Financial Statement Analysis Report

Abstract
As the world is growing rapidly, the businesses are also moving to become the huge one. And by
that result, more and more people want to become a master in these businesses. The main
purpose in the finance field is to know how the financial analysis is done. We all know that
finance is the blood of any business and without it no business can run. Financial analysis of a
company is very difficult and the most important task and by doing this I am able to know the
whole financial position and financial structure of the company.
Simply by looking at how much cash a company has does not provide enough information. The
financial statements need to be analyzed to measure a company’s performance and to compare it
with other firm’s in the same industry. The resulting information is intended to be useful to
owners, potential investors, creditors, analysts, and others as the analysis evaluates the past
performance, future potential and financial position of the firm.
This report is an analysis of financial statements of Hetero. This report has been prepared with
an objective to develop analytical skills required to interpret the information (explicit as well as
implicit) provided by the financial statements and to measure the company’s performance during
the past few years. The financial statements are analyzed using traditional evaluation techniques
such as horizontal analysis, vertical analysis and trend analysis. Details are given in chapter 3 of
this report. Ratios are an important tool in analyzing the financial statements and so in chapter 4,
5 and 6 ratios are analyzed to measure the company’s profitability, solvency & liquidity. Sincere
attempts have been made to make this report error free but if any errors and omissions are found
then I apologize for that.
EXECUTIVE SUMMARY
The Company has set itself the task of consolidating and enhancing its position in the Indian
pharmaceutical, both in terms of volumes as well as in customer satisfaction, in the medium term. The
Company is executing various initiatives in terms of process and product improvements to achieve this
goal.
(Rs m) 4QFY12 4QF Chan FY12 FY13 Cha

Y13 ge nge
Net sales 22,910 25,62 11.8 71,68 77,29 7.8
0 % 2 1 %
Expenditure 20,261 22,63 11.9 64,65 69,25 7.1
% 5 1 %
Operating profit 2,649 2,957 11.6 7,027 8,040 14.4
(EBDITA) % %
EBDITA margin (%) 11.6% 11.5 9.8% 10.4%
%
Other income 169 116 - 708 740 4.5
31.3 %
%
Interest (net) 19 91 384.8 53 497 832.
% 9%
Depreciation 481 486 1.0% 1,506 1,774 17.8
%
Profit before tax 2,318 2,496 7.7% 6,176 6,509 5.4
%
Extraordinary (30) (22) (131) (84)
income/(expense)
Tax 573 669 16.7 1,632 1,732 6.1
% %
Profit after tax/(loss) 1,715 1,806 5.3% 4,413 4,693 6.4
%
Net profit margin (%) 7.5% 7.0% 6.2% 6.1%
No. of shares (m) 1,323.9 1,330 1,323 1,330.
.3 .9 3
Diluted earnings per 3.3 3.5
share (Rs)*
Price to earnings ratio 11.5
(x)**
iv
CHAPTER-1
Introduction
Introduction
Objectives of the project:

1 Primary Objective:
To evaluate the financial statement analysis of the company.
1.2 Secondary Objectives:
i. To analyze the liquidity solvency position of the firm.
ii. To study the working capital management of the company.
iii. To understand the profitability position of the firm.
iv. To assess the factors influencing the financial performance of the organization.
v. To understand the overall financial position of the company.
1.2 Need Of the study
Managers require Financial Statements to manage the affairs of the company by assessing its
financial performance and position and taking important business decisions. Shareholders use
Financial Statements to assess the risk and return of their investment in the company and take
investment decisions based on their analysis. Prospective Investors need Financial Statements to
assess the viability of investing in a company. Investors may predict future dividends based on
the profits disclosed in the Financial Statements. Furthermore, risks associated with the
investment may be gauged from the Financial Statements. For instance, fluctuating profits
indicate higher risk. Therefore, Financial Statements provide a basis for the investment decisions
of potential investors.
1.3 Scope of the study
The role of financial reporting by companies is to provide information about their performance,
financial position, and changes in financial position that is useful to a wide range of users in
making economic decisions.1 The role of financial statement analysis is to take financial reports
prepared by companies, combined with other information, to evaluate the past, current, and
prospective performance and financial position of a company for the purpose of making
investment, credit, and other economic decisions.
In evaluating financial reports, analysts typically have an economic decision in mind. Examples
include the following:
• Evaluating an equity investment for inclusion in a portfolio.
• Evaluating a merger or acquisition candidate.
• Evaluating a subsidiary or operating division of a parent company.
• Deciding whether to make a venture capital or other private equity investment.
• Determining the creditworthiness of a company that has made a loan request.
• Extending credit to a customer.
• Examining compliance with debt covenants or other contractual arrangements.
• Assigning a debt rating to a company or bond issue.
• Valuing a security for making an investment recommendation to others.
• Forecasting future net income and cash flow.

Research methodology of the project
1.4 METHODOLOGY:
The project evaluates the financial performance one of the company with help of the most
appropriate tool of financial analysis like ratio analysis and comparative balance sheet. Hence, it is
essentially fact finding study.
1.4 Primary Data:
Primary data is the first hand information that is collected during the period of research. Primary
data has been collected through discussions held with the staffs in the accounts department. Some types
of information were gathered through oral conversations with the cashier, taxation officer etc.
1.5 Secondary Data:
Secondary data studies whole company records and company’s balance sheet in which the project
work has been done. In addition, a number of reference books, journals and reports were also used to
formulate the theoretical model for the study. And some information were also drawn from the websites.
1.6 Tools used in analysis:
 Ratio analysis
 Comparative balance sheet
1.7 Period of study:
The study covers the period of up to 2009-2013.
Financial Statements:
Balance Sheet
Income Statement Cash flow Statement
Statement of Retained
Sources of Data:
Annual reports
Via mail, SEC or company websites Published
collections of data
Investment sites on the web
Techniques of Financial Statement Analysis:

Horizontal Analysis Vertical
Analysis Trend Analysis
Ratio Analysis
Horizontal Analysis:
This technique is also known as comparative analysis.
It is to calculate amount changes & percentage changes from the previous years to current years.
Trend Analysis:
It is carried out by first assigning a value of 100 to the financial statement items in a past financial
year used as a base year and then expressing financial statement items in the following year as a
percentage of the base year value.
Vertical Analysis:
Vertical/Cross-sectional/Common size statements came from the problems in comparing the financial
statements of firms that differ in size.
In the balance sheet, for example, the assets as well as the liabilities and equity are each expressed as a
100% and each item in these categories is expressed as a percentage of the respective totals.
In the common size income statement, turnover is expressed as 100% and every item in the income
statement is expressed as a percentage of turnover (sales).
From the vertical analysis, an analyst can compare the percentage mark-up of asset items and how they
have been financed. The strategies may include increase/decrease the holding of certain assets. The
analyst may as well observe the trend of the increase in the assets and liabilities over several years.
Ratio Analysis:

 Profitability
 Ratio 
 
Liquidity Ratio 
 Solvency Ratio 
CHAPTER – II
REVIEW OF LITERATURE
2.1 Financial statements Analysis:
The financial statements provide some extremely useful information to the extent that the balance
sheet mirrors the financial position on a particular date in terms of the structure of assets, liabilities and
owners’ equity, and so on and the profit an loss account shows the results of operations during a certain
period of time in terms of the revenues obtained and the cost incurred during the year. Thus, the
financial statements provide a summarized view of the financial position and operations of a firm.
Therefore, much an be learnt about a firm from a careful examination of its financial statements as
invaluable documents performance reports. The analysis of financial statements is thus, an important aid
to financial analysis.
The focus of financial analysis is on key figures in the financial statements and the significant
relationship that exists between them. The analysis of financial statements is a process of evaluating the
relationship between component parts of financial statements to obtain a better understanding of the
firm’s position and performance. The first task of the financial analyst is to select the information
relevant to the decision under consideration from the total information contained in the financial
statements. The second step is to arrange the information in a way to highlight significant relationships.
The final step is interpretation and drawing of inferences and conclusion. In brief, the financial analysis is
the process of selection, relation and evaluation.
2.2 Ratio Analysis:
Ratio analysis is a widely-use tool of financial analysis. It can be used to compare the risk and return
relationships of firms of different sizes. It is defined as the systematic use of ratio to interpret the
financial statements so that the strengths and weakness of a firm as well as its historical performance
and current financial condition can be determined. The term ratio refers to the numerical or quantitative
relationship between two items and variables. These ratios are expressed as (i) percentages, (ii) fraction
and (iii) proportion of numbers. These alternative methods of expressing items which are related to each
other are, for purposes of financial analysis, referred to as ratio analysis. It should be noted that
computing the ratios does not add any information not already inherent in the above figures of profits
and sales. What the ratio do is that they reveal the relationship in a more meaningful way so as to enable
equity investors, management and lenders make better investment and credit decisions.
2.3 TYPES OF RATIOS:

2.3.1 Liquidity Ratios:
The importance of adequate liquidity in the sense of the ability of a firm to meet current/short-term
obligations when they become due for payment can hardly be overstresses. In fact, liquidity is a
prerequisite for the very survival of a firm. The short-term creditors of the firm are interested in the
short-term solvency or liquidity of a firm. The short-term creditors of the firm are interested in the short-
term solvency or liquidity of a firm. But liquidity implies from the viewpoint of utilization of the funds of
the firm, that funds are idle or they earn very little. A proper balance between the two contradictory
requirements, that is, liquidity and profitability, is required for efficient financial management. The
liquidity ratios measures the ability of a firm to meet its short-term obligations and reflect the short-term
financial strength and solvency of a firm.
A. Current Ratio:
The current ratio is the ratio of total current assets to total current liabilities. It is calculated by
dividing current assets by current liabilities:
Current assets
Current Ratio = ________________
Current liabilities
The current assets of a firm, as already stated, represent those assets which can be, in the ordinary
course of business, converted into cash within a short period of time, normally not exceeding one year
and include cash and bank balances, marketable securities, inventory of raw materials, semi-finished
(work-in-progress) and finished goods, debtors net of provision for bad and doubtful debts, bills
receivable and prepaid expenses. The current liabilities defined as liabilities which are short-term
maturing obligations to be met, as originally contemplated, within a year, consist of trade creditors, bills
payable, bank credit, provision for taxation, dividends payable and outstanding expenses.
B. Quick Ratio
The liquidity ratio is a measure of liquidity designed to overcome this defect of the current ratio. It is
often referred to as quick ratio because it is a measurement of a firm’s ability to convert its current assets
quickly into cash in order to meet its current liabilities. Thus, it is a measure of quick or acid liquidity.
The acid-test ratio is the ratio between quick assets and current liabilities and is calculated by dividing
the quick assets by the current liabilities.
Quick assets
Quick Ratio = ____________________
Current liabilities
The term quick assets refers to current assets which can be converted into cash immediately or at a
short notice without diminution of value. Included in this category of current assets are ( i ) cash an bank
balance ; (ii) short-term marketable securities and (iii) debtors/receivables. Thus, the current which are
included are: prepaid expenses and inventory. The exclusion of expenses by their very nature are not
available to pay off current debts. They merely reduce the amount of cash required in one period
because of payment in a prior period.
C. Cash Ratio:
This ratio is also known as cash position ratio or super quick ratio. It is a variation of quick ratio. This
ratio establishes the relationship absolute liquid asserts and current liabilities. Absolute liquid assets are
cash in hand, bank balance and readily marketable securities. Both the debtors and bills receivable are
excluded from liquid assets as there is always an uncertainty with respect to their realization. In other
words, liquid assets minus debtors and bills receivable are absolute liquid assets. In this form of formula:
Cash in hand & at bank + Marketable securities

Cash Ratio = ________________________________________
Current liabilities
2.3.2 Activity Ratios:
Activity ratios are concerned with measuring the efficiency in asset management. These ratios are
also called efficiency ratios or asset utilization ratios. The efficiency with which the assets are used would
be reflected in the speed and rapidity with which assets are converted into sakes. The greater is the rte of
turnover or conversion, the more efficient is the utilization of asses, other thongs being equal. For this
reason, such ratios are designed as turnover ratios. Turnover is the primary mode for measuring the
extent of efficient employment of assets by relating the assets to sales. An activity ratio may, therefore,
be defined as a test of the relationship between sales and the various assets of a firm.
A. Average collection period:
In order t know the rate at which cash is generated by turnover of receivables, the debtors turnover
ratio is supplemented by another ratio viz., average collection period. The average collection period
states unambiguously the number of days’ average credit sales tied up in the amount owed by the
buyers. The ratio indicates the extent to which the debts have been collected in time. In other words, it
gives the average collection period. Prompt collection of book debts will release such funds which may,
then, put to some other use. The ratio may be calculate by
360 days
Average collection period = _____________________
Debtors turnover ratio

B. Inventory Turnover Ratio:
This ratio indicates the number of times inventory is replaced during the year. It measures the
relationship between the cost of goods sold and the inventory level. The ratio can be computed in
Cost of goods sold
Inventory Turnover Ratio = ___________________
Average Inventory
The average inventory figure may be of two types. In the first place, it may be the monthly inventory
average. The monthly average can be found by adding the opening inventory of each month from, in case
of the accounting year being a calendar year, January through January an dividing the total by thirteen. If
the firm’s accounting year is other than a calendar year, say a financial year, (April and March), the
average level of inventory can be computed by adding the opening inventory of each month from April
through April and dividing the total by thirteen. This approach has the advantage of being free from bias
as it smoothens out the fluctuations in inventory level at different periods. This is particularly true of
firms in seasonal industries. However, a serious limitation of this approach is that detailed month-wise
information may present practical problems of collection for the analyst. Therefore, average inventory
may be obtained by using another basis, namely, the average of the opening inventory may be obtained
by using another basis, namely the average of the opening inventory and the closing inventory.
C. Working Capital Turnover Ratio:
This ratio, should the number of times the working capital results in sales. In otherwords, this ratio
indicates the efficiency or otherwise in the utilization of short tern funds in making sales. Working capital
means the excess of current over the current liabilities. In fact, in the short run, it is the current liabilities
which play a major role. A careful handling of the short term assets and funds will mean a reduction in
the amount of capital employed, thereby improving turnover. The following formula is used to measure
this ratio:
Sales
Working capital turnover ratio = _____________________
Net Working Capital
D. Fixed Assets Turnover Ratio:
As the organisation employs capital on fixed assets for the purpose of equipping itself with the
required manufacturing facilities to produce goods and services which are saleable to the customers to
earn revenue, it is necessary to measure the degree of success achieved in this bearing. This ratio
expresses the relationship between cost of goods sold or sales and fixed assets. The following is used for
measurement of the ratio.
Sales
Fixed Assets Turnover =________________
Net fixed assets
In computing fixed assets turnover ratio, fixed assets are generally taken at written down value at the
end of the year. However, there is no rigidity about it. It may be taken at the original cost or at the
present market value depending on the object of comparison. In fact, the ratio will have automatic
improvement if the written down value is used.
It would be better if the ratio is worked out on the basis of the original cost of fixed assets. We will
take fixed assets at cost less depreciation while working this ratio.
2.3.3 Financial Leverage (Gearing) Ratios
The long-term lenders/creditors would be judge the soundness of a firm on the basis of the long-term
financial strength measured in terms of its ability to pay the interest regularly as well as repay the
instalment of the principal on due dates or in one lump sum at the time of maturity. The long term
solvency of a firm an be examined by using leverage or capital structure ratios. The leverage or capital
structure ratios may be defined as financial ratios which throw light on the long-term solvency of a firm
as reflected in its ability to assure the long-term lenders with regard to (i) periodic payment of interest
during the period of the loan and (ii) repayment of principal on maturity or in predetermined instalments
at due dates.
A. Proprietary Ratio:
This ratio is also known as ‘Owners fund ratio’ (or) ‘Shareholders equity ratio’ (or) ‘Equity ratio’ (or)
‘Net worth ratio’. This ratio establishes the relationship between the proprietors’ funds and total tangible
assets. The formula for this ratio may be written as follows.
Proprietors’ funds
Proprietary Ratio = _____________________
Total tangible assets
Proprietors funds mean the sum of the paid-up equity share capital plus preference share capital plus
reserve and surplus, both of capital and revenue nature. From the sum so arrived at, intangible assets like
goodwill and fictitious assets capitalized as “Miscellaneous expenditure” should be deducted. Funds
payable to others should not be added. It may be noted that total tangible assets include fixed assets,
current assets but exclude fictitious assets like preliminary expenses, profit & loss account debit balance
etc.
B. Debt to Equity Ratio
The relationship between borrowed funds and owner’s capital is a popular measure of the
long-term financial solvency of a firm. The relationship is shown by the debt-equity ratios. This
ratio reflects the relative claims of creditors and shareholders against the assets of the firm. The
relationship between outsiders’ claims and owner’s capital can be shown in different ways and,
accordingly, there are many variants of the debt-equity ratio.
Total debt
Debt to Equity Ratio = ____________
Total equity
The debt-equity ratio is, thus, the ratio of total outside liabilities to owners’ total funds. In other
words, it is the ratio of the amount invested by the owners of business.
C. Interest Coverage Ratio
It is also known as ‘time interest-earned ratio’. This ratio measures the debt servicing capacity
of a firm insofar as fixed interest on long-term loan is concerned. It is determined by dividing the
operating profits or earnings before interest and taxes (EBIT) by the fixed interest charges on
loans. Thus,
EBIT
Interest Coverage Ratio =_______________
Interest charges
It should be noted that this ratio uses the concept of net profits before taxes because interest is tax-
deductible so that tax is calculated after paying interest on long-term loan. This ratio, as the name
suggests, indicates the extent to which a fall in EBIT is tolerable in that the ability of the firm to service its
interest payments would not be adversely affected. For instance, an interest coverage of 10 times would
imply that even if the firm’s EBIT were to decline to one-tenth of the present level, the operating profits
available for servicing the interest on loan would still be equivalent to the claims of the lendors. On the
other hand, a coverage of five times would indicate that a fall in operating earnings only to upto one-fifth
level can be tolerated. Form the point of view of the lenders, the larger the coverage, the greater is the
ability of the firm to handle fixed-charge liabilities and the more assured is the payment of interest to
tem, However, too high a ratio may imply unused debt capacity. In contrast, a low ratio is a danger signal
that the firm is using excessive debt and does not have to offer assured payment of interest to the
lenders.
2.3.4 Profitability Ratios
The main object of a business concern is to earn profit. A company should earn profits to
survive and to grow over a long period. The operating efficiency of a business concern is
ultimately adjudged by the profits earned by it. Profitability should distinguished from profits.
Profits refer to the absolute quantum of profit, whereas profitability refers to the ability to earn
profits. In other words, an ability to earn the maximum from the maximum use of available
resources by the business concern is known as profitability. Profitability reflects the final result of
a business operation. Profitability ratios are employed by the management in order to assess how
efficiently they carry on business operations. Profitability is the main base for liquidity as well as
solvency. Creditors, banks and financial institutions are interest obligations and regular and
improved profits enhance the long term solvency position of the business.
A. Gross Profit Margin
The gross profit margin is also known as gross margin. It is calculated by dividing gross profit by sales.
Thus,
Gross profit
Gross Profit Margin = ________________ *100
Sales
Gross profit is the result of the relationship between prices, sales volume and cost. A change in the
gross margin can be brought about by changes in any of these factors. The gross margin represents the
limit beyond which fall in sales price are outside the tolerance limit. Further, the gross profit ratio/margin
can also be used in determining the extent of loss caused by theft, spoilage, damage, and so on in the
case of those firms which follow the policy of fixed gross profit margin in pricing their products.
A high ratio of gross profit to sales is a sign of good management as it implies that the cost of
production of the firm is relatively low. It may also be indicative of a higher sales price without a
corresponding increase in the cost of goods sold. It is also likely that cost of sales might have declined
without a corresponding decline in sales price. Nevertheless, a very high and rising gross margin may also
be the result of unsatisfactory basis of valuation of stock, that is, overvaluation of closing stock and/or
undervaluation of opening stock.
A relatively low gross margin is definitely a danger signal, warranting a careful and detailed analysis of
the factors responsible for it. The important contributory factors may be (i) a high cost of production
reflecting acquisition of raw materials and other inputs on unfavorable terms, inefficient utilization of
current as well as fixed assets, and so on; and (ii) a low selling price resulting from severe competition,
inferior quality of the product, lack o f demand, and so on. A through investigation of the factors having
a bearing on the low gross margin is called for. A firm should have a reasonable gross margin to ensure
adequate coverage for operating expenses of the firm and sufficient return to the owners of the business,
which is reflected in the net profit margin.
B. Net Profit margin:
It is also known as net margin. This measures the relationship between net profits and sales of a firm.
Earnings after interest and taxes
Net Profit Margin =______________________________ *100
Net Sales
A high net profit margin would ensure adequate return to the owners as well as enable a firm to
withstand adverse economic conditions when selling price is declining, cost of production is rising and
demand for the product is falling.
A low net profit margin has the opposite implications. However, a firm with low profit margin can earn
a high rate of return on investment if it has a higher turnover. This aspect is covered in detail in the
subsequent discussion. The profit margin should, therefore, be evaluated in relation to the turnover
ratio. In other words, the overall rate of return is the product of the net profit margin and the investment
turnover ratio. Similarly, the gross profit margin and the net profit margin should be jointly evaluated.
C. Return on Investment:
The basic objective of making investments in any business is to obtain satisfactory return on capital
invested. The nature of this return will be influenced by factors such as, the type of the industry, the risk
involved, the risk of inflation, the comparative rate of return on gilt-edged securities and fluctuations in
external economic conditions. For this purpose, the shareholders can measure the success of a company
in terms of profit related to capital employed. The return on capital employed can be used to show the
efficiency of the business as a whole. The overall performance and the most important, therefore, can be
judged by working out a ratio between profit earned and capital employed. The resultant ratio, usually
expressed as a percentage, is called rate of return or return on capital employed to express the idea, the
purpose is to ascertain how much income the use of Rs.100 of capital generates. The return on “capital
employed” may be based on gross capital employed or net capital employed. The formula for this ratio
may be written as follows.
Operating profit
Return on Investment =_________________
Capital Employed
D. Return on Equity (ROE)
This is also known as return on net worth or return on proprietors’ fund. The preference shareholders
get the dividend on their holdings at a fixed rate and before dividend to equity shareholders, the real risk
remains with the equity shareholders. Moreover, they are the owners of total profits earned by the firms
after paying dividend on preference shares. Therefore this ratio attempts to measure the firm’s
profitability in terms of return to equity shareholders. This ratio is calculated by dividing the profit after
taxes and preference dividend by the equity capital. Thus
Net profit after taxes and preference dividend
Return on Equity =__________________________________________
Equity capital
E. Return on Total Assets
This ratio is also known as the profit-to-assets ratio. This ratio establishes the relationship
between net profits and assets. As these two terms have conceptual differences, the ratio may be
calculated taking the meaning of the terms according to the purpose and intent of analysis.
Usually, the following formula is used to determine the return on total assets ratio.
Net profit after taxes and interest
Return on Total Assets =_________________________________ *100
Total assets
2.4 Comparative Balance sheet:
Comparative balance sheets as on two or more different dates can be used for comparing assets,
liabilities, capital and finding out any increase or decrease in those items. In the words of Foulke
“comparative balance sheet analysis is the study of the trend of the same items, group of items and
computed items in two or more balance sheets of the same business enterprise on different dates”. Such
analysis often yields valuable information as regards progress of business concern. While the single
balance sheet represent balances of accounts drawn at the end of an accounting period, the comparative
balance sheet represent not nearly the balance of accounts drawn on two different dates, but also the
extent of their increase or decrease between these two dates. The single balance sheet focuses on the
financial status of the concern as on a particular date, the comparative balance sheet focuses on the
changes that have taken place in one accounting period. The changes are the direct outcome of
operational activities, conversion of assets, liability and capital form into others as well as a various
interactions among assets, liability and capital.
2.5 Tips to improve your financial health.

Author: Bill Hudley
Spend less money, or save more money or do both. If the annual income does nothing more
than remain constant, your financial condition will improve.
The above statement may sound come across as flippant, but it’s a fact of life, regardless.
Needless to say we all have different personalities and different responses to needs and desires in
life.
A very important yardstick, in my view, is the growth rate of personal assets. If you sit down to
all of the savings accounts, investment accounts and properly values and the total value is greater
than the same time of the previous year, it stands to improve that the financial health in tact and
possibly improved.
2.6 Steps to Improve Financial Performance

Author: Terry Peltes
Given the challenges facing physicians, successful practices must take proactive steps to
combat negative trends and improve their overall financial performance.
To improve practice operations, processes can be streamlined to reduce costs; productivity
improvements can be implemented by physicians and employees to increase revenue; a reporting
structure can be created that allows for better decision making by physicians and employees; and
a rewards system can be implemented to recognize hard-working employees.
To determine how you can improve your medical practice's performance, consider the following
management procedures.
1) Internal Cost Reduction Strategies
Cost reduction strategies focus on reducing the internal costs generated by medical services
provided to the marketplace.
2) External Cost Reduction Strategies
These strategies include the cost of services purchased from outside consultants or vendors.
3) Asset and Credit Management Strategies
These strategies ensure that you are getting the most value from the resources invested in your
practice.
4) Personnel Resources
When managed properly, personnel costs and productivity can have a substantial impact on
practice profitability.
5) Management Reporting
The use of timely, relevant, properly formatted reports to manage your practice cannot be
overstated. This is a crucial link between setting financial and operational goals and managing the
practice to achieve them.
6) Revenue Enhancement
Physicians can improve their financial performance by improving their ability to negotiate
favorable managed care contracts and reducing practice expenses as a percentage of revenue.
2.7 Excellence in Financial Management

Author: Matt H. Evans
Ratio analysis can be used to determine the time required to pay accounts payable invoices.
If the average number of days is close to the average credit terms, this may indicate aggressive working
capital management; i.e. using spontaneous sources of financing. However, if the number of days is well
beyond the average credit terms, this could indicate difficulty in making payments to creditors.
2.8 Analyze Investments Quickly With Ratios
Author: Jonas Elmerraji
The information you need to calculate ratios is easy to come by: Every single number or figure you
need can be found in a company's financial statements. Once you have the raw data, you can plug in right
into your financial analysis and put those numbers to work for you.
Everyone wants an edge in investing but one of the best tools out there frequently is frequently
misunderstood and avoided by new investors. When you understand what ratios tell you, as well as
where to find all the information you need to compute them, there's no reason why you shouldn't be
able to make the numbers work in your favor.
CHAPTER-2
COMPANY PROFILE
“The Indian pharmaceutical industry is a success story providing employment for millions and
ensuring that essential drugs at affordable prices are available to the vast population of this sub-
continent.”
Richard Gerster
The Indian Pharmaceutical Industry today is in the front rank of India’s science-based
industries with wide ranging capabilities in the complex field of drug manufacture and
technology. 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.
Growth Scenario in 2010

India's pharmaceutical industry is now the third largest in the world in terms of volume. Its rank is
14th in terms of value. Between September 2008 and September 2009, the total turnover of India's
pharmaceuticals industry was US$ 21.04 billion. The domestic market was worth US$ 12.26
billion. This was reported by the Department of Pharmaceuticals, Ministry of Chemicals and
Pharmacys. As per a report by IMS Health India, the Indian pharmaceutical market reached US$
10.04 billion in size in July 2010. A highly organized sector, the Indian Pharma Industry is
estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. Know more out this
in our article on Indian Pharmaceutical Industry- Future Trends Also check outPharmaceutical
Market Trends 2010
Leading Pharmaceutical Companies

In the domestic market, Cipla retained its leadership position with 5.27 per cent share. Ranbaxy
followed next. The highest growth was for Mankind Pharma (37.2%). Other leading companies in
the Indian pharma market in 2010 are:
 Sun Pharma (25.7%)

 Abbott (25%)
 Zydus Cadila (24.1%)
 Alkem Laboratories (23.3%)
 Pfizer (23.6 %)
 GSK India (19%)
 Piramal Healthcare (18.6 %)
 Lupin (18.8 %)
For details check out List of Top 10 Pharmaceutical Companies in India

Future Prospects
The Indian pharmaceuticals market is expected to reach US$ 55 billion in 2020 from US$ 12.6
billion in 2009. This was stated in a report title "India Pharma 2020: Propelling access and
acceptance, realising true potential" by McKinsey & Company. In the same report, it was also
mentioned that in an aggressive growth scenario, the pharma market has the further potential to
reach US$ 70 billion by 2020
Due to increase in the population of high income group, there is every likelihood that they will
open a potential US$ 8 billion market for multinational companies selling costly drugs by 2015.
This was estimated in a report by Ernst & Young. The domestic pharma market is estimated to
touch US$ 20 billion by 2015. The healthcare market in India to reach US$ 31.59 billion by 2020.
The sale of all types of pharmaceutical drugs and medicines in the country stands at US$ 9.61
billion, which is expected to reach around US$ 19.22 billion by 2012. Thus India would really
become a lucrative destination for clinical trials for global giants.
There was another report by RNCOS titled "Booming Pharma Sector in India" in which it was
projectedt that the pharmaceutical formulations industry is expected to prosper in the same
manner as the pharmaceutical industry. The domestic formulations market will grow at an annual
rate of around 17% in 2010-11, owing to increasing middle class population and rapid
urbanisation. Read More in Future Prospects of Indian Pharma Industry.
Characteristics of Indian Pharmaceutical Industry

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It
has expanded drastically in the last two decades. The leading 250 pharmaceutical companies
control 70% of the market with market leader holding nearly 7% of the market share. It is an
extremely fragmented market with severe price competition and government price control.
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.
Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the
drugs and pharmaceutical products has been done away with. Manufacturers are free to produce
any drug duly approved by the Drug Control Authority. Technologically strong and totally self-
reliant, the pharmaceutical industry in India has low costs of production, low R&D costs,
innovative scientific manpower, strength of national laboratories and an increasing balance of
trade. The Pharmaceutical Industry, with its rich scientific talents and research capabilities,
supported by Intellectual Property Protection regime is well set to take on the international
market.
Why India?
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.
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.
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.
Information & Technology: It has a good network of world-class educational institutions and
established strengths in Information Technology.
Globalisation: 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.
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.
Steps to strengthen the Industry
Indian companies need to attain the right product-mix for sustained future growth. Core
competencies will play an important role in determining the future of many Indian pharmaceutical
companies in the post product-patent regime after 2005. Indian companies, in an effort to
consolidate their position, will have to increasingly look at merger and acquisition options of
either companies or products. This would help them to offset loss of new product options,
improve their R&D efforts and improve distribution to penetrate markets.
Research and development has always taken the back seat amongst Indian pharmaceutical
companies. In order to stay competitive in the future, Indian companies will have to refocus and
invest heavily in R&D.
The Indian pharmaceutical industry also needs to take advantage of the recent advances in
biotechnology and information technology. The future of the industry will be determined by how
well it markets its products to several regions and distributes risks, its forward and backward
integration capabilities, its R&D, its consolidation through mergers and acquisitions, co-
marketing and licensing agreements.
The Indian pharmaceutical industry is the world's second-largest by volume and is likely to
lead the manufacturing sector of India.1India's bio-tech industry clocked a 17 percent growth with
revenues of Rs.137 billion ($3 billion) in the 2009-10 financial year over the previous fiscal. Bio-
pharma was the biggest contributor generating 60 percent of the industry's growth at Rs.8,829
crore, followed by bio-services at Rs.2,639 crore and bio-agri at Rs.1,936 crore.2 The first
pharmaceutical company are Bengal Chemicals and Pharmaceutical Works, which still exists
today as one of 5 government-owned drug manufacturers, appeared in Calcutta in 1930. For the
next 60 years, most of the drugs in India were imported by multinationals either in fully
formulated or bulk form. The government started to encourage the growth of drug manufacturing
by Indian companies in the early 1960s, and with the Patents Act in 1970, enabled the industry to
become what it is today. This patent act removed composition patents from food and drugs, and
though it kept process patents, these were shortened to a period of five to seven years. The lack of
patent protection made the Indian market undesirable to the multinational companies that had
dominated the market, and while they streamed out, Indian companies started to take their places.
They carved a niche in both the Indian and world markets with their expertise in reverse-
engineering new processes for manufacturing drugs at low costs. Although some of the larger
companies have taken baby steps towards drug innovation, the industry as a whole has been
following this business model until the present.
Statistics
Top 10 Pharmaceuticals in India, as of 2010
Rank Company Revenue Revenue

2010(Rs crore) 2010(Rs billion)
1 Ranbaxy Laboratories 4,198.96 41.989
2 Dr. Reddy's Laboratories 4,162.25 41.622
3 Cipla 3,763.72 37.637
4 Sun Pharmaceutical 2,463.59 24.635
5 Lupin Ltd 2,215.52 22.155
6 Aurobindo Pharma 2,081.19 20.801
7 GlaxoSmithKline 1,773.41 17.734
8 Cadila Healthcare 1,613 16.13
9 Aventis Pharma 983.80 9.838
10 Ipca Laboratories 980.44 9.8044

In 2002, over 20,000 registered drug manufacturers in India sold $9 billion worth of formulations
and bulk drugs. 85% of these formulations were sold in India while over 60% of the bulk drugs
were exported, mostly to the United States and Russia25. Most of the players in the market are
small-to-medium enterprises; 250 of the largest companies control 70% of the Indian market 1.
Thanks to the 1970 Patent Act, multinationals represent only 35% of the market, down from 70%
thirty years ago20.
Most pharma companies operating in India, even the multinationals, employ Indians almost
exclusively from the lowest ranks to high level management. Mirroring the social structure, firms
are very hierarchical. Homegrown pharmaceuticals, like many other businesses in India, are often
a mix of public and private enterprise. Although many of these companies are publicly owned,
leadership passes from father to son and the founding family holds a majority share.
In terms of the global market, India currently holds a modest 1-2% share, but it has been growing
at approximately 10% per year27. India gained its foothold on the global scene with its
innovatively engineered generic drugs and active pharmaceutical ingredients (API), and it is now
seeking to become a major player in outsourced clinical research as well as contract
manufacturing and research. There are 74 U.S. FDA-approved manufacturing facilities in India,
more than in any other country outside the U.S, and in 2005, almost 20% of all Abbreviated New
Drug Applications (ANDA) to the FDA are expected to be filed by Indian companies21,27.
Growth in other fields notwithstanding, generics are still a large part of the picture. London
research company Global Insight estimates that India’s share of the global generics market will
have risen from 4% to 33% by 2007.
Product development
Indian companies are also starting to adapt their product development processes to the new
environment. For years, firms have made their ways into the global market by researching generic
competitors to patented drugs and following up with litigation to challenge the patent. This
approach remains untouched by the new patent regime and looks to increase in the future.
However, those that can afford it have set their sights on an even higher goal: new molecule
discovery. Although the initial investment is huge, companies are lured by the promise of hefty
profit margins and the recognition as a legitimate competitor in the global industry. Local firms
have slowly been investing more money into their R&D programs or have formed alliances to tap
into these opportunities.
Small and medium enterprises
As promising as the future is for a whole, the outlook for small and medium enterprises (SME) is
not as bright. The excise structure changed so that companies now have to pay a 16% tax on the
maximum retail price (MRP) of their products, as opposed to on the ex-factory price.
Consequently, larger companies are cutting back on outsourcing and what business is left is
shifting to companies with facilities in the four tax-free states - Himachal Pradesh, Jammu &
Kashmir, Uttaranchal and Jharkhand.12Consequently a large number of pharmaceutical
manufacturers shifted their plant to these states, as it became almost impossible to continue
operating in non tax free zones. But in a matter of a couple of years the excise duty was revised
on two occasions, first it was reduced to 8% and then to 4%. As a result the benefits of shifting to
a tax free zone was negated. This resulted in, factories in the tax free zones, to start up third party
manufacturing. Under this these factories produced goods under the brand names of other parties
on job work basis.
As SMEs wrestled with the tax structure, they were also scrambling to meet the July 1 deadline
for compliance with the revised Schedule M Good Manufacturing Practices (GMP). While this
should be beneficial to consumers and the industry at large, SMEs have been finding it difficult to
find the funds to upgrade their manufacturing plants, resulting in the closure of many facilities.
Others invested the money to bring their facilities to compliance, but these operations were
located in non-tax-free states, making it difficult to compete in the wake of the new excise tax.
Challenges
All of these changes are ultimately good for the Indian pharmaceutical industry, which suffered in
the past from inadequate regulation and large quantities of spurious drugs. They force the industry
to reach a level necessary for global competitiveness. However, they have also exposed some of
the inadequacies in the industry today. Its main weakness is an underdeveloped new molecule
discovery program. Even after the increased investment, market leaders such as Ranbaxy and Dr.
Reddy’s Laboratories spent only 5-10% of their revenues on R&D, lagging behind Western
pharmaceuticals like Pfizer, whose research budget last year was greater than the combined
revenues of the entire Indian pharmaceutical industry13, 37. This disparity is too great to be
explained by cost differentials, and it comes when advances in genomics have made research
equipment more expensive than ever. The drug discovery process is further hindered by a dearth
of qualified molecular biologists. Due to the disconnect between curriculum and industry,
pharmas in India also lack the academic collaboration that is crucial to drug development in the
West.
R&D
Both the Indian central and state governments have recognized R&D as an important driver in the
growth of their pharma businesses and conferred tax deductions for expenses related to research
and development. They have granted other concessions as well, such as reduced interest rates for
export financing and a cut in the number of drugs under price control. Government support is not
the only thing in Indian pharma’s favor, though; companies also have access to a highly
developed IT industry that can partner with them in new molecule discovery
Labor force
India’s greatest strengths lie in its people. India also boasts of well-educated, English-speaking
labor force that is the base of its competitive advantage. Although molecular biologists are in
short supply, there are a number of talented chemists who are equally as important in the
discovery process. In addition, there has been a reverse brain drain effect in which scientists are
returning from abroad to accept positions at lower salaries at Indian companies. Once there, these
foreign-trained scientists can transfer the benefits of their knowledge and experience to all of
those who work with them13,25. India’s wealth of people extends benefits to another part of the
drug commercialization process as well. With one of the largest and most genetically diverse
populations in any single country, India can recruit for clinical trials more quickly and perform
them more cheaply than countries in the West47. Indian firms have just recently started to
leverage.
Biotechnology
Relationship between pharmaceuticals and biotechnology
Unlike in other countries, the difference between biotechnology and pharmaceuticals remains
fairly defined in India. Bio-tech there still plays the role of pharma’s little sister, but many
outsiders have high expectations for the future. India accounted for 2% of the $41 billion global
biotech market and in 2003 was ranked 3rd in the Asia-Pacific region and 11th in the world in
number of biotechs.45 In 2004-5, the Indian biotech industry saw its revenues grow 37% to $1.1
billion.2,9 The Indian biotech market is dominated by biopharmaceuticals; 75% of 2004-5
revenues came from biopharmaceuticals, which saw 30% growth last year. Of the revenues from
biopharmaceuticals, vaccines led the way, comprising 47% of sales46. Biologics and large-
molecule drugs tend to be more expensive than small-molecule drugs, and India hopes to sweep
the market in biogenerics and contract manufacturing as drugs go off patent and Indian companies
upgrade their manufacturing capabilities.
Top 10 Pharmaceuticals in India, as of 2010
Revenue Revenue
Rank Company
2010(Rs crore) 2010(Rs billion)
1 Ranbaxy Laboratories 4,198.96 41.989
2 Dr. Reddy's Laboratories 4,162.25 41.622
3 Cipla 3,763.72 37.637
4 Sun Pharmaceutical 2,463.59 24.635
5 Lupin Ltd 2,215.52 22.155
6 Aurobindo Pharma 2,081.19 20.801
7 GlaxoSmithKline 1,773.41 17.734
8 Cadila Healthcare 1,613 16.13
9 Aventis Pharma 983.80 9.838
10 Ipca Laboratories 980.44 9.804

Patents
As it expands its core business, the industry is being forced to adapt its business model to recent
changes in the operating environment. The first and most significant change was the January 1,
2005 enactment of an amendment to India’s patent law that reinstated product patents for the first
time since 1972. The legislation took effect on the deadline set by the WTO’s Trade-Related
Aspects of Intellectual Property Rights (TRIPS) agreement, which mandated patent protection on
both products and processes for a period of 20 years. Under this new law, India will be forced to
recognize not only new patents but also any patents filed after January 1, 1995.3 Indian companies
achieved their status in the domestic market by breaking these product patents, and it is estimated
that within the next few years, they will lose $650 million of the local generics market to patent-
holders42.
In the domestic market, this new patent legislation has resulted in fairly clear segmentation. The
multinationals narrowed their focus onto high-end patients who make up only 12% of the market,
taking advantage of their newly bestowed patent protection. Meanwhile, Indian firms have chosen
to take their existing product portfolios and target semi-urban and rural populations
Top 20 Biotechnology Companies in India, 2010
Revenue Revenue
Rank Company
2010(Rs crore) 2010(USD millions)
1 Biocon 646 148.6
2 Serum Institute of India 565 129.9
3 Panacea Biotec 217 50.0
4 Venky's (India) Limited 188 43.2
5 Mahyco Monsanto 166 38.3
6 Novo Nordisk 135 31.0
7 Rasi Seeds 87 20.0
8 Aventis Pharma 84 19.4
9 Bharat Serums 81 18.6
10 Chiron Behring Vaccines 78 17.9
11 GlaxoSmithKline 78 17.9
12 Indian Immunologicals 72 16.6
13 Shantha Biotechnics 70 16.1
14 Novozymes 69 15.9
15 Eli Lilly and Company 68 15.7
16 Wockhardt 67 15.4
17 Bharat Immunological & Biological Corp. 53 12.3
18 Bharat Biological International 41 9.4
19 Advanced Biochemicals 40 9.1
20 Biological E 36 8.3
USD 1 = Rs 43.5
Source: BioSpectrum Top 20: A threshold crossed
Most companies in the biotech sector are extremely small, with only two firms breaking 100
million dollars in revenues. At last count there were 265 firms registered in India, over 75% of
which were incorporated in the last five years.2,47 The newness of the companies explains the
industry’s high consolidation in both physical and financial terms. Almost 50% of all biotechs are
in or around Bangalore, and the top ten companies capture 47% of the market. The top five
companies were homegrown; Indian firms account for 62% of the biopharma sector and 52% of
the industry as a whole.4,46 The Association of Biotechnology-Led Enterprises (ABLE) is aiming
to grow the industry to $5 billion in revenues generated by 1 million employees by 2009, and data
from the Confederation of Indian Industry (CII) seem to suggest that it is possible.7,47
Comparison with the U.S.
The Indian biotech sector parallels that of the U.S. in many ways. Both are filled with small start-
ups while the majority of the market is controlled by a few powerful companies. Both are
dependent upon government grants and venture capitalists for funding because neither will be
commercially viable for years. Pharmaceutical companies in both countries have recognized the
potential effect that biotechnology could have on their pipelines and have responded by either
investing in existing start-ups or venturing into the field themselves.36 In both India and the U.S.,
as well as in much of the globe, biotech is seen as a hot field with a lot of growth potential.
Relationship with IT
Many analysts have observed that the hype around the biotech sector mirrors that of the IT sector.
Biotech colleges have been popping up around the country eager to service the pools of students
that want to take advantage of a growing industry.7 The International Finance Commission, the
private investment arm of the World Bank, called India the “centerpiece of IFC’s global biotech
strategy.” Of the $110 million invested in 14 biotech projects investment globally, the IFC has
given $43 million to 4 projects in India.29 According to Dr. Manju Sharma, former director of the
Department of Biotechnology, the biotech industry could become the “single largest sector for
employment of skilled human resource in the years to come.”5 British Prime Minister Tony Blair
was similarly impressed, citing the success of India’s biotech industry as the reason for his own
country’s own biotech opportunities.22 Malaysia is also looking to India as an example for
growing its own biotech industry.41
Government support
The Indian government has been very supportive. It established the Department of Biotechnology
in 1986 under the Ministry of Science and Technology.47 Since then, there have been a number
of dispensations offered by both the central government and various states to encourage the
growth of the industry. India’s science minister launched a program that provides tax incentives
and grants for biotech start-ups and firms seeking to expand and establishes the Biotechnology
Parks Society of India to support ten biotech parks by 2010. Previously limited to rodents, animal
testing was expanded to include large animals as part of the minister’s initiative.10 States have
started to vie with one another for biotech business, and they are offering such goodies as
exemption from VAT and other fees, financial assistance with patents and subsidies on everything
ranging from investment to land to utilities19.
Foreign investment
The government has also taken steps to encourage foreign investment in its biotech sector. An
initiative passed earlier this year allowed 100% foreign direct investment without compulsory
licensing from the government1.6 In April, a delegation headed by the Kapil Sibal, the minister of
science and technology and ocean development, visited five cities in the U.S. to encourage
investment in India, with special emphasis on biotech.32 Just two months later, Sibal returned to
the U.S. to unveil India’s biotech growth strategy at the BIO2005 conference in Philadelphia.9
Challenges
The biotech sector faces some major challenges in its quest for growth. Chief among them is a
lack of funding, particularly for firms that are just starting out. The most likely sources of funds
are government grants and venture capital, which is a relatively young industry in India.
Government grants are difficult to secure, and due to the expensive and uncertain nature of
biotech research, venture capitalists are reluctant to invest in firms that have not yet developed a
commercially viable product.26 As previously mentioned, India hopes to solve its funding
problem by attracting overseas investors and partners. Before these potential saviors will invest
significant sums in the industry, however, there needs to be better scientific and financial
accountability. India is slowly working towards these goals, but it will be a while before they are
up to the standards of Western investors.
India’s biotech firms share another problem with their pharmaceutical cousins: a lack of qualified
employees. Biotech has the additional disadvantage of competing against IT for ambitious,
science-minded students but not being able to guarantee the same compensation. An aspiring
researcher in India needs 7–10 years of education covering a range of specialties in order to
qualify to work in biotech. Even if a student does choose to go on the biotech path, the ineffectual
curriculum at many universities makes it doubtful as to whether he will be qualified to work in the
field once finished. One estimate shows that 10% of upper-echelon biotech recruits have come
from foreign countries. While this is not a problem, per se, it drives up cost in a country whose
competitive advantage is based on cheap, high-quality labor. Far from ending with scientists,
there is also a shortage of people with a knowledge of biotechnology in related fields: doctors,
lawyers, programmers, marketing personnel and others.7,15,17
While little has been done about the latter half of the employee crunch, the government has
addressed the problem of educated but unqualified candidates in its Draft National Biotech
Development Strategy. This plan included a proposal to create a National Task Force that would
work with the biotech industry to revise the curriculum for undergraduate and graduate study in
life sciences and biotechnology. The government’s strategy also stated intentions to increase the
number of PhD Fellowships awarded by the Department of Biotechnology to 200 per year. These
human resources will be further leveraged with a “Bio-Edu-Grid” that will knit together the
resources of the academic and scientific industrial communities, much as they are in the U.S.5
Major players
Glenmark
Glenmark is a emerging leader of Indian Pharmaceutical market in sales as well in Research.
Soon new chemical entities will hit the market.
Ranbaxy Laboratories
Ranbaxy is the leader in the Indian pharmaceutical market, taking in $1.174 billion in revenues
for a net profit of $160 million in 2004. It was the first Indian pharmaceutical to have a
proprietary drug (extended-release ciprofloxacin, marketed by Bayer) approved by the U.S. FDA,
and the U.S. market accounts for 36% of its sales. 78% of Ranbaxy’s sales are from overseas
markets; its offices in 44 countries manage manufacturing in 7 countries and distribution in over
100.
IMS Health estimated that Ranbaxy is among the top 100 pharmaceuticals in the world and that it
is the 15th fastest growing company. By 2012, Ranbaxy hopes to be one of the top 5 generics
producers in the world, and it consolidated its position with the purchase of French firm RGP
Aventis in 2003. Ranbaxy also has higher aspirations, however, “to build a proprietary
prescription business in the advanced markets.” To this end, it keeps a dedicated research facility
in Gurgaon staffed with over 1100 scientists. They currently have two molecules in Phase II trials
and 3-5 in pre-clinical testing. It spent $75 million in R&D in 2004, a 43% increase over its 2003
expenditure.
Arun Puri is the chairman and CEO Brian Tempest is the only non-Indian on the senior
management team.38,39
Dr. Reddy's Laboratories
Founded in 1984 with $160,000, Dr. Reddy’s was the first Asia-Pacific pharmaceutical outside of
Japan and the sixth Indian company to be listed on the New York Stock Exchange. It earned $446
million in fiscal year 2005, deriving 66% of this income from the foreign market. In order to
strengthen its global position, Dr. Reddy acquired UK-based BMS Laboratories and subsidiary
Meridian Healthcare. Anji Reddy is the chairman of Dr.Reddy's.
Although 58% of Dr. Reddy’s revenues come from generic drugs, the company was committed to
WTO-compliance long before the 2005 bill took effect, and most of these products were already
off patent. Dr. Reddy has long been a research-oriented firm, preceding many of its peers in
setting up a New Drug Development Research (NDDR) in 1993 and out-licensing its first
compound just four years later. Dr. Reddy’s has since outlicensed two more molecules and
currently has three others in clinical trials.
Although Dr. Reddy’s is publicly traded, the Reddy family (including founder/chairman K. Anji
Reddy, son-in-law/CEO GV Prasad and son/COO Satish Reddy) holds a hefty 26% share in the
company.11,44
Nicholas Piramal
The company led by Asish Mishra grossing $350 million per year, Nicholas Piramal started its
existence with the 1988 acquisition of Nicholas Laboratories and grew through a series of
mergers, acquisitions and alliances. The company has formed a name for itself in the field of
custom manufacturing. It cites its 1700-person global sales force as another core strength; with its
acquisition of Rhodia’s inhalation anaesthetics business, Nicholas Piramal gained a sales and
marketing network spanning 90 countries34.
Nicholas Piramal is well-poised for the challenge of surviving in the aftermath of product patent
protection. The company has respected intellectual property rights since its inception and refused
to "support generic companies seeking first-to-file or early-to-market strategies." Instead, it
decided to make its own intellectual property and opened a research facility last November in
Mumbai with hopes of launching its first drug in 2010 at a cost of $100,000.24,33
Cipla
Cipla is one of the oldest drug manufacturers in India. It is led by Dr. Yusuf K. Hamied,
Chairman and Managing Director. Cipla burst into the international consciousness in 2000 with
Triomune, an AIDS treatment costing between $300 and $800 per year that infringed upon
patents held by several companies who were selling the cocktail for $12,000 per year. Long
before this news, Cipla had been building a strong global presence, and it now distributes its 800-
odd products in over 140 countries. Privately held Cipla holds a prominent spot in its home
country as well; it is the leader in domestic sales, having just unseated GlaxoSmithKline for the
first time in 28 years. Revenue in 2004 totaled $552 million (using Rs 43.472 = $1) about 75% of
which was derived in India. Cipla did not report having a research program.8,18
|Dr. Kiran Mazumdar-Shaw is the Chairman and Managing Director of BiocoIrish chemicals
company seeking to break into the Indian market, Biocon is now the leading biotech in India,
bringing in Rs 646.36 crore (almost $150 million) in revenue for fiscal year 2004. It initially
made its money by producing enzymes, but Biocon recently decided to become a research-
oriented company with the goal of bringing a proprietary new drug to market.
The company went public in March 2004, and "its shares were oversubscribed by 33 times on
opening day." Eight months later it launched Insugen, a bio-insulin that is its first branded
product. Biocon also has two wholly owned subsidiaries, Syngene and Clinigene, that perform
custom research and clinical trials.3,14,31
Serum Institute of India
Main article: Serum Institute of India
The Serum Institute of India can make the enviable claim that 2 out of every 3 children in the
world are immunized with one of their vaccines. It is the world’s largest producer of measles and
DTP vaccines, and its portfolio includes other vaccines, antisera, plasma products and anticancer
compounds. The Serum Institute earned Rs 565 crore ($130 million) in revenue in fiscal year
2005, selling mainly to UN agencies and to the Indian government. The Serum Institute is part of
the Poonawalla Group, whose holdings include a horse stud farm and manufacturers of industrial
equipment and components. Dr. Cyrus Poonawalla is the Chairman of the company.4
CHAPTER-3
Data Analysis and interpretation
3.1 Horizontal Analysis
3.1.1 Horizontal Analysis of Balance Sheet for

the year 2012-13
Table 1 Horizontal Analysis of Balance Sheet

For the year 2012-13
(Rs in millions)
Particulars Mar, 13 Mar, 13 Change Change
(Rs) (Rs) (%)
Sources of funds
A) Share Capital 1330.34 1323.87 6.47 0.49%

B) Reserves and Surplus 20159.48 17621.81 2537.67 14.40%
Total 21489.82 18945.68 2544.14 13.43%
Loan Funds:
A) Secured Loans 1902.4 3602.16 -1699.76 -47.19%
B) Unsecured Loans 6972.61 2801.82 4170.79 148.86%
Total 8875.01 6403.98 2471.03 38.59%
Deferred Tax Liability 2538.2 1969.29 568.91 28.89%
TOTAL 32903.03 27318.95 5584.08 20.44%
Application of Funds
Fixed Assets:
A) Gross Block 29424.38 26201.97 3222.41 12.30%
B) Less: Depreciation 14168.88 13131.64 1037.24 7.90%
C) Net Block 15255.5 13070.33 2185.17 16.72%
8
E) Capital work-in progress 5292.45 2374.91 2917.54 122.85%
Investments 6099 2210.94 3888.06 175.86%

Current assets, loans and
advances
A) Inventories 12239.14 10703.21 1535.93 14.35%
B) Sundry debtors 3758.35 5228.75 -1470.4 -28.12%
C) Cash & bank balances 4513.7 4349.39 164.31 3.78%
D) Loans & advances 8241.37 6695.79 1545.58 23.08%
1,775.4
Total 28752.56 26977.14 2 6.58%
Less: Current liabilities and

provisions -
2,750.8
A) Liabilities 19267.09 16516.25 4 16.66%
2,410.0
B) Provisions 3452.31 1042.3 1 231.22%
5,160.8
Total 22719.4 17558.55 5 29.39%
(3,385.4
Net current assets 6033.16 9418.59 3) -35.94%
-
(21.2
Misc. Expenses 222.92 244.18 6) -8.71%
-
5,584.0
TOTAL 32903.03 27318.95 8 20.44%
9
Chart 1: Horizontal Analysis of Balance Sheet
For 2012-11
3.1.2. Horizontal Analysis of Balance Sheet

(Rs in millions)
(Rs) (Rs) (%)
Sources of funds
A) Share Capital 1323.87 1221.59 102.28 8.37%

Total 18945.68 14124.53 4821.15 34.13%
Loan Funds:
A) Secured Loans 3602.16 1846.91 1755.25 95.04%
B) Unsecured Loans 2801.82 5072.37 -2270.55 -44.76%
Total 6403.98 6919.28 -515.3 -7.45%
TOTAL 27318.95 22840.7 4478.25 19.61%
Fixed Assets:
A) Gross Block 26201.97 21384.99 4816.98 22.53%
C) Net Block 13070.33 9432.71 3637.62 38.56%
Investments 2210.94 3681.78 -1470.84 -39.95%
Current assets, loans and

advances
A) Inventories 10703.21 9025.61 1677.6 18.59%
B) Sundry debtors 5228.75 4243.37 985.38 23.22%
11
C) Cash & bank balances 4349.39 6028.76 -1679.37 -27.86%
D) Loans & advances 6695.79 3026.39 3669.4 121.25%
Total 26977.14 22324.13 4,653.01 20.84%
Less: Current liabilities and

provisions -
A) Liabilities 16516.25 11468.95 5,047.30 44.01%
(1,573.91
B) Provisions 1042.3 2616.21 ) -60.16%
Total 17558.55 14085.16 3,473.39 24.66%
Net current assets 9418.59 8238.97 1,179.62 14.32%
-
Misc. Expenses 244.18 73.07 171.11 234.17%
-
TOTAL 27318.95 22840.7 4,478.25 19.61%
Chart 2 Horizontal Analysis of Balance Sheet

3.1.3 Horizontal Analysis of Balance Sheet for
the year 2009-08

For the Year 2009-08
(Rs in millions)
(Rs) (Rs) (%)
Sources of funds
A) Share Capital 1221.59 1189.29 32.3 2.72%

Total 14124.53 11678.65 2445.88 20.94%
Loan Funds:
A) Secured Loans 1846.91 2634.96 -788.05 -29.91%
B) Unsecured Loans 5072.37 6169.1 -1096.73 -17.78%
Total 6919.28 8804.06 -1884.78 -21.41%
TOTAL 22840.7 22191.19 649.51 2.93%
Fixed Assets:
A) Gross Block 21384.99 20022.5 1362.49 6.80%
C) Net Block 9432.71 8938.46 494.25 5.53%
Investments 3681.78 2291.9 1389.88 60.64%
Current assets, loans and advances

A) Inventories 9025.61 5680.81 3344.8 58.88%
B) Sundry debtors 4243.37 4587.66 -344.29 -7.50%
C) Cash & bank balances 6028.76 7966.82 -1938.06 -24.33%
D) Loans & advances 3026.39 3337.34 -310.95 -9.32%
751.5
Total 22324.13 21572.63 0 3.48%
Less: Current liabilities and provisions

-
1,857.0
A) Liabilities 11468.95 9611.87 8 19.32%
571.4
B) Provisions 2616.21 2044.8 1 27.94%
2,428.4
Total 14085.16 11656.67 9 20.83%
(1,676.9
Net current assets 8238.97 9915.96 9) -16.91%
-
(120.2
Misc. Expenses 73.07 193.32 5) -62.20%
-
649.5
TOTAL 22840.7 22191.19 1 2.93%
Chart 3 Horizontal Analysis of Balance Sheet

3.1.4 Horizontal Analysis of Income Statement

Table 4 Horizontal Analysis of Income Statement
(Rs in millions)
Particulars Mar,12 Mar, 13 Change Change
(Rs) (Rs) (Rs) (in %)
Income
Sales less returns 77,291.23 71,681.76 5,609.47 7.83%

Other Income 739.99 708.03 31.96 4.51%
Total Income 78,031.22 72,389.79 5,641.43 7.79%
Expenditure
Cost of material 57,646.34 54,631.91 3,014.43 5.52%
Employee Expenses 6,162.00 4,807.00 1,355.00 28.19%
Other Expenses 5,443.00 5,216.00 227.00 4.35%
Financial expenses 497.4 53.32 444.08 832.86%
Depreciation 1773.61 1505.74 267.87 17.79%
Total Expenditure 71,522.35 66,213.97 5,308.38 8.02%
Profit before tax 6381.5 6045.06 336.44 5.57%

provision for taxation - current tax 1014 1350.5 -336.50 -24.92%
- Deferred tax 604.4 230.2 374.20 162.55%
- Fringe benefit tax 70 51.5 18.50 35.92%
Profit after tax 4693.1 4412.86 280.24 6.35%
Balance profits carried to balance 5022.74 3616.86 1,405.88 38.87%

sheet
Chart 4 Horizontal Analysis of Income Statement
3.1.5 Horizontal Analysis of Income Statement For the Year 2007-
06
(Rs in millions)
(Rs) (Rs) (Rs) (in %)
Income

Other Income 708.03 329.74 378.29 114.72%
Total Income 72,389.79 52,806.31 19,583.48 37.09%
Expenditure
Cost of material 54,631.91 37,690.87 16,941.04 44.95%
Employee Expenses 4,807.00 4,038.00 769.00 19.04%
Other Expenses 5,216.00 5,347.00 -131.00 -2.45%
Financial expenses 53.32 164.53 -111.21 -67.59%
Depreciation 1505.74 1260.06 245.68 19.50%
Profit before tax 6045.06 4523 1,522.06 33.65%

provision for taxation - current tax 1350.5 1130.5 220.00 19.46%
- Deferred tax 230.2 72.3 157.90 218.40%
- Fringe benefit tax 51.5 47 4.50 9.57%
Profit after tax 4412.86 3273.2 1,139.66 34.82%
Balance profits carried to balance 3616.86 2303.7 1,313.16 57.00%

sheet
Chart 5 Horizontal Analysis of Income Statement

3.1.6 Horizontal Analysis of Income Statement For the Year 2006-
05
(Rs in millions)
Particulars 2009-10 2010-11 2011-12 2012-13
(Rs) (Rs) (Rs) (in %)
Income

Other Income 329.74 537.55 -207.81 -38.66%
Total Income 52,806.31 42,356.52 10,449.79 24.67%
Expenditure
Cost of material 37,690.87 29,728.47 7,962.40 26.78%
Employee Expenses 4,038.00 3,541.00 497.00 14.04%
Other Expenses 5,347.00 4,321.00 1,026.00 23.74%
Financial expenses 164.53 27.98 136.55 488.03%
Depreciation 1260.06 1092.14 167.92 15.38%
Profit before tax 4523 3550.1 972.90 27.40%

provision for taxation - current tax 1130.5 895 235.50 26.31%
- Deferred tax 72.3 -59 131.30 -222.54%
- Fringe benefit tax 47 0 47.00
Profit after tax 3273.2 2714.1 559.10 20.60%
Balance profits carried to balance 2303.7 1784.13 519.57 29.12%

sheet
Chart 6 Horizontal Analysis of
Income Statement
3.2 Vertical Analysis
3.2.1 Vertical Analysis of Balance Sheet
20
Table 7 Vertical Analysis of Balance Sheet
(Rs in millions)
Particulars 2009-10 2010-11 2011-12 2012-13
Sources of funds
Shareholders’ funds 21489.82 18945.68 14124.53 11678.65
(%) 65.31% 69.35% 61.84% 52.63%
Loan Funds: 8875.01 6403.98 6919.28 8804.06
(%) 26.97% 23.44% 30.29% 39.67%
TOTAL 32903.03 27318.95 22840.7 22191.19
(%) 100% 100% 100% 100%
Fixed Assets: 15255.5 13070.33 9432.71 8938.46
(%) 46.37% 47.84% 41.30% 40.28%
Current assets, loans and advances 28752.56 26977.14 22324.13 21572.63
(%) 87.39% 98.75% 97.74% 97.21%
Less: Current liabilities and provisions 22719.4 17558.55 14085.16 11656.67
(%) 69.05% 64.27% 61.67% 52.53%
TOTAL 32903.03 27318.95 22840.7 22191.19
(%) 100% 100% 100% 100%
Chart 7 Vertical Analysis of Balance Sheet

For the Year 2008
21
For the Year 2007

For the Year 2006
22
For the Year 2005
3.3 Trend Analysis
Table 9 Trend Analysis of Balance Sheet
23
(Rs in millions)
Particulars 2009-10 2010-11 2011-12 2012-13
Sources of funds
Shareholders’ funds 11678.65 14124.53 18945.68 21489.82
(%) 52.63% 61.84% 69.35% 65.31%
Loan Funds: 8804.06 6919.28 6403.98 8875.01
(%) 39.67% 30.29% 23.44% 26.97%
TOTAL 22191.19 22840.7 27318.95 32903.03
(%) 100% 100% 100% 100%
Fixed Assets: 8938.46 9432.71 13070.33 15255.5
(%) 40.28% 41.30% 47.84% 46.37%
Current assets, loans and advances 21572.63 22324.13 26977.14 28752.56
(%) 97.21% 97.74% 98.75% 87.39%
Less: Current liabilities and provisions 11656.67 14085.16 17558.55 22719.4
(%) 52.53% 61.67% 64.27% 69.05%
TOTAL 22191.19 22840.7 27318.95 32903.03
(%) 100% 100% 100% 100%
Chart 11 Trend Analysis of Balance Sheet
Sources of Funds
Chart 12 Trend Analysis of Balance Sheet

Application of funds
4. ANALYSIS OF PROFITABILITY
Profitability Ratios
To analyze the profitability of a company profitability ratios are used. These ratios measure the operating
or income performance of a company. The goal of a business is to make a profit, so this type of ratio
examines how well a company is meeting that goal. The commonly used ratios to evaluate profitability
are:
 Gross
 Profit ratio 
 Net Profit ratio 
 
Return on Assets 
 
Asset Turnover 
 Return on Equity 
PARTICULARS 2009-10 2010-11 2011-12 2012-13

12090. 14785. 19,644.
GROSS PROFIT 5 7 17,049.85 89
41818. 52476. 77291.
NET SALES 97 57 71681.76 23
PAT 2714.1 3273.2 4412.86 4693.1
19776. 35253. 50016.
AVG. TOTAL ASSETS 61 66 40743.05 41
AVG. EQUITY SHARE HOLDER'S 11098. 22515. 20217.
FUND 31 94 25079.82 75
Chart 13 Profitability Ratio Analysis

4.1. Gross Profit Ratio = Gross Profit × 100
Net Sales
2009-10 2010-11 2011-12 2012-13
12090. 14785. 17,049.8 19,644.8
GROSS PROFIT 5 7 5 9
41818. 52476.
NET SALES 97 57 71681.76 77291.23
2009-10 2010-11 2011-12 2012-13

GROSS PROFIT RATIO (%) 28.91 28.18 23.79 25.42
Analysis
The GP ratio is showing continuously decreasing trend, starting from 2004/05 in 28.91% to 23.79% in the
financial year 2006/07. This shows that a company is loosing its productivity in maintaining its gross profit
margin. In 2007-08 the ratio again slightly been increased from 23.79 to 25.42.
4.2. Net Profit = PAT × 100

Sales
2009-10 2010-11 2011-12 2012-13
PAT 2714.1 3273.2 4412.86 4693.1
41818. 52476.
NET SALES 97 57 71681.76 77291.23
2009-10 2010-11 2011-12 2012-13

NETPROFIT(%) 6.49 6.24 6.16 6.07
Analysis
The NP ratio is showing declining trend from 6.49% in the year 2004/05 to 6.07% in the year 2007/08
which shows that there is increased amount of expenses in the form that increasing in the prices of row
material.
4.3. Assets Turnover Ratio = Net Sales
Avg. Total
Assets
2009-
10 2010-11 2011-12 2012-13
19776. 35253.
AVG. TOTAL ASSETS 61 66 40743.05 50016.41
41818. 52476.
NET SALES 97 57 71681.76 77291.23
2009-
10 2010-11 2011-12 2012-13
ASSET TURN OVER (times) 2.11 1.49 1.76 1.55
Analysis
This ratio measures how efficiently a company uses its assets. The asset turnover ratio is decreasing.
Although the return on asset for the year 2008 is highest but the asset turnover ratio is least for this year.
The company is not using its assets optimally.
4.4. Return of = Profit after tax × 100

Assets
Average Total Assets
2010-
2009-10 11 2011-12 2012-13
PAT 2714.1 3273.2 4412.86 4693.1
19776. 35253.
AVG. TOTAL ASSETS 61 66 40743.05 50016.41
2
0
1
1
-
2010- 1
2009-10 11 2 2012-13 2009-10
RETURN ON ASSETS (%) 13.72 9.28 10.83 9.38
Analysis
This ratio is used to measure a company’s success in using its assets to earn income for owners and
creditors, those who are financing the business. There is a steep fall in the year 2006, after that there is
a satisfactory utilization of the assets as the graph shows.
4.5. Return on Equity = ×
PAT 100
Avg. Common Shareholders’ equity
`
2009- 2010- 2012-
10 11 2011-12 13
PAT 2714.1 3273.2 4412.86 4693.1
11098. 22515.
AVG. EQUITY SHARE HOLDER'S 31 94 25079.82 20217.
FUND 75
RETURN ON EQUITY(%) 24.46 14.54 17.60 23.21
Analysis
The ROE of the company is 42.46% in the 2004/05 which has been decreased to 17.60% in the 2006/07
and then slightly increased to 23.21% in the 2008/07.Also one point here to be noted is that ROE of the
company is higher than the ROA, which may be due to the concept called trading on equity.
5. ANALYSIS OF SOLVENCY
PARTICULARS 2009-10 2010-11 2011-12 2012-13

8804.0 6919.2 8875.0
SECURED+UNSECURED LOANS 6 8 6403.98 1
11678. 14124. 21489.
EQUITY SHARE HOLDER'S FUND 65 53 18945.68 82
3882.8 4594.1 7197.0
PBIT 7 8 6402.11 6
INTEREST ON LONG TERM DEBT 236.94 288.33 226.29 688.19
Chart 14 Solvency Ratio Analysis
5.1. Debt - Equity Ratio = Loan funds Total

shareholders
29
2009-10 2010-11 2011-12 2012-13
DEBT TO EQUITY RATIO 0.75 0.49 0.34 0.41
Analysis
This ratio is used to compare the amount of debt a company has with the amount the owners have
invested in the company. It compares the amount of creditors’ claims to the owners’ claims to the
assets of the firm. Trend shows that in 2005 the company was highly leverage but after it has
managed to control this ratio in the year 2006 and 2007.
5.2. Interest coverage ratio= Profit before interest & tax

Interest expense
2009-10 2010-11 2011-12 2012-13

INTEREST COVERAGE RATIO 16.39 15.93 28.29 10.46
Analysis
This ratio suggests that whether company manages to earn sufficient income to cover its expenses. The
ratio of the company indicates that company depends much on borrowed funds. The high interest ratio
means that company depends more on debt funds.
30
6. ANALYSIS OF LIQUIDITY
Liquidity Ratios:
LIQUIDITY RATIO Rs in millions

PARTICULARS 2009-10 2010-11 2011-12 2012-13
21572. 22324. 28752.
CURRENT ASSETS 63 13 26977.14 56
11656. 14085. 22719.
CURRENT LIABILITIES 67 16 17558.55 4
15891. 13298. 16513.
QUICK ASSETS 82 52 16273.93 42
SALES 41818.97 52476.57 71681.76 77291.23
AVG. DEBTOR 4321.93 4415.51 4736.06 4493.55
DEBTORS + BR 4321.93 4415.51 4736.06 4493.55
COGS 29,728.47 37,690.87 54,631.91 57,646.34
5375.1 7353.2 11471.
AVG. INVENTORY 1 1 9864.41 17
Chart 15 Liquidity Ratio Analyses

6.1 Current Ratio = Current Assets
Current
Liabilities
2009- 2010-
10 11 2011-12 2012-13
21572. 22324.
CURRENT ASSETS 63 13 26977.14 28752.56
11656. 14085.
CURRENT LIABILITIES 67 16 17558.55 22719.4
CURRENT RATIO 1.85 1.58 1.54 1.27
Analysis
This ratio is used to measure a company’s ability to pay current liabilities with current assets. This ratio
helps creditors to determine if a company can meet its short- term obligations. The gradual decrease
shows that company’s liquidity has worsened. The company should rethink over its credit policy.
6.2. Quick Ratio = Current Assets – Inventories

Current Liabilities
2009-10 2010-11 2011-12 2012-13
11656. 14085.
CURRENT LIABILITIES 67 16 17558.55 22719.4
15891. 13298.
QUICK ASSETS 82 52 16273.93 16513.42
32
2009-10 2010-11 2011-12 2012-13
QUICK RATIO 1.36 0.94 0.93 0.73
Analysis
This ratio is used to measure a company’s ability to meet its short-term obligations. This ratio is similar to
the current ratio. However by limiting the numerator to very liquid current assets, it is a stricter test. It is
often called as the acid test ratio.
The quick ratio is worse than the current ratio. This means that the current ratio was because of
inventory. The liquid asset other than inventory of the company needs considerable attention.
6.3. Debtor turnover ratio= Sales

Average Debtors
2009-10 2010-11 2011-12 2012-13
SALES 41818.97 52476.57 71681.76 77291.23
AVG. DEBTOR 4321.93 4415.51 4736.06 4493.55
2009-10 2010-11 2011-12 2012-13

DEBTORS TURNOVER RATIO 9.68 11.88 15.14 17.20
Analysis:
This ratio indicates the number of times each year the debtors turn into cash. It shows the
effectiveness of the firm’s collection and credit policy. The high ratio indicates the ability of firm’s
collection of cash from the debtors. The trend of the past three years indicates that the firm has
managed to improve its credit policy.
6.4. Average collection period= Average Debtors

Sales/360
2009-10 2010-11 2011-12 2012-13

AVG. COLLECTION PERIOD(Days) 37.21 30.29 23.79 20.93
2009-10 2010-11 2011-12 2012-13

SALES 41818.97 52476.57 71681.76 77291.23
AVG. DEBTOR 4321.93 4415.51 4736.06 4493.55
Analysis
This ratio shows that the average collection period is going lower from 37.21 days in the year 2004-05 to
20.93 days in the 2008-07.It means that lower capital is getting blocked up from 20004-05 to 2008-07.It
shows the improvement in the credit policy of the company.
6.5. Inventory Turnover Ratio = Cost of Goods Sold___
33
Average Inventory
2009-10 2010-11 2011-12 2012-13

COGS 29,728.47 37,690.87 54,631.91 57,646.34
5375.1 7353.2
AVG. INVENTORY 1 1 9864.41 11471.17
2009-10 2010-11 2011-12 2012-13

INVENTORY TURNOVER(TIMES) 5.53 5.13 5.54 5.03
Analysis
This ratio is used to measure how quickly a company is selling its inventory. This ratio tells how
many times each year a firm’s inventory is turned over. The inventory turnover of the company over
the period of four years has remained stable more or less.
RECOMMENDATIONS & SUGGESTIONS
Hetero is the second largest manufacturer of Pharmaceutical in India. It had a 24% market share
in the domestic genric pharama segment in FY07 and a marginal presence in the non-geniric .
hetero is also a key player in the retail with almost 49% share in FY07. CVs contributed to 92%
of revenues in FY07 while chemical and pharmacy contributed to the balance.
Transportation- A structural change: The CV segment in India is going through a structural shift.
With the government's thrust on road development projects, road sector has gained significant
advantage over railways is advantage to hetero If one considers the trends of the developed
nations, almost two-third of the non-bulk goods are transported through roads. The completion of
the Golden Quadrilateral (aimed at connecting the four metros) and East-West-North-South
corridor will result in availability of a network of 15,000 kms of connectivity. This will give a
major fillip to road transport.
Aggressive expansion plans: In order to cash in on the industry growth story, the company has
lined up an aggressive expansion plan whereby it will be more than doubling its capacity over
the next 2-3 years by making an investment in the region of Rs 40 bn. Included in the expansion
plan is a brand new integrated plant for 2lacks medicines for day per annum in the state of
Uttaranchal, which will not only help it save on transportation costs but will also provide certain
fiscal incentives.
Sector: The growth of the pharma industry is directly linked to the growth in the industrial
activity, which in turn is a function of domestic GDP growth. Given the projected strong
economic growth in the country, the CV sector is likely to witness robust growth rate in the long
term.
Sales: Net sales of the company have averaged Rs 46 bn in the last five years and are expected to
climb higher, given the long-term growth prospects of the economy.
Current ratio: hetero’s average current ratio during the period FY03 to FY07 has been 1.5 times.
This indicates that the company is comfortably placed to pay off its short-term obligations,
which gives comfort to its lenders.
Debt to equity ratio: A highly leveraged business is the first to get hit during times of economic
downturn, as companies have to consistently pay interest costs, despite lower profitability. We
believe that a debt to equity ratio of greater than 1 is a highrisk proposition. Considering hetero’s
average debt to equity ratio of 0.6 over the past five fiscals
Long term EPS growth: We expect the company's net profits to grow at a compounded rate of
around 8% over the period FY08 to FY10 (CAGR of 38% during FY02 to FY07). Based on a
normal scenario, we consider a historical compounded growth of over 20% in net profits over a
5-year period as healthy for a company.
Margin of safety: This is to determine the value of the stock relative to its price and the returns
over a risk free rate. Margin of safety of a stock lies in its earning power, which is calculated as
EPS divided by market price (reciprocal of P/E). Considering hetero’s P/E of 10.0 times its
trailing twelvemonth earnings, the earning power is 2%, which is fairly low.
Valuations
hetero is currently trading at Rs 13 implying a P/E multiple of 4.40 times. Based on valuation
criteria, the sell limit for the stock as per FY13 cash flow comes to around Rs 50 per share. This
implies a point-to-point upside of 43% or alternatively, a CAGR of 18% from the prevailing
share price. Thus, at the current juncture, investors could do well to BUY the stock from a March
2013 perspective.
Conclusion
The average annual report is stuffed with dozens of dense footnotes and adjusted numbers
offered as alternatives to the recognized numbers contained in the body of the income statement
and balance sheet. For example, companies often disclose six or eight versions of earnings per
share, such as the "as reported," "adjusted," and "pro forma" versions for both basic and diluted
EPS. But the average individual investor probably does not have the time to fully assimilate
these documents.
Therefore, it may be wise to first look at industry dynamics and the corresponding company
business model and let these guide your investigation. While all investors care about generic
figures, such as revenue and EPS, each industry tends to emphasize certain metrics. And these
metrics often lead or foreshadow the generic performance results.
While some academic theories say that cash flows set stock prices, and some investors appear to
be shifting their attention toward cash flows, can anyone deny that earnings (and EPS) move
stocks? Some have cleverly resolved the cash flow-versus-earnings debate with the following
argument: in the short run, earnings move stocks because they modify expectations about the
long-term cash flows. Nevertheless, as long as other investors buy and sell stocks based on
earnings, you should care about earnings. To put it another way, even if they are not a
fundamental factor that determines the intrinsic value of a stock, earnings matter as a behavioral
or phenomenal factor in impacting supply and demand.

Financial Statement Analysis Report

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Financial Statement Analysis Report

Uploaded by

Copyright:

Available Formats

Abstract

(Rs m) 4QFY12 4QF Chan FY12 FY13 Cha

Objectives of the project:

To evaluate the financial statement analysis of the company.

1.2 Secondary Objectives:

i. To analyze the liquidity solvency position of the firm.

ii. To study the working capital management of the company.

iii. To understand the profitability position of the firm.

v. To understand the overall financial position of the company.

1.2 Need Of the study

• Evaluating an equity investment for inclusion in a portfolio.

• Evaluating a merger or acquisition candidate.

• Evaluating a subsidiary or operating division of a parent company.

• Deciding whether to make a venture capital or other private equity investment.

• Determining the creditworthiness of a company that has made a loan request.

• Extending credit to a customer.

• Examining compliance with debt covenants or other contractual arrangements.

• Assigning a debt rating to a company or bond issue.

• Valuing a security for making an investment recommendation to others.

• Forecasting future net income and cash flow.

1.4 Primary Data:

1.5 Secondary Data:

1.6 Tools used in analysis:

The study covers the period of up to 2009-2013.

Techniques of Financial Statement Analysis:

2.2 Ratio Analysis:

2.3 TYPES OF RATIOS:

Current Ratio = ________________

Cash in hand & at bank + Marketable securities

2.3.2 Activity Ratios:

A. Average collection period:

Average collection period = _____________________

Debtors turnover ratio

Cost of goods sold

Inventory Turnover Ratio = ___________________

C. Working Capital Turnover Ratio:

Net Working Capital

D. Fixed Assets Turnover Ratio:

Fixed Assets Turnover =________________

Net fixed assets

2.3.3 Financial Leverage (Gearing) Ratios

Proprietary Ratio = _____________________

Total tangible assets

B. Debt to Equity Ratio

C. Interest Coverage Ratio

2.3.4 Profitability Ratios

A. Gross Profit Margin

B. Net Profit margin:

Earnings after interest and taxes

Net Profit Margin =______________________________ *100

Return on Investment =_________________

D. Return on Equity (ROE)

Net profit after taxes and preference dividend

Return on Equity =__________________________________________

E. Return on Total Assets

Return on Total Assets =_________________________________ *100

2.4 Comparative Balance sheet:

2.5 Tips to improve your financial health.

2.6 Steps to Improve Financial Performance

1) Internal Cost Reduction Strategies

2) External Cost Reduction Strategies

3) Asset and Credit Management Strategies