1

---------------------------------- -------------------- ---------------------------------- -------------------------------------------------------

Chapter 1 - Introduction
---------------------------------------------------------------------- --------------------------------------------------------------------------

Indian Pharmaceutical Industry The Indian Pharmaceutical Industry today is in the front rank of Indias science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously.

Playing a key role in promoting and sustaining development in the vital field of medicines, Indian Pharma Industry boasts of quality producers and many units approved by regulatory authorities in USA and UK. International companies associated with this sector have stimulated, assisted and spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world.

The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the complete range of pharmaceutical formulations, i.e., medicines ready for consumption by patients and about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production of pharmaceutical formulations.

ADVANTAGE INDIA

1. Competent workforce: India has a pool of personnel with high managerial and technical competence as also skilled workforce. It has an educated work force and English is commonly used. Professional services are easily available. 2. Cost-effective chemical synthesis: Its track record of development, particularly in the area of improved cost-beneficial chemical synthesis for various drug molecules is excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk drugs. 3. Legal & Financial Framework: India has a 53 year old democracyand hence has a solid legal framework and strong financial markets. There is already an established international industry and business community. 4. Information & Technology: It has a good network of world-class educational institutions and established strengths in Information Technology. 5. Globalizations: The country is committed to a free market economy and globalization. Above all, it has a 70 million middle class market, which is continuously growing. 6. Consolidation: For the first time in many years, the international pharmaceutical industry is finding great opportunities in India. The process of consolidation, which has become a generalized phenomenon in the world pharmaceutical industry, has started taking place in India.

3 SWOT Analysis

Strengths Cost Competitiveness Well Developed Industry with Strong Manufacturing Base Access to pool of highly trained scientists, both in India and abroad. Strong marketing and distribution network Rich Biodiversity Competencies in Chemistry and process development. Weaknesses Low investments in innovative R&D and lack of resources to compete with MNCs for New Drug Discovery Research and to commercialize molecules on a worldwide basis. Lack of strong linkages between industry and academia. Low medical expenditure and healthcare spend in the country Production of spurious and low quality drugs tarnishes the image of industry at home and abroad. Shortage of medicines containing psychotropic substances. There are 4000 such brands of medicines that fall under the Narcotics Drugs and Psychotropic Substances (NDPS) Act, 1985.Under a clause of this Act, the retailer has to sign the consignment note provided by the stockist. The police check this note regularly to prevent these medicines getting diverted to the drug mafia and they can arrest the retailer if the signatures are under suspect. To protest against this clause, the retailers have stopped stocking these medicines, some of which is life saving.

4 Opportunities Significant export potential. Licensing deals with MNCs for NCEs and NDDS. Marketing alliances to sell MNC products in domestic market. Contract manufacturing arrangements with MNCs Potential for developing India as a centre for international clinical trials Niche player in global pharmaceutical R&D. Supply of generic drugs to developed markets. Threats Product patent regime poses serious challenge to domestic industry unless it invests in research and development R&D efforts of Indian pharmaceutical companies hampered by lack of enabling regulatory requirement. For instance, restrictions on animal testing outdated patent office. Drug Price Control Order puts unrealistic ceilings on product prices and profitability and prevents pharmaceutical companies from generating investible surplus. Lowering of tariff protection The new MRP based excise duty regime threatens the existence of many small scale pharma units, especially in the states of Andhra Pradesh and Maharashtra, that were involved in contract manufacturing for the larger, established players. These companies are now shifting their manufacturing from these states to states like J&K that enjoy tax holidays.

5 Identified Problem

The economy worldwide is facing severe recession and the current recession is very severe and prolonged one after second world war. The share market all along the world is down to a significant level compared to the levels it was before the current world wide recession. There is pressure on all the industry due to liquidity crunch. The stock prices are reduced to an extent more than 50% over past 12 months. Raising capital required for the business expansion has almost stopped with share market crash. The working capital required for the operations dried up as banks are not willing to lend as the banks are risk awesome and future of the economy is blink.

Need For Study The capital market returns are negative since Jan 2008. The market capitalization of several firms are beaten down to as much as more than 50%. There is continued down trend in the market and returns are uncertain and investment in the capital market are at greater risk which was never seen post word war II. There is need for investors to asses the risk associated with there investments under current market scenario, and to decide on continued investing and to take fresh investment decisions or reallocate there current portfolio. Objectives and Scope

The objectives of the present studies are to find out past performance of top Indian pharmaceutical companies. To identify and group them in to stable and performers and under performers. The objective assessment is carried out through ratio analysis for the period of 2004 to 2008. Deliverables Identifying performers and under performers among the top Indian pharmaceutical companies and classifying them for investment decisions.

6
-------------------------------------------------------------------- ------------------------------------------------- --------

Chapter 2 Literature Survey

------------------------------------------------------------------------ ---------------------------------------------------------

A ratio: Is the mathematical relationship between two quantities in the form of a fraction or percentage.

Ratio analysis: is essentially concerned with the calculation of relationships which after proper identification and interpretation may provide information about the operations and state of affairs of a business enterprise.

The analysis is used to provide indicators of past performance in terms of critical success factors of a business. This assistance in decision-making reduces reliance on guesswork and intuition and establishes a basis for sound judgement.

Types of Ratios

A: Liquidity Ratios Liquidity refers to the ability of a firm to meet its short-term financial obligations when and

as they fall due.

y

The main concern of liquidity ratio is to measure the ability of the firms to meet their short-

term maturing obligations. Failure to do this will result in the total failure of the business, as it would be forced into liquidation.

7 Current Ratio The Current Ratio expresses the relationship between the firms current assets and its current liabilities. Current assets normally includes cash, marketable securities, accounts receivable and inventories. Current liabilities consist of accounts payable, short term notes payable, short-term loans, current maturities of long term debt, accrued income taxes and other accrued expenses (wages).

The rule of thumb says that the current ratio should be at least 2, that is the current assets should meet current liabilities at least twice. Quick Ratio Measures assets that are quickly converted into cash and they are compared with current liabilities. This ratio realizes that some of current assets are not easily convertible to cash e.g. inventories. The quick ratio, also referred to as acid test ratio, examines the ability of the business to cover its short-term obligations from its quick assets only (i.e. it ignores stock). The quick ratio is calculated as follows

Clearly this ratio will be lower than the current ratio, but the difference between the two (the gap) will indicate the extent to which current assets consist of stock.

B: Asset Management/Activity Ratios If a business does not use its assets effectively, investors in the business would rather take their money and place it somewhere else. In order for the assets to be used effectively, the business needs a high turnover.

8 Unless the business continues to generate high turnover, assets will be idle as it is impossible to buy and sell fixed assets continuously as turnover changes. Activity ratios are therefore used to assess how active various assets are in the business.

Average Collection Period The average collection period measures the quality of debtors since it indicates the speed of their collection.

The shorter the average collection period, the better the quality of debtors, as a short

collection period implies the prompt payment by debtors.

y

The average collection period should be compared against the firms credit terms and policy

to judge its credit and collection efficiency.

y

An excessively long collection period implies a very liberal and inefficient credit and

collection performance.

The delay in collection of cash impairs the firms liquidity. On the other hand, too low a collection period is not necessarily favourable, rather it may indicate a very restrictive credit and collection policy which may curtail sales and hence adversely affect profit.

Inventory Turnover This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business. It indicates the efficiency of the firm in selling its product. It is calculated by dividing he cost of goods sold by the average inventory.

9 Total Assets Turnover Asset turnover is the relationship between sales and assets

y y

The firm should manage its assets efficiently to maximise sales. The total asset turnover indicates the efficiency with which the firm uses all its assets to

generate sales.
y

It is calculated by dividing the firms sales by its total assets.

Generally, the higher the firms total asset turnover, the more efficiently its assets have been

utilised.

Fixed Asset Turnover The fixed assets turnover ratio measures the efficiency with which the firm has been using its fixed assets to generate sales. It is calculated by dividing the firms sales by its net fixed assets as follows:

Generally, high fixed assets turnovers are preferred since they indicate a better efficiency in fixed assets utilisation.

C: Financial Leverage (Gearing) Ratios The ratios indicate the degree to which the activities of a firm are supported by creditors

funds as opposed to owners.

10
y

The relationship of owners equity to borrowed funds is an important indicator of financial

strength.
y

The debt requires fixed interest payments and repayment of the loan and legal action can be

taken if any amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicates a cushion (surplus) which shields creditors against possible losses from default in payment. The greater the proportion of equity funds, the greater the degree of financial strength. Financial leverage will be to the advantage of the ordinary shareholders as long as the rate of earnings on capital employed is greater than the rate payable on borrowed funds. The following ratios can be used to identify the financial strength and risk of the business.

Equity Ratio The equity ratio is calculated as follows:

A high equity ratio reflects a strong financial structure of the company. A relatively low

equity ratio reflects a more speculative situation because of the effect of high leverage and the greater possibility of financial difficulty arising from excessive debt burden.

Debt Ratio This is the measure of financial strength that reflects the proportion of capital which has been funded by debt, including preference shares.

This ratio is calculated as follows:

11 With higher debt ratio (low equity ratio), a very small cushion has developed thus not giving creditors the security they require. The company would therefore find it relatively difficult to raise additional financial support from external sources if it wished to take that route. The higher the debt ratio the more difficult it becomes for the firm to raise debt.

Debt to Equity ratio This ratio indicates the extent to which debt is covered by shareholders funds. It reflects the relative position of the equity holders and the lenders and indicates the companys policy on the mix of capital funds. The debt to equity ratio is calculated as follows:

Times Interest Earned Ratio This ratio measure the extent to which earnings can decline without causing financial losses to the firm and creating an inability to meet the interest cost.

The times interest earned shows how many times the business can pay its interest bills from

profit earned.
y

Present and prospective loan creditors such as bondholders, are vitally interested to know

how adequate the interest payments on their loans are covered by the earnings available for such payments.
y

Owners, managers and directors are also interested in the ability of the business to service

the fixed interest charges on outstanding debt.

The ratio is calculated as follows:

12 D: Profitability Ratios Profitability is the ability of a business to earn profit over a period of time. Without profit, there is no cash and therefore profitability must be seen as a critical success factors.

y y

A company should earn profits to survive and grow over a long period of time. Profits are essential, but it would be wrong to assume that every action initiated by

management of a company should be aimed at maximizing profits, irrespective of social consequences.

Profitability is a result of a larger number of policies and decisions. The profitability ratios show the combined effects of liquidity, asset management (activity) and debt management (gearing) on operating results. The overall measure of success of a business is the profitability which results from the effective use of its resources.

Gross Profit Margin Normally the gross profit has to rise proportionately with sales. It can also be useful to compare the gross profit margin across similar businesses although

y y

there will often be good reasons for any disparity.

Net Profit Margin This is a widely used measure of performance and is comparable across companies in similar industries. The fact that a business works on a very low margin need not cause alarm because there are some sectors in the industry that work on a basis of high turnover and low margins, for examples supermarkets and motorcar dealers. What is more important in any trend is the margin and whether it compares well with similar businesses.

13

Return on Investment (ROI) Income is earned by using the assets of a business productively. The more efficient the production, the more profitable the business. The rate of return on total assets indicates the degree of efficiency with which management has used the assets of the enterprise during an accounting period. This is an important ratio for all readers of financial statements. Investors have placed funds with the managers of the business. The managers used the funds to purchase assets which will be used to generate returns. If the return is not better than the investors can achieve elsewhere, they will instruct the managers to sell the assets and they will invest elsewhere. The managers lose their jobs and the business liquidates.

Return on Equity (ROE) This ratio shows the profit attributable to the amount invested by the owners of the business. It also shows potential investors into the business what they might hope to receive as a return. The stockholders equity includes share capital, share premium, distributable and non-distributable reserves. The ratio is calculated as follows:

Earning Per Share (EPS) Whatever income remains in the business after all prior claims, other than owners claims (i.e. ordinary dividends) have been paid, will belong to the ordinary shareholders who can then make a decision as to how much of this income they wish to remove from the business in the form of a dividend, and how much they wish to retain in the business. The shareholders are particularly

14 interested in knowing how much has been earned during the financial year on each of the shares held by them. For this reason, an earning per share figure must be calculated. Clearly then, the earning per share calculation will be:

E: Market Value Ratios These ratios indicate the relationship of the firms share price to dividends and earnings. Note that when we refer to the share price, we are talking about the Market value and not the Nominal value as indicated by the par value.

For this reason, it is difficult to perform these ratios on unlisted companies as the market price for their shares is not freely available. One would first have to value the shares of the business before calculating the ratios. Market value ratios are strong indicators of what investors think of the firms past performance and future prospects.

Dividend Yield Ratio The dividend yield ratio indicates the return that investors are obtaining on their investment in the form of dividends. This yield is usually fairly low as the investors are also receiving capital growth on their investment in the form of an increased share price. It is interesting to note that there is strong correlation between dividend yields and market prices. Invariably, the higher the dividend, the higher the market value of the share. The dividend yield ratio compares the dividend per share against the price of the share and is calculated as:

15 Notice a healthy increase in the yield from 2000 to 2002. The main reason for this is that the dividend per share increased while at the same time, the price of a share dropped.

This is fairly unusual because share prices usually increase when dividends increase. However there could be number of reasons why this has happened, either due to the economy or to mismanagement, leading to a loss of faith in the stock market or in this particular stock.

Normally a very high dividend yield signals potential financial difficulties and possible dividend payout cut. The dividend per share is merely the total dividend divided by the number of shares issued. The price per share is the market price of the share at the end of the financial year.

Price/Earning Ratio (P/E ratio)

P/E ratio is a useful indicator of what premium or discount investors are prepared to pay or

receive for the investment.

y

The higher the price in relation to earnings, the higher the P/E ratio which indicates the

higher the premium an investor is prepared to pay for the share. This occurs because the investor is extremely confident of the potential growth and earnings of the share.

The price-earning ratio is calculated as follows:

1. 2.

High P/E generally reflects lower risk and/or higher growth prospects for earnings. The above ratio shows that the shares were traded at a much higher premium in 2000 than

were in 2002. In 2000 the price was 26.8 times higher than earnings while in 2002, the price was only 12 times higher.

Dividend Cover

16
y

This ratio measures the extent of earnings that are being paid out in the form of dividends,

i.e. how many times the dividends paid are covered by earnings (similar to times interest earned ratio discussed above).
y

A higher cover would indicate that a larger percentage of earnings are being retained and re-

invested in the business while a lower dividend cover would indicate the converse.

Dividend pay-out ratio This ratio looks at the dividend payment in relation to net income and can be calculated as follows:

Note: Even though the dividend yield has increased, the dividend payout ratio has reduced, showing that a lower proportion of earnings were paid out as dividend. The ratio has only reduced slightly, however, from 50.7% in 2000 to 49.4% in 2002. Generally, the low growth companies have higher dividends payouts and high growth companies have lower dividend payouts.

17
----------------------------- ------------------------------------------------ ------------------------------------------------

Chapter 3 Methodology
-------------------------- -------------------------------------------------- -----------------------------------------------------

Type of Project: The current study is of descriptive and would have secondary data collection from various sources especially from the annual reports of top Indian pharmaceutical companies.

Tools for data analysis:

Computation of various finical ratios such as profitability, liquidity, efficiency, gearing, investment using standers known formulas and techniques and plotting the rations to find the spread among the companies studied to identify those who have ratios which are well with in acceptable range for better performance and those who would require improvements in the ratios.

18
------------------------------------------ -----------------------------------------------------------------------------------

Chapter 4 Data Analysis and Interpretations

------------------------------- --------------------------------------------------------------------------------------------------

LIQUIDITY RATIO: Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due. The main concern of liquidity ratio is to measure the ability of the firms to meet their shortterm maturing obligations. Failure to do this will result in the total failure of the business, as it would be forced into liquidation.

Financial Ratio Current Ratio

Formula

Quick Ratio

Measurements A measure of short-term Current Assets / Current liquidity. Indicates the ability of liabilities entity to meet its short-term debts from its current assets A more rigorous measure of short-term liquidity. Indicates the Current Assets less inventory ability of the entity to meet / Current liabilities unexpected demands from liquid current asses

19 Table 1 : Current ratio analysis Company Name Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck 2004 1.12 1.44 1.03 1.84 0.97 2.20 1.19 1.19 2.11 1.04 1.37 1.10 1.14 1.30 1.63 1.07 1.52 3.22 1.18 1.06 1.90 2.27 1.47 0.51 1.15 Current Ratio 2005 2006 2007 1.38 1.34 1.92 1.55 1.87 1.96 0.75 0.60 0.57 1.20 1.31 1.35 1.11 1.24 1.28 2.33 1.84 2.48 1.33 1.41 1.69 1.11 1.06 1.33 3.43 2.64 2.42 0.50 0.61 0.56 0.98 1.25 1.68 1.65 1.32 0.92 0.88 0.87 0.85 0.96 1.05 1.16 0.70 1.21 0.85 1.14 1.31 1.60 0.68 1.05 0.65 2.74 2.53 2.74 0.96 0.79 1.25 0.80 1.04 1.13 2.70 2.54 1.70 2.38 1.95 1.59 1.56 1.66 1.82 0.79 0.97 1.36 1.13 1.11 0.76

2008 1.32 1.86 0.45 1.16 1.06 2.13 1.88 1.13 2.29 0.74 0.74 1.17 0.78 1.26 0.94 1.19 0.57 2.70 0.83 1.39 2.15 1.69 1.12 1.26 1.04

Current Ratio 2004 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00

Current Ratio 2005

Current Ratio 2006

Current Ratio 2007

Current Ratio 2008

Su

Ph ar m a Ci pl a G SK D R a RL nb ax y D iv is Lu pi Pi n r G ama le nm l ar Ca k di B i la oc A on va nt i Pf s iz er M at rix A zt T o ra rre n W t A ye ur tn ob in N do W o va oc tis kh a D rd t ish m a IP n C A FD C A bb o M t er ck

20 2004 0.51 0.67 0.40 1.22 0.40 0.99 0.60 0.59 1.32 0.56 0.80 0.54 0.52 0.56 0.60 0.37 0.63 2.10 0.71 0.65 0.87 1.11 0.71 0.27 0.65 Quick Ratio 2005 2006 0.77 0.68 0.69 0.92 0.29 0.21 0.72 0.76 0.53 0.60 1.00 0.69 0.67 0.76 0.39 0.49 2.48 1.78 0.18 0.28 0.69 0.83 0.86 0.59 0.46 0.44 0.43 0.54 0.34 0.72 0.37 0.56 0.28 0.65 1.60 1.55 0.40 0.33 0.49 0.58 1.35 1.23 1.15 0.86 0.79 0.59 0.31 0.39 0.65 0.64 2007 0.98 1.03 0.15 0.96 0.65 1.12 0.94 0.70 1.60 0.24 1.09 0.32 0.39 0.60 0.52 0.78 0.28 1.48 0.50 0.62 0.94 0.71 0.54 0.48 0.34 2008 0.97 1.05 0.13 0.70 0.55 0.96 0.95 0.63 1.58 0.34 0.34 0.36 0.36 0.55 0.66 0.66 0.28 1.49 0.32 0.79 1.04 0.87 0.29 0.55 0.51

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

Quick Ratio 2004 3.00 2.50 2.00 1.50 1.00 0.50 0.00

Quick Ratio 2005

Quick Ratio 2006

Quick Ratio 2007

Quick Ratio 2008

Su

Ph ar m a Ci pl a GS K D Ra RL nb ax y Di vi Lu s p Pi in r Gl ama en l m ar Ca k di Bi la oc Av on an ti Pf s iz M er at rix Az To tra rre n W t Au y e ro tn bi n No d o W va oc tis kh a Di r dt sh m a IP n CA FD C Ab bo M t er ck

21 Inventory Turnover 2005 2006 2007 3.68 3.91 4.11 2.00 2.04 2.26 3.58 3.85 3.59 2.78 2.53 3.40 2.26 2.25 2.30 1.71 1.31 1.91 3.34 3.56 3.35 3.02 3.61 4.24 2.30 2.07 1.92 3.32 3.39 2.56 5.96 4.62 3.80 4.30 3.80 3.60 4.26 4.21 3.81 2.43 2.72 2.39 3.52 4.75 4.42 2.00 2.36 2.70 2.69 3.01 2.98 2.72 3.01 2.83 4.52 5.22 4.58 4.87 3.57 3.06 1.61 1.86 2.11 2.65 2.79 2.64 3.87 3.09 2.96 7.65 7.22 5.68 5.80 5.61 5.28

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

2004 3.12 2.18 3.52 3.24 2.63 2.06 3.56 3.98 2.19 3.99 3.90 4.70 3.45 2.73 2.19 2.67 2.57 3.78 5.78 4.52 1.73 2.77 3.59 9.13 5.14

2008 4.51 2.45 4.04 3.00 2.51 2.03 2.84 4.45 2.24 2.73 2.73 3.24 3.86 2.29 5.93 2.99 3.83 2.73 4.49 2.91 2.14 2.79 3.45 5.58 5.05

Inventory Turnover 2004 Inventory Turnover 2007 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00

Inventory Turnover 2005 Inventory Turnover 2008

Inventory Turnover 2006

Su

Ph ar m a Ci pl a GS K D Ra RL nb ax y Di vi s Lu pi Pi n r G ama le nm l ar Ca k di Bi la oc Av on an ti Pf s iz M er at rix Az t T o ra rre n W t Au ye ro tn bi n No do W va oc tis kh a D r dt ish m a IP n C A FD C A bb o M t er ck

Average Collection Period

22 Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck 2004 47.34 93.01 20.69 93.94 43.93 87.58 65.86 43.20 125.24 52.27 79.33 28.06 40.00 57.58 39.32 32.97 34.70 126.49 47.47 71.54 107.15 74.34 36.32 14.23 58.03 2005 68.23 88.19 18.17 95.77 71.72 94.39 72.07 33.48 125.35 33.76 92.66 42.97 43.17 73.93 40.88 41.24 21.44 145.52 28.76 58.62 138.46 77.11 48.04 13.43 45.83 2006 49.26 98.92 13.97 97.96 76.54 95.95 74.47 45.00 176.02 50.64 103.22 21.16 44.10 85.74 48.07 57.55 25.06 142.34 24.46 65.35 116.12 66.09 19.01 15.04 48.46 2007 45.47 101.97 11.97 94.06 82.22 81.73 79.34 49.11 172.45 53.96 110.37 25.99 33.76 94.03 56.32 64.66 22.61 110.00 25.73 78.71 137.84 66.07 16.79 16.06 23.99 2008 115.11 114.11 7.54 88.91 71.93 71.48 79.19 54.84 151.80 56.63 56.63 21.76 21.64 124.43 55.89 73.72 23.57 118.80 23.61 92.15 105.14 84.00 13.79 16.10 31.65

Avera e Collection Period 2004 Avera e Collection Period 2007 200.00 180.00 160.00 140.00 120.00 100.00 80.00 60.00 40.00 20.00 Glenmark Ranbaxy Sun Pharma 0.00

Avera e Collection Period 2005 Avera e Collection Period 2008

Avera e Collection Period 2006

Aurobindo

Dishman

Divis

Piramal

Avantis

Lupin

Biocon

Pfizer

DRL

Torrent

Novatis

Cadila

Cipla

Matrix

Aztra

Wyetn

Wockhardt

Abbot

IPCA

GSK

FDC

Merck

23 Total Asset Turnover 2005 2006 2007 1.43 1.76 1.76 1.15 1.09 1.09 3.33 4.19 4.19 0.19 1.33 1.33 1.52 1.30 1.30 0.92 0.80 0.80 1.11 1.28 1.28 1.51 1.30 1.30 0.85 0.85 0.85 1.18 1.21 1.21 1.49 1.33 1.33 2.10 2.25 2.25 2.65 2.64 2.64 1.04 1.12 1.12 2.29 2.52 2.52 1.21 1.09 1.09 1.73 1.74 1.74 0.80 0.84 0.84 3.85 5.06 5.06 1.62 1.45 1.45 0.67 0.76 0.76 1.17 1.16 1.16 1.69 1.75 1.75 5.13 4.61 4.61 2.86 2.91 2.91

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

2004 1.47 1.19 2.76 1.40 2.07 0.98 1.24 1.65 1.05 1.14 1.52 2.13 2.45 1.32 1.84 1.35 1.65 1.06 3.39 1.68 0.72 1.41 1.75 5.46 2.08

2008 1.57 1.03 4.78 1.40 1.40 1.08 1.35 1.44 1.13 1.28 1.28 2.40 4.34 0.66 2.65 1.18 2.93 1.06 5.04 1.14 0.78 1.23 1.68 3.41 3.26

Total Asset Turnover 2004 Total Asset Turnover 2007 6.00 5.00 4.00 3.00 2.00 1.00 0.00

Total Asset Turnover 2005 Total Asset Turnover 2008

Total Asset Turnover 2006

Su

Ph ar m a Ci pl a GS K D Ra RL nb ax y Di vi Lu s p Pi in r G ama len l m ar Ca k di Bi la oc A on va nt i Pf s iz er M at rix A zt T o ra rre n W t A ye ur tn ob in N do W ova oc tis kh a D r dt ish m a IP n CA FD C Ab bo M t er ck

24 Debt Ratio 2006 3.01 0.84 2.30 1.98 1.16 0.97 1.19 1.08 1.54 1.08 1.68 1.35 1.47 1.34 1.38 0.98 1.54 1.23 2.99 2.25 1.48 0.87 1.37 2.03 2.10

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

2004 1.77 0.91 1.59 1.73 1.23 0.81 0.87 0.90 0.98 0.95 1.75 1.03 1.43 0.87 0.97 0.88 1.45 1.15 1.70 1.76 0.92 0.90 1.25 2.02 1.26

2005 3.38 0.84 2.05 0.28 1.02 0.82 0.89 0.89 1.18 1.00 1.71 1.21 1.57 1.04 1.23 1.28 1.83 1.21 2.15 2.63 0.99 0.89 1.16 2.09 1.83

2007 2.77 0.97 2.89 1.98 1.64 0.91 1.11 1.08 1.47 1.01 0.95 1.62 1.76 1.35 1.22 0.97 2.07 1.53 3.25 1.63 1.33 0.91 1.21 1.37 3.73

2008 2.05 1.02 3.62 2.03 1.73 0.96 1.07 1.10 1.25 1.28 1.28 1.78 2.76 1.11 1.39 1.13 2.24 1.31 3.78 1.54 1.46 1.01 1.32 1.05 3.89

Debt Ratio 2004 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00

Debt Ratio 2005

Debt Ratio 2006

Debt Ratio 2007

Debt Ratio 2008

Ph ar m a Ci pl a GS K D Ra RL nb ax y D iv i Lu s pi Pi n r Gl ama en l m ar Ca k di Bi la oc Av on an ti Pf s iz M er at rix Az t T o ra rre n W t Au ye ro tn bi n No do W va oc tis kh a Di r dt sh m a IP n CA

Su

FD C Ab bo M t er ck

25 2004 1.06 0.58 0.53 0.83 0.48 0.90 1.03 1.13 1.04 1.12 0.85 0.60 0.55 1.22 0.51 0.56 0.72 1.55 0.60 1.16 2.06 1.09 0.75 0.36 0.58 Debt-to-Equity 2005 2006 2.36 1.92 0.57 0.73 0.48 0.42 0.83 1.06 0.44 0.85 0.86 0.97 1.14 1.68 0.95 0.81 2.11 2.78 0.62 0.69 0.75 0.82 0.77 0.67 0.53 0.45 0.55 0.74 0.25 0.59 1.07 1.07 0.51 0.57 1.74 1.90 0.61 0.62 1.84 1.59 1.41 2.36 1.24 1.07 0.71 0.79 0.58 0.62 0.68 0.70 2007 1.29 0.71 0.52 0.79 1.71 1.00 1.38 1.03 2.42 0.35 0.84 0.58 0.52 0.83 0.28 1.11 0.52 2.66 0.79 1.30 1.63 0.95 0.78 0.58 0.78 2008 0.76 0.78 0.53 0.81 1.63 0.83 1.22 1.00 1.14 0.90 0.90 0.70 0.65 1.03 0.45 1.04 0.49 2.00 0.71 1.35 1.34 1.06 0.74 0.41 0.84

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

Debt-to-Equity 2004 3.00 2.50 2.00 1.50 1.00 0.50 0.00

Debt-to-Equity 2005

Debt-to-Equity 2006

Debt-to-Equity 2007

Debt-to-Equity 2008

Su

Ph ar m a Ci pl a GS K D Ra RL nb ax y Di vi Lu s p Pi in r G ama le nm l ar Ca k di Bi la oc A on va nt i Pf s iz er M at rix A ztr To a rre n W t A ye ur tn ob in N do W ova oc tis kh a D r dt ish m a IP n C A FD C Ab bo M t er ck

26 2004 48.39% 35.64% 39.50% 50.92% 53.23% 37.97% 35.11% 45.89% 52.11% 43.98% 37.84% 40.49% 43.57% 41.95% 42.04% 46.11% 42.56% 24.51% 43.67% 44.69% 38.50% 38.09% 42.44% 46.89% 35.03% Gross Profit Margin 2005 2006 2007 44.67% 45.03% 44.20% 37.75% 38.88% 39.08% 46.26% 51.68% 52.45% 46.28% 47.48% 58.98% 48.66% 47.21% 47.46% 39.11% 40.35% 44.75% 29.51% 34.39% 38.14% 45.20% 44.52% 43.03% 51.22% 50.30% 52.23% 44.77% 45.23% 47.05% 36.69% 32.32% 36.18% 43.12% 40.36% 39.69% 47.41% 44.00% 49.44% 37.70% 37.62% 34.98% 48.92% 48.57% 47.39% 44.41% 44.53% 45.48% 44.10% 53.12% 55.15% 19.25% 19.91% 24.19% 42.81% 45.12% 47.95% 50.88% 46.61% 43.38% 37.58% 34.61% 34.10% 37.26% 34.20% 37.91% 37.35% 41.91% 36.42% 36.92% 29.79% 27.88% 43.03% 43.04% 54.91% 2008 46.76% 37.49% 53.88% 47.15% 49.76% 48.20% 38.06% 43.55% 56.50% 49.67% 49.67% 38.35% 64.04% -5.06% 53.44% 48.56% 55.71% 26.50% 49.39% 42.96% 32.29% 37.81% 36.38% 28.93% 48.25%

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

Gross Profit Margin 2004 Gross Profit Margin 2007 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% Sun Pharma Glenmark Ranbaxy

Gross Profit Margin 2005 Gross Profit Margin 2008

Gross Profit Margin 2006

Aurobindo

Wockhardt

Dishman

Divis

Piramal

Avantis

Lupin

Biocon

Pfizer

0.00% -10.00%

DRL

Torrent

Novatis

Cadila

Cipla

Matrix

Aztra

Wyetn

Abbot

IPCA

GSK

FDC

Merck

27 2004 30.09% 21.16% 23.42% 18.06% 24.31% 27.01% 17.26% 17.85% 16.69% 15.97% 28.62% 21.05% 9.39% 28.65% 20.59% 19.05% 22.64% 16.08% 19.43% 21.18% 24.18% 17.27% 26.39% 26.96% 18.56% Operating Profit Margin 2005 2006 2007 25.82% 26.67% 26.46% 21.94% 22.77% 22.55% 32.09% 38.57% 41.26% 3.97% 14.13% 35.34% 15.63% 5.44% 11.88% 27.36% 27.92% 32.76% 10.00% 15.68% 19.93% 15.30% 16.00% 15.56% 19.82% 17.76% 23.92% 14.85% 15.98% 16.45% 28.27% 22.73% 19.99% 29.41% 27.18% 26.34% 14.10% 17.16% 22.73% 25.42% 24.63% 12.39% 20.47% 7.44% 19.48% 29.25% 23.32% 15.74% 19.88% 16.25% 28.04% 25.94% 27.93% 13.21% 30.23% 10.49% 24.40% 27.25% 23.03% 12.21% 22.48% 15.28% 28.43% 15.51% 26.24% 15.68% 36.68% 14.78% 22.50% 22.63% 22.38% 17.85% 18.04% 14.98% 40.35% 2008 32.03% 19.88% 44.74% 17.00% 17.34% 36.60% 20.87% 20.36% 33.64% 17.66% 17.66% 22.92% 44.70% 34.54% 31.45% 19.27% 34.55% 16.45% 24.53% 22.86% 21.58% 17.26% 15.97% 13.04% 28.22%

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

Operating Profit Margin 2004 Gross Profit Margin 2007 50.00% 40.00% 30.00% 20.00% 10.00% Sun Pharma Glenmark Ranbaxy

Gross Profit Margin 2005 Gross Profit Margin 2008

Gross Profit Margin 2006

Aurobindo

Dishman

Divis

Lupin

Avantis

Piramal

Biocon

Cadila

Pfizer

0.00% -10.00% -20.00% -30.00% -40.00%

Cipla

DRL

Matrix

Aztra

Torrent

Wyetn

Novatis

Wockhardt

Abbot

GSK

IPCA

FDC

Merck

28 2004 26.54% 15.91% 14.46% 16.63% 20.03% 17.99% 8.37% 15.60% 11.20% 11.53% 23.69% 14.26% 5.77% 21.17% 13.13% 13.63% 18.72% 10.11% 17.86% 18.05% 13.78% 11.89% 21.95% 20.08% 12.27% Net Profit Margin 2005 2006 2007 24.38% 25.21% 25.98% 17.08% 19.06% 18.39% 21.86% 28.58% 30.50% 4.50% 10.51% 29.37% 12.81% 5.33% 8.99% 17.09% 17.38% 26.50% 7.27% 10.83% 13.66% 11.22% 12.24% 11.18% 12.14% 11.63% 15.57% 11.32% 12.60% 12.86% 25.77% 18.58% 17.66% 19.30% 17.97% 17.84% 9.06% 11.05% 15.14% 19.56% 14.51% 10.14% 18.98% 3.05% 10.98% 23.77% 17.62% 10.77% 15.38% 11.04% 18.76% 21.37% 18.55% 9.47% 24.74% 5.09% 16.58% 22.87% 19.08% 8.33% 18.50% 10.39% 19.18% 12.41% 17.07% 12.25% 30.15% 11.07% 14.00% 18.36% 19.63% 12.33% 14.12% 10.06% 33.05% 2008 30.88% 16.36% 32.94% 13.60% 12.22% 32.91% 15.43% 15.30% 27.56% 12.97% 12.97% 14.77% 33.81% 43.85% 20.27% 16.05% 23.82% 11.78% 15.32% 15.78% 16.08% 12.14% 13.20% 8.55% 19.44%

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

Net Profit Margin 2004 Net Profit Margin 2007 40.00% 30.00% 20.00% 10.00% Sun Pharma Glenmark Ranbaxy

Net Profit Margin 2005 Net Profit Margin 2008

Net Profit Margin 2006

Aurobindo

Dishman

Divis

Piramal

Avantis

Lupin

Biocon

Pfizer

0.00% -10.00% -20.00% -30.00% -40.00% -50.00%

DRL

Torrent

Novatis

Cadila

Cipla

Matrix

Aztra

Wyetn

Wockhardt

Abbot

GSK

IPCA

FDC

Merck

29 2004 39.10% 18.94% 39.95% 23.21% 41.46% 17.71% 10.36% 25.80% 11.76% 13.17% 36.08% 30.36% 14.13% 27.98% 24.23% 18.41% 30.86% 10.73% 60.48% 30.29% 9.86% 16.81% 38.39% 109.54% 25.51% Return on Total Assets (ROA) 2005 2006 2007 2008 34.96% 44.27% 50.28% 48.56% 19.61% 20.71% 19.35% 16.91% 72.74% 119.68% 133.39% 157.52% 0.85% 13.93% 50.00% 19.07% 19.44% 6.91% 11.15% 17.10% 15.68% 13.82% 25.06% 35.54% 8.10% 13.90% 18.84% 20.79% 16.90% 15.91% 13.98% 22.09% 10.38% 9.92% 14.81% 31.27% 13.37% 15.27% 15.54% 16.58% 38.38% 24.74% 14.38% 16.58% 40.61% 40.35% 44.99% 35.47% 24.06% 29.13% 44.97% 146.64% 20.27% 23.88% 11.13% -28.78% 33.23% 46.84% 41.79% 53.74% 12.26% 10.34% 14.77% 18.89% 32.93% 43.08% 74.01% 69.78% 2.43% 4.28% 11.91% 12.51% 42.26% 83.91% 67.90% 77.30% 38.58% 33.25% 20.92% 17.99% 11.77% 14.56% 14.50% 12.53% 12.55% 9.64% 15.33% 14.88% 25.92% 32.42% 23.18% 22.17% 56.56% 47.91% 40.50% 29.15% 53.67% 55.72% 131.80% 63.33%

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

Return on Total Assets (ROA) 2004 Return on Total Assets (ROA) 2007 200.00%

Return on Total Assets (ROA) 2005 Return on Total Assets (ROA) 2008

Return on Total Assets (ROA) 2006

150.00%

100.00%

50.00%

0.00%

Ph ar m a Ci pl a G SK

D Ra RL nb ax y D iv is Lu p Pi in r G ama len l m ar Ca k di Bi l a oc A on va nt i Pf s iz er M at rix A ztr To a rre n W t A ye ur t n ob in N do ov W oc atis kh a D rd t ish m a IP n CA

-50.00%

Su

FD C bb o M t er ck A

30 2004 30.14% 24.47% 25.30% 13.84% 34.17% 27.99% 22.04% 55.35% 17.87% 24.41% 23.08% 32.40% 9.92% 70.11% 25.07% 20.82% 21.51% 17.37% 36.37% 28.17% 30.34% 29.03% 32.87% 54.83% 20.20% Return on Equity (ROE) 2005 2006 2007 27.35% 32.26% 26.04% 26.52% 30.78% 20.70% 35.64% 52.31% 46.43% 3.41% 9.92% 27.14% 20.14% 8.51% 16.01% 23.48% 20.56% 35.41% 17.08% 28.33% 33.44% 31.15% 17.65% 17.85% 22.14% 21.11% 30.40% 21.39% 22.52% 23.20% 24.92% 16.65% 16.84% 36.75% 30.79% 28.59% 15.89% 19.85% 25.57% 20.87% 26.96% 15.52% 18.20% 4.23% 20.09% 33.96% 20.83% 23.40% 22.87% 27.34% 29.33% 20.98% 33.85% 17.21% 28.29% 8.09% 28.63% 29.62% 27.00% 16.81% 24.10% 23.79% 26.54% 10.18% 34.39% 24.33% 36.05% 24.33% 21.38% 22.33% 23.11% 25.01% 19.41% 29.62% 35.37% 2008 24.22% 19.20% 43.65% 10.28% 23.52% 40.63% 33.66% 29.93% 37.83% 22.11% 22.11% 20.32% 53.23% 43.07% 38.58% 26.57% 31.50% 23.36% 20.51% 20.84% 13.58% 23.28% 17.39% 27.96% 16.27%

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

Return on Equity (ROE) 2004 Return on Equity (ROE) 2007 80.00% 60.00% 40.00% 20.00% 0.00% -20.00% -40.00% -60.00%

Return on Equity (ROE) 2005 Return on Equity (ROE) 2008

Return on Equity (ROE) 2006

dc Sun Pharma Glenmark Ranbaxy Aurobindo Dishman Divis Piramal Avantis Lupin Pfizer

Biocon

DRL

Torrent

Novatis

Cadila

Cipla

Matrix

Aztra

Wyetn

Wockhardt

Abbot

IPCA

GSK

FDC

Merck

31
2004 55.889 51.157 22.676 74.022 42.719 50.047 50.047 59.134 35.443 41.943 24.932 42.579 10.826 101.317 49.160 30.232 24.177 51.777 58.210 36.736 18.272 64.024 68.135 67.559 23.511 Adjusted Earnings per Share 2005 2006 2007 32.589 50.880 65.949 68.262 101.324 42.971 37.728 58.587 65.494 18.481 58.527 141.359 27.152 10.863 20.178 51.942 54.657 148.675 21.293 45.441 36.979 44.737 40.933 45.103 26.762 28.345 56.997 41.847 52.803 32.596 34.616 26.700 31.672 64.464 67.768 73.513 19.223 25.044 37.681 43.492 59.349 32.313 51.520 86.120 97.480 25.005 15.559 26.701 19.428 30.559 40.726 13.127 27.503 84.792 35.757 60.488 51.990 38.670 43.640 39.028 21.318 33.372 42.867 31.604 25.952 48.624 28.195 36.243 33.413 38.724 38.272 47.291 43.173 46.922 82.444 2008 98.407 46.277 70.132 58.798 31.997 275.089 54.016 72.792 156.425 37.102 100.670 61.003 115.700 (94.709) 122.920 36.760 35.823 106.094 57.566 39.084 38.507 56.373 33.855 45.219 40.819

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

Adjusted Earnings per Share 2004 Adjusted Earnings per Share 2007 300.000 250.000 200.000 150.000 100.000 50.000 0.000 (50.000) (100.000) (150.000)

Adjusted Earnings per Share 2005 Adjusted Earnings per Share 2008

Adjusted Earnings per Share 2006

Ranbaxy

Sun Pharma

Aurobindo

Dishman

Divis

lenmark

Piramal

Avantis

Lupin

Biocon

Pfizer

DRL

Torrent

Novatis

Cadila

Matrix

Aztra

Cipla

Wyetn

Wockhardt

Abbot

IPCA

FDC

SK

Merck

32
2004 23.32 22.93 26.76 26.33 22.00 29.02 29.02 20.27 21.66 38.83 16.82 42.98 13.48 10.78 14.87 21.52 29.62 10.16 15.88 Price/Earnings Ratio 2005 2006 2007 28.63 33.60 31.18 18.74 32.32 27.46 19.06 24.84 17.12 79.99 48.57 10.30 36.65 79.60 34.88 19.18 34.32 20.68 25.69 24.51 16.39 52.91 22.21 23.55 19.18 38.05 18.01 17.70 44.33 19.03 29.61 9.50 16.06 55.58 18.02 33.37 28.47 46.12 23.73 27.91 48.24 23.20 28.83 13.52 13.48 53.62 20.66 30.70 16.75 21.29 27.08 31.29 14.66 11.18 16.01 20.39 24.74 12.38 9.30 2008 24.98 23.77 14.88 20.11 27.41 23.07 9.23 31.26 13.66 8.55 12.54 5.92 21.14 7.66 12.74 5.49 13.63 36.00 10.95 8.31 8.17

Sun Pharma Cipla GSK DRL Ranbaxy Divis Lupin Piramal Glenmark Cadila Biocon Avantis Pfizer Matrix Aztra Torrent Wyetn Aurobindo Novatis Wockhardt Dishman IPCA FDC Abbot Merck

Price/Earnings Ratio 2004 Price/Earnings Ratio 2007 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00

Price/Earnings Ratio 2005 Price/Earnings Ratio 2008

Price/Earnings Ratio 2006

Su

a i la G SK D Ra RL nb ax D i i Lu s pi Pi n Gl a a en l m a a ila io co A n va nt i Pf s iz er M at rix A zt T o ra rre W nt Au e ro tn bi nd o W ova oc tis ha Di r dt sh m a IP n C A FD C Ab bo M t er c

Ph a

33

34
PROFITABILITY RATIO: Financial Ratio Formula

Return on Total Assets

Operating profit before income tax + interest expense/ Average total assets Operating profit & extraordinary items after income tax minus Preference dividends / Average ordinary shareholders equity Gross Profit / Net Sales Operating profit after income tax / Net Sales Revenue

Measurements Measures rate of return earned through operating total assets provided by both creditors and owners Measures rate of return earned on assets provided by owners Profitability of trading and markup Measures net profitability of each rupees of sales

Return on ordinary shareholders equity Gross Profit Margin Profit Margin

35
MARKET BASED FINANCIAL RATIO:

Financial Ratio Earnings per share

Formula Operating profits after income tax less Preference dividends / Weighted average number of ordinary shares issued Market price per ordinary share / Earnings per ordinary share

Measurements Measures profit earned on each ordinary share Measures the amount investors are paying for a rupees of earnings Measures the return to an investor purchasing shares at the current market price. Measures the rate of return to shareholders based on current market price. Measures the percentage of profits paid out to ordinary shareholders Measure the assets backing per share

Price-earnings ratio

Earning Yield

Earnings per ordinary share / Market price per ordinary share

Dividend Yield

Annual dividend per ordinary share / Market price per ordinary share

Total dividend per ordinary Dividend Payout share / Market price per ordinary share Net Asset Backing (NTA) Ordinary shareholders equity / No of ordinary shares

36
LIQUIDITY RATIO:

Financial Ratio

Formula

Current Ratio

Current Assets / Current liabilities

Quick Ratio

Current Assets less inventory / Current liabilities

Measurements A measure of short-term liquidity. Indicates the ability of entity to meet its short-term debts from its current assets A more rigorous measure of shortterm liquidity. Indicates the ability of the entity to meet unexpected demands from liquid current asses

37
ASSET MANAGEMENT/UTILISATION/ACTIVITY RATIOS:

Financial Ratio

Formula

Receivables turnover

Net sales revenue / Average receivables balance

Average collection period

Average receivables balance x 365 / Net sales revenue

Inventory turnover

Cost of goods sold / Average inventory balance

Total Asset turnover ratio

Net sales revenue / Average total assets

Turnover of Fixed Assets

Net Sales / Fixed Assets

Measurements Measures the effectiveness of collections; used to evaluate whether receivables balance is excessive Measures the average number of days taken by an entity to collect its receivables Indicates the liquidity of inventory. Measures the number of times inventory was sold on the average during the period Measures the effectiveness of an entity in using its assets during the period. Measure the efficiency of the usage of fixed assets in generating sales

38
GEARING/FINANCIAL STABILITY RATIO:

Financial Ratio

Formula

Debt ratio

Total Liabilities / Total assets

Equity ratio or Proprietary ratio

Total shareholders equity / Total assets

Capitalization ratio

Total assets / Total shareholders equity Operating profit before income tax + Interest expense / Interest expense + Interest capitalized

Times interest earned

Measurements Measures percentage of assets provided by creditors and extent of using gearing Measures percentage of assets provided by shareholders and the extent of using gearing The reciprocal of the equity ratio and thus measures the same thing Measures the ability of the entity to meet its interest payments out of current profits.

39
CASH SUFFICIENCY RATIO:

Financial Ratio Cash flow adequacy

Formula Cash from operations / Longterm debt paid + Assets acquired + Dividends paid Long-term debt repayments / Cash from operations Dividends paid / Cash from operations

Measurements Measures the entitys ability to cover its main cash requirements Measures the entitys ability to cover its long-term debt out of cash from operations Measures the entitys ability to cover its dividend payment Measures the entitys ability to pay for its noncurrent assets out of cash from operations Measures the payback period for coverage of longterm debt.

Long-term debt repayment

Dividend payment

Reinvestment

Non-current asset payments / Cash from operations

Debt coverage

Total long-term debt / Cash from operations

40
CASH FLOW EFFICIENCY RATIO:

Financial Ratio Cash flow to sales

Formula Cash from operations / Net sales revenue

Operation index

Cash from operations / Operating profit after income tax Cash from operation + Tax paid + Interest paid / Average total assets

Cash flow return on assets

Measurements Measures ability to convert sales revenue into cash flows An index measuring the relationship between profit from operations and operating cash flows Measures the operating cash flow return on assets before interest and tax

41
--------------------------------------------------------------------------- ------------------------------------------------

Chapter 7 -- Conclusions
----------------------------------------------------------------------------------------------------------------------------- ---

Among the companies studied the quick ratio was at comfortable level for all the companies except Glenmark (1.58, Aurobindo 1.48) for the year 2008 show that the Indian pharmaceutical companies are better solvent. The asset to turnover ratio of GloxoSmithklin (4,.78), Pfizer (4.3), Novatis (5.04), are the top 3 three and have better asset utilization compared to Dishman (0.78), matrix (0.66), Cipla (1.03), Aurobindo (1.06), Divis (1.08) and these companies could improve the financials by better asset utilization. Dept to equity ratio of Aurobino (2.0), Ranbaxy (1.63) are highly leveraged and those of Abbot (0.41), Wyeth (0.49), Aztra (0.45) GloxoSmithkline (0.53) are least leveraged. The net profit margin of Sun pharmaceuticals (30.88%), GloxoSmithkline (32.94%), and Divis (32.91%) are most profitability ratio and those of Matrix (-43.85%), Abbot (8.55%), Ranbaxy (12.2%), Aurobindo (11.78%), IPCA (12.14%) have low profit margin in the operation. The retun on equty is higher for Pfizer (53.2%), Divis (40.63%), GloxoSmithkline (43.65%) are giving high return on equity and those of Matrix (-43.07%), Dr. Reddys (10.28%), Dishman (13.58%) are much lower.

42
--------------------------------- ------------------------------------ ------------------------------------- -----------------------

Reference
-------------------------------------------- ------------------------------------------------------------------------------------

1.

Prof. C. Jeevanadam, Sardar Vallabhbhai Institute of Textile Management, Coimbatore, Notes on Financial Statements, Short Term Programme on Financial Management at Bannari Amman Institute of Technology, Sathyamangalam on 05.01.2005. Principles of Accounting, Dr. Vinayagam, P. C. Mani, K. L. Nagarajan, Kalyani Publications, New Delhi, 2002. Financial Management, Dr. R. S. Kulsherestha, Kalyani Publications, New Delhi,2002 Dr. B. K. Behra, Class notes on Costing and Management,IIT -Delhi,2003 Corporate Finance: Theory and Practice By S. R. Vishwanath The Indian Pharmaceutical Industry An Overview of Internal Efficiencies using Data Envelopment Analysis - Haritha Saranga1 and B.V. Phani Annual reports of Indian pharmaceutical companies and consolidated balance sheets published as a part of Annual reports. Scrip report on Indian Pharmaceutical Industry. Research reports published by various agencies and brokerage houses on Indian Pharmaceutical Industries.

2.

3.

4. 5. 6.

7. 8. 9.