2018 2019 2020 2021 2022

CIPLA 2.82 3.29 2.66 2.88 3.00

DR. REDDY’S 1.52 1.88 1.75 1.80 1.82

SUN PHARMA 1.59 1.79 2.02 1.89 2.04

CURRENT RATIO

3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
CIPLA DR. REDDY'S SUN PHARMA
2018 2019 2020 2021 2022

The current ratio is a liquidity ratio that measures a company’s ability to pay short-
term obligations within one year. In many cases, a company with a current ratio of
less than 1 does not have the capital on hand to meet its short-term obligations if
they were all due at once.
Current Ratio = Current Assets / Current Liabilities
As we know, the Current Ratio of a company should be more than 1 to ensure that
they can pay back all their short term liabilities within one year if the need be.
As we can see, the ratios for Dr. Reddy’s and Sun Pharmaceuticals are perfectly in
the range between 1 and 3 which is optimum.
Cipla is towards the higher end of the ratio, however, it is completely acceptable in a
firm in the pharma industry wherein investments are of a very high quantity due to
their requirements for research and development.
 2018 2019 2020 2021 2022

CIPLA 10.54 10.45 10.05 14.11 12.85

DR. REDDY’S 7.63 14.66 13.68 11.74 11.84

SUN PHARMA
5.59 6.69 8.69 6.33 6.93

RETURN ON EQUITY

16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
CIPLA DR. REDDY'S SUN PHARMA
2018 2019 2020 2021 2022

ROE is understanding a company's profitability and how efficient it is in generating

profits. A higher ROE means that increased efficiency in company's management is
generating income and growth from equity financing.
Return on Equity = Net Income / Average Shareholders’ Equity
Because pharmaceutical businesses must invest enormous sums of money to bring
their drugs to market, ROE is crucial when examining pharmaceutical companies. As
a result, one of the primary indicators of a company's management effectiveness and
eventual success is how well they use the capital that stock investors give.
Despite the volatility, pharma businesses are appealing to long-term investors.
Investors can earn significant returns if they invest at the correct time because the
healthcare industry is growing rapidly and is becoming increasingly important to daily
life. Additionally, as a growing sector, many pharmaceutical companies see
exponential growth as a result of innovation, scientific advancements, and
technology advancements.
 2018 2019 2020 2021 2022

CIPLA 31.12 27.88 22.03 27.33 32.63

DR. REDDY’S 23.66 25.53 38.38 32.65

SUN PHARMA 43.14 22.44 49.41 67.06

PRICE EARNING RATIO

80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
CIPLA DR. REDDY'S SUN PHARMA

2018 2019 2020 2021 2022

The price-to-earnings ratio is used for valuing a company. It is done so by measuring

its current share price over its earnings per share (EPS). The P/E ratio helps one
determine whether a stock is overvalued or undervalued.
P/E Ratio = Market Value per share / Earnings per share

Investors feel confidence in long-term growth prospects for the Indian

pharmaceuticals sector and are upbeat about it. In comparison to its three-year
average PE of 30.3x, the industry is trading at a PE ratio of 38.0x. Over the past
three years, the earnings of businesses in the pharmaceuticals sector have
increased by 3.6% annually. These businesses' revenues have increased by 6.9%
annually. This indicates that these businesses are producing more sales overall, and
as a result, their earnings are rising as well.
 INVENTORY TURNOVER RATIO

2018 2019 2020 2021 2022

CIPLA 1.51 1.43 1.50 1.67 1.84

DR. REDDY’S 1.42 2.25 1.61 1.71 1.62

SUN PHARMA 1.05 1.12 1.13 1.11 1.16

2.50

2.00

1.50

1.00

0.50

0.00
CIPLA DR. REDDY'S SUN PHARMA
2018 2019 2020 2021 2022

Inventory turnover ratio is a financial ratio that measures how appropriately as well
as effectively a company is using its assets. Generally, the higher the ratio, the better
as it indicates more sales. However, it is not so for the Pharma industry.
Inventory Turnover = COGS / Average Value of Inventory
The inventory turnover ratio for the pharmaceuticals industry is relatively low owing
to the fact that medicines and other pharma products have a very limited expiry date.
This means that everything needs to be used very fact and we cannot have
extensive storage because it will lead to wastage.
 DEBT TO EQUITY RATIO

2018 2019 2020 2021 2022

CIPLA 28.10 28.13 19.24 10.84 5.00

DR. REDDY’S 40.34 27.37 14.17 17.18 17.62

SUN PHARMA 24.61 23.51 16.93 7.82 2.53

45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
CIPLA DR. REDDY'S SUN PHARMA

2018 2019 2020 2021 2022

It is a measure of the degree to which a company is financing its operations with

debt rather than its own resources.
Debt to Equity = Total Liabilities / Total Shareholder’s Equity
A key element in a pharmaceutical company's long-term viability and profitability is
effective debt management. Pharmaceutical firms must be able to manage their
typically high levels of debt and maintain acceptable levels of liquidity since they
must invest significant cash in R&D. The capital-intensive character of the sector is
one of the main factors influencing D/E ratio variations.
We see a sharp decline in all three companies due to the covid pandemic. During
this time, all pharma companies received a lot of inflow of money from the
government as well as philanthropic companies and individuals who wanted to
support and help the nation to create their own vaccines.
 OPERATING MARGIN

2018 2019 2020 2021 2022

CIPLA 15.23 12.97 8.21 10.24 11.09

DR. REDDY’S
8.97 13.28 7.49 13.92 12.14

SUN PHARMA
15.81 15.88 15.22 19.28 21.08

25.00
20.00
15.00
10.00
5.00
0.00
CIPLA DR. REDDY'S SUN PHARMA

2018 2019 2020 2021 2022

The operating margin measures how much profit a company makes on a one rupee
of sales after paying for variable costs of production, but before paying interest or
tax. Higher ratios are generally better, showcasing the company is efficient in its
operations and is good at turning sales into profits.
Operating margin = Operating earnings / Revenue

A pharmaceutical company's ability to manufacture and promote a medicine is

crucial once it has been successful in bringing it to market. As a result, it is beneficial
for investors to consider fundamental profitability statistics like operating margin.
 DUPONT ANALYSIS

The DuPont analysis is a methodology for evaluating an organization's core

performance. DuPont analysis is a suitable technique for breaking down the various
variables that impact return on equity (ROE). Investors can concentrate on each of
the important financial performance parameters individually to pinpoint strengths and
problems thanks to the breakdown of ROE.
ROE = Operating Margin x Asset Turnover x Leverage Ratio

CIPLA

2018 2019 2020 2021 2022

Operating Margin 12.09 13.94 13.9 18.06 16.59

Asset Turnover 0.67 0.68 0.7 0.78 0.83

Leverage Ratio 1.64 1.6 1.55 1.43 1.33

Return On Equity 13.28449 15.16672 15.0815 20.14412 18.3137

DR. REDDY’S

2018 2019 2020 2021 2022

Operating Margin 10.31 15.76 11.36 15.71 14.83

Asset Turnover 0.64 0.68 0.76 0.76 0.76

Leverage Ratio 1.79 1.69 1.54 1.50 1.53

Return On Equity 11.78653 18.23325 13.39546 17.93263 17.25274

SUN PHARAMACEUTICALS

2018 2019 2020 2021 2022

Operating Margin 14.92 15.09 16.35 8.84 11.95

Asset Turnover 0.41 0.44 0.49 0.49 0.56

Leverage Ratio 1.68 1.62 1.53 1.48 1.46

Return On Equity 10.34894 10.86006 12.19634 6.384165 9.722205

 RETURN ON EQUITY
25

20

15

10

0
2018 2019 2020 2021 2022

CIPLA DR. REDDY'S SUN PHARMA

The major jumps in Cipla and Dr. Reddy’s ROE and fall in Sun Pharma’s ROE in
2020-21 is due to the operating margin component which was vastly affected during
the Covid-19 pandemic.