Professional Documents
Culture Documents
PATIL DEPARTMENT
OF BUSINESS MANAGEMENT
Project On
Security Analysis & Portfolio Management
(SAPM)
PHARMACEUTICAL INDUSTRY
Submitted to:
Ramchandra Kumbhar
Roll No.120
Nishaad Deshmukh
Roll No. 90
M.B.A (FINANCE)
SEM IV
The leading players in the Indian pharmaceutical market comprise both India-
based and MNCs. This report provides an insight to the current state of Indian
pharmaceutical industry as well as the evolving trends. This report analyzes the Indian
pharmaceutical industry in light of market size, key drivers and resistors, trends and
competitive positioning in the global market. It also analyzes the competitive landscape of
the industry based on financial and operational (field force strength, R&D spend, exposure to
chronic therapeutic areas and the US pharmaceutical market) parameters.
This report also compares and analyzes the competitive positioning of Indian pharmaceutical
market in the context of global pharmaceutical market. The report also includes profiles of
the top ten companies in the industry and also involves a brief summary of top 11 to 20
players.
The top 10 companies in the Indian pharmaceutical industry were assessed on following
parameters:
• market share in the Indian pharmaceutical market;
• marketed products and therapeutic focus;
• growth strategies and major acquisitions and divestments in this market;
• key partnerships and alliances formed by these companies;
• business-related strengths and weaknesses of these companies, and insights into the
opportunities and threats facing them.
The Indian pharmaceutical market was valued at $7,743m in 2008, an increase of 4.0% over
2007. Business Insights anticipates that Indian pharmaceutical market will grow at a faster
pace than the global pharmaceutical market, approximately at a CAGR of 13.2% during
2009-14 to reach a total value of $15,490m in 2014.
India has emerged as a key destination for global pharmaceutical companies due to its high
growth prospects led by ageing population, changing disease profile, and improving patent
regime and socio-economic conditions.
India started to comply with World Trade Organization's Trade Related Aspects of
Intellectual Property Rights (WTO-TRIPS) agreement and recognized product patents with
the amendment of the Indian Patent Act in January 2005. Indian companies plan to capitalize
on Japanese government initiatives to promote generic drugs to reduce healthcare costs.
Inadequacies in the new patent regime: Provisions related to Sec 3(d) of the Patent
(Amendment) Act 2005 prevent ever-greening of drug patents as it does not allow
patenting new uses of an existing drug. In addition, compulsory licensing allows Indian
players to continue manufacturing generics of patented products for export to
underdeveloped countries.
Lack of infrastructure: Problems related to frequent power cuts and lack of proper transport
infrastructure will slowdown the growth of the industry.
Limited funds: Limited funding from FIs, venture capitalists and the government may
slowdown the development of biotechnology industry in India.
Regulatory hurdles: Increasing due diligence and compliance with standards leads to cost
overrunning and delay in new product launches.
Intense competition: Strong pricing competition among local manufacturers leads to low
margins and limited capital to support R&D. Competition will further intensify from big
generic players participating in the Indian market to leverage the cost advantage and large
resource pool.
Before Independence
Indian pharmaceutical industry has grown over a period of time and has seen many ups and
down during its evolution. The architect of the Indian pharmaceutical industry would be
Acharya P.C.Ray. In the year 1901 Acharya P.C.Ray founded Bengal Chemicals and
Pharmaceuticals Works Ltd. It started by making drugs from indigenous materials and then
went on to manufacture quality chemicals, drugs, pharmaceuticals and employed local
technology, skills and resources. But prior to independence bulk of the drugs were imported
and very negligible quantity was manufactured in India.
Just after Independence many Multinational Companies set base in India as trading
companies and later moved to repacking of finished formulations within the country. They
then progressed to manufacture of bulk drugs. The turnover of Indian pharmaceutical
industry was around 10 cores then and the over reliance on imports continued. The
Multinational Corporations controlled 70 to 80 per cent of the market. The prices of the
medicines were very high; quiet out of reach for the Indian population .Indian pharmaceutical
industry was still regulated by product patent regime, a legacy of the British colonial era. The
government of India took a historic decision by introducing the Patent Act 1970 that allowed
only process patent and put an end to product patent in the field of food, agrochemicals and
pharmaceuticals.
Post 2005
As part of India's commitment to WTO, India issued the patent ordinance, to recognize
foreign product patents from January 1, 2005, the conclusion of a 10 year process. Under
these circumstances Indian pharmaceutical manufacturers would not be able to manufacture
patented drugs. To meet the challenges of this new initiative, the industry started probing new
business models
The focus of the industry shifted from process improvisation to drug discovery and research
and development.
The Pharmaceutical industry is expected to grow at a rate of 10.8 per cent and
reach $168 billion in the year 2009.
India and China are expected to account for nearly 40 per cent of the outsourced
market for dynamic pharmaceutical constituents, finished dosage formulations and
intermediates.
Experts believe the combined effect of increase in business due to many premium drugs
coming of patent and the increased confidence of international companies on India due to the
product patent regime would mean a boom for the pharmaceutical ind
1 Pfizer 7.5%
4 AstraZeneca 4.4%
5 BMS 4.1%
6 Novartis 3.9%
7 Johnson 3.8%
Strengths
Cost Effective
Strong Manufacturing Base
Availability of high quality skilled workforce.
Excellent marketing and distribution network
Diverse ecosystem
Weaknesses
Opportunities
Threats
Product patent regime is a major threat to domestic industry unless the industry takes
up R&D initiative aggressively.
Drug Price Control Order puts undue pressure on product prices, affecting the
profitability of the pharmaceutical companies.
The new MRP based excise duty regime threatens the business of smaller
pharmaceutical companies.
Sector: Pharmaceuticals
Listed On: Bombay Stock Exchange & National Stock Exchange, Mumbai
Company Profile
Ranbaxy’s continued focus on R&D has resulted in several approvals in developed markets
and significant progress in New Drug Discovery Research. The Company’s foray into Novel
Drug Delivery Systems has led to proprietary "platform technologies", resulting in a number
of products under development. The Company is serving its customers in over 125 countries
and has an expanding international portfolio of affiliates, joint ventures and alliances, ground
operations in 46 countries and manufacturing operations in 7 countries.
Though anti-infectives remains its core business (61% of revenues), Ranbaxy`s R&D thrust
has resulted in the company having the most enviable R&D pipeline in the country.
Moreover, Ranbaxy`s foray into Novel Drug Delivery Systems (NDDS) has helped it expand
its business (Cipro-OD).
Ranbaxy was perhaps the first domestic pharmaceutical to make a systematic attempt
to reach to the world's biggest pharmaceutical markets. This push overseas came about even
while the domestic market was growing fast, and held considerable promise. In the domestic
Stock Analysis
Price Movement
The Price Movement of Ranbaxy indicates that there is increase share price of Share from
December 2008 to December 2009. In 2008 the share 0f Ranbaxy share is decreasing because
in the first quarter company profit was decrease. Ranbaxy Labs has shown decent growth in
Performance Chart
RPI's net profit in 2000 was $1.18 million against a loss of $3.34 million the previous year
(RPI's performance in 2001 has not yet been announced). The company is likely to rake in
significant profits in the years to come. In this context, it is significant that Ranbaxy's export
turnover in 2001 was marginally higher than the domestic turnover. Export sales are likely to
grow by over 20 per cent in the next few years against a 10 per cent improvement in domestic
sales. Realisations per unit of sale are likely to be significantly higher in the export market,
especially the US. Compared to its peers such as Cipla, Ranbaxy earns a disappointing 15-16
per cent on the capital deployed in the business. This is largely because it has taken the
company a while to generate returns in its overseas markets. But now that Ranbaxy seems to
have turned the corner, the return on the capital deployed in its business should improve
dramatically over the next few years.
There was considerable increase in revenue due to FTF products from the US
market. Revenue increased from Canadian market due to low base and more cost
containment measures. The company has been stepping up day-one launches,
intensifying its focus on tendering business and restructuring sales and marketing
Ownership Pattern
Ownership Pattern
Shareholding Pattern %
35%
Promoters
17%
FIIS
23%
Institutions
25%
Public & Others
Ranbaxy Labs good for long term investment. The company has a robust growth model
and the recent fall in valuations makes the stock even more attractive. There are some
issues which are a big concern for the company, however, as the stock markets will stabilize,
the Ranbaxy stock will also bounce back. There are three major bad
One major issue in mind of investors in the exit of promoters. Promoters have sold their stake
to Pharmaceutical major Daiichi from Japan. Technical experts believe the issues in US
markets and pending litigations are behind the promoters exit. The future of Ranbaxy will
now depend on the plans Japanese company has for Ranbaxy. The parent company hasn’t
given any solid statement about the future plans for Ranbaxy. Once the announcements are
made, investor sentiment will turn positive.
Mutual funds have been net sellers in the counter for the past few months. This is also an
alarming sign for the company’s’ future stock valuation. However exit of mutual funds could
be due to the recent stock market melt-down.
US operations had a significant share in company’s sales during the past three years. FDA
banned certain drugs made by the company, but soon the ban was lifted. The company
management says that the drug cartel in US is behind the issue. The company has also asked
the government to support its case with US regulator.
Some analysts were even talking about the Japanese company Daiichi backing-off from the
deal after the recent fall in stock markets. The valuation of the company has fallen sharply
and the Japanese company has paid a premium price to promoters. In addition, the stake
acquired from stock holders was also at a premium to market price.
Now that the shareholders have started receiving money from Karvy, some buying should
come at lower levels. Karvy delayed the payments and has paid additional interest to the
shareholders (nearly Rs 5 per share).
Ranbaxy Labs has shown decent growth in the past five years. The company has presence in
all major markets across the world.
The stock used to be a safe bet for last many years. Things haven’t changed in terms of the
business of the company; however, much has changed in the stock markets. Investors are
worried about the future of the company. And they have a reason to worry; the stock hasn’t
offered the returns everyone expected
Shares in leading Indian drug maker Ranbaxy Laboratories fell as much as 9 percent on
Monday after it posted a huge first-quarter loss and forecast a second year of losses, hit by
derivatives losses and falling revenue following a U.S. import ban.
Ranbaxy, in which Japan's Daiichi Sankyo last year bought a controlling 64 percent stake,
said late on Friday it expected net losses of about $150 million in 2009 and also said revenue
would fall 9 percent to $1.4 billion.
The company, which has about $1.4 billion in outstanding hedges, booked for losses of 9.18
billion rupees ($184 million) in its first quarter ended March. It is also weighed down by
troubles in the U.S. market and price pressures Europe.
Bottom Line
We expect Ranbaxy to regain its pricing power and resume to growth for the
years 2010 onwards, after the difficult year 2005 and beginning of 2006.
Therefore our EPS estimates assume that Ranbaxy will be able to earn an EPS in
2010 about as high as 2004 and that EPS will grow at about 10% from then onwards.
We put our P/E ratio estimate at 18 for Ranbaxy, because the company certainly has
the potential to grow, but it is growing much slower, than for example the IT service
providers and its earnings are more volatile, as its margins can be under significant
pressure.
Therefore our reasonable P/E ratio for 2010 is 22, which is above the market
average, but below that of pure growth stocks.
Performance Chart
Business Overview
Dr. Reddy's produces branded products to treat cancer, diabetes, cardiovascular disease,
inflammation and bacterial infection, all major growth categories in terms of demand for
medications. It also produces Active pharmaceutical ingredients (API)'s and intermediates
and finished dosage forms and biologics products and markets them globally, with a focus on
India, the United States, Europe and Russia. The company is vertically integrated and uses
In the quarter ended December 31 2008, the total revenue increased to Rs. 18.4 billion as
against Rs. 12.3 billion in Q3 FY2008 reporting an increase of 49%. The increase is mainly
due to the launch of the authorized generic version of GlaxoSmithKline’s migraine drug
Imitrex in November 2008[10], RDY being the only generic manufacturer of the drug in U.S.
From FY2007 to FY2008, the total revenue decreased from Rs 65,095.1 Mn to Rs 50,005.6
Mn by 23.18% and net profit also showed a decline of 49.84% from Rs 9326.8 Mn to Rs
4,678 Mn. The decline in the net profit was greater than that in total revenue due to an
increase of 43% in the research and development cost from Rs. 2,463 million in 2006–07 to
Rs. 3,533 million in 2007–08. From FY2005 to FY2007, the total revenue grew from Rs
Earnings per share (EPS) are the earnings returned on the initial investment amount. The
EPS of Ranbaxy in December 2009 was Rs.4.43 where as EPS of Dr.Reddy is 9.89. In
indicates that share price of Dr.Reddy is high as Compared to Ranbaxy .In the first quarter
financial year 2009-2010 the Ranbaxy has showing losses.
The Price Earning Share of Dr.Reddy was Rs.26.12 in the year 2009 Where as Ranbaxy is
nil. If the Price Earnings ratio is high it indicates negative impact for Company. If The Price
Earnings ratio is loss it indicates positive impact for Company.
DR.REDDY RANBAXY
1,255.65 /
52 W H/L 357.00 538.00 / 133.15
Ratios
PE 26.14 --
Indian 4,35,17,812 --
Foreign -- 26,87,11,323
• Dr. Reddy's strong position in emerging Asian markets makes for substantially faster
growth compared with Ranbaxy.
• After analyzing financial statements of both the companies, it indicates that Dr.
Reddy is showing more profit as compare to Ranbaxy. Dr. Reddy Laboratories is one
of the best-positioned providers of generic drugs.
• In the year 2009, Ranbaxy has suffered huge losses in the overseas market as well as
share price of Dr.Reddy is high as compared to Ranbaxy it shows that Dr.Reddy Labs
good for long term investment.
• The two segments of Dr Reddy’s – Global Generics and Pharmaceutical Services and
Active Ingredients (PSAI) recorded revenues of $253 million and $113 million,
respectively.
• In the Current scenario investing in Dr.Reddy has better option than Ranbaxy.