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project report
capital structure

Prepared by :

Rutvij Bhatt (6)

Darshan zaveri (36)
Akshay jadav (38)
Hiren Makwana (49)

Submitted to :

Pro.shandhaya harkawat


1 Acknowledgement 3
2 Preface 4
3 Company Information 5
4 Company Vision 6-7
5 Board of Directors 8
6 Capital structure Analysis 9-13
7 Conclusions 14
8 Annexure 15-19

We would like to express our sense of gratitude to all those who

have helped us in successfully completion of the study and report
of “study of Ranbaxy with special focus on capital structure”.

We are very grateful to Dr. Chinnam Reddy, The director and Prof.
Sandhya Harkawat, Project guide the core faculty of SKPIMCS for
giving us opportunity to under go project training and experience
the most competitive environment in today’s financial market.

We are also grateful to Mr.Ramalulu, the librarian of S.K.P.IMCS

for giving us secondary information about the same.

Besides all those mentioned above, we would like to express our
heartiest sense of gratitude to all those who has supported us in our
endeavors directly or indirectly.

We are glad to thank many people who have directly or

indirectly helped us to make a financial report.


As we all know that business finance can be broadly defined as the activity
concerned with planning, raising, controlling and administering of funds
used in the business, we can understand the importance of doing a financial

As to get the knowledge of Marketing Management and Personnel

Management we have industrial visits so in the same way for financial
understanding we have seen all the areas of finance management where
critical decisions are to be taken for the company progress.

Company Information

During the year 2006, company consolidated it’s

position as a key global player. It’s strategic
acquisitions and expansions in different parts of the
world provided momentum to company’s aspiration
to achieve a turnover of US $ 5 Bn by 2012. Growing
ahead of the market, achieved the No. 1 position in
the Indian market.successfully leveraged inherent
skills to deliver a winning performance with global
sales of over US $ 1.3 Bn.
Trajectory towards global leadership
was reinforced through it’s investments in emerging
markets. Accordingly, company’s focus has been on
enhancing operational efficiencies, cost
competitiveness, market reach and the dedication to
offer the bestin- class products. It’s business
philosophy, based on delivering value to
stakeholders, constantly inspires to innovate,
achieve excellence and set new global benchmarks.
With globalization, innovation and excellence as a
part of DNA, company is expanding global footprint
and challenging every leadership
paradigm.Foundations rooted in it’s value system
and strong ethics, inspire to deliver value
consistently. Driven by the passion of a highly
committed Team at Ranbaxy,employees are moving
rapidly towards attaining globalleadership

Company Vision

During the year, the R&D function has shown

distinctimprovement in terms of productivity and cost
efficiency, as well as the development of generic equivalents
of new molecules which will be coming off patent. More
focused effort is also underway, vis-à-vis New Drug
Discovery Research (NDDR). Inclusion of the Oncology
segment in the NDDR agenda of your Company, reflects a
desire to be present in a very important and fast-growing
therapeutic segment. Seeking synergies from discovery
alliances withother leading pharmaceutical research
organizations, reflects your Company's growing commitment
towards drug discovery. The Company is focusing on
nurturing its human resources optimally. Thus, attention is
being given to not only the development of high performers,
but also to the career needs and aspirations of every single
person working in the Company, irrespective of their
hierarchical position. We believe, only when a person
perceives that the Company wants to specifically promote
his or her welfare by providing appropriate guidance,
training and growth opportunities, in line with that person's
potential, will a sense of deeper staff commitment to the
Company ensue. Your Company is engaged in promoting a
caring and receptive culture of open communication, that
encourages sharing of ideas and constructive criticism to
bring about innovation and positive change. As a Corporate
leader aiming at becoming a respected player in the global
pharmaceutical space, based on its vertically integrated
production and research competencies, your Company
constantly strives towards benchmarking its internal work
processes against global best practices. This will have to be
a continuing effort, since the global benchmarks tend to
become more stringent with technological advances, on the
one hand, and increase in transparency and reporting
requirements, on the other. We are pursuing a well
strategized plan to strengthen and develop our business.
Several initiatives aligned to our objectives are currently

underway. We have ensured that the imperatives for organic
growth robust and quality product flow, and a strong market
position – are well in place across markets. We are moving
towards a well-balanced mix of revenues from developed
and emerging markets, and will be well positioned to
maximize and leverage their varied growth potential. We will
continue to actively pursue our inorganicstrategy in order to
a c c e n t u a t e o u r p r e s e n c e a n d competitiveness
on the front and back end of our business. We will continue
to and Bio-generics. We have further strengthened our
vertical integration capabilities and our fermentation
capacities, through the acquisition of Cardinal Drugs and a
strategic stake in Krebs Biochemicals, both in India. We also
invested in a specialized delivery technology, during the
year. Strengthening Innovation Innovation is the life force
that drives our organization; its pursuit is enshrined in our m
i s s i o n a n d i s undamental to value eneration and
growth n our business. Our fforts on this fronthave been
targeted at e x t e n d i n g t h eproductivity of our
innovation cycle, while optimizing cost structures. Thus,
during the year, we ensured a robust product flow into our
key markets and lowered R&D costs by 20% over last year.
We continued to work towards new alliances with big
pharma companies to expand and leverage our New Drug
Discovery Research (NDDR) program. To this effect, we
entered into a new multiyear R&D agreement with\ GSK,
which provides Ranbaxy expanded drug development
responsibilities and the prospects of significant financial
returns, in terms of milestones and royalties, going forward.
Responsible Corporate Citizen We remain cognizant of the
increasing burden of neglected diseases and are committed
to reducing their impact on mankind. We have worked
tirelessly to create greater access to affordable and new
generation HIV / AIDS drugs, and have developed and filed
the first set of medicines for pediatric use.Today, Ranbaxy is
providing to patients in over 50 countries across the world, a
wide range of generic ARVs, at onehundredth the cost at
which branded medicines were available less than 10 years
ago. Our Anti-malaria molecule under development is also

progressing well in Phase II clinical trials. Human Capital Our
people have been our most enduring strength. As a result of
their dedication, determination and passion, our Company
has consistently risen above all challenges, maximized
opportunities and positioned itself as a leader in the global
We are moving towards a well-balanced mix of revenues
from developed & emerging markets and will be well
positioned to maximize and leverage their varied growth
Our focus on in

Capital structure Analysis

Every company has to have a balanced capital structure,means

there should be balance of equity and debt in the company’s capital
formation.traditionally, firms have looked at certain ratios to assess
whether they have a stsfactory capital structure. The commonaly
used ratios are:interesrt coverageratio, cash flow coverage
ratio,debt servicecoverage ratio, and fixed asset coverage ratio

ICR = Earnings before interest and taxes

Interest on debt

CFCR = EBIT + Deprication + Other non-cash charges

Interest on debt + Loan repayment instalment/(1-t)

DSCR = Σ(PATi +DEPi + INTi +Li)

Σ( INTi + LRI ii)

FACR = Fixed assets

Term loans

1. Here, company has earned gross profit (PBITDA) Rs
6081.70.And the depriciation amount given in the balace
sheet is Rs 1067.5,this amount would be deducted from the
PBITDA .it would be 5014.2 (PBIT).The interest on debt is

ICR = Earnings before interest and taxes

Interest on debt

= 5014.2

= 4.84

company is capable to repay its debt 5 time from the

suggests that company has very good capital strucutre and it could
take more DEBT in future. Company has very good working
capital it can be used as repayment.

2. The cash flow coverge ratio is a distinct improvement over

the interest ceverage ratio in measuring the debt capacity, it
covers sthe debt service burden fully and it focuses on cash
flows. However, it too is characterised by sthe problem of
establishing a suitable norm for judging its adequacy.Here
company has PBT of Rs 4429.76, and it has paid interest of
Rs 584.44 so the EBIT is Rs 5014.2 in EBIT we will add
depriciation of Rs 1067.5. there are no other non cash
charges so, the total amoun is Rs has paid
interest of Rs 584.44. loan repayment amount is Rs 1722.69
and tax rate is 25% CFCR is as under
CFCR = EBIT + Deprication + Other non-cash charges
Interest on debt + Loan repayment instalment/(1-t)

= 5014.2 + 1067.5.+ 0
584.44 +1722.69/(1-0.25)

= 2.64

From the belove cash flow statement we can see that company is
capable of repayment of its debt more than twice from its internal
cash need not to take any more debt for reapyment
of the debt so it is good for the company that it will benifit in
future because there will be less amount of interest company have
to pay as it wil have less debt .there will increase in cash flow in
future because company can pay its debt right now or it can hold
the debt for the short term as it has interest repayment ratio is more
than 4 time from its will have good credit in
market and can have more amount of debt because of good debt
reapyment history.

3. Financial institution which provide the bulk of long term debt

finance judge the capacity of a firm in terms of its debt
service coverage ratio. Normally, financial institution regrad
a debt service coverage ratio of 2 as satisfactory. if the ratio
is less than 2 the maturity period of taken loan for the
repayment of the debt is enough for the adjustment but if itis
more than 2 the loan repayment period is shorter so company
will have to make other arrangements for the debt coverage
and for the loan repayment also. Here, company has total ten
years PAT is Rs 34859.6 ten years deprication is
Rs 8450 millon,ten years interest paid is Rs 11399.52 million
,loan repayment instalment is Rs 18343 million.putting all
these value in the DSCR formula

DSCR = Σ(PATi +DEPi + INTi +Li)

Σ( INTi + LRI i)

= (34859.6 +8450 + 11399.52 + 18343)

(11399.52 +18343)

= 73052.12

= 2.45

the company has very good DSCR it is more than 2 so we can say
that comapny whatever the loans company had taken it’s
repayment time is shorter so company will have to seek for the
other resources for the balace of the leverage.there are less
possibilities for the company to take more loans now because here
the ratio suggests that the company is almost having less loan
repayment period and at this time comapny can only afford
equity .equity will increase the repayment amount of loans
without affecting the debt.

4. FACR is the main ratio because it indicates the assets of the

company from which finacial institutions can recover the
amount that has been given to the
institution feel comfortable if the fixed asset coverage ratio is
atleast 1.25. form the balancesheet we can get the amount of

fixed assets which is Rs 17359.1million. the term loans are
So ,the FACR is 1.53

FACR = Fixed assests

Term loans

= 1.53

financial institution can trust in the company because it has crossed

the minimum requrement of FACR (1.25) which is 1.53.comapany
has enough assests to recver the term loan .comapny can able pay
the term loan interest if FACR is more than 1.25,here it is 1.53 so
it is good for the company to have term loans.


Company has very good financial structure as we can see from the
all capital ratios that company can repay its debt easily,debt
interest can also be paid easily .company has enough assets form
that comapy can pay its all term loans.from the cash flow statement
we can see that company has adequate cash in circulation
company can have more cash as CFCR is more than 2
times.comapny is having very good capital structure .in future
company can think for more leverage because all ratios ffavourthe
company .if company is enough to pay its all debt,interest and
loans company is progresssing and there are more chance to get
more leverage in future. The Company's top line and
bottom line have both shown substantial
improvement in 2006, relative to the preceding year.
Important markets, notably India, US, Eastern
Europe, Russia, Africa and South East Asia, have
recorded encouraging performances. Some markets
however, experienced pricing pressures due to
changing dynamics witnessed by the global
healthcare industry.


Cipla was incorporated in 1935, in the name of Chemical
Industrial and Pharmaceutical Laboratories. The name was
changed to the acronym ‘Cipla’ in 1984. Over the last 6
decades Cipla has set up plants at five locations, mainly
concentrated in Maharashtra. The Hammed brothers, sons of
the founder, late Dr K A Hammed, manage Cipla. Dr Y K
Hammed, with a doctorate in Organic Chemistry from
Cambridge, is the Chairman and Managing Director. He
himself heads the research division, which has around 200
people. His brother, M K Hammed, looks after marketing.
Cipla has four plants located at Patalaganga, Kurkumbh,
Mumbai in Maharashtra and one at Bangalore in Karnataka.
All plants make bulk drugs as well as formulations and have
secured FDA (USA)/ MCA (UK) for most of its plants. Cipla has
crossed the USD 1 billion mark in terms of turnover for the
year 2007-08. While domestic sales grew by more than 13%,
export sales posted a growth of about 23% for the quarter.
Total sales for the year 2007-08 has increased by 16% which
has been in line with the estimates.

Cipla was officially opened on September 22, 1937 when the
first products were ready for the market. The Sunday
Standard wrote: "The birth of Cipla which was launched into
the world by Dr. K.A. Hammed will be a red letter day in the
annals of Bombay Industries. The first city in India can now
boast of a concern, which will supersede all existing firms in
the magnitude of its operations. India has lagged behind in
the march of science but she is now awakening from her
lethargy. The new company has mapped out an ambitious
programme and with intelligent direction and skillful
production bids fair to establish a great reputation in the
East. "

Cipla occupies the third position in the domestic formulations
market and commands a market share of 4.74 per cent.
Cipla currently markets over 350 products and is the market
leader in the generic segment consisting of more than 100
products. The company has strong presence in
antiasthmatic, antibiotics, cardiovascular, anti-AIDS and
anticancer areas. Cipla was the first one to enter into the
competitive generics business and has occupied the
leadership position in this segment. Cipla is the market
leader in anti asthmatic inhaler segment with over 70 per
cent market share. This segment is growing rapidly mainly
due to increase in pollution leading to a spurt in the number
of asthma cases in patients. One of its major products,
Asthalin inhaler has annual sales of more than Rs 30 crore.
The company offers full range of inhalers, rotahalers and
spacers that have gained excellent acceptance among the
asthma patients. The company has introduced CFCfree,
environment-friendly Budecort inhalers for the first time in
India. The CFC- free products have a huge export potential
.The inhaler therapy is preferred to tablets since the dose
required is about 1/ 10 of the oral dose. Moreover, the drug
directly goes to the lung and gives instantaneous relief to
the patient. Cipla will be maintaining a leadership position
due to the entire range of inhalers and with the advantage of
economies of scale. Cipla has presence in niche segments
such as cardiovascular, anti-AIDS, and anticancer. The
company has several products in each of these segments
that will help it maintain a steady growth in the long run.
Cipla is building a strong presence in the anti-AIDS segment
and is offering the entire range of products. The company
has reduced the prices of anti-AIDS drug five times in the
domestic market through technological advancements. The
company's recent offer to supply the cocktail of drugs
consisting of Lamivudine, Nevirapine and Stavudine at US $
350 per patient per year to Medicins Sans Frontieres (MSF)
has given it an international recognition. Cipla has ambitious
plans to supply anti-AIDS drugs at concessional prices to
African countries at a fraction of international price ranging
from US $ 5000-8000 charged by MNCs. The company
manufactures the entire range of anti-AIDS drugs namely:
Lamivudine, Zidovudine, Navirapine, Didanosine and
Stavudine. Cipla has introduced more than 100 new products
in the generic segment. The company has also introduced
branded products in anti-epilepsy, anti- AIDS, psychiatry,
Obesity and NSAIDS segments. These products are likely to
contribute significantly in the current year and will help the
company to improve the market share. Apart from the anti-
aids products, some of the new products launched by the
company are Silagra (Sildenafil citrate) for erectile
dysfunction, Venlor(Venlafaxine) an anti-depressant, Obestat
(Sibutramine) for obesity and Rofixx(Rofecoxib) a Cox-2
inhibitor for acute and chronic pain.


A mix of a company's long-term debt, specific short-term
debt, common equity and preferred equity. The capital
structure is how a firm finances its overall operations and
growth by using different sources of funds. Debt comes in
the form of bond issues or long-term notes payable, Debt
comes in the form of bond issues or long-term notes
payable, while equity is classified as common stock,
preferred stock or retained earnings. Short-term debt such
as working capital requirements is also considered to be part
of the capital structure.

Capital Structure of Cipla: Year

After Year (2000-2007)
Fro To Class Authoriz Issue Paid Up Paid Paid
m of ed d Shares Up Up
shar Capital Capit (Nos) Face capita
e al Valu l

200 200 Equit 175.00 155.6 7772913 2 155.4

7 8 y 6 57 6
200 200 Equit 175.00 155.6 7772913 2 155.4
6 7 y 6 57 6
200 200 Equit 175.00 60.17 2998702 2 59.97
5 6 y 33
200 200 Equit 65.00 60.17 2998702 2 59.97
4 5 y 33

200 200 Equit 65.00 60.17 5997234 10 59.97
3 4 y 9
200 200 Equit 65.00 60.17 5997234 10 59.97
2 3 y 9
200 200 Equit 65.00 60.17 5997234 10 59.97
1 2 y 9
200 200 Equit 65.00 60.17 5997234 10 59.97
0 1 y 9

The aspect that stands out in Cipla's financial statements is

the high profit margins over the last five years. The
operating profit margins ranged around 27 per cent, while
the net profit margins have been around 17 per cent during
the last few years.

Ratios: Net Profit margin

Profit After tax /sales

Year- 2007 Year-2008

= 668.03/3438.24 = 701.43/3997.9
= .1942 or 19.42% = .1755 or


Gross profit/Sales

Year-2007 Year-2008

= 814.93/3438.24
=.2370 or 23.7% =.2126 or

Total Assets Turnover

Sales/Total Assets

Year-2007 Year-2008
= 4413.74/3438.24 =
= 1.28 Times = 1.43 Times

Debt/Equity Ratio
Year-2007 Year -2008
=123.56/3236.27 = 580.53/3755.82
= .038 = .154

Working capital turnover

Sales/Net current Assets
Year-2007 Year-2008
=1.816 = 1.60

Return on Investments(ROI)
EBIT/Net Assets
Year-2007 Year-2008
= 814.93/1893.42 =
=.43 = .34

Return on Equity(ROE)
PAT/ Net worth(Equity)

Year-2007 Year-2008
=668.03/3236.27 = 701.43/3755.82
=.206 or 20.6% = .1867or 18.67%

Leverage Calculation:
Degree of Operating Leverage (DOL)
DFL = 1+ Interest /PBT

Year-2007 Year-2008
= 1+(6.95/807.98) = 1+
= 1.0086 = 1.014