1

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Chapter 1 - Introduction
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Indian Pharmaceutical Industry

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. A highly

organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about

8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and

range of medicines manufactured. From simple headache pills to sophisticated antibiotics and

complex cardiac compounds, almost every type of medicine is now made indigenously.

Playing a key role in promoting and sustaining development in the vital field of medicines, Indian

Pharma Industry boasts of quality producers and many units approved by regulatory authorities in

USA and UK. International companies associated with this sector have stimulated, assisted and

spearheaded this dynamic development in the past 53 years and helped to put India on the

pharmaceutical map of the world.

The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs,

drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles.

There are about 250 large units and about 8000 Small Scale Units, which form the core of the

pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the

complete range of pharmaceutical formulations, i.e., medicines ready for consumption by patients

and about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production of

pharmaceutical formulations.
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ADVANTAGE INDIA

1.

Competent workforce: India has a pool of personnel with high managerial and technical

competence as also skilled workforce. It has an educated work force and English is commonly

used. Professional services are easily available.

2. Cost-effective chemical synthesis: Its track record of development, particularly in the area of

improved cost-beneficial chemical synthesis for various drug molecules is excellent. It provides a

wide variety of bulk drugs and exports sophisticated bulk drugs.

3. Legal & Financial Framework: India has a 53 year old democracyand hence has a solid legal

framework and strong financial markets. There is already an established international industry and

business community.

4. Information & Technology: It has a good network of world-class educational institutions and

established strengths in Information Technology.

5. Globalizations: The country is committed to a free market economy and globalization. Above all,

it has a 70 million middle class market, which is continuously growing.

6. Consolidation: For the first time in many years, the international pharmaceutical industry is

finding great opportunities in India. The process of consolidation, which has become a generalized

phenomenon in the world pharmaceutical industry, has started taking place in India.
 3
SWOT Analysis

Strengths

• Cost Competitiveness

• Well Developed Industry with Strong Manufacturing Base

• Access to pool of highly trained scientists, both in India and abroad.

• Strong marketing and distribution network

• Rich Biodiversity

• Competencies in Chemistry and process development.

Weaknesses

• Low investments in innovative R&D and lack of resources to compete with

MNCs for New Drug Discovery Research and to commercialize molecules on a

worldwide basis.

• Lack of strong linkages between industry and academia.

• Low medical expenditure and healthcare spend in the country

• Production of spurious and low quality drugs tarnishes the image of industry at

home and abroad.

• Shortage of medicines containing psychotropic substances. There are 4000 such

brands of medicines that fall under the Narcotics Drugs and Psychotropic

Substances (NDPS) Act, 1985.Under a clause of this Act, the retailer has to sign

the consignment note provided by the stockist. The police check this note

regularly to prevent these medicines getting diverted to the drug mafia and they

can arrest the retailer if the signatures are under suspect. To protest against this

clause, the retailers have stopped stocking these medicines, some of which is life

saving.
 4
Opportunities

• Significant export potential.

• Licensing deals with MNCs for NCEs and NDDS.

• Marketing alliances to sell MNC products in domestic market.

• Contract manufacturing arrangements with MNCs

• Potential for developing India as a centre for international clinical trials

• Niche player in global pharmaceutical R&D.

• Supply of generic drugs to developed markets.

Threats

• Product patent regime poses serious challenge to domestic industry unless it

invests in research and development

• R&D efforts of Indian pharmaceutical companies hampered by lack of enabling

regulatory requirement. For instance, restrictions on animal testing outdated

patent office.

• Drug Price Control Order puts unrealistic ceilings on product prices and

profitability and prevents pharmaceutical companies from generating investible

surplus.

• Lowering of tariff protection

• The new MRP based excise duty regime threatens the existence of many small

scale pharma units, especially in the states of Andhra Pradesh and Maharashtra,

that were involved in contract manufacturing for the larger, established players.

These companies are now shifting their manufacturing from these states to states like J&K

that enjoy tax holidays.

 5

Identified Problem

The economy worldwide is facing severe recession and the current recession is very severe and

prolonged one after second world war. The share market all along the world is down to a significant

level compared to the levels it was before the current world wide recession. There is pressure on all

the industry due to liquidity crunch. The stock prices are reduced to an extent more than 50% over

past 12 months. Raising capital required for the business expansion has almost stopped with share

market crash. The working capital required for the operations dried up as banks are not willing to

lend as the banks are risk awesome and future of the economy is blink.

Need For Study

The capital market returns are negative since Jan 2008. The market capitalization of several firms

are beaten down to as much as more than 50%. There is continued down trend in the market and

returns are uncertain and investment in the capital market are at greater risk which was never seen

post word war II.

There is need for investors to asses the risk associated with there investments under current market

scenario, and to decide on continued investing and to take fresh investment decisions or reallocate

there current portfolio.

Objectives and Scope

The objectives of the present studies are to find out past performance of top Indian pharmaceutical

companies. To identify and group them in to stable and performers and under performers. The

objective assessment is carried out through ratio analysis for the period of 2004 to 2008.

Deliverables

Identifying performers and under performers among the top Indian pharmaceutical companies and
classifying them for investment decisions.
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Chapter 2 – Literature Survey
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A ratio: Is the mathematical relationship between two quantities in the form of a fraction or

percentage.

Ratio analysis: is essentially concerned with the calculation of relationships which after proper

identification and interpretation may provide information about the operations and state of affairs of

a business enterprise.

The analysis is used to provide indicators of past performance in terms of critical success factors of

a business. This assistance in decision-making reduces reliance on guesswork and intuition and

establishes a basis for sound judgement.

Types of Ratios

A: Liquidity Ratios

• Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as

they fall due.

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

maturing obligations. Failure to do this will result in the total failure of the business, as it would

be forced into liquidation.

 7

Current Ratio

The Current Ratio expresses the relationship between the firm’s current assets and its current

liabilities.

Current assets normally includes cash, marketable securities, accounts receivable and inventories.

Current liabilities consist of accounts payable, short term notes payable, short-term loans, current

maturities of long term debt, accrued income taxes and other accrued expenses (wages).

The rule of thumb says that the current ratio should be at least 2, that is the current assets should

meet current liabilities at least twice.

Quick Ratio

Measures assets that are quickly converted into cash and they are compared with current liabilities.

This ratio realizes that some of current assets are not easily convertible to cash e.g. inventories.

The quick ratio, also referred to as acid test ratio, examines the ability of the business to cover its

short-term obligations from its “quick” assets only (i.e. it ignores stock). The quick ratio is

calculated as follows

Clearly this ratio will be lower than the current ratio, but the difference between the two (the gap)

will indicate the extent to which current assets consist of stock.

B: Asset Management/Activity Ratios

If a business does not use its assets effectively, investors in the business would rather take their

money and place it somewhere else. In order for the assets to be used effectively, the business needs

a high turnover.
 8
Unless the business continues to generate high turnover, assets will be idle as it is impossible to

buy and sell fixed assets continuously as turnover changes. Activity ratios are therefore used to

assess how active various assets are in the business.

Average Collection Period

The average collection period measures the quality of debtors since it indicates the speed of their

collection.

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

period implies the prompt payment by debtors.

• The average collection period should be compared against the firm’s credit terms and policy to

judge its credit and collection efficiency.

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

performance.

The delay in collection of cash impairs the firm’s liquidity. On the other hand, too low a collection

period is not necessarily favourable, rather it may indicate a very restrictive credit and collection

policy which may curtail sales and hence adversely affect profit.

Inventory Turnover

This ratio measures the stock in relation to turnover in order to determine how often the stock turns

over in the business.

It indicates the efficiency of the firm in selling its product. It is calculated by dividing he cost of

goods sold by the average inventory.

 9
Total Assets Turnover

Asset turnover is the relationship between sales and assets

• The firm should manage its assets efficiently to maximise sales.

• The total asset turnover indicates the efficiency with which the firm uses all its assets to generate

sales.

• It is calculated by dividing the firm’s sales by its total assets.

• Generally, the higher the firm’s total asset turnover, the more efficiently its assets have been

utilised.

Fixed Asset Turnover

The fixed assets turnover ratio measures the efficiency with which the firm has been using its fixed

assets to generate sales.

It is calculated by dividing the firm’s sales by its net fixed assets as follows:

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

assets utilisation.

C: Financial Leverage (Gearing) Ratios

• The ratios indicate the degree to which the activities of a firm are supported by creditors’ funds

as opposed to owners.
 10
• The relationship of owner’s equity to borrowed funds is an important indicator of financial

strength.

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

taken if any amounts due are not paid at the appointed time. A relatively high proportion of

funds contributed by the owners indicates a cushion (surplus) which shields creditors against

possible losses from default in payment.

The greater the proportion of equity funds, the greater the degree of financial strength. Financial

leverage will be to the advantage of the ordinary shareholders as long as the rate of earnings on

capital employed is greater than the rate payable on borrowed funds.

The following ratios can be used to identify the financial strength and risk of the business.

Equity Ratio

The equity ratio is calculated as follows:

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

ratio reflects a more speculative situation because of the effect of high leverage and the greater

possibility of financial difficulty arising from excessive debt burden.

Debt Ratio

This is the measure of financial strength that reflects the proportion of capital which has been

funded by debt, including preference shares.

This ratio is calculated as follows:

 11
With higher debt ratio (low equity ratio), a very small cushion has developed thus not giving

creditors the security they require. The company would therefore find it relatively difficult to raise

additional financial support from external sources if it wished to take that route. The higher the debt

ratio the more difficult it becomes for the firm to raise debt.

Debt to Equity ratio

This ratio indicates the extent to which debt is covered by shareholders’ funds. It reflects the relative

position of the equity holders and the lenders and indicates the company’s policy on the mix of

capital funds. The debt to equity ratio is calculated as follows:

Times Interest Earned Ratio

This ratio measure the extent to which earnings can decline without causing financial losses to the

firm and creating an inability to meet the interest cost.

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

profit earned.

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

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

payments.

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

fixed interest charges on outstanding debt.

The ratio is calculated as follows:

 12
D: Profitability Ratios

Profitability is the ability of a business to earn profit over a period of time. Without profit, there is

no cash and therefore profitability must be seen as a critical success factors.

• A company should earn profits to survive and grow over a long period of time.

• Profits are essential, but it would be wrong to assume that every action initiated by management

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

Profitability is a result of a larger number of policies and decisions. The profitability ratios show the

combined effects of liquidity, asset management (activity) and debt management (gearing) on

operating results. The overall measure of success of a business is the profitability which results from

the effective use of its resources.

Gross Profit Margin

• Normally the gross profit has to rise proportionately with sales.

• It can also be useful to compare the gross profit margin across similar businesses although there

will often be good reasons for any disparity.

Net Profit Margin

This is a widely used measure of performance and is comparable across companies in similar

industries. The fact that a business works on a very low margin need not cause alarm because there

are some sectors in the industry that work on a basis of high turnover and low margins, for examples

supermarkets and motorcar dealers.

What is more important in any trend is the margin and whether it compares well with similar

businesses.
 13

Return on Investment (ROI)

Income is earned by using the assets of a business productively. The more efficient the production,

the more profitable the business. The rate of return on total assets indicates the degree of efficiency

with which management has used the assets of the enterprise during an accounting period. This is an

important ratio for all readers of financial statements.

Investors have placed funds with the managers of the business. The managers used the funds to

purchase assets which will be used to generate returns. If the return is not better than the investors

can achieve elsewhere, they will instruct the managers to sell the assets and they will invest

elsewhere. The managers lose their jobs and the business liquidates.

Return on Equity (ROE)

This ratio shows the profit attributable to the amount invested by the owners of the business. It also

shows potential investors into the business what they might hope to receive as a return. The

stockholders’ equity includes share capital, share premium, distributable and non-distributable

reserves. The ratio is calculated as follows:

Earning Per Share (EPS)

Whatever income remains in the business after all prior claims, other than owners claims (i.e.

ordinary dividends) have been paid, will belong to the ordinary shareholders who can then make a

decision as to how much of this income they wish to remove from the business in the form of a

dividend, and how much they wish to retain in the business. The shareholders are particularly
 14
interested in knowing how much has been earned during the financial year on each of the shares

held by them. For this reason, an earning per share figure must be calculated. Clearly then, the

earning per share calculation will be:

E: Market Value Ratios

These ratios indicate the relationship of the firm’s share price to dividends and earnings. Note that

when we refer to the share price, we are talking about the Market value and not the Nominal value

as indicated by the par value.

For this reason, it is difficult to perform these ratios on unlisted companies as the market price for

their shares is not freely available. One would first have to value the shares of the business before

calculating the ratios. Market value ratios are strong indicators of what investors think of the firm’s

past performance and future prospects.

Dividend Yield Ratio

The dividend yield ratio indicates the return that investors are obtaining on their investment in the

form of dividends. This yield is usually fairly low as the investors are also receiving capital growth

on their investment in the form of an increased share price. It is interesting to note that there is

strong correlation between dividend yields and market prices. Invariably, the higher the dividend,

the higher the market value of the share. The dividend yield ratio compares the dividend per share

against the price of the share and is calculated as:

 15
Notice a healthy increase in the yield from 2000 to 2002. The main reason for this is that the

dividend per share increased while at the same time, the price of a share dropped.

This is fairly unusual because share prices usually increase when dividends increase. However there

could be number of reasons why this has happened, either due to the economy or to

mismanagement, leading to a loss of faith in the stock market or in this particular stock.

Normally a very high dividend yield signals potential financial difficulties and possible dividend

payout cut. The dividend per share is merely the total dividend divided by the number of shares

issued. The price per share is the market price of the share at the end of the financial year.

Price/Earning Ratio (P/E ratio)

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

receive for the investment.

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

the premium an investor is prepared to pay for the share. This occurs because the investor is

extremely confident of the potential growth and earnings of the share.

The price-earning ratio is calculated as follows:

1. High P/E generally reflects lower risk and/or higher growth prospects for earnings.

2. The above ratio shows that the shares were traded at a much higher premium in 2000 than were

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

12 times higher.

Dividend Cover
 16
• This ratio measures the extent of earnings that are being paid out in the form of dividends, i.e.

how many times the dividends paid are covered by earnings (similar to times interest earned

ratio discussed above).

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

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

Dividend pay-out ratio

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

Note: Even though the dividend yield has increased, the dividend payout ratio has reduced, showing

that a lower proportion of earnings were paid out as dividend. The ratio has only reduced slightly,

however, from 50.7% in 2000 to 49.4% in 2002. Generally, the low growth companies have higher

dividends payouts and high growth companies have lower dividend payouts.
 17
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Chapter 3 – Methodology
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Type of Project:

The current study is of descriptive and would have secondary data collection from various sources

especially from the annual reports of top Indian pharmaceutical companies.

Tools for data analysis:

Computation of various finical ratios such as profitability, liquidity, efficiency, gearing, investment

using standers known formulas and techniques and plotting the rations to find the spread among the

companies studied to identify those who have ratios which are well with in acceptable range for

better performance and those who would require improvements in the ratios.
 18
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Chapter 4 – Data Analysis and Interpretations
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LIQUIDITY RATIO:

Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they

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

term maturing obligations. Failure to do this will result in the total failure of the business, as it

would be forced into liquidation.

Financial Ratio Formula Measurements

A measure of short-term liquidity.
Current Assets / Current Indicates the ability of entity to
Current Ratio
liabilities meet its short-term debts from its
current assets
A more rigorous measure of short-
Current Assets less inventory / term liquidity. Indicates the ability
Quick Ratio
Current liabilities of the entity to meet unexpected
demands from liquid current asses
 19
Table 1 : Current ratio analysis

Company Name Current Ratio

2004 2005 2006 2007 2008
Sun Pharma 1.12 1.38 1.34 1.92 1.32
Cipla 1.44 1.55 1.87 1.96 1.86
GSK 1.03 0.75 0.60 0.57 0.45
DRL 1.84 1.20 1.31 1.35 1.16
Ranbaxy 0.97 1.11 1.24 1.28 1.06
Divis 2.20 2.33 1.84 2.48 2.13
Lupin 1.19 1.33 1.41 1.69 1.88
Piramal 1.19 1.11 1.06 1.33 1.13
Glenmark 2.11 3.43 2.64 2.42 2.29
Cadila 1.04 0.50 0.61 0.56 0.74
Biocon 1.37 0.98 1.25 1.68 0.74
Avantis 1.10 1.65 1.32 0.92 1.17
Pfizer 1.14 0.88 0.87 0.85 0.78
Matrix 1.30 0.96 1.05 1.16 1.26
Aztra 1.63 0.70 1.21 0.85 0.94
Torrent 1.07 1.14 1.31 1.60 1.19
Wyetn 1.52 0.68 1.05 0.65 0.57
Aurobindo 3.22 2.74 2.53 2.74 2.70
Novatis 1.18 0.96 0.79 1.25 0.83
Wockhardt 1.06 0.80 1.04 1.13 1.39
Dishman 1.90 2.70 2.54 1.70 2.15
IPCA 2.27 2.38 1.95 1.59 1.69
FDC 1.47 1.56 1.66 1.82 1.12
Abbot 0.51 0.79 0.97 1.36 1.26
Merck 1.15 1.13 1.11 0.76 1.04

Current Ratio 2004 Current Ratio 2005 Current Ratio 2006 Current Ratio 2007 Current Ratio 2008

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

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 20

Quick Ratio
2004 2005 2006 2007 2008
Sun Pharma 0.51 0.77 0.68 0.98 0.97
Cipla 0.67 0.69 0.92 1.03 1.05
GSK 0.40 0.29 0.21 0.15 0.13
DRL 1.22 0.72 0.76 0.96 0.70
Ranbaxy 0.40 0.53 0.60 0.65 0.55
Divis 0.99 1.00 0.69 1.12 0.96
Lupin 0.60 0.67 0.76 0.94 0.95
Piramal 0.59 0.39 0.49 0.70 0.63
Glenmark 1.32 2.48 1.78 1.60 1.58
Cadila 0.56 0.18 0.28 0.24 0.34
Biocon 0.80 0.69 0.83 1.09 0.34
Avantis 0.54 0.86 0.59 0.32 0.36
Pfizer 0.52 0.46 0.44 0.39 0.36
Matrix 0.56 0.43 0.54 0.60 0.55
Aztra 0.60 0.34 0.72 0.52 0.66
Torrent 0.37 0.37 0.56 0.78 0.66
Wyetn 0.63 0.28 0.65 0.28 0.28
Aurobindo 2.10 1.60 1.55 1.48 1.49
Novatis 0.71 0.40 0.33 0.50 0.32
Wockhardt 0.65 0.49 0.58 0.62 0.79
Dishman 0.87 1.35 1.23 0.94 1.04
IPCA 1.11 1.15 0.86 0.71 0.87
FDC 0.71 0.79 0.59 0.54 0.29
Abbot 0.27 0.31 0.39 0.48 0.55
Merck 0.65 0.65 0.64 0.34 0.51

Quick Ratio 2004 Quick Ratio 2005 Quick Ratio 2006 Quick Ratio 2007 Quick Ratio 2008

3.00

2.50

2.00

1.50

1.00

0.50

0.00
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 21

Inventory Turnover
2004 2005 2006 2007 2008
Sun Pharma 3.12 3.68 3.91 4.11 4.51
Cipla 2.18 2.00 2.04 2.26 2.45
GSK 3.52 3.58 3.85 3.59 4.04
DRL 3.24 2.78 2.53 3.40 3.00
Ranbaxy 2.63 2.26 2.25 2.30 2.51
Divis 2.06 1.71 1.31 1.91 2.03
Lupin 3.56 3.34 3.56 3.35 2.84
Piramal 3.98 3.02 3.61 4.24 4.45
Glenmark 2.19 2.30 2.07 1.92 2.24
Cadila 3.99 3.32 3.39 2.56 2.73
Biocon 3.90 5.96 4.62 3.80 2.73
Avantis 4.70 4.30 3.80 3.60 3.24
Pfizer 3.45 4.26 4.21 3.81 3.86
Matrix 2.73 2.43 2.72 2.39 2.29
Aztra 2.19 3.52 4.75 4.42 5.93
Torrent 2.67 2.00 2.36 2.70 2.99
Wyetn 2.57 2.69 3.01 2.98 3.83
Aurobindo 3.78 2.72 3.01 2.83 2.73
Novatis 5.78 4.52 5.22 4.58 4.49
Wockhardt 4.52 4.87 3.57 3.06 2.91
Dishman 1.73 1.61 1.86 2.11 2.14
IPCA 2.77 2.65 2.79 2.64 2.79
FDC 3.59 3.87 3.09 2.96 3.45
Abbot 9.13 7.65 7.22 5.68 5.58
Merck 5.14 5.80 5.61 5.28 5.05

Inventory Turnover 2004 Inventory Turnover 2005 Inventory Turnover 2006

Inventory Turnover 2007 Inventory Turnover 2008

10.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
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 22
Average Collection Period
2004 2005 2006 2007 2008
Sun Pharma 47.34 68.23 49.26 45.47 115.11
Cipla 93.01 88.19 98.92 101.97 114.11
GSK 20.69 18.17 13.97 11.97 7.54
DRL 93.94 95.77 97.96 94.06 88.91
Ranbaxy 43.93 71.72 76.54 82.22 71.93
Divis 87.58 94.39 95.95 81.73 71.48
Lupin 65.86 72.07 74.47 79.34 79.19
Piramal 43.20 33.48 45.00 49.11 54.84
Glenmark 125.24 125.35 176.02 172.45 151.80
Cadila 52.27 33.76 50.64 53.96 56.63
Biocon 79.33 92.66 103.22 110.37 56.63
Avantis 28.06 42.97 21.16 25.99 21.76
Pfizer 40.00 43.17 44.10 33.76 21.64
Matrix 57.58 73.93 85.74 94.03 124.43
Aztra 39.32 40.88 48.07 56.32 55.89
Torrent 32.97 41.24 57.55 64.66 73.72
Wyetn 34.70 21.44 25.06 22.61 23.57
Aurobindo 126.49 145.52 142.34 110.00 118.80
Novatis 47.47 28.76 24.46 25.73 23.61
Wockhardt 71.54 58.62 65.35 78.71 92.15
Dishman 107.15 138.46 116.12 137.84 105.14
IPCA 74.34 77.11 66.09 66.07 84.00
FDC 36.32 48.04 19.01 16.79 13.79
Abbot 14.23 13.43 15.04 16.06 16.10
Merck 58.03 45.83 48.46 23.99 31.65

Average Collection Period 2004 Average Collection Period 2005 Average Collection Period 2006
Average Collection Period 2007 Average Collection Period 2008

200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
Dishman
Divis

Avantis
Sun Pharma

Lupin
Ranbaxy

Glenmark

Aurobindo
Piramal

Pfizer
Biocon
DRL

Torrent
Cipla

Cadila

Novatis
Aztra
Matrix

Wyetn

Abbot
Wockhardt

FDC
GSK

IPCA

Merck
 23

Total Asset Turnover

2004 2005 2006 2007 2008
Sun Pharma 1.47 1.43 1.76 1.76 1.57
Cipla 1.19 1.15 1.09 1.09 1.03
GSK 2.76 3.33 4.19 4.19 4.78
DRL 1.40 0.19 1.33 1.33 1.40
Ranbaxy 2.07 1.52 1.30 1.30 1.40
Divis 0.98 0.92 0.80 0.80 1.08
Lupin 1.24 1.11 1.28 1.28 1.35
Piramal 1.65 1.51 1.30 1.30 1.44
Glenmark 1.05 0.85 0.85 0.85 1.13
Cadila 1.14 1.18 1.21 1.21 1.28
Biocon 1.52 1.49 1.33 1.33 1.28
Avantis 2.13 2.10 2.25 2.25 2.40
Pfizer 2.45 2.65 2.64 2.64 4.34
Matrix 1.32 1.04 1.12 1.12 0.66
Aztra 1.84 2.29 2.52 2.52 2.65
Torrent 1.35 1.21 1.09 1.09 1.18
Wyetn 1.65 1.73 1.74 1.74 2.93
Aurobindo 1.06 0.80 0.84 0.84 1.06
Novatis 3.39 3.85 5.06 5.06 5.04
Wockhardt 1.68 1.62 1.45 1.45 1.14
Dishman 0.72 0.67 0.76 0.76 0.78
IPCA 1.41 1.17 1.16 1.16 1.23
FDC 1.75 1.69 1.75 1.75 1.68
Abbot 5.46 5.13 4.61 4.61 3.41
Merck 2.08 2.86 2.91 2.91 3.26

Total Asset Turnover 2004 Total Asset Turnover 2005 Total Asset Turnover 2006
Total Asset Turnover 2007 Total Asset Turnover 2008

6.00

5.00

4.00

3.00

2.00

1.00

0.00
a

IP n
Pf s
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 24

Debt Ratio
2004 2005 2006 2007 2008
Sun Pharma 1.77 3.38 3.01 2.77 2.05
Cipla 0.91 0.84 0.84 0.97 1.02
GSK 1.59 2.05 2.30 2.89 3.62
DRL 1.73 0.28 1.98 1.98 2.03
Ranbaxy 1.23 1.02 1.16 1.64 1.73
Divis 0.81 0.82 0.97 0.91 0.96
Lupin 0.87 0.89 1.19 1.11 1.07
Piramal 0.90 0.89 1.08 1.08 1.10
Glenmark 0.98 1.18 1.54 1.47 1.25
Cadila 0.95 1.00 1.08 1.01 1.28
Biocon 1.75 1.71 1.68 0.95 1.28
Avantis 1.03 1.21 1.35 1.62 1.78
Pfizer 1.43 1.57 1.47 1.76 2.76
Matrix 0.87 1.04 1.34 1.35 1.11
Aztra 0.97 1.23 1.38 1.22 1.39
Torrent 0.88 1.28 0.98 0.97 1.13
Wyetn 1.45 1.83 1.54 2.07 2.24
Aurobindo 1.15 1.21 1.23 1.53 1.31
Novatis 1.70 2.15 2.99 3.25 3.78
Wockhardt 1.76 2.63 2.25 1.63 1.54
Dishman 0.92 0.99 1.48 1.33 1.46
IPCA 0.90 0.89 0.87 0.91 1.01
FDC 1.25 1.16 1.37 1.21 1.32
Abbot 2.02 2.09 2.03 1.37 1.05
Merck 1.26 1.83 2.10 3.73 3.89

Debt Ratio 2004 Debt Ratio 2005 Debt Ratio 2006 Debt Ratio 2007 Debt Ratio 2008

4.50
4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50
0.00
a

IP n
Pf s
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Ca k

M er
rix
Lu s

N do
Pi n
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A on

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To a
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CA

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G ama

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 25

Debt-to-Equity
2004 2005 2006 2007 2008
Sun Pharma 1.06 2.36 1.92 1.29 0.76
Cipla 0.58 0.57 0.73 0.71 0.78
GSK 0.53 0.48 0.42 0.52 0.53
DRL 0.83 0.83 1.06 0.79 0.81
Ranbaxy 0.48 0.44 0.85 1.71 1.63
Divis 0.90 0.86 0.97 1.00 0.83
Lupin 1.03 1.14 1.68 1.38 1.22
Piramal 1.13 0.95 0.81 1.03 1.00
Glenmark 1.04 2.11 2.78 2.42 1.14
Cadila 1.12 0.62 0.69 0.35 0.90
Biocon 0.85 0.75 0.82 0.84 0.90
Avantis 0.60 0.77 0.67 0.58 0.70
Pfizer 0.55 0.53 0.45 0.52 0.65
Matrix 1.22 0.55 0.74 0.83 1.03
Aztra 0.51 0.25 0.59 0.28 0.45
Torrent 0.56 1.07 1.07 1.11 1.04
Wyetn 0.72 0.51 0.57 0.52 0.49
Aurobindo 1.55 1.74 1.90 2.66 2.00
Novatis 0.60 0.61 0.62 0.79 0.71
Wockhardt 1.16 1.84 1.59 1.30 1.35
Dishman 2.06 1.41 2.36 1.63 1.34
IPCA 1.09 1.24 1.07 0.95 1.06
FDC 0.75 0.71 0.79 0.78 0.74
Abbot 0.36 0.58 0.62 0.58 0.41
Merck 0.58 0.68 0.70 0.78 0.84

Debt-to-Equity 2004 Debt-to-Equity 2005 Debt-to-Equity 2006 Debt-to-Equity 2007 Debt-to-Equity 2008

3.00

2.50

2.00

1.50

1.00

0.50

0.00
a

IP n
Pf s
Ca k
Lu s
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rix
M er
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 26

Gross Profit Margin

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

Gross Profit Margin 2004 Gross Profit Margin 2005 Gross Profit Margin 2006
Gross Profit Margin 2007 Gross Profit Margin 2008

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
Dishman
Divis

Avantis
Ranbaxy
Sun Pharma

Lupin

Glenmark

Aurobindo
Piramal

Pfizer
Biocon
DRL

Torrent

Novatis
Cipla

Cadila

Aztra
Matrix

Wyetn

Wockhardt

Abbot
FDC
GSK

IPCA

Merck

-10.00%
 27

Operating Profit Margin

2004 2005 2006 2007 2008
30.09 25.82 26.67 26.46
Sun Pharma % % % % 32.03%
21.16 21.94 22.77 22.55
Cipla % % % % 19.88%
23.42 32.09 38.57 41.26
GSK % % % % 44.74%
18.06 14.13 35.34
DRL % 3.97% % % 17.00%
24.31 15.63
Ranbaxy % % 5.44% 11.88% 17.34%
27.01 27.36 27.92 32.76
Divis % % % % 36.60%
17.26 10.00 15.68 19.93
Lupin % % % % 20.87%
17.85 15.30 16.00 15.56
Piramal % % % % 20.36%
16.69 19.82 17.76 23.92
Glenmark % % % % 33.64%
15.97 14.85 15.98 16.45
Cadila % % % % 17.66%
28.62 28.27 22.73 19.99
Biocon % % % % 17.66%
21.05 29.41 27.18 26.34
Avantis % % % % 22.92%
14.10 17.16 22.73
Pfizer 9.39% % % % 44.70%
28.65 25.42 25.94 15.51
Matrix % % % % -34.54%
20.59 24.63 27.93 26.24
Aztra % % % % 31.45%
19.05 12.39 13.21 15.68
Torrent % % % % 19.27%
22.64 20.47 30.23 36.68
Wyetn % % % % 34.55%
16.08 10.49 14.78
Aurobindo % 7.44% % % 16.45%
19.43 19.48 24.40 22.50
Novatis % % % % 24.53%
21.18 29.25 27.25 22.63
Wockhardt % % % % 22.86%
24.18 23.32 23.03 22.38
Dishman % % % % 21.58%
17.27 15.74 12.21 17.85
IPCA % % % % 17.26%
26.39 19.88 22.48 18.04
FDC % % % % 15.97%
26.96 16.25 15.28 14.98
Abbot % % % % 13.04%
 28
18.56 28.04 28.43 40.35
Merck % % % % 28.22%

Operating Profit Margin 2004 Gross Profit Margin 2005 Gross Profit Margin 2006
Gross Profit Margin 2007 Gross Profit Margin 2008

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%

Dishman
Avantis
Divis
Lupin

Glenmark
Sun Pharma

Ranbaxy

Aurobindo
Piramal

Pfizer
Biocon
DRL

Torrent
Cipla

Novatis
Cadila

Aztra

Wyetn
Matrix

Abbot
Wockhardt

FDC
GSK

IPCA

Merck
-10.00%

-20.00%

-30.00%

-40.00%
 29

Net Profit Margin

2004 2005 2006 2007 2008
26.54 24.38 25.21 25.98
Sun Pharma % % % % 30.88%
15.91 17.08 19.06 18.39
Cipla % % % % 16.36%
14.46 21.86 28.58 30.50
GSK % % % % 32.94%
16.63 10.51 29.37
DRL % 4.50% % % 13.60%
20.03 12.81
Ranbaxy % % 5.33% 8.99% 12.22%
17.99 17.09 17.38 26.50
Divis % % % % 32.91%
10.83 13.66
Lupin 8.37% 7.27% % % 15.43%
15.60 12.24
Piramal % 11.22% % 11.18% 15.30%
12.14 15.57
Glenmark 11.20% % 11.63% % 27.56%
12.60 12.86
Cadila 11.53% 11.32% % % 12.97%
23.69 25.77 18.58 17.66
Biocon % % % % 12.97%
14.26 19.30 17.97 17.84
Avantis % % % % 14.77%
15.14
Pfizer 5.77% 9.06% 11.05% % 33.81%
21.17 19.56 21.37 12.41
Matrix % % % % -43.85%
13.13 14.51 18.55 17.07
Aztra % % % % 20.27%
13.63 10.14 12.25
Torrent % % 9.47% % 16.05%
18.72 18.98 24.74 30.15
Wyetn % % % % 23.82%
Aurobindo 10.11% 3.05% 5.09% 11.07% 11.78%
17.86 10.98 16.58 14.00
Novatis % % % % 15.32%
18.05 23.77 22.87 18.36
Wockhardt % % % % 15.78%
13.78 17.62 19.08 19.63
Dishman % % % % 16.08%
10.77 12.33
IPCA 11.89% % 8.33% % 12.14%
21.95 15.38 18.50 14.12
FDC % % % % 13.20%
20.08 10.39 10.06
Abbot % 11.04% % % 8.55%
Merck 12.27 18.76 19.18 33.05 19.44%
 30
% % % %

Net Profit Margin 2004 Net Profit Margin 2005 Net Profit Margin 2006
Net Profit Margin 2007 Net Profit Margin 2008

40.00%

30.00%

20.00%

10.00%

0.00%

Dishman
Ranbaxy
Sun Pharma

Lupin

Glenmark
Divis

Avantis

Aurobindo
Pfizer
Piramal

Biocon
DRL

Torrent

Novatis
Cipla

Cadila

Aztra
Matrix

Wyetn

Abbot
Wockhardt

IPCA
FDC
GSK

Merck
-10.00%

-20.00%

-30.00%

-40.00%

-50.00%
 31

Return on Total Assets (ROA)

2004 2005 2006 2007 2008
34.96
Sun Pharma 39.10% % 44.27% 50.28% 48.56%
19.61
Cipla 18.94% % 20.71% 19.35% 16.91%
72.74 133.39
GSK 39.95% % 119.68% % 157.52%
DRL 23.21% 0.85% 13.93% 50.00% 19.07%
19.44
Ranbaxy 41.46% % 6.91% 11.15% 17.10%
15.68
Divis 17.71% % 13.82% 25.06% 35.54%
Lupin 10.36% 8.10% 13.90% 18.84% 20.79%
16.90
Piramal 25.80% % 15.91% 13.98% 22.09%
10.38
Glenmark 11.76% % 9.92% 14.81% 31.27%
13.37
Cadila 13.17% % 15.27% 15.54% 16.58%
38.38
Biocon 36.08% % 24.74% 14.38% 16.58%
40.61
Avantis 30.36% % 40.35% 44.99% 35.47%
24.06
Pfizer 14.13% % 29.13% 44.97% 146.64%
20.27
Matrix 27.98% % 23.88% 11.13% -28.78%
33.23
Aztra 24.23% % 46.84% 41.79% 53.74%
12.26
Torrent 18.41% % 10.34% 14.77% 18.89%
32.93
Wyetn 30.86% % 43.08% 74.01% 69.78%
Aurobindo 10.73% 2.43% 4.28% 11.91% 12.51%
42.26
Novatis 60.48% % 83.91% 67.90% 77.30%
38.58
Wockhardt 30.29% % 33.25% 20.92% 17.99%
Dishman 9.86% 11.77% 14.56% 14.50% 12.53%
12.55
IPCA 16.81% % 9.64% 15.33% 14.88%
25.92
FDC 38.39% % 32.42% 23.18% 22.17%
109.54 56.56
Abbot % % 47.91% 40.50% 29.15%
53.67 131.80
Merck 25.51% % 55.72% % 63.33%
 32
Return on Total Assets (ROA) 2004 Return on Total Assets (ROA) 2005 Return on Total Assets (ROA) 2006
Return on Total Assets (ROA) 2007 Return on Total Assets (ROA) 2008

200.00%

150.00%

100.00%

50.00%

0.00%
a

IP n
is
y
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Ca k

ri x
M er
Pi in
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Bi l a
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M t
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-50.00%
Su
 33

Return on Equity (ROE)

2004 2005 2006 2007 2008
30.14 27.35 32.26 26.04
Sun Pharma % % % % 24.22%
24.47 26.52 30.78 20.70
Cipla % % % % 19.20%
25.30 35.64 52.31 46.43
GSK % % % % 43.65%
13.84 27.14
DRL % 3.41% 9.92% % 10.28%
34.17 20.14 16.01
Ranbaxy % % 8.51% % 23.52%
27.99 23.48 20.56 35.41
Divis % % % % 40.63%
22.04 17.08 28.33 33.44
Lupin % % % % 33.66%
55.35 31.15 17.65 17.85
Piramal % % % % 29.93%
17.87 22.14 30.40
Glenmark % % 21.11% % 37.83%
24.41 21.39 22.52 23.20
Cadila % % % % 22.11%
23.08 24.92 16.65 16.84
Biocon % % % % 22.11%
32.40 36.75 30.79 28.59
Avantis % % % % 20.32%
15.89 19.85 25.57
Pfizer 9.92% % % % 53.23%
20.87 20.98 10.18
Matrix 70.11% % % % -43.07%
25.07 26.96 33.85 34.39
Aztra % % % % 38.58%
20.82 15.52 17.21 24.33
Torrent % % % % 26.57%
21.51 18.20 28.29 36.05
Wyetn % % % % 31.50%
17.37 24.33
Aurobindo % 4.23% 8.09% % 23.36%
36.37 20.09 28.63 21.38
Novatis % % % % 20.51%
28.17 33.96 29.62 22.33
Wockhardt % % % % 20.84%
30.34 20.83 27.00
Dishman % % % 23.11% 13.58%
29.03 23.40 16.81 25.01
IPCA % % % % 23.28%
32.87 22.87 24.10 19.41
FDC % % % % 17.39%
54.83 27.34 23.79 29.62
Abbot % % % % 27.96%
 34
20.20 29.33 26.54 35.37
Merck % % % % 16.27%

Return on Equity (ROE) 2004 Return on Equity (ROE) 2005 Return on Equity (ROE) 2006
Return on Equity (ROE) 2007 Return on Equity (ROE) 2008

80.00%

60.00%

40.00%

20.00% dc

0.00%

Dishman
Divis
Ranbaxy

Lupin

Avantis
Sun Pharma

Aurobindo
Glenmark

Pfizer
Piramal

Biocon
DRL

Torrent

Novatis
Cipla

Cadila

Aztra
Matrix

Wyetn

Abbot
Wockhardt

IPCA
FDC
GSK

Merck
-20.00%

-40.00%

-60.00%
 35

Adjusted Earnings per Share

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

Adjusted Earnings per Share 2004 Adjusted Earnings per Share 2005 Adjusted Earnings per Share 2006
Adjusted Earnings per Share 2007 Adjusted Earnings per Share 2008

300.000

250.000

200.000

150.000

100.000

50.000

0.000
Dishman
Ranbaxy
Divis

Avantis
Sun Pharma

Lupin

Aurobindo
Glenmark
Piramal

Pfizer
Biocon
DRL

Torrent
Cadila

Matrix

Wyetn

Novatis
Cipla

Aztra

Wockhardt

Abbot
FDC
IPCA
GSK

Merck

(50.000)

(100.000)

(150.000)
 36

Price/Earnings Ratio
2004 2005 2006 2007 2008
Sun Pharma 23.32 28.63 33.60 31.18 24.98
Cipla 22.93 18.74 32.32 27.46 23.77
GSK 26.76 19.06 24.84 17.12 14.88
DRL 26.33 79.99 48.57 10.30 20.11
Ranbaxy 22.00 36.65 79.60 34.88 27.41
Divis 29.02 19.18 34.32 20.68 23.07
Lupin 29.02 25.69 24.51 16.39 9.23
Piramal
Glenmark 20.27 52.91 55.58 53.62 31.26
Cadila 21.66 22.21 18.02 20.66 13.66
Biocon 38.83 23.55 33.37 30.70 8.55
Avantis 16.82 19.18 28.47 16.75 12.54
Pfizer 42.98 38.05 46.12 21.29 5.92
Matrix 13.48 18.01 23.73 27.08
Aztra 31.29 21.14
Torrent 10.78 17.70 27.91 14.66 7.66
Wyetn 11.18 12.74
Aurobindo 14.87 44.33 48.24 16.01 5.49
Novatis
Wockhardt 21.52 19.03 23.20 20.39 13.63
Dishman 29.62 29.61 28.83 24.74 36.00
IPCA 10.16 9.50 13.52 12.38 10.95
FDC 15.88 16.06 13.48 9.30 8.31
Abbot
Merck 8.17

Price/Earnings Ratio 2004 Price/Earnings Ratio 2005 Price/Earnings Ratio 2006

Price/Earnings Ratio 2007 Price/Earnings Ratio 2008

90.00
80.00
70.00
60.00
50.00
40.00
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37

PROFITABILITY RATIO:
Financial Ratio Formula
Operating profit before
Return on Total income tax + interest
Assets expense/ Average total
assets
Operating profit &
Return on extraordinary items after
ordinary income tax minus
shareholders’ Preference dividends /
equity Average ordinary
shareholders’ equity
Gross Profit
Gross Profit / Net Sales
Margin
Operating profit after income
Profit Margin
tax / Net Sales Revenue
38
Measurements
Measures rate of
return earned through
operating total assets
provided by both
creditors and owners
Measures rate of
return earned on
assets provided by
owners
Profitability of trading
and mark-up
Measures net
profitability of each
rupees of sales
 39

MARKET BASED FINANCIAL RATIO:

Financial Ratio Formula Measurements

Operating profits after
income tax less Preference Measures profit
Earnings per
dividends / Weighted earned on each
share
average number of ordinary ordinary share
shares issued
Measures the amount
Market price per ordinary
Price-earnings investors are paying
share / Earnings per
ratio for a rupees of
ordinary share
earnings
Measures the return
Earnings per ordinary share to an investor
Earning Yield / Market price per ordinary purchasing shares at
share the current market
price.
Measures the rate of
Annual dividend per ordinary
return to shareholders
Dividend Yield share / Market price per
based on current
ordinary share
market price.
Measures the
Total dividend per ordinary
percentage of profits
Dividend Payout share / Market price per
paid out to ordinary
ordinary share
shareholders
Ordinary shareholders’
Net Asset Measure the assets
equity / No of ordinary
Backing (NTA) backing per share
shares
 40

LIQUIDITY RATIO:

Financial Ratio Formula Measurements

A measure of short-
term liquidity.
Current Assets / Current Indicates the ability
Current Ratio
liabilities of entity to meet its
short-term debts from
its current assets
A more rigorous
measure of short-
term liquidity.
Current Assets less Indicates the ability
Quick Ratio
inventory / Current liabilities of the entity to meet
unexpected demands
from liquid current
asses
 41

ASSET MANAGEMENT/UTILISATION/ACTIVITY RATIOS:

Financial Ratio Formula Measurements

Measures the
effectiveness of
Receivables Net sales revenue / Average collections; used to
turnover receivables balance evaluate whether
receivables balance
is excessive
Measures the
Average receivables average number of
Average
balance x 365 / Net sales days taken by an
collection period
revenue entity to collect its
receivables
Indicates the liquidity
of inventory.
Measures the
Inventory Cost of goods sold /
number of times
turnover Average inventory balance
inventory was sold
on the average
during the period
Measures the
effectiveness of an
Total Asset Net sales revenue / Average
entity in using its
turnover ratio total assets
assets during the
period.
Measure the
Turnover of efficiency of the
Net Sales / Fixed Assets
Fixed Assets usage of fixed assets
in generating sales
 42

GEARING/FINANCIAL STABILITY RATIO:

Financial Ratio Formula Measurements

Measures
percentage of assets
Debt ratio Total Liabilities / Total assets provided by creditors
and extent of using
gearing
Measures
percentage of assets
Equity ratio or Total shareholders’ equity / provided by
Proprietary ratio Total assets shareholders and the
extent of using
gearing
The reciprocal of the
Capitalization Total assets / Total equity ratio and thus
ratio shareholders’ equity measures the same
thing
Operating profit before Measures the ability
Times interest income tax + Interest of the entity to meet
earned expense / Interest expense its interest payments
+ Interest capitalized out of current profits.
 43

CASH SUFFICIENCY RATIO:

Financial Ratio Formula Measurements

Cash from
Measures the entity’s
operations / Long-
Cash flow ability to cover its
term debt paid +
adequacy main cash
Assets acquired +
requirements
Dividends paid
Measures the entity’s
Long-term debt
Long-term debt ability to cover its
repayments / Cash
repayment long-term debt out of
from operations
cash from operations
Dividends paid / Measures the entity’s
Dividend payment Cash from ability to cover its
operations dividend payment
Measures the entity’s
Non-current asset ability to pay for its
Reinvestment payments / Cash non-current assets
from operations out of cash from
operations
Measures the
Total long-term debt /
payback period for
Debt coverage Cash from
coverage of long-
operations
term debt.
 44

CASH FLOW EFFICIENCY RATIO:

Financial Ratio Formula Measurements

Measures ability to
Cash from
Cash flow to convert sales
operations / Net
sales revenue into cash
sales revenue
flows
An index measuring
Cash from the relationship
operations / between profit from
Operation index
Operating profit operations and
after income tax operating cash
flows
Cash from Measures the
operation + Tax operating cash flow
Cash flow return
paid + Interest paid return on assets
on assets
/ Average total before interest and
assets tax
 45

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

Among the companies studied the quick ratio was at comfortable level for all the companies except
Glenmark (1.58, Aurobindo 1.48) for the year 2008 show that the Indian pharmaceutical companies
are better solvent.

The asset to turnover ratio of GloxoSmithklin (4,.78), Pfizer (4.3), Novatis (5.04), are the top 3
three and have better asset utilization compared to Dishman (0.78), matrix (0.66), Cipla (1.03),
Aurobindo (1.06), Divis (1.08) and these companies could improve the financials by better asset
utilization.

Dept to equity ratio of Aurobino (2.0), Ranbaxy (1.63) are highly leveraged and those of Abbot
(0.41), Wyeth (0.49), Aztra (0.45) GloxoSmithkline (0.53) are least leveraged.

The net profit margin of Sun pharmaceuticals (30.88%), GloxoSmithkline (32.94%), and Divis
(32.91%) are most profitability ratio and those of Matrix (-43.85%), Abbot (8.55%), Ranbaxy
(12.2%), Aurobindo (11.78%), IPCA (12.14%) have low profit margin in the operation.

The retun on equty is higher for Pfizer (53.2%), Divis (40.63%), GloxoSmithkline (43.65%) are
giving high return on equity and those of Matrix (-43.07%), Dr. Reddy’s (10.28%), Dishman
(13.58%) are much lower.
 46

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

1. Prof. C. Jeevanadam, Sardar Vallabhbhai Institute of Textile Management,

Coimbatore, Notes on Financial Statements, Short Term Programme on Financial
Management at Bannari Amman Institute of Technology, Sathyamangalam on
05.01.2005.

2. Principles of Accounting, Dr. Vinayagam, P. C. Mani, K. L. Nagarajan, Kalyani

Publications, New Delhi, 2002.

3. Financial Management, Dr. R. S. Kulsherestha, Kalyani Publications, New

Delhi,2002

4. Dr. B. K. Behra, Class notes on Costing and Management,IIT-Delhi,2003

5. Corporate Finance: Theory and Practice By S. R. Vishwanath

6. The Indian Pharmaceutical Industry – An Overview of Internal Efficiencies

using Data Envelopment Analysis - Haritha Saranga1 and B.V. Phani

7. Annual reports of Indian pharmaceutical companies and consolidated balance

sheets published as a part of Annual reports.

8. Scrip report on Indian Pharmaceutical Industry.

9. Research reports published by various agencies and brokerage houses on Indian

Pharmaceutical Industries.