FINANCIAL MANAGEMENT PROJECT

COMPANY ANALYSIS: SUN PHARMACEUTICAL INDUSTRIES LIMITED

PREPARED BY: ABHISHEK A.CHAUHAN DIV: B; SEMESTER II ROLL NO: 12049

A. SUN PHARMACEUTICAL INDUSTRIIES LIMITED: AN OVERVIEW

B. INDUSTRY ANALYSIS:
Globally the Indian pharmaceutical market ranks tenth in terms of value and third in terms of volume. (Source: Indian Pharma 2020, Mckinsey Research Report). Again the Indian generics market is expected to grow at CAGR 21% - 23% (Source: CRISIL, March 2012). According to IMS health, the Indian pharmaceutical market was valued at 12.3 billion $ in 2012. There has been a considerable spending on the healthcare by the Indian as well as global consumers. Such increase in spending is marked by the increase in the disposable and the awareness towards the health and hygiene. However the recent move by the Ministry of Health, Government of India to cut the prices of 348 drugs and bring the price control aims at providing equal health care opportunities for all. The Indian and global pharmaceutical market is growing at a healthy pace and such it provides ample opportunities to Indian pharmaceutical players whose core competencies are to produce low cost drugs popularly known as generics.

C. FINANCIAL ANALYSIS:
1. Sales Analysis: Sales of Sun pharmaceutical Industries Limited stood at Rs. 4080 crores in 2012 which showed a rise of 372% from 2003. Such increase in Sales is due to the fact that increased spending in the R&D, strong domestic sales force and development of Para IV products for the United States territory.

2. Cash flow analysis: Suns cash flow showed healthy signs where majority of cash is coming from the operating activities. The positive note is the company is paying its debt and is opting for an inorganic growth which has resulted in negative cash in Investing and Financing activities respectively.

3. Liquidity ratio analysis: The current ratio stood at 3.12 times and the company is consistent as far as the current assets management is concerned. However the only worry is the increase in the Average raw material holding period and Average Finished goods holding period by more than 10% since 2009.

4. Interest coverage ratio: The interest coverage ratio stood at Rs 2,396.92/depicting a strong obligatory capacity. However this ratio is been higher to the previous years and is suggesting that the company is very conservative in using debt, and that it is not using credit to the best advantage of shareholders.

5. Inventory Turnover ratio: The inventory turnover ratio stood at 5.81 times. However it has fallen by more than 20% since 2008. When investigated further it was noted that the fall was marked by the change in the domestic business model where the company has outsourced most of its domestic product portfolios.

6. Debtors turnover ratio: The ratio stood at 5.91 times suggesting efficiency in the credit management. A notable fact is that the company is consistent with its credit policy.

7. Fixed Assets Turnover ratio: The fixed assets turnover ratio stood at 2.9 times and reduced by more than 50% owing to the fact that: The decline in the quality of manufacturing assets that are been located in the United States. Few of its manufacturing plants based in the United States also faced stringer actions from USFDA (United States Food and Drugs Administration) for not meeting the regulatory compliances. Hence there were zero supplies from these manufacturing units for certain time period.

8. Total Assets Turnover ratio: The total assets turnover ratio stood at 0.59 times and has fallen by 80% due to poor management of the global manufacturing assets.

9. Net Profit ratio: The net profit ratio is increasing considerably owing to the fact the increase in top line as well as the bottom-line.

10. Reserves:

Suns current reserves stands at 8000 crores which has

increased by more than 1000%. It is presenting a huge opportunity for more organic as well as inorganic growth. The company has wisely used to this surplus to make as many as 16 acquisitions. The major deal was acquiring Israel based Taro pharmaceuticals where Sun paid as many as 454 million USD.

11. Research and Development spending: Research and Development is a competitive advantage in the pharmaceutical sector. Suns expenditure stood at 6% of net sales and it has reaped the benefits which are shown as under.

PARTICULARS March 2008 December 2012 Approvals Awaited

DMF APPROVED 40 161 N.A.

ANDA APPROVED 53 261 142

The approvals are for Para IV filing in the United States which will have a strong positive financial impact on the financial statements. The approvals are also for high-end therapeutic segments like Dermatology, Oncology, Central Nervous System (CNS), etc.

As per -Strategic Marketing Solutions and Research Centre (SMSRC) Pvt. Ltd. they are market leaders in eight therapeutic segments in India as far as prescription rate is concerned. Hence Sun has been successful in encashing its R&D expenses.

12. DuPont Analysis: The return on equity stood at 26.07% and increased by more than 10% since last three financial years. This growth is attributed to the following facts: Offering low cost generic products Cutting down costs Contract Manufacturing Mergers and acquisitions yielding high Return on Investments (ROI) Global partnerships and alliances Speed to market Vertical Integration Optimize Operational costs

13. Future Guidelines: Sales growth: 30-32% over FY12 R&D : 6-8% of sales Capex : Rs 5.0 billion for Emerging markets like China, Brazil, Turkey, Poland, Mexico, Vietnam, South Africa, Vietnam, Thailand, Singapore and Indonesia. ANDAs (Abbreviated New Drug Applications) for 25 products to be filed.

D. CONCLUSION:
Sun pharma through robust business model has and strong financial management practices have truly created the wealth for their shareholder which is the ultimate goal of financial management. It is said that Rs 1,000 Invested in the 1994 IPO is currently worth more than Rs. 330,000 currently.