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Management of Working Capital in

Indian Pharmaceutical Industry:
With Special Reference to Cipla Ltd.



Dr. V.C. Tiwari



Faculty of Commerce
Suresh Gyan Vihar University
Jaipur (Rajasthan)

Enrollment No:- SGVU113806057

September 29, 2011
A successful commercial organization needs two types of assets, viz fixed assets: land,
building, plant, machinery, furniture etc. these are not purchased for the purpose of sale
but for the purpose of earning profit for many year and second is current assets i.e. raw
materials, work in progress, finished goods, sundry debtors, bills receivables, cash,
bank balance etc. these assets are purchased for the purpose of production and sales, like
raw material into semi-finished products, semi-finished products into finished products,
finished products into debtors and debtors transferred into cash or bills receivables.
All assets are engaged in the business to achieve its objective, i.e. earning the profit.
Every organization needs to increase the profitability by using its available resources and
all assets are used in the business operation to maintain the profitability level.
The fixed assets are used in increasing production of an organization and current assets
are used in using the more fixed assets and day to day working. The management of this
working capital is known as working capital management. The term working capital
refers to the amount of capital which is readily available to an organization. Management
of working capital deals with the problems that arise in managing the current assets, the
current liabilities and inter relationship that exists between them. It should neither be
inadequate nor excessive.
Working capital is an important part of finance having a decisive influence on the
liquidity, which is regarded as the lifeblood of a business plays a pivotal role in keeping
the wheels of a business. Working capital management has always been a fascinating
subject from the academic point of view and it must be admitted that in the real world
situation also, efficiency with which working capital is managed in a concern is of great
significance for its overall well-being its growth and decline.
Overview of Pharmaceutical Companies in India:
The Indian pharmaceutical market is highly competitive and remains dominated by low
priced, domestically-produced generics. Despite having the second largest population in
the world and a growing middle class with high healthcare expectations, India accounts
for less than 2% of the world pharmaceutical market in value terms. In one of the world's
better performing economies, spending on pharmaceuticals accounts for less than 1% of

GDP and average per capita spending remains one of the lowest levels in the region.
The Industry today is in the front rank of Indias 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.
The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered
units with severe price competition and government price control. It has expanded
drastically in the last two decades.
There are about 250 large units that control 70 per cent of the market with market leader
holding nearly 7 per cent of the market share and about 8000 Small Scale Units together
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
The Indian pharmaceutical industry is responsible for around 8% of world
pharmaceutical production. Over the last couple of years, Indian pharmaceutical
companies have been increasingly targeted by multinationals for both collaborative
agreements and acquisition. During the first half of 2011, Bayer and Zydus Cadila agreed
to set up a joint venture called Bayer Zydus Pharma (BZP), for the sales and marketing of
pharmaceutical products in India. BZP will operate in key segments of the Indian
pharmaceutical market, with a focus on: women's healthcare, metabolic disorders,
diagnostic imaging, cardiovascular diseases, diabetes treatments and oncology.
Other recent collaborations include Sun Pharma working with MSD (Merck & Co) to
market and distribute Merck's Januvia (sitagliptin) and Janumat (sitagliptin+metformin)
under different brand names in India. The agreement will provide patients in India with
access to the sitagliptin products for the treatment of Type II diabetes. In May 2011, Par
Pharmaceutical Companies entered into a definitive agreement to acquire privately-held
Edict Pharmaceuticals, a Chennai-based developer and manufacturer of solid oral dosage
generics. Hikma Pharmaceuticals announced in April 2011 that it had agreed to acquire a
minority interest in Unimark Remedies, a privately-held Indian manufacturer of active
pharmaceutical ingredients and API intermediaries.

These recent announcements follow a busy 2010, during which Abbott acquired Piramal
Healthcares domestic formulations business and formed a commercialisation agreement
with Zydus Cadila; AstraZeneca signed a commercialisation agreement with Torrent for a
portfolio of generics; and Pfizer agreed to commercialise biosimilar insulin from Biocon.
In 1935, The Chemical, Industrial & Pharmaceutical Laboratories was set up, which came
to be popularly known as Cipla. It was officially opened on September 22, 1937 when the
first products were ready for the market. It is led by Dr. Yusuf K. Hamied, Chairman and
Managing Director Cipla Ltd.
The company offers various drugs and healthcare products. It manufactures and sells
various OTC products, prescription products, flavors and fragrances, pesticides, and
animal products. They are offered in the form of tablets, capsules, injection, suspension,
syrup, and disp tablet. The company exports its products to 180 countries across the
globe. The companys products are certified by various recognized regulatory authorities
namely Food and Drug Administration (FDA), USA; Medicines and Healthcare products
Regulatory Agency (MHRA), UK and so on. It operates manufacturing facilities and
R&D centers located across India. The company is headquartered in Mumbai,
Maharashtra, India.
Cipla burst into the international consciousness in 2000 with Triomune, an AIDS
treatment costing between $300 and $800 per year that combined three antiretroviral
drugs patented by three different companies in most other countries, where the cocktail
sold for as much as $16,000 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.
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.
Today they have 31 world-class manufacturing facilities spread across the country, with
dedicated plants for Oncology products, Hormones, Inhalers, Carbapenems, and
Cephlosporins, among others. They more than meet the stringent international standards,
such as that of US FDA, MHRA-UK, TGA Australia, Bfarm-Germany MCC-South
Africa, WHO, TPD-Canada.


Cipla produces one of the widest range of products and dosage forms in the world today,
everything from metered-dose inhalers, pre-filled syringes, trans-dermal spray patches,
lyophilized injections, nasal sprays, medical devices, and thermolabile foams. Whether it
is constantly extending our product range or consistently introducing innovations, the
mission is always to make the life of the patient better. Cipla offers services like
consulting, commissioning, engineering, project appraisal, quality control, know-how
transfer, support, and plant supply also.
Need for the Study:
After reviewing a lot of literature we have found that the recent studies regarding
management of working capital in the indian pharmaceutical industry do not provide indepth information about the working capital management in the industry. They are
explanatory in nature. The present study is an attempt to make intensive study on the
above mentioned matter. Since we know that in the recent years, splendid changes have
occurred in the indian scenario. Therefore, it become quite rational to have new look in
the industry. Being one of the oldest pharmaceutical companies, Cipla has been selected
arbitrary for the study. This company has tremendously grown after 2004 and now
operating in more than 180 companies. The analysis of indian pharmaceutical industry
and Cipla is supposed to be of great importance for the government as well as for those
engaged in pharmaceutical business.
Collection of Data
Data and information are very important factor for any research. The secondary data will
be collected from annual reports, other financial statements of Cipla and its website.
Besides these, various journals and periodicals will also be used to find out required
information published by concerned Ministry and other companies/institutions.
Tools used for Analysis of Data:
This study is concerned with the Working capital management in indian pharmaceutical
industry and Cipla. In order to achieve the objectives of the study, secondary data will be
The collected data will be arranged in the form of tables so that meaningful inferences
can be drawn. The analysis would be carried out by making use of both simple and
advanced statistical tools including graphs, index numbers, percentages, multiple
regression analysis, correlation and various parametric and non-parametric tests.

Period of the Study:

As far as the time period is concerned, I shall take the period of 10 years from 2001-02 to
2010-11 for examining the objective of study, which can be changed according to the
requirement of the study.
Limitation of the study:
There are some limitations of this study, which are given below:
Temporal coverage: all the analysis, interpretation and findings will be derived
from the financial year of 2001-02 to 2010-11. It has assumed that the study
period was under normal condition.
Data used in financial analysis has been collected on annual basis thus the result
derived will be more useful for the long term plan and prediction not for short
term. Further analysis will support mandatory to fundamental study.
This study is mainly based on secondary data. Therefore, reliability of conclusion
of the study will be based on accuracy of secondary data and the limitation of
using second hand information will also affect the study.
In spite of above limitations, the reliability and usefulness of the inference can-not be
ignored and will serve plethora of the purposes.
Objective of the Study:

Evaluating the management of cash in the company.

Analysis of the inventory management of the company.
Analyzing the effectiveness of working capital management in the profitability of
the company.

Following null hypotheses are to be proven1. H0: Cash Balance of the company does not affect its operating expenses.
2. H0: Level of inventory in the company does not affect its production and sales.

3. H0: Working Capital Management of the company does not affect its profitability.
Tentative Chapter Plan;
The present study is organized in eight chapters. These are as follows:
1. Introduction.
2. Indian Pharmaceutical Industry: An Overview
3. Cipla: Recent Developments
4. Management of Cash in Cipla.
5. Management of Receivable in Cipla.
6. Management of Inventory in Cipla.
7. Management of Working Capital in Cipla.
8. Analysis of Working Capital Management and Profitability in Cipla.
9. Summary of Findings & Suggestions.

Signature of Supervisor

Signature of Candidate