Project: GlaxoSmithKline Pharma Ltd. vs. Sanofi India Ltd. (formerly Aventis Pharma)
Program and Batch: Post Graduate Diploma In Management 2014-16 Term: I Course Name: Financial Reporting and Analysis Name of the Faculty: Dr. Sachin Choudhary Topic/Title GlaxoSmithKline Pharma Ltd. vs. Sanofi India Ltd. (formerly Aventis Pharma) Revised or Original Write-up: Original Group Number: 4 Contact No. and Email of Group Coordinator: Kushal Kapoor (9411917935) Group Members SL. Roll No. Name 1. 1401-01019 Animesh Sanyal 2. 1401-03050 Chirag Garg 3. 1401-01052 Esheta Dua 4. 1401-02068 Kushal Kapoor 5. 1401-03113 Nikhila Vijay 6. 1401-01133 Rishabh Rawat 7. 1401-03147 Satyapira Dash Page 2 of 13
Contents
1. I ntroduction
About Pharmaceutical Industry in India... 3 Company Profiles...3
2. Financial Analysis of Companies
Profit and Loss Account Analysis 4 Liquidity Ratios Analysis... ..7 Leverage or Capital Structure Ratios Analysis8 Profitability Ratio related to Sales Analysis. 9 Profitability Ratio from Equity Shareholders viewpoint Analysis 9 Profitability Ratio related to Investments Analysis.. 11
3. Recommendations and Conclusions..12 4. References ...13
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ABSTRACT
This document contains supporting data for the presentation on Financial Statement Analysis for GlaxoSmithKline Pharma Ltd and Sanofi India Ltd. (formerly Aventis Pharma) for the period of five years i.e. Dec09 to Dec 13. The team has obtained publicly available annual financial data from www.indianinfoline.com website.
INTRODUCTION
About Pharmaceutical Industry in India
Pharmaceutical industry in India has witnessed a resilient growth over the past few years with a turnover of US $ 1 billion in 1990 to US $ 20 billion. India have exported worth US $ 8 billion drugs to 200 plus countries around the globe. The industry ranks 3 rd in terms of volume and 14 th
in terms of value globally.
Company Profiles
GlaxoSmithKline Pharma Ltd. was incorporated in 1924 in India and is one of the world's leading research-based pharmaceutical and healthcare companies. Globally, the company has a 26.4 billion, leading, research-based healthcare and pharmaceutical company. In India, they are one of the market leaders with a turnover of Rs. 3021 crore and a share of 4.2%. The company's product portfolio includes prescription medicines and vaccines. Their prescription medicines range across therapeutic areas, such as anti-infective, dermatology, gynaecology, diabetes, oncology, cardiovascular disease and respiratory diseases. Sanofi India Ltd. was established in May 1956 under the name Hoechst Fedco Pharma Private Limited. It has aligned itself with India's healthcare needs by building expertise, capability & capacity, through continued investments, strategic partnerships, and a shared commitment towards patients. Sanofi dispenses medicines for the nursing of patient in various fields as cardiology, thrombosis, oncology, diabetes, central nervous system, internal medicine and consumer healthcare.
Sources: Department of Pharmaceutical Website, GSK Website and Sanofi Website, accessed on 10 th Aug14 http://pharmaceuticals.gov.in/aboutus.pdf http://www.gsk-india.com/about-company.html http://www.sanofiindialtd.com/l/pw/en/layout.jsp?scat=9D37C496-6764-4E76-BE39- 20B4C5D6D1A6 Page 4 of 13
FINANCIAL ANALYSIS OF THE COMAPNIES Profit and Loss Account Analysis:
Referring to above picture, total income for all three have increased i.e the two companies and the industry. Over the period of 5 years, for Sanofi it has increased by 63% and for GSK Pharma by 37% approx. Clearly it states that Sanofi India has performed better in terms of growth than GSK Pharma.
Total Expenditure means spending done by the company in manufacturing the finished goods. Gathering the analysis from above chart, over the period of 5 years, GSK Pharma raised its expenditure by 63% and Sanofi India by 56%. Taking total expenditure and total income increase into account, Sanofi India has outperformed GSK Pharma in P&L Analysis. 0 5000 10000 15000 20000 DEC 09(12) DEC 10(12) DEC 11(12) DEC 12(12) DEC 13(12) 1267.93 1420.54 1972.12 1906.79 2077 906.34 1,032.03 1,151.52 1,270.16 1,420.43 8,148.72 14,217.93 9,850.70 8,905.19 18,321.27 Total Expenditure Glaxo Sanofi Industry 2057.93 2279.56 2591.92 2771.2 2826.21 1,165.22 1,364.40 1,467.07 1,623.14 1,901.57 10,001.69 14,180.58 12,349.97 11,449.32 18,852.62 0 5000 10000 15000 20000 Dec 09(12) Dec 10(12) Dec 11(12) Dec 12(12) Dec 13(12) Total Income Glaxo Sanofi Industry Page 5 of 13
Profit before Depreciation and Tax v/s Profit before Tax
Checking the data from above 2 graphs, Sanofi India assets depreciation rate has sharply risen while on the other hand GSK Pharma shows constant depreciation on their assets. A conclusion that can be drawn can be that Sanofi India might have bought new assets and also might have changed their method for evaluating depreciation to WDV Method. This conclusion can be drawn because the assets for both the companies increases approximately at the same rate. In 2013, the gross profits for GSK Pharma fell sharply against sharp increase in Sanofi India Profit. Also, Sanofi India have shown constant Gross profit growth as compared to GSK Pharma over the 5 years period. This shows that Sanofi India is more stable as compared to GSK Pharma.
789.63 858.4 619.47 864.4 749.2 258.81 329.48 315.13 351.58 480.72 0 200 400 600 800 1000 Dec 09(12) Dec 10(12) Dec 11(12) Dec 12(12) Dec 13(12) PBDT Glaxo Sanofi 773.26 840.77 599.06 846.56 729.32 241.47 309.74 283.98 261.71 388.46 0 200 400 600 800 1000 Dec 09(12) Dec 10(12) Dec 11(12) Dec 12(12) Dec 13(12) PBT Glaxo Sanofi Page 6 of 13
Profit after Tax for GSK Pharma and Sanofi India
Same pattern have been noticed in Net Profit chart as in gross profit chart. In 2013, Sanofis India has shown consistent growth and sharp rise in profits. GSK Pharma showed good growth before 2013 but its net profit fell sharply. From investor point of view sharp decrease in GSK net profit in 2013 is a sign of caution to invest in GSK Pharma.
502.51 580.73 591.27 673.82 482.9 157.58 155.22 191.19 176.71 239.96 0 100 200 300 400 500 600 700 800 Dec 09(12) Dec 10(12) Dec 11(12) Dec 12(12) Dec 13(12) PAT Glaxo Sanofi Page 7 of 13
Liquidity Ratios:
1. Current Ratio:
Current Ratio provide us details how companies have utilized their assets in short run. Decline in Sanofi India CR over 5 years shows they have not utilized their current assets efficiently in short run. Moreover, GSK pharma has a stable current ratio throughout this period. Also as the industry CR increases we can say that GSK Pharma have high current assets to cover their short term liabilities than Sanofi.
2. Debtors Turnover Ratio:
A method used to determine a firm's stability in collecting debts as well as extending credit. GSK Pharma high ratio suggests that either GSK has lot of free cash or that its collection of accounts receivable and credit extension is very efficient. A low ratio for Sanofi tells us that the company credit policies are not efficient. It should re-evaluate its policies so that timely collection of imparted credit can be fulfilled. 3 3 3.1 3.1 3.3 2.4 1.9 2 0.97 1.57 3.35 0 0.5 1 1.5 2 2.5 3 3.5 4 2010 2011 2012 2013 Glaxo Sanofi Industry avg. 24.7 26.8 36.7 42.8 17.1 15.9 16.2 19.6 11.69 9.9 8.02 0 5 10 15 20 25 30 35 40 45 2013 2012 2011 2010 Glaxo Sanofi Industry avg. Page 8 of 13
Leverage or Capital Structure Ratios 1. Debt to Capital ratio
The measure tells us that how much a companys capital worth so that it can cover the whole debt and shareholders capital. In the year 2010, Sanofi and GSK Pharma were having no debts. After 2010, GSKs Total assets have shown sharp increase as compared to Sanofi India which implies that GSK is in a better position to cover its debt than Sanofi India.
2. Interest Coverage ratio
This ratio is useful for long term lenders who prefer this ratio to be large enough to cover the Interest on debts that the company has to pay to them. Both the companies have high ratio because both the companies have very little or negligible debt which can amount to any interest. 1.00 0.89 0.891 0.889 1 0.98 0.984 0.981 0.998 0.912 0.91 0.89 0.82 0.84 0.86 0.88 0.90 0.92 0.94 0.96 0.98 1.00 1.02 2010 2011 2012 2013 Glaxo Sanofi Industry avg. 1,357.10 2,793.70 0 0 82 677.1 187.9 925.9 4.55 101.84 3,704.85 0.00 500.00 1,000.00 1,500.00 2,000.00 2,500.00 3,000.00 3,500.00 4,000.00 2010 2011 2012 2013 Glaxo Sanofi Industry avg. Page 9 of 13
Profitability Ratio related to Sales 1. Operating Profit Margin
Till 2011, OPM for GSK Pharma have fallen sharply compared to Sanofi. So, Sanofi is experiencing less expenses compared to GSK Pharma. Moreover showing a rise in 2012, the OPM again drops in 23013 for GSK. On the other hand, Sanofi India has a consistent OPM with the industry. In 2013, there operating expenses have also declined.
Profitability ratios from Equity Shareholders Viewpoint 1. Earnings Per Share(EPS)
The ratio is used by share investors to form their portfolio of shares. It provides the money return on each share. Gathering the data from the chart, Sanofi Indias high EPS concludes that investors will be investing in Sanofi Indias share as compared to GSK. Sanofi India share will give higher ROE as compared to GSK Pharma. 0.41 0.26 0.33 0.294 0.306 0.242 0.224 0.27 0.306 0.235 0.266 0.29 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 2010 2011 2012 2013 Glaxo Sanofi Industry avg. 60.3 43.7 60.6 50.9 91.1 77.9 71.4 107.3 0 50 100 150 200 2010 2011 2012 2013 EPS Glaxo Sanofi Page 10 of 13
2. Dividend Yield
The measure of how much money per share shareholders are getting as a dividend return. From the above chart, we can conclude that it is a mirror image from 2010 to 2013 for the two companies. As Dividend Yield of Sanofi India is 1.67 times of GSK in 2013, shareholders would invest more in Sanofi as compared to GSK to yield a higher return.
3. Price Earnings ratio(P/E)
P/E tells a future growth of the company. A high P/E ratio tells us company is looking to grow in future. Looking at the above picture, it brings to our notice that GSK Pharma have a higher P/E. Also, the EPS for GSK pharma is low due to which P/E is higher. So from an investor point of view he/she should take other ratios into consideration to invest in a company. 1.7 2.3 2.3 1.7 2.8 1.4 1.4 2.8 0 0.5 1 1.5 2 2.5 3 2010 2011 2012 2013 Divindend Yield Glaxo Sanofi 38.9 44.3 35.7 58.9 21.4 29.8 32.1 25.8 0 10 20 30 40 50 60 70 2010 2011 2012 2013 Glaxo Sanofi Page 11 of 13
Profitability Ratios related to Investments: 1. Return on Equity (ROE)
From the graph it is evident that GSK has gathered more profit than Sanofi in 3 years. Also, having higher ROE than industry average shows that both companies are performing well. GSK saw a dip in profit in 2013 which had made an impact on their ROE. So, going by the latest ROE details Sanofi India has invested its funds efficiently compared to GSK Pharma which have generated good returns.
2. Return on Assets(ROA)
Return on Assets tell us how efficiently a company is using its assets to generate profits. Looking at the chart above, both companies have a stable ROA for 3 years. In 2013, GSK Pharmas ROA dropped significantly and Sanofi India have shown a slight increase in ROA. In 30.6 30.7 34.3 24.9 16.2 18.2 15.4 21 -3.72 11.91 13.56 -10 -5 0 5 10 15 20 25 30 35 40 2010 2011 2012 2013 Glaxo Sanofi Industry avg. 0.31 0.29 0.305 0.213 0.159 0.177 0.149 0.18 0.161 0.314 0.30 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 2010 2011 2012 2013 Glaxo Sanofi Industry avg. Page 12 of 13
terms of data, Sanofi India have made more profits on their assets as compared to GSK Pharma in 2013. Recommendations & Conclusions:
Generally accepted accounting principles (GAAP) were adopted and practiced in both the firms GSK Pharma and Sanofi India.
GSK Pharma has EPS of 50.9 in 2013 whereas Sanofi has EPS of only 107.3 which indicates in the higher net profit for Sanofi. From 2012-13, Sanofi has increased its net sales by 14% whereas GSK Pharma sales declined by 3%. Also, market sentiment have supported this as P/E ratio for GSK has come down from 32.1 to 25.8 and Sanofi has increased from by 35.7 to 58.9. Clearly Sanofi India has been very efficient in terms of performance.
From the analysis we would not conclude that Sanofi India has been more efficient than GSK Pharma throughout the 5 years. GSK Pharma should change their investing trends and should innovate more so that come up with new products in market. This would help them to make more stable profits and returns. Considering all the external factors like economy of the country both the companies are performing well as compared to industry performance.
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References:
1. http://www.indiainfoline.com/Markets/Company/Fundamentals/Profit- Loss/Glaxosmithkline-Pharma-Ltd/500660 (10 th August 2014)
2. http://www.indiainfoline.com/Markets/Company/Fundamentals/Profit-Loss/Sanofi-India- Ltd/500674 (10 th August 2014)
3. http://www.indiainfoline.com/Markets/Company/Fundamentals/Balance-Sheet/Sanofi- India-Ltd/500674 (10 th August 2014)
4. http://www.indiainfoline.com/Markets/Company/Fundamentals/Balance- Sheet/Glaxosmithkline-Pharma-Ltd/500660 (10 th August 2014)
5. http://www.indiainfoline.com/Markets/Company/Fundamentals/Key- Ratios/Glaxosmithkline-Pharma-Ltd/500660 (11 th August 2014)
6. http://www.indiainfoline.com/Markets/Company/Fundamentals/Key-Ratios/Sanofi-India- Ltd/500674 (11 th August 2014)
7. For Industry average: http://www.capitaline.com/user/framepage.asp?id=1 (11 th August 2014)