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Financial Modeling of Cipla

Corporate Bridge Consultancy Pvt. Ltd.


Pranav Haldar Goa Institute of Management PGDM 2012-14

Financial Modeling of Cipla


July 1, 2013

FINANCIAL MODELING OF CIPLA

SUMITTED TO Dr. Abhishek Ranga Faculty Guide

BY Pranav Haldar 2012224

July 1, 2013

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Financial Modeling of Cipla


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Contents
Acknowledgement .................................................................................................................................. 4 Executive Summary................................................................................................................................. 5 Background ............................................................................................................................................. 6 Timeline................................................................................................................................................... 6 Financial Modeling - Industry Analysis.................................................................................................... 7 Financial Modeling - Historical Ratio Analysis ........................................................................................ 8 Financial Modeling - Financial Projections using Excel ........................................................................... 9 Financial Modeling - Professional Valuation using Excel ...................................................................... 10 Financial Modeling - Research Report .................................................................................................. 11 Appendix ............................................................................................................................................... 12 Industry Analysis Submission ................................................................................................................ 12 Historical Ratio Analysis Submission ..................................................................................................... 12 Financial Projection using Excel Submission ......................................................................................... 12 Professional Valuation using Excel Submission .................................................................................... 12 Research Report Submission ................................................................................................................ 12

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Acknowledgement
I would like to thank Corporate Bridge Consultancy Pvt. Ltd. for giving me the opportunity to work as a Research Intern in Corporate Bridge Internship Program on a Live Project titled Financial Modeling of Cipla from 24th April 2013 to 23rd June 2013. I would also like to thank Dr. Abhishek Ranga, my faculty guide to whom I reported during the internship duration, and Prof. Amiya Sahu for sharing their knowledge and helping me out during the entire duration of internship. Finally, I would like to extend my gratitude to Mr. Dheeraj Vaidya (ex CLSA India, JPMorgan), Mr.
Mehul Shah (Corporate Bridge Research Team) and Ms. Akansha Jain (Corporate Bridge Research Team) for providing me timely feedback on my work and the entire support staff at Corporate

Bridge for solving all the technical and non-technical queries.

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Executive Summary
The main purpose of this internship was to provide an excel based foundation on Financial Concepts and prepare a professional research analyst report on a LIVE company which in my case was Cipla. My project was to prepare a Financial Model of Cipla and recommend BUY/SELL. Since Financial Modeling and Valuation are the key "building block" skills required in today's business, banking and financial services thus I chose Financial Modeling of Cipla as my Live Project. The project was divided into 5 Assignments & 4 Online Tests. The project was graded on the basis of my performances in the Assignments and Online Tests. After completing each milestones, I submitted my assignment for Assessments, Review and Feedback by the Corporate Bridge Research Team. Graded certificate will be awarded only after the completion of the full project and my project on Financial Modeling was to be completed within two months period.

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Background
Summer Internship Program (SIP) Highlights: Summer Internship is a program designed by experts to equip one with industry endorsed skill sets in the area of Financial Modeling | Equity Research | Investment Banking | M&A | IPO | Private Equity etc. These are the sets of skills which currently owned by professionals in big financial companies like JP Morgan, Morgan Stanley, Credit Suisse, Goldman Sachs etc. One will undergo training in one of these areas and finish the projects assigned through Industry focused guidance with Corporate Bridge, India's largest e-learning IIM-IIT Alumni venture in Financial Research and Banking. A brief on Internship Program of Corporate Bridge: One will be given Internship and Live Project in the area of Investment Banking, Equity Research, Financial Modeling or Project Finance. These Programs have been approved by CFA Institute, USA. And these are the only 4 programs in all over India which have been approved by CFA Institute, USA. One will undergo hands-on performance-oriented projects focusing on high-end financial skill sets like Financial Modeling, Valuation, Merger Acquisitions, IPO, Pitch Book etc. These are the skill sets used by companies like JP Morgan, Deustche Bank, Goldman Sach, ICICI Securities and Banks.

Timeline
Module 1 2 3 4 5 Milestones Prepare Industry Report Accounting Historical Ratio Analysis Corporate Finance Financial Modeling of Cipla Valuations Financial Modeling with Valuations of Cipla Financial Modeling Cipla Final Recommendation Report Timelines 24 April-5 May 2013 6 May-15 May 2013 16 May-30 May 2013 31 May-9 June 2013 10 June-23 June 2013 Type Assignment Online Test Assignment Online Test Assignment Online Test Assignment Online Test Assignment

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Financial Modeling - Industry Analysis


Prepared an Industry analysis report. The main purpose of this report is to do the Industry analysis of the Sector under consideration. In my case it is the Pharmaceutical industry. Content and information considered in my Industry analysis report is as follows: i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. xiii. xiv. xv. xvi. xvii. xviii. Market Size, % of GDP etc Supply & Demand Consumer Behavior Production Analysis Cost analysis Perfect competition Monopoly or Oligopoly Factors of production Interest Rates & Inflation and its impact Economy Impact (GDP, Interest Rates, Budget etc.) Major Players Market Size Comparison with Developed nations Drivers (Demand, Revenue, Cost etc.) Foreign Investments Govt. Undertakings Future of the Sector SWOT Analysis

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Financial Modeling - Historical Ratio Analysis


It included the understanding of Financial Statement Analysis. The typical approach to financial analysis included professional measures like Vertical Analysis, Horizontal Analysis and Ratio Analysis. However, before the starting calculations, the key challenge was to get the right data from various sources. This assignment consisted of two parts: i. Calculating the ratios in the provided Excel Template and fully appreciating its general trends ii. Commenting on Interpretation of Historical Ratios to be provided in the Word Template The interpretation included the following: i. ii. iii. iv. v. vi. Horizontal Analysis Vertical Analysis Solvency Ratios Turnover Ratios Profitability Ratios Cash Flow Ratios

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Financial Modeling - Financial Projections using Excel


In this assignment I made financial projections using Excel by learning financial modeling forecasting techniques. The Excel being made consisted the following: i. ii. Setting up the core financial statements Working capital, Depreciation & amortization (PP&E), and Other balance sheet items. iii. iv. v. vi. vii. viii. ix. Shareholders equity & Shares Outstanding Debt & Interest Controlling circular references using automated circuit breakers Balancing the model Scenario analysis Creating forms in Excel Understanding the financials projections

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Financial Modeling - Professional Valuation using Excel


After completing Assignment 2 Ratio analysis and Assignment 3 Financial Projections using Excel, we then move to Assignment 4 Valuations, that is in continuation of previous set of assignments Equity Valuation is the process of estimating the potential market value of a financial asset or liability. Valuations are required in many contexts including investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability, and in litigation. Valuations were done using two methods: i. Intrinsic Valuation Method (DCF) which means primarily determines the value by estimating the expected future earnings from owning the asset discounted to their present value ii. Relative value models determine the value based on the market prices of similar assets. Discounted Cash Flows i. Calculate FCFF as discussed in class and the handbook ii. Apply a suitable WACC post the calculation of the capital structure iii. Find the Enterprise Value of the Firm iv. Find Equity Value of the Firm after the deduction of Net Debt v. Divide Equity Value of the Firm by the total number of shares to arrive at Intrinsic Fair Value of the company. vi. Do sensitivity analysis of WACC with Share Price Relative Valuations i. Identify the comparables based on the business, Market Capitalization and other filters ii. Identify the suitable valuation multiple to be used for this business. iii. Use the average valuation multiple to find the valuation of Pantaloon. iv. Suggest Undervalued or Over-valued. Target Price i. Based on DCF ii. Based on Relative Valuations iii. Recommend whether to BUY or SELL

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Financial Modeling - Research Report


The main purpose of this assignment is to write an Investment thesis in a clear and structured way. Report considers the following information: i. Company Overview ii. iii. iv. v. vi. vii. viii. ix. x. Sector Report Company Details Key Concerns Financial Snapshot Comment on Ratios Valuation Key Risks Accounting Gimmicks Appendix (if any)

Report Structure i. First Page - Company description, Key investment argument, Key risks to our view ii. Third page onwards - Industry Analysis (already completed) iii. Company Financials Summary with Ratio Analysis of historical and forecasts (Key Assumptions) a. In between include graphs & charts prepared for the same b. Also include table for important ratios c. Discussion on EBITDA, EBIT, Gross Margins, key segments, ROE etc iv. Price Target Derivation - A Discussion on Valuations a. DCF discussion (small one) with a table for FCFF & WACC (only if you have done DCF, otherwise leave blank) b. Also include sensitivity table c. Relative Valuations discussion (comparable analysis table) d. Include tables, charts (P/BV, PE etc if made) v. Summary Sheet a. Income Statement Synopsis b. Balance Sheet Synopsis c. Cash Flow synopsis

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Appendix
Please find all the assignments and excel sheets submitted by me during the internship for evaluation attached in the mail and also embedded in the below provided links.

Industry Analysis Submission

Assignment 1.pdf

Historical Ratio Analysis Submission

Assignment 2 - Ratio Analysis.xlsx

Assignment 2.pdf

Financial Projection using Excel Submission

Assignment 3 Financial Projections using Excel .xlsx

Professional Valuation using Excel Submission

Assignment 4 Valuation using Excel.xlsx

Research Report Submission

Assignment 5 Report Writing.pdf

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