Final LTM- Pharma analysis

8/7/2019 Final LTM- Pharma analysis

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DIANA JACOB M-10-19

DIVYA NAYAK M-10-35

DISHA SHETH M-10-50

PRIYANKA SINGH M-10-56

SECTORAL ANALYSIS OF THE INDIAN PHARMA

INDUSTRY


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Acknowledgement

The architecture of success stands on a strong foundation made up of strenuous hard work,

determination, presence of mind and above all timely advice from the learned and experienced

people. This word of acknowledgement is to express our deep sense of gratitude to all thoseluminaries and unseen hands without whose support the completion of this dissertation would

not have been materialized.

We express our thanks to the Dir ecto r of IESMCRC Dr Dinesh D Ha r soleka r for giving us the

opportunity to work on this project.


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IN DEX

1. Int r oduct ion about the Ind ian Pha r maceut ical Indust ry .04

3. Majo r Pha r maceut ical Pla yer s . .07

4. G r owth Scena ri o in 2010 . . ..09

5. Futu r e P r ospects . . 09

6. Cont ri but ion of Pha r ma Indust ry in Expo r ts . ....11

7. Ke y developments and Challenges .... .. .... ..12

8. PEST Anal ysis . . . ..14

9. Gove r nment Pol icies . ..16

10. Fo r eign Investment in the indust ry .. ............ ... ...18

11. Emplo yment oppo r tun ities and cont ri but ion to G DP ........ . 20

12. F inanc ial Rat io Anal ysis ........ . 21


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INTRO DU CTION

Ind ian Pha r maceut ical Indust ry

I ndia currently represents just U.S. $6 billion of the $550 billion global pharmaceutical industry

but its share is increasing at 10 percent a year, compared to 7 percent annual growth for the

world market overall. Also, while the I ndian sector represents just 8 percent of the global

industry total by volume, putting it in fourth place worldwide, it accounts for 13 percent by

value, and its drug exports have been growing 30 percent annually. The organized sector of

I ndia's pharmaceutical industry consists of 250 to 300 companies, which account for 70 percent

of products on the market, with the top 10 firms representing 30 percent. However, the total

sector is estimated at nearly 20,000 businesses, some of which are extremely small.

Approximately 75 percent of I ndia's demand for medicines is met by local manufacturing.According to the German Chemicals Association, in 2005, I ndia's top 10 pharmaceutical

companies were Ranbaxy, Cipla, Dr. Reddy's Laboratories, Lupin, Nicolas Piramal, Aurobindo

Pharma, Cadila Pharmaceuticals, Sun Pharma, Wockhardt Ltd. and Aventis Pharma. I ndian-

owned firms currently account for 70 percent of the domestic market, up from less than 20

percent in 1970. I n 2005, nine of the top 10 companies in I ndia were domestically owned,

compared with just four in 1994. I ndia's potential to further boost its already-leading role in

global generics production, as well as an offshore location of choice for multinational drug

manufacturers seeking to curb the increasing costs of their manufacturing, R&D and other

support services, presents an opportunity for the pharma sector.

The pharmaceutical industry in I ndia is among the most highly organized sectors. This industry

plays an important role in promoting and sustaining development in the field of global

medicine.

Due to the presence of low cost manufacturing facilities, educated and skilled manpower and

cheap labor force among others, the industry is set to scale new heights in the fields of

production, development, manufacturing and research. The I ndian pharmaceutical industry

consists of manufacturers of bulk drugs and formulations. According to estimates, the

proportion of formulations and bulk drugs is in the order of 75:25. There are believed to be over

60,000 formulations manufactured in I ndia in more than 60 therapeutic segments. More than


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85% of the formulations produced in the country are sold in the domestic market. I ndia is

largely self-sufficient in case of formulations, though some life saving, new-generation-

technology-barrier formulations continue to be imported.

Among the therapeutic segments, the anti-infectives top domestic production in volumes. Bulk drug manufacturing is largely concentrated in Andhra Pradesh, which accounts for more than

one-third of the countrys total bulk drug production, followed by Gujarat. The I ndian bulk drug

industry has lately been gaining significant presence in the global market as foreign and

multinational companies are looking to sourcing AP I s and intermediates from I ndian

manufacturers. Factors favouring the industry are a vast resource of technical people, state of-

the-art manufacturing facilities, low cost and the advantage of the English language. As part of

governments support to increase exports, duty free zones have been set up and severalmanufacturers of bulk drugs have been shifting their facilities to these areas. As a result, the

diverse spread has now started getting consolidated and concentrated in certain regions across

the country.

Indust ry T r ends

y The pharma industry generally grows at about 1.5-1.6 times the Gross Domestic Product

growthy Globally, I ndia ranks third in terms of manufacturing pharma products by volume

y I n 2007-08, I ndia exported drugs worth US$7.2 billion in to the US and Europe followed

by Central and Eastern Europe, Africa and Latin America

y The I ndian vaccine market which was worth US$665 million in 2007-08 is growing at a

rate of more than 20%

y The retail pharmaceutical market in I ndia is expected to cross US$ 12-13 billion by 2012

y The I ndian drug and pharmaceuticals segment received foreign direct investment to the

tune of US$ 1.43 billion from April 2000 to December 2008


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SCOPE AN D IMPORTANCE OF PHARMA IN DU STRY

O ver the years pharmacy has grown in the form of pharmaceuticals sciences through research

and development processes. I t is related to product as well as to services. The various drugs

discovered and developed are its products and the healthcare it provides comes under the

category of services.

Pharmacy involves all the stages that are associated with the drugs i.e. discovery, development,

action, safety, formulation, use, quality control, packaging, storage, marketing, etc. This

profession has a large socio-economic relevance to the I ndian economy. I n I ndia this sector is

among the future economy drivers. I t is committed to deliver high quality drugs and formulations

at an affordable price, so that majority of people can afford them.


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Majo r Pha r maceut ical Pla yer s

The Key Players I n The I ndian Pharmaceutical I ndustry are also examined and Companies

Mentioned in this report include:

- O rganon

- Panacea Bio

- Pfizer

- Pharmacia

- Ranbaxy

- R P G Life Sciences

- Shasun Chemicals

- Siris Limited- Sterling Biotech

- Strides Arcolab

- Sun Pharma

- Suven Life Sciences

- Torrent Pharma

- Unichem Lab

- Wockhardt

- Wyeth Ltd

- Zandu Pharma

- Aarti Drugs- Abbott I ndia- Ajanta Pharma- Alembic- Astrazeneca Pharma- Aurobindo Pharma- Aventis Pharma- Cadila Health- Cipla- Dr. Reddy- Elder Pharma- German Remedies- Glaxo Smithkline- I nd Swift Lab- I pca Laboratories- J B Chemical- Jagson Pharma- K D L Biotech- Kopran

- Krebs Biochem- Lupin- Lyka Labs- Medicorp Tech- Merck - Natco Pharma- Nicholas Piramal- Novartis- O rchid Chemicals


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Ke y Pla yer s in the Indust ry

Most of the country's requirements for pharmaceutical products are met by these companies.

Some of them are briefly described below:

Ranbax y Labo r ato ri es The company is ranked at the 8th position among the global generic pharmaceutical companies

and has presence in 48 countries including world class manufacturing facilities in 10 countries

and serves to customers from over 125 countries.

Dr . Redd y' s Labo r ato ri es

The company has 60 active pharmaceutical ingredients to manufacture drugs, critical care

products, diagnostic kits and biotechnology products. The company has 6 FDA plants thatproduce active pharma ingredients and 7 FDA inspected and I SO 9001 and I SO 14001 certified

plants.

C ipla

I t is an I ndian pharmaceutical company renowned for the manufacture of low cost anti A I DS

drugs. The company's product range comprises of anthelmintics, oncology, anti-bacterials,

cardiovascular drugs, antibiotics, nutritional supplements, anti-ulcerants, anti-asthmatics andcorticosteroids.

Nicholas P ir amal

I t is the second largest pharmaceutical healthcare company in I ndia. The brands manufactured by

the company include Gardenal, I smo, Stemetil, Rejoint, Supradyn, Phensedyl and Haemaccel.

Glaxo Sm ithkl ine (GSK)

I t is a United Kingdom based pharma company; it is the world's second largest pharmaceutical

company. The company's portfolio of pharma products consist of central nervous system,

respiratory, oncology, vaccines, anti-infectives and gastro-intestinal/metabolic products among

others.


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G r owth Scena ri o in 2010

I ndia's pharmaceutical industry is now the third largest in the world in terms of volume. I ts rank

is 14th in terms of value. Between September 2008 and September 2009, the total turnover of

I ndia's pharmaceuticals industry was US$ 21.04 billion. The domestic market was worth US$12.26 billion. This was reported by the Department of Pharmaceuticals, Ministry of Chemicals

and Fertilizers. As per a report by I MS Health I ndia, the I ndian pharmaceutical market reached

US$ 10.04 billion in size in July 2010. A highly organized sector, the I ndian Pharma I ndustry is

estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually.

Futu r e P r ospects

With several companies slated to make investments in I ndia, the future scenario of the

pharmaceutical industry in looks pretty promising. The country's pharmaceutical industry has

tremendous potential of growth considering all the projects that are in the pipeline. Some of the

future initiatives are:

y According to a study by F I CC I -Ernst & Young I ndia will open a probable US$ 8 billion

market for MNCs selling expensive drugs by 2015

y The study also says that the domestic pharma market is likely to reach US$ 20 billion by

2015

y The Minister of Commerce estimates that US$ 6.31 billion will be invested in the

domestic pharmaceutical sector

y Public spending on healthcare is likely to raise from 7 per cent of GDP in 2007 to 13 per

cent of GDP by 2015

y Dr Reddy's Laboratories has tied up with GlaxoSmithKline to develop and market

generics and formulations in upcoming markets overseas

y Lupin, a Mumbai based pharmaceutical company is looking to tap opportunities of about

US$ 200 million in the US oral contraceptives markety Due to the low cost of R&D, the I ndian pharmaceutical off-shoring industry is designated

to turn out to be a US$ 2.5 billion opportunity by 2012


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The I ndian pharmaceuticals market is expected to reach US$ 55 billion in 2020 from US$ 12.6

billion in 2009. This was stated in a report title " I ndia Pharma 2020: Propelling access and

acceptance, realising true potential" by McKinsey & Company. I n the same report, it was also

mentioned that in an aggressive growth scenario, the pharma market has the further potential to

reach US$ 70 billion by 2020

The domestic pharma market is estimated to touch US$ 20 billion by 2015. The healthcare

market in I ndia to reach US$ 31.59 billion by 2020. The sale of all types of pharmaceutical drugs

and medicines in the country stands at US$ 9.61 billion, which is expected to reach around US$

19.22 billion by 2012. Thus I ndia would really become a lucrative destination for clinical trials

for global giants.

There was another report by RNC O S titled "Booming Pharma Sector in I ndia" in which it was

projected that the pharmaceutical formulations industry is expected to prosper in the same

manner as the pharmaceutical industry. The domestic formulations market will grow at an annual

rate of around 17% in 2010-11, owing to increasing middle class population and rapid

urbanization.


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Cont ri but ion of Pha r ma Indust ry in Expo r ts

The I ndian pharmaceutical industry is highly regulated. The Government controls prices of a

large number of bulk drugs and formulations.

Expo r ts

O ver 60% of I ndias bulk drug production is exported. The balance is sold locally to other

formulators. I ndias pharmaceutical exports are to the tune of Rs87bn, of which formulations

contribute nearly 55% and the rest 45% comes from bulk drugs.

During 2009-10, the pharmaceutical exports saw only 4.13 per cent growth over the previous

year. While the effect of slowdown on the other sectors was visible during 2008-09, the

pharmaceutical sector witnessed it only during 2009-10. However, barring 2009-10, the

pharmaceutical sector saw a compounded annual growth rate of around 17 per cent over the

years. During 2008-09, bulk drugs accounted for 42 per cent of the exports, formulations 56 per

cent and herbals and ayurveda contributed the balance 2 per cent.

The US imports 22 cent of the total pharma exports from I ndia, Africa 16 per cent and

Commonwealth of I ndependent states eight per cent. I n all, the pharma products are exported to

220 countries and colonies. Singapore, Malaysia, Vietnam, Russia, Ukraine, South Africa,Nigeria and Kenya are now the focus countries for exports.

Among the pharma exporting states, Maharashtra leads with 38 per cent contribution, followed

by Andhra Pradesh at 23 per cent.


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Ke y developments in the Pha r ma Indust ry

Multiple branded drug patent expirations in the short term. According to I MS Health, in 2006

and 2007 a total of US$ 28 bn and US$ 20 bn, respectively, of branded sales were likely to

become susceptible to the entry of generic equivalents

y I ncreasing confidence of consumers in generics in the developed markets

y A pro-generic sentiment from healthcare authorities driven by the pressure of containing

rising healthcare costs

y An aging population across the world, leading to increasing demand for low cost

therapies

y Global healthcare crisis like A I DS in the developing world, necessitating affordable

medication for the masses

Generic companies in I ndia are recognizing the importance of patent expiries and are making

significant incremental investments in research and drug development.

Challenges Faced b y the Indust ry

Every industry has its own sets of advantages and disadvantages under which they have to work;

the pharmaceutical industry is no exception to this. Some of the challenges the industry faces are:

y Regulatory obstacles

y Lack of proper infrastructure

y Lack of qualified professionals

y Expensive research equipments

y Lack of academic collaboration

y Underdeveloped molecular discovery program

y Divide between the industry and study curriculum


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Ke y issues fac ing the Pha r maceut ical Indust ry

Some of the issues the domestic industry is facing are as under:

y Inc r eas ing span of p ri ce cont r ol

The draft National Pharmaceuticals Policy, 2006, currently underway and awaiting

approval from the Parliament, intends to bring 354 drugs under price control, which is in

addition to the 74 bulk drugs already notified under price control. The price control as

proposed in the Policy is likely to cover at least 50-60% of the domestic market under

price control. The proposed control on prices is set to impact the industry margin

significantly, especially those players having only local operations. However, to secure

the profitability, firms will have to increase their scale of production. The number of drugs under price control had come down from nearly 400 in the 1970s to 72 in 1995,

and further reduced to 29 in 2002. The new draft policy consists of these 354 drugs that

are likely to be under the cost based price control.

y P ri ce e r osion in gene ri cs

I ndian generics market is witnessing a margin pressure in most of the product categories

due to two main reasons: the proposed price control likely to be imposed by theGovernment and the stiff competition among domestic players. Moreover, the expansion

of capacities by certain leading players has also fuelled competition in certain product

categories, which restricts margins of the smaller players. I ndian players, which have

been operating in overseas markets, have also witnessed erosion in margins in certain

therapeutic segments.

y Low R& D pr oduct ivity

Despite the increasing expenditure on R&D, the introduction of new molecules by I ndian

players has been limited. Very few discoveries reach the final stages of approvals, and in

most of the cases, the claim for patent gets stuck in legal battles.


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I n spite of the rising expenditure in R&D, the level of investment in R&D is still low, at

average 4% as compared to the global practice of spending 12-16% of sales on R&D. I n

2005, acquisitions by the I ndian pharmaceutical companies were the highest, with 20

buyouts abroad. Europe has emerged as the most preferred destination for acquisitions

by I ndian companies. The European generics market has emerged as a major attraction

for acquisitions by I ndian companies. The Government has estimated that by year 2010,

the industry has the potential to achieve a size of US$ 28 bn.

PEST Anal ysis

Env ir onmental Anal ysis (PEST)

Technological advancements, tighter regulatory-compliance overheads, rafts of patent expiries

and volatile investor confidence have made the modern pharmaceutical industry an increasinglytough and competitive environment. Below is an analysis of the structure of the pharmaceutical

industry using the PEST (political, economic, social and technological) model.

Inc r eas ing Pol it ical Attent ion:

O ver the years, the industry has witnessed increased political attention due to the increased

recognition of the economic importance of healthcare as a component of social welfare. Political

interest has also been generated because of the increasing social and financial burden of the

healthcare. Examples are the UKs National Health Service debate and Medicare in the US.

Econom ic Value Added:

I n the decade to 2003 the pharmaceutical industry witnessed high value mergers and

Acquisitions. With a projected stock value growth rate of 10.5% (2003-2010) and Health Care

growth rate of 12.5% (2003-2010), the audited value of the global pharmaceutical market is

estimated to reach a huge 500 billion dollars by 2004. O nly information technology has a higher

expected growth rate of 12.6%.Majority of pharmaceutical sales originate in the US, EU and Japanese markets. Nine geographic

markets account for over 80% of global pharmaceutical sales these are, US, Japan, France,

Germany, UK, I taly, Canada, Brazil and Spain.


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The Soc ial Dimens ion:

Good health is an important personal and social requirement and the unique role pharmaceutical

firms play in meeting societys need for popular wellbeing cannot be underestimated. I n recent

times, the impacts of various global epidemics like SARS, A I DS etc has also attracted popular

and media attention to the industry. The effect of the intense media and political attention has

resulted in increasing industry efforts to create and maintain good government-industry-society

communications.

Technolog ical Advances:

A modern scientific and technological advance in science is forcing industry players to adapt

ever faster to the evolving environments in which they participate. Scientific advancements have

also increased the need for increased spending on research and development in order toencourage innovation.

Legal Env ir onment:

The pharmaceutical industry is a highly regulated and compliance enforcing industry. As a result

there are immense legal, regulatory and compliance overheads which the industry has to absorb.

This tends to restrict its dynamism but in recent years, government have begun to request

industry proposals on regulatory overheads to so as not to discourage innovation in the face of

mounting global challenges from external markets.


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Gove r nment Pol icies

The basic objectives of Governments Policy relating to the drugs and pharmaceutical sector

were enumerated in the Drug Policy of 1986. These basic objectives still remain largely valid.

However, the drug and pharmaceutical industry in the country today faces new challenges on

account of liberalization, the globalization and on account of new obligations undertaken by

I ndia under the WT O Agreements. These challenges require a change in emphasis in the current

pharmaceutical policy and the need for new initiatives beyond those enumerated in the Drug

Policy 1986, as modified in 1994, so that policy inputs are directed more towards promoting

accelerated growth of the pharmaceutical industry and towards making it more internationally

competitive. The need for radically improving the policy framework for knowledge-based

industry has also been acknowledged by the Government. The Prime Ministers AdvisoryCouncil on Trade and I ndustry has made important recommendations regarding knowledge-

based industry. The pharmaceutical industry has been identified as one of the most important

knowledge based industries in which I ndia has a comparative advantage.

Ind ian Regulat ions & Gu idel ines:

CDSC O

Cent r al Dr ugs Standa r d Cont r ol O r gan izat ion (C DSCO), Ministry of

Health & Family Welfare, Government of I ndia provides general

information about drug regulatory requirements in I ndia.

NPPA

Dr ugs (P ri ce Cont r ol) O r de r 1995 and other orders enforced by Nat ional

Pha r maceut ical P ri cing Autho ri ty (NPPA), Government of I ndia. View

the list of drugs under price controlhere.....

D & C Act, 1940 The Dr ugs & Cosmet ics Act, 1940 regulates the import, manufacture,

distribution and sale of drugs in I ndia.


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Schedule M

Schedule M of the D&C Act specifies the general and specific

requirements for factory premises and materials, plant and equipment and

minimum recommended areas for basic installation for certain categories

of drugs.

Schedule T Schedule T of the D&C Act prescribes GMP specifications for

manufacture of Ayurvedic, Siddha and Unani medicines.

Schedule Y The clinical trials legislative requirements are guided by specifications

of Schedule Y of The D&C Act.

GCP guidelines

The M inist ry of Health, along with Dr ugs Cont r olle r Gene r al of Ind ia(DCGI) and Ind ian Counc il fo r Med ical Resea r ch (ICMR) has come

out with draft guidelines for research in human subjects. These GCP

gu idel ines are essentially based on Declaration of Helsinki, WH O

guidelines and I CH requirements for good clinical practice.

The Pharmacy

Act,1948

The Pha r mac y Act, 1948 is meant to regulate the profession of Pharmacy

in I ndia.

The Drugs and

Magic Remedies

(O bjectionable

Advertisement)

Act, 1954

The Dr ugs and Mag ic Remed ies (Object ionable Adve r t isement) Act,

1954 provides to control the advertisements regarding drugs; it prohibits

the advertising of remedies alleged to possess magic qualities.

The Narcotic Drugs

and PsychotropicSubstances

Act, 1985

The Na r cot ic Dr ugs and Ps ychot r op ic Substances Act, 1985 is an act

concerned with control and regulation of operations relating to Narcotic

Drugs and Psychotropic Substances.


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FOREIGN INVESTMENT IN THE IN DU STRY:

The Government is expected to soon take a call on slashing the foreign direct investment (FD I )

limit in the pharmaceutical sector in order to bring down the prices of drugs, chiefly essential

drugs. I t is mulling capping the FD I in the sector at 49 per cent and routing it through thegovernment. Currently, the FD I limit in the sector stands at 100 per cent through the automatic

route.

The government fears that 100 per cent FD I will lead to uncontrolled mergers and acquisitions

(M&A) by foreign drug firms, which could lead to further increase in drug prices and also

cartelization.

Earlier, the PM O had also sent a note based on the recommendations submitted by globaldrugmakers, which seeks key changes such as a legislative review of the I ndian patent laws, data

exclusivity and implementation of patent linkages.

The acquisition of I ndian pharma companies by multinational corporations (MNCs) was

impacting the availability of low-cost medicines. The commerce ministry had proposed

tightening the rules so that I ndian acquisitions by MNCs flow through it and not through the

automatic route.

The finance ministry as well as the Planning Commission has also advised the concerned

ministries to expedite the process to ensure that 65 per cent I ndians, who according to the World

Health O rganisation (WH O ) still lack access to essential medicines are not deprived of

affordable and high-quality medicines.

I ndia's Rs35, 175 crore ($7.5 billion) drug industry is among the world's top five bulk drug

producers. I t is also among the world's 20 top pharmaceutical exporters, with exports growing at

17.8 per cent per annum. I ndia currently ranks third in terms of the volume of production (9.3 per cent of global share) and 14th in terms of value (1.5 per cent of global share).


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W TO And Pha r maceut icals Indust ry

Economic liberalization the world over has paved the way for globalization. The most prominent

trend of this process is the emergence of trade agreements as instruments, that are legally binding

and enforceable and ones, which are primarily developed by a few developed countries for thedeveloping countries to follow. The World Trade O rganization, which is a multilateral trading

body, is a polished sword in the scabbard of the industrialized nations for organizing and

enforcing global economic governance. Being a member country of WT O , I ndia is bound by the

trade agreement and policies set out in the charter of the World Trade O rganization.

I ndia that till now has adopted process patent has been directed by the WT O to do away with it

and adopt product patent to comply with the rules charted in the TR I Ps agreement. According to

the WT O agreement I ndia has been given time up to year 2005 to amend its I PA to allow product

patent instead of process patent.

Trade cross-retaliation is one prime problem that India will have to encounter if it does not

comply with the specified regulations. I n the light of this, an attempt has been made to study the

impact of WT O directives post-2005, in the pharmaceutical sector in I ndia. Given the current

industry scenario in I ndia, it is in no way a minnow to the global pharmaceutical majors. Yet it is

beset with many implications. The policies of the Government apropos of, the pharmaceutical

industry show promise and the current budgetary announcements scatter a ray of hope.

Article 8 and Article 30 of the TR I Ps Agreement provide some relief to the I ndian policy makers

through some lenient provisions set out in them. The government has to take full advantage of

the provisions thus laid, by adopting a proactive approach.

I n the light of the implementation of TR I Ps Agreement after 2005, options like collaborativeresearch, contract research, stepping up of research and development expenditure, developing

and exporting of tropical drugs, manufacturing through licensing are open to the business.


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P r ospects of Gett ing a Job in the Pha r ma T r ade

Since the pharmaceutical industry is fast growing in I ndia, Jobs in pha r maceut ical Indust ry are

plenty. The pharmaceutical company employs people by way of medical representatives as also

has expenditure for advertising which creates job opportunities. An individual can set up a local

pharmacy and on its expansion can set up branches throughout the nation.

The Jobs in pharmaceutical I ndustry of the managed care pharmacist is to formulate rules and

regulations pertaining to the utilization of different drugs. O ne can also venture along academic

lines as basic scientist, clinical practitioners or educators.

The job of the pharmacy consultant is to serve as a trained clinician or an educator in adult day

care centers or home care agencies. The pharmaceutical industry also provides job opportunities

for biological scientists, chemists, medical scientists and chemists.

I ndian Pharma I ndustry is likely to post a GDP growth of 9.2 % in FY 2011 & 11% in

2012Pharma Sources & insiders claimed that on the whole, hiring in the pharmaceutical I ndustry

has grown by 11-12 per cent this year. This includes personnel for R&D and general

management, among other categories. I n the healthcare sector, pharmaceuticals have been the

leader in hiring experienced staff at 83.7 per cent.

Recent projections from Mercer tip Pharma as one of the hottest sectors for 2011 which will pay

average hikes in the neighborhood of 13 per cent. This will have deep impact in other sectors aswell.


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Financ ial Rat io Anal ysis

I n order to carry out the financial analysis of the I ndian Pharmaceutical industry, we selected 5

major companies, viz.

1. Dr. Reddys Laboratories Ltd

2. Nicholas Piramal Healthcare Ltd

3. Aurobindo Pharma

4. Cipla

5. Lupin Pharmaceuticals

SOLVENCY RATIOS

Cu rr ent Rat io

Cu rr ent Rat io = Cu rr ent assets/Cu rr ent l iab ilit ies

I t is high for Aurobindo, because their I nventories have increased by nearly by Rs. 2100 million.

The major reason is due to the huge quantities of Finished goods of the value Rs 1100 million.

I t is low for Cipla, because their Sundry Debtors have reduced which in turn reduced their

Current Assets (CA).

Current ratio may be defined as the

relationship between current assets and current

liabilities. This ratio is also known as

"working capital ratio". I t is a measure of

general liquidity and is most widely used to

make the analysis for short term financial

position or liquidity of a firm. This ratio is a

general and quick measure of liquidity of a

firm. I t represents the margin of safety or

cushion available to the creditors.


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Q u ick Rat io

.

Q u ick Rat io = Q A / Q L = (CA Stock P r epa id exp.) / (CL BO D)

I t is high for Dr Reddy, because this year the company reduced its quick ratio from 2.13 to 1.45 .

30% of Current Assets are debtors due to which the quick ratio is high. I t is lowest for Cipla,

because the major CA included I nventory with high value of finished goods, thus when

I nventory is removed their effective QA value becomes very less.

PROFITABILITY RATIOS

Retu r n on Net W or th

RON W (Retu r n on Net W or th) = PAT/ Avg. Net W or th * 100

Liq uid r at io is also termed as " Liq u id ity

Rat io", "Acid Test Rat io" or " Q uick Rat io".

The true liquidity refers to the ability of a firm to

pay its short term obligations as and when theybecome due.

I t measures the firm's capacity to pay off current

obligations immediately and is more rigorous

test of liquidity than the current ratio because it

eliminates inventories and prepaid expenses as a

part of current assets.

I t is the ratio of net profit to share

holder's investment. This ratio establishes

the profitability from the share holders'

point of view. As the primary objective

of business is to maximize its earnings,

this ratio indicates the extent to which

this primary objective of businesses

being achieved.


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I t is Highest for Aurobindo, because their Sales increased and are of the value Rs. 3252.27

crores. Also they have reduced their Administrative expenses which increased the PAT thus

making their R O NW high. I t is Lowest for Dr Reddy. Dr Reddys Net Worth is Rs. 5914 crore

and PAT 773.

Retu r n on Total Assets

ROTA (Retu r n on Total Assets) = PAT/ Avg. Total Assets * 100

I t is Highest for Dr Reddys, because decrease in Current Assets by Rs. 727 crore and increase in

PAT by 29% helped the company to improve its R O TA. I t is lowest for Aurobindo, because their

Avg. Total assets is only approx Rs. 3.6 crore which is very low comparatively.

EPS

EPS (adjusted) = Net Income (= PAT P r efe r ence d ividend)/ No. of E q uity Sha r es

The ratio is considered an indicator of how

effectively a company is using its assets to

generate earnings before contractual

obligations must be paid. The return on

assets (R O A) percentage shows how

profitable a company's assets are in

generating revenue. Return on assets givesan indication of the capital intensity of the

company, which will depend on the

industry.

The portion of a company's profit allocated to

each outstanding share of common

stock. Earnings per share, serves as an indicator

of a company's profitability.

Compared with EPS of similar companies, it

gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated

for a number of years indicates whether or not

the earning power of the company has

increased.


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I t is Highest for Aurobindo because their PAT is very high and their number of equity shares is

lowest as compared to other companies. I t is Lowest for Cipla because their PAT is almost

similar to other companies but their number of equity shares is very high of around 80 crores

which brings the value of EPS very down.

P/E r at io

P/E Rat io = MPS / EPS

I t is highest is for Dr Reddys because during recession company had sales up by 10%. Strong

brand of Dr Reddy and positive outlook towards Pharmaceutical industry are some of the reasons

behind P/E of company. I t is lowest for Aurobindo because their EPS is very high with respect to

its market value.

G r oss P r of it

P/E reflects the capital structure of the company

in question. P/E is a financial ratio used for

valuation: a higher P/E ratio means that

investors are paying more for each unit of net

income, so the stock is more expensive

compared to one with lower P/E ratio. Price

earnings ratio helps the investor in deciding

whether to buy or not to buy the shares of a

particular company at a particular market

price.Generally, higher the price earnings ratio

the better it is. I f the P/E ratio falls, the

management should look into the causes that

have resulted into the fall of this ratio.

I t reflects efficiency with which a firm

produces its products. However, the

gross profit earned should be sufficient

to recover all operating expenses and to

build up reserves after paying all fixed

interest charges and dividends.


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G r oss P r of it Rat io = G r oss P r of it/ Net Sales

I t is Highest for Dr Reddy Gross profit margin of Dr Reddys was 18% in 2008 -9 in 2009 10 it

is 24%. Sales increased by Rs. 400 crore. O ther operating income increased from Rs. 100 crore

to Rs. 212 crore. I t is Lowest for Piramal since its Net sales is Rs. 2651 crores only, which isvery less as compared to other companies.

Debt-to-E q uity r at io

Debt/E quity Rat io = (Secu r ed Loan + Unsecu r ed Loan) / (Sha r e Cap ital (E q . + P r ef.) +

R&S M isc. Exp.)

Decrease in Long Term Loans from 9768 to 6609. Secured loan = 4065 (Last year = 4480) (Due

to reduction in Cash Credit from Banks from 980 to 565). Unsecured loan = 2544 (Last year =

5288). Equity Share Capital the same as last year, Increase in R & S from 11472 to 14588.

Miscellaneous Exp. Reduced from 513 in the previous year to 507

It indicates the relationship between

the external equities or outsiders

funds and the internal equities or

shareholders funds.

I t is also known as external internal

equity ratio . I t is determined to

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Final LTM- Pharma analysis

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