ltd over competing brands operating in the
industry.

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Business Analysis & Valuation

4.5.3 Focus strategy

The third generic competitive strategy encourages businesses to concentrate their resources on
expanding narrowly defined segments. When companies use the focus strategy, they target
specific market segments and use niche marketing to gain a competitive advantage.

Implementation: Dr Reddy's Laboratories Ltd uses a focus strategy to keep costs low and also
provides the best value. It caters the needs of a niche market segment at the lowest possible price
which is its low-cost focus strategy. While the best value focus strategy is used by emphasising
the taste, size, and design of the product that best meets the needs and requirements of the
customers.
Dr Reddy's Laboratories Ltd revises its branding strategies and introduces continuous changes in
product design and packaging to satisfy customers' psychological expectations and maximise
value for money by focusing on product attributes.

4.5.4 Riskiness

Dr. Reddy’s, albeit being a significant player in the industry, can’t guarantee returns since the
discovery of drugs is an unpredictable activity.

Strict govt regulations and high competition strip pricing power away from the firm and give
bargaining power to buyers.

The initial investment for a massive pharmaceutical firm like Dr. Reddy’s is vast. Drug discovery
and development is a time-consuming process that requires continuous cash inflow.

Dr. Reddy’s needs to update its sales and marketing techniques, or it will lose its footing to
industry giants.

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Business Analysis & Valuation

5. References

● https://www.ibef.org/industry/pharmaceutical-india.aspx
● https://www.pwc.in/press-releases/india-pharmaceutical-industry-is-on-a-good-growth-pa
th.html
● https://assets.ey.com/content/dam/ey-sites/ey-com/en_in/topics/health/2021/ey-ficci-india
n-pharma-report-2021.pdf?download
● https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Pharma%20and%2
0Medical%20Products/PMP%20NEW/PDFs/778886_India_Pharma_2020_Propelling_A
ccess_and_Acceptance_Realising_True_Potential.ashx
● https://www.cipla.com/cipla-sustainability
● https://www.statista.com/statistics/985089/india-cipla-operational-income/
● https://www.businesstoday.in/markets/stocks/story/these-7-pharma-stocks-gave-over-50-r
eturn-since-covid-19-outbreak-263972-2020-07-14
● https://www.google.com/search?q=cipla+share+price&oq=cipla+share+price&aqs=chro
me.0.69i59j0i433i512j0i512j0i433i512j0i512j69i60l3.2228j1j7&sourceid=chrome&ie=U
TF-8
● https://www.businesswire.com/news/home/20200901005749/en/Four-Barriers-to-Entry-i
n-the-Pharmaceutical-Manufacturing-Industry-Infiniti%E2%80%99s-Experts-Provide-Un
paralleled-Market-Entry-Insights-for-Pharma-Companies
● https://www.drreddys.com/our-products/business-focus/generics/
● https://www.drreddys.com/our-science/capabilities/
● https://www.drreddys.com/

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