Beruflich Dokumente
Kultur Dokumente
Phone:
TABLE OF CONTENTS
CHAPTER
TITLE
INTRODUCTION
REVIEW OF LITERATURE
INDUSTRY PROFILE
& COMPANY PROFILE
RESEARCH METHODOLOGY
DATA ANALYSIS
&
INTERPRETATION
CHAPTER 1
INTRODUCTION
INTRODUCTION:
Trade credit arises when a firm sells in products or services on Credit and does not receive
cash immediately. It is an essential marketing tool, acting for the moment of goods through
production and distribution stages to customer. A firm grants trade credit to protect is sales
form the competitors and to attract the potential customers to by its products at favorable
terms. Trade creates Accounts receivable or trade debtors that the firm is expected to in the
near futures. The customers from whom receivable or book debits have to be collected in the
future is called trade debtors or simply as debtors and represent the firms clime or asset.
It involves an element of risk that should be carefully analyzed. Cash sales are totally
risk less, but not the credit sales as the cash sales as the cash payment are yet too
received.
It is based on economic value to the buyer, the economic value goods services passes
immediately at the time of sales while the seller expects on the equivalent value to be
received later on.
It implies futurity the buyer will make the cash payment for goods services Received
by him in future period. Debtors constituted a substantial portion of customer assets
several firms. For e.g.:- n India, traders Debtors after inventories are the major
components of current assets. They from 1/3rd of current assets in India. Granting
credit and creating Drs amount to the blocking of the firms founds. Thus trade
debtors represent investment as substantial amount are tide-up in trade debtors it
needs careful analysis and proper management
CHAPTER 2
REVIEW OF LITERATURE
REVIEW OF LITERATURE
Good risk management at a strategic level helps protect an organizations reputation,
safeguard against financial loss, minimize disruption to services and increase the likelihood
of achieving business objectives successfully.
This also gives assurance on how an organizations business is managed and at the
same time will satisfy any compliance requirements of the organization, where an internal
control mechanism is established. Internal control includes:
Identifying risks
Step 1 - Clarity of Objectives
Be clear first of all about the overall objectives of the organisation and understand
how departmental objectives are aligned to the delivery of same. Think about:
Consult with staff and others as appropriate and consider a range of possible scenarios
including the best and worst cases. Be as creative with this process as possible. Consider the
'cause and effect' and scope of the risk and state as clearly as possible to avoid
misunderstanding and misinterpretation. Try to quantify where possible based on what the
effect might be.
Go back to Step 1 above and do the same for external risks by considering the relationship
between the organisation and its wider environment and follow the steps above. Consider
potential external cause of business disruption, issues affecting relationship with partners,
suppliers and any possible changes in government policy and legislation.
Risk Defined
Risk: is the actual exposure of something of human value to a hazard and is often regarded as
the product of probability and loss - Source: Smith K 2001; Environmental Hazards
Assessing Risk and Reducing Disaster: London: Routledge: 6 -7.
Risk Assessment: The evaluation of a risk to determine its significance, either quantitatively
or qualitatively.
Risk Management: Determines the levels at which risk acceptability is set and methods of
risk reduction are evaluated and applied.
Resilience: The ability at every relevant level to detect, prevent and, if necessary handle
disruptive challenges. Source: CCS Resilience
Business Continuity: A proactive process which identifies the key functions of an
organization and the likely threats to those functions; from this information plans and
procedures which ensure that key functions can continue, whatever the circumstances, can be
developed.
Credit Policies
The first decision area is credit policies:
The credit policy of a firm provides the frame work to determine
a) Whether or not to extend credit to a customer and
b) How much credit to extend.
Credit standards
Credit analysis
Credit terms
Collection policies and procedures
Credit Standards
The term credit standards represent the basic criteria for the extension of credit to customers.
The quantitative basic of establishing credit standards or factors such as credit rating, credit
reference, average payment period and certain financial ratios since we are interested in
illustrating the trade off between benefit and cost to the firm as a whole.
We do not consider here these individual components of credit standards. To illustrate
the effect we have divided the overall standards into:
Tight or restrictive and. Liberal or non- restrictive i.e., to say our aim is to show what
happens to the trade-off when standards are relaxed or alternatively, tighten.
Collection Cost:
The implication of relaxed credit standards are
More credit
A large credit department to service accounts receivables and related matters
Increase in collection cost
The effect of tightening of credit standards will be exactly the opposite. These costs are
likely to be semi-variable.
This is because up to a certain point the existing staff will be able to carry on the
increased workload but beyond that, additional staff would be required these are assumed
to be included in the variable cost per unit and need not be separately identified.
Thus a change in sales and change in collection period together with a relaxation in
Standards would produce a higher carrying cost, while changes in sales and collection
period result in lower costs when credit standards are tightened. These basic reactions
also occur when changes in credit terms or collection procedures are made.
Bad Debts
Another factor which is expected to be affected by changes in the credit standards is bad
debts (default) expenses. They can be expected to increase with relaxation in credit
standards and decreases if credit standards become more restrictive.
Sales Volume:
Changing credit standards can also be expected to be change the volume of sales. As
standards are relaxed, sales are expected to increase; conversely a tightening is expected
to cause a decline in sales.
The basic changes and effects on profits arising from a relaxation of credit
standards are summarized in exhibit If the credit standards are tightening, the opposite
effects, as shown in the brackets would follow:
Credit standards influence the quality of the firms customers. There are two aspects of
the quality of customers.
i)
ii)
The ACP determines the speed of payment by customers. It measures the number of days
for which credit sales remains outstanding. The longer the ACP, the higher the firms
investment in accounts receivables.
Default Rate-Can be measured in terms of bad debts losses ratios the proportion of
uncollected receivable. Bad debts losses ratio indicates default risk.
Default Risk-Is the likelihood that a customer will fail to repay the credit obligation.
On the basis of past practice and experience, the financial or credit manager should be
able to form a reasonable judgment regarding the chance of default.
To estimate the probability of default, the financial or credit manager should consider 3
cs
a) Character b) capacity and
c) Conditions
Character
Refers to the customers willingness to pay the financial or credit manager should Judge
whether the customer will make honest efforts to honor their credit obligation. The moral
factor is considerable importance in credit evaluation in practice.
Capacity
Refers to the customers ability to pay can be judged by assessing the customers capital
and assets which he may offer as security capacity is evaluated by the financial position
of the firms as indicated by analysis of ratios and trends in firms cash and working
Capital position. The financial position or credit manager should determine the real worth
of assets offered as collateral (security).
Conditions
Refers to the prevailing economy and other conditions which may effects the customers
ability to pay. Adverse economic conditions can affect the ability or willingness of a
customer to pay. An experienced financial or credit manager will be able to judge the
extent and genies ness to which the customers ability to pay is effected by the economic
conditions.
Information on these variables may be collected from the customers themselves, their
published financial statement and outside agencies which may keep credit information
about customers. A firm should use this information in preparing categories of customers
according to their credit worthiness and default risk. This would be an important input for
the financial or credit manager in formulating its credit standards. The firm may
categorized its customers at least, in the following 3 categories:
Most of the firms time will be taken in evaluating marginal accounts. i.e., customers who
are not financially very strong but are also not so bad to be rightly rejected. A firm can
expand its sales by extending credit to marginal accounts but the firms cost and bad debts
losses may also increases. Therefore credit standards should be relaxed upon the point
where incremental return equals incremental cost (IR = IC).
Credit Terms:
The 2nd decision area in accounts receivable management is the credit terms. After
the credit standards have been established and the worthiness of the customers has been
assessed the management of a firm must determine the terms and conditions on which trade
credit terms. These relate to the repayment of the amount under the credit sale.
Credit term is the stipulation under which the firm sells on credit to customers are
called credit terms.
Credit Period:
The length of time which credit is to customers is called the credit period. It is
generally stated in net terms of a net date. A firms credit period may governed by the industry
norms. But depending on its objective the firm can lengthen the credit period. On the other
hand, the firm may lengthen its credit period if customers are defaulting to frequently and bad
debts losses are building up.
A firm lengthens to credit period to increases its operating profit through expanding
sales however, there will be net increases in operating profit when the cost of extended credit
period is less than the incremental operating profit. With increased sales and extended credit
period receivable would increases.
Cash Discount:
A cash discount is a payment offered to customers to induce them to repay credit
obligations within a specified period of time which is less than the normal credit period.
It is usually expressed as a percentage of sales cash discount terms indicate the rate of
discount and the period for which it is available. It the customer does not avail the. Offer, he
must make payment within the normal credit period. Credit term would include.
Rate of cash discount
The cash discount period.
The net credit period
A firm uses cash discount as a tool to increases sales & accelerates collections form
customers. Thus the level of receivable & associated costs may be reduced the cost involved
in the discounts taken by customers. The effects of increasing the cash discounts are
summarized in below table.
Credit Limit:
A credit limit is a maximum amt of credit which the firm will extend at a point of time.
It indicates the extent of risk taken by the firm by supplying goods on credit to a customer.
Once the firm has taken a decision to extend credit to the applicant, the amount and duration
of the credit has to be decided. The decision on the magnitude of credit will depend upon the
amount of contemplated scale and the customers financial strength in case of customers who
are frequent buyers of the firms goods, a credit limit can be establish. This would avoid the
need to investigate each order from the customers.
Depending on the regularity of payment, the line of credit for a customer can be fixed on the
basis of his normal buying pattern
The credit limit must be reviewed periodically. If tendencies of slow paying are found. That
credit can be revised downward.
Buyer Requirement:
In a number of business sectors buyers or dealers are not able to operate with extend
credit this is particularly so, in the case of industrial products.
Buyers Status:
Large buyers demand easy credit terms because bulk purchasers and higher bargaining
power some companies fallow a policy of not giving much credit to small retailers since it is
quite difficult to collect dues from them.
Marketing Tool:
Credit is used as a marketing tool, particularly when a new product is launched or
when a new company wants to push its week products.
Industry Practice:
Small companies have been found guided by industry practice or norm more than the
large companies. Sometimes companies continue givining credit because of past practice
rather than industry practice.
Trynist Delay:
This is a forced reason for extended credit in the case of a number of companies in
India most companies evolved systems to minimize the impact of such delays some of them
take the help of banks to control cash flows in such situations.
The financial manager hardly has any control over these variables. The % of credit sales to
total sales are mostly influence by the nature of the business and industry norms.
For example: Car manufacture in India, until recently, was not selling cars on credit.They
required the customers to make payments at the time of delivery. Some of them even asked
for the payment to be made in advance this were so, because of the absence of genuine
competition and a wide gap between demands for and supply of cars in India. This position
changed after economic liberalization which led to intense competition. In contrast, the textile
manufacture sold 2/3 rd of their total sales on credit to the wholesale dealers. The textile
industry is still going through a difficult phase.
Credit Policy
Policy is a guideline to action. Policy establishes guideposts or limits for actions.
Credit policy, therefore, refers to guide lines regarding credit sales, size of accounts
receivables etc. Credit policy has a few variables. Credit standard, Credit period, Credit terms
and collection policies are the policy variables.Credit standards refer to classification of
customers on the basis of their Credit standards and stipulation of Credit eligibility of
different classes of customers. The high rated customers may be extended unlimited Credit,
the moderate Credit standards class may be extended a limited credit facility and the rest may
not be given any Credit facility .credit period refers to how long credit is allowed. Longer
credit period might help drawing more customers and vice-versa. Credit terms refer to
discount incentive for prompt payments by offering cash discount can be ensured. 2/30,net 45
means.2% cash discount for payment within 30 days ,failing which full payment by the 45th
day of truncation.
Collection policy refers the seriousness or otherwise with which collection is
dealt with, especially the delinquent customers. It may be harsh or warm.
Credit policy can be liberal or stringent. Liberal credit policy adopts a lenient
credit Standards ,i.e. almost all are extended credit; longer Credit period, higher cash discount
for a longer entitlement period and informal and accommodative collection procedure.
Stringent credit policy does the opposite. Both policies have advantages and
accompanying costs .hence, choice must be exercised by individual firms after assessing the
net effect of liberalizing or tightening up the Credit policy..
Debtors velocity:
Debtors velocity refers to how much many days sales are outstanding with the
customers.
This is given by: accounts receivables/ per day credit sales. If fact, debtors velocity indicates
the average collection period allowed, everything is fine. If it exceeds the credit period
allowed, this should be corrected. If ACP is less than credit allowed, it can be considered as
good, debtors velocity can be computed ,this vary also, that: number of working days in the
year/DTR.
Age of debtors:
Age of debtors refers how long debts are outstanding. Say 10% of accounts
receivables is 6 months old,15% is 5 months old,25% is 4 months old,25% is 3% months
old,15% is 2 months i.e., 15% is 2 months old and 10% is 1 month old. The average age of
debtors olds to: 6+75+100+75+3+1=3.5 months. An ideal break up of accounts receivables
can be establishes and actual position is monitored accordingly. The idle average age and
actual average age of accounts receivables can be compared and control is exercised on
accounts receivables.
Credit Management is a branch of accountancy, and is a function that falls under the
label of "Credit and Collection' or 'Accounts Receivable' as a department in many companies
and institutions. They will usually deal with the credit vetting of customers, the resolution of
any invoice queries or disputes, allocations of payments or cash application, internal fund
movements, reconciliations and also maintaining positive working relationships with
customer during the debt collection or credit review and approval process.
A key requirement for effective revenue and receivables management is the ability to
intelligently and efficiently manage customer credit lines or credit limits. In order to
minimize exposure to bad debt, over-reserving, and bankruptcies, companies must have
greater insight into customer financial strength, credit score history and changing payment
patterns. Likewise, the ability to penetrate new markets and customers hinges on the ability of
a company to quickly make well informed credit decisions and set appropriate lines of credit.
Credit Management has evolved now from being a pure accounting function into a frontend customer facing function. It involves screening of customers and only those who is credit
worthy are allowed to do business. A sound review of the financial position of the customer,
and understanding of their business model is the first step in ensuring that the company does
not end up selling to a customer who ends up seriously delinquent or in default.
Hence, before the sales function commences its business with the particular customer, the
credit management role begins. Later as the customer starts dealing with the company, the
accounts receivable function is used to ensure recovery as per agreed terms of credit is
followed.
Credit Analysis
It is the method by which one calculates the creditworthiness of a business or
organization. The audited financial statements of a large company might be analyzed when it
issues or has issued bonds. Or, a bank may analyze the financial statements of a small
business before making or renewing a commercial loan. The term refers to either case,
whether the business is large or small.
Credit analysis involves a wide variety of financial analysis techniques, including ratio
and trend analysis as well as the creation of projections and a detailed analysis of cash flows.
Credit analysis also includes an examination of collateral and other sources of repayment as
well as credit history and management ability.
Before approving a commercial loan, a bank will look at all of these factors with the
primary emphasis being the cash flow of the borrower. A typical measurement of repayment
ability is the debt service coverage ratio. A credit analyst at a bank will measure the cash
generated by a business (before interest expense and excluding depreciation and any other
noncash or extraordinary expenses). The debt service coverage ratio divides this cash flow
amount by the debt service (both principal and interest payments on all loans) that will be
required to be met. Bankers like to see debt service coverage of at least 120 percent. In other
words, the debt service coverage ratio should be 1.2 or higher to show that an extra cushion
exists and that the business can afford its debt requirements.
Credit Control:
Policies aimed at serving the dual purpose of (1) increasing sales revenue by
extending credit to customers who are deemed a good credit risk, and (2) minimizing risk of
loss from bad debts by restricting or denying credit to customers who are not a good credit
risk. Effectiveness of credit control lies in procedures employed for judging a prospect's
creditworthiness, rather than in procedures used in extracting the owed money. Also called
credit management. People have become increasingly dependent on credit. Therefore, it's
crucial that you understand personal credit reports and your credit rating (or score). Here
we'll explore what a credit score is, how it is determined, why it is important and, finally,
some tips to acquire and maintain good credit.
You may hear the term FICO score in reference to your credit score - the terms are
essentially synonymous. FICO is an acronym for the Fair Isaacs Corporation, the creator of
the software used to calculate credit scores.
Scores range between 350 (extremely high risk) and 850 (extremely low risk). Here is a
breakdown of the distribution of scores for the American population in 2003:
collect for a year but recently wrote it off as a bad debt, reporting it as an R9, the worst score
you can get. Of course, all this is news to Paul.
Well, it turns out there was a clerical error, and Paul's apartment suite number was missing
from the address the credit card company had on file. Paul had been approved for the card but
never actually received it, and any subsequent correspondence didn't get through either.
So the credit card company still charged Paul the annual fee, which he didn't pay,
because he didn't know the debt existed. The annual fee collected interest for a year until the
credit card company wrote it off. In the end, after jumping though several fiery hoops, Paul
was able to get the problem rectified, and the card company admitted fault and notified the
credit-reporting agency.
The point is, even though it was a small balance due (about $150), the administration
error almost got in the way of Paul getting a mortgage. Nowadays, since all data goes through
computers, incorrect information can easily get onto your credit report.
Credit Policies:
Credit policies are decided by zonal manager and credit will be given to dealers
based up on track record, history and credit worthiness of the distributors.
It is depends on the management and under control of the credit controller (zonal
Manager and one of the directors).
Credit Standards:
Depends on the credit market position if the position is down. The zonal manager or
Credit controller is looking (i.e., to extend the credit period or limit).
Credit standards are determined based on the economic conditions. If the economy is in the
recession more credit will be extended and if the economy is in boom less credit will be
extended.
Credit Period:
The length of time for which credit is extended to customers.
Credit period = 90 days
Credit Limit:
Credit limit is a maximum amount of credit which the firm will extend at a point of
time.
Credit limit is depending on the dealers deposit amount.
For example: if he deposit = 500,000
The credit limit = 25, 00,000 will be given.
CHAPTER 3
INDUSTRY PROFILE
&
COMPANY PROFILE
INDUSTRY PROFILE:
Introduction
TheIndianpharmaceuticalindustrycurrentlytopsthechartamongstIndia'ssciencebasedindustrieswithwiderangingcapabilitiesinthecomplexfieldofdrugmanufactureandtechnolo
gy.Ahighlyorganizedsector,theIndianpharmaceuticalindustryisestimatedtobeworth$4.5billion,
growingatabout8to9percentannually.Itranksveryhighamongstallthethirdworldcountries,interm
softechnology,qualityandthevastrangeofmedicinesthataremanufactured.Itrangesfromsimplehe
adachepillstosophisticatedantibioticsandcomplexcardiaccompounds,almosteverytypeofmedic
ineisnowmadeintheIndianpharmaceuticalindustry.
TheIndianpharmaceuticalsectorishighlyfragmentedwithmorethan20,000registeredunits.Ithase
xpandeddrasticallyinthelasttwodecades.ThePharmaceuticalandChemicalindustryinIndiaisane
xtremelyfragmentedmarketwithseverepricecompetitionandgovernmentpricecontrol.ThePhar
maceuticalindustryinIndiameetsaround70%ofthecountry'sdemandforbulkdrugs,drugintermedi
ates,pharmaceuticalformulations,chemicals,tablets,capsules,orals,andinjectibles.Thereareapp
roximately250largeunitsandabout8000SmallScaleUnits,whichformthecoreofthepharmaceutic
alindustryinIndia(including5CentralPublicSectorUnits).
TheGovernmenthasalsoplayedavitalroleinthedevelopmentoftheIndiaSoftwareIndustry.In1986
,theIndiangovernmentannouncedanewsoftwarepolicywhichwasdesignedtoserveasacatalystfor
thesoftwareindustry.Thiswasfollowedin1988withtheWorldMarketPolicyandtheestablishmento
ftheSoftwareTechnologyParksofIndia(STP)scheme.Inaddition,toattractforeigndirectinvestme
nt,theIndianGovernmentpermittedforeignequityofupto100percentanddutyfreeimportonallinpu
tsandproducts.
The first Indian pharmaceutical company, Bengal Chemicals and Pharmaceutical Works,
which still exists today as one of 5 government-owned drug manufacturers, appeared in
Calcutta in 1930. These five public sector drug-manufacturing units under the Ministry of
Chemicals and Fertilizers are: Indian Drugs and Pharmaceutical Limited (IDPL), Hindustan
Antibiotics Limited (HAL), Bengal Immunity Limited (BIL), Bengal Chemicals and
Pharmaceutical Limited (BCPL) and Smith Stanistreet Pharmaceutical Limited (SSPL). In
addition, there are a number of pharmaceutical manufacturing units under the control of state
governments such as Goa Antibiotics Ltd. and Karnataka Antibiotics Ltd.
For the next 60 years, most of the drugs in India were imported by multinationals either in
fully-formulated or bulk form. There are 24,000 licensed pharmaceutical companies. Of the
465 bulk drugs used in India, approximately 425 are manufactured here. India has more drugmanufacturing facilities that have been approved by the U.S. Food and Drug Administration
than any country other than the US. Indian generics companies supply 84% of the AIDS
drugs that Doctors without Borders uses to treat 60,000 patients in more than 30 countries.
The Indian pharmaceutical sector has expanded drastically in the last two decades. The
Pharmaceutical industry in India is an extremely fragmented market with severe price
competition and government price control. The Pharmaceutical industry in India meets
around 90% of the country's demand for bulk drugs, drug intermediates, pharmaceutical
formulations, chemicals, tablets, capsules, orals and injectables. There are approximately 300
big and medium scale Pharmaceutical companies and about 8000 Small scale units, which
form the core of the pharmaceutical industry in India.
Current Scenario
Indianpharmaceuticalindustryisexpectedtogrowat19%in2013.Indiaisnowamongthetopfivepha
rmaceuticalemergingmarkets.Therewillbenewdruglaunches,newdrugfilings,andPhaseIIclinict
rialsthroughouttheyear.Onbackofincreasingsalesofgenericmedicines,continuedgrowthinchron
ictherapiesandagreaterpenetrationinruralmarkets,thedomesticpharmaceuticalmarketisexpecte
dtoregisterastrongdouble-digitgrowthof13-14percentin2013.
In future it will be a growth period of the Indian Pharmaceutical Industry. The growth is
expected to emerge from three major areas:
Increasing industrialization, literacy levels and urbanization are likely to increase the health
awareness of the general public. Consequently the demand for preventive medicine in general
and immunological like tetanustoxoid, triple antigen (DPT), measles vaccine, Hepatitis
vaccine, anti-rabies vaccine, polio vaccine and typhoid vaccine are likely to increase.
Companies are likely to pay greater attention to their human resources development effort in
general and management developmental programs in particular.
The present state of armed truce between the trade and the industry is likely to continue in the
future. But with a difference. The industry is likely to be united more closely than before.
Companies, which have strong research, focus and competence only can achieve a
sustainable growth and performance in the borderless future market place. Now the
companies are steadily increasing their investment in Research and Development.
Companies that think strategically are the ones that are likely to succeed in the future.
Marginal firms are likely to be marginalized. Strategic thinking plays an even greater role in
the coming years. Unless the pharmaceutical companies in India start preparing for future
competition right now by upgrading in all areas it could be very difficult to exploit growth
opportunities. It might become difficult even to survive any longer.
The industry will continue to be in consolidation mode and mood. The last few years have
seen a spate of mergers and acquisitions of brands as well as companies. Indian companies
continue to be aggressive in pursuing merger and acquisition strategies to gain access to
international markets and to reinforce their position. Strategic alliances too will be on the rise
particularly in the areas of contract research, contract manufacturing and product licensing.
ADVANTAGE INDIA
As regards the pharmaceutical marketing in the world, India is becoming one of the
front runner destinations because of its second largest population in the world, the pace of
development of its economy, adoption of technological advancements, economical medical
treatment cost and also availability of world renowned physicians etc. Following are the
advantages of Indian Healthcare Scenario:
Competent workforce: India possesses a skillful work force with high managerial
and technical competence.
Legal and Financial Framework: India is a democratic country with a solid legal
framework and strong financial markets. There is already an established international
industry and business community.
Cipla
69.77
Ranbaxy Lab
76.86
Dr Reddy's Labs
66.86
Sun Pharma
40.15
Lupian Ltd
53.64
AurobindoPharma
42.84
Jubilant Life
26.41
Cadila Health
31.52
Ipca Labs
23.52
Wockhardt
26.50
Cipla Limited
Cipla is a global pharmaceutical company whose goal is ensuring no patient shall be denied
access to high quality & affordable medicine and support. Ciplas journey began in 1935
when our founder, Dr K A Hamied, set up an enterprise with the vision to make India selfsufficient in healthcare. Over the past 77 years, they have emerged as one of the worlds most
respected pharmaceutical names, not just in India but worldwide.
For patients, caring is a promise that they will do whatever it takes to ensure they have
continued access to the highest quality medicines at affordable prices; whether a disease
affects millions or just a few hundreds.
To the medical fraternity, caring means the assurance of world-class medicines and support
across multiple therapeutic areas.
For business partners, caring brings the confidence of always getting world-class quality and
competitive prices.
For employees, caring manifests itself in a safe, equal-opportunities' workplace that fosters
innovation for a healthier world.
Lupin Limited:
Lupin is a renowned pharma player having a wide range of quality, affordable generic and
branded formulations and APIs. The company, which was named after the Lupin flower,
commenced its business in 1968.
It has world class manufacturing facilities across India and Japan that have played a critical
role in enabling the company realise its global aspirations. Benchmarked to international
standards, Lupins facilities are approved by international regulatory agencies such as US
FDA, UK MHRA, Japan's MHLW, TGA Australia, WHO, and the MCC South Africa.
The company first gained recognition when it became one of the world's largest
manufacturers of Tuberculosis (TB) drugs. Today, it has significant market share in the
cardiovascular, diabetology, asthma, paediatrics, CNS, anti-infectives and NSAIDs therapy
segments.
Advanced market formulations comprised nearly 52 per cent of Lupins revenues in FY 12.
Its drugs and products reached over 100 countries in the world.
The company has emerged as the fifth largest and among the fastest-growing companies in
the US. The company's consolidated revenues and profit after tax were Rs 94,616 million
(US$ 1.55 billion) and Rs 13,142 million (US$ 216.05 million), respectively, for FY 2012
13.
Ipca Laboratories:
For more than 60 years, Ipca has been partnering healthcare globally in over 110 countries
and in markets as diverse as Africa, Asia, Australia, Europe and the US.
Ipca is a fully-integrated Indian pharmaceutical company manufacturing over 350
formulations and 80 APIs for various therapeutic segments.
They are one of the world's largest manufacturers and suppliers of over a dozen APIs. These
are produced right from the basic stage at manufacturing facilities endorsed by the world's
most discerning drug regulatory authorities like US-FDA, UK-MHRA, EDQM-Europe,
WHO-Geneva and many more.
Ipca is a therapy leader in India for anti-malarials with a market-share of over 34 per cent
with a fast expanding presence in the international market as well. They have leading brands
in 5 therapeutic areas, with 4 of our branded formulations being ranked among the Top-300
Wockhardt Ltd:
Wockhardt Limited is an India-based pharmaceutical and biotechnology company. The
Company also owns a chain of advanced super speciality hospitals. The Company offers
treatment regimens for cardiology, neurosurgery, orthopaedics, critical care, oncology,
nephrology and urology. The Company has filed ANDA applications for its products in the
United States. The Companys products include anti-infectives, cardiology, dermatology,
diabetology, neurology, others, pain management and respiratory products. The Companys
product includes Ace Proxyvon, Aceroc, Alphadopa, Aziwok, B.G.Prot and Bio-Corneum.
The Companys subsidiaries include WockhardtBiopharm Limited, Vinton Healthcare
Limited, Wockhardt Infrastructure Development Limited, Wockhardt UK Holdings Limited,
Wockhardt Bio AG and Wockhardt Europe Limited.
The top ten pharmaceutical companies in Indian market are listed here under:
Cipla ranks first with largest value growth rate of 18% and volume growth of 15.3%, with an
annual value turnover of ` 2155 crores and at the bottom of the table is Aristo Pharmaceutical
with 18.6% value growth rate and 20.1% volume growth on an yearly turnover of ` 966
crores. The other pharmaceutical companies which tops in top 10, in Indian Pharmaceutical
market are Ranbaxy, Glaxo, Piramal, ZydusCadilla, Sun pharmaceutical, Alke Mankind,
Lupin. The total scenario in this regard has a positive impact on growth of pharmaceutical
industry which is explained hereunder with the help of table as well as graphic presentation.
COMPANY PROFILE:
Founded in 1986 by Mr. P.V. Ramaprasad Reddy, Mr. K. Nityananda Reddy and a small group of highly
committed professionals, Aurobindo Pharma was born off a vision. The company commenced operations in
1988-89 with a single unit manufacturing Semi-Synthetic Penicillin (SSP) at Pondicherry.
Aurobindo Pharma became a public company in 1992 and listed its shares in the Indian stock exchange in
1995. In addition to being the market leader in Semi-Synthetic Penicillins, it has a presence in key
therapeutic segments such as neurosciences, cardiovascular, anti-retrovirals, anti-diabetics, gastroenterology
and cephalosporins, among others.Through cost effective manufacturing capabilities and a few loyal
customers, the company entered the high margin specialty generic formulations segment. In less than a
decade Aurobindo Pharma today has evolved into a knowledge driven company manufacturing active
pharmaceutical ingredients and formulation products. It is R&D focused and has a multi-product portfolio
with manufacturing facilities in several countries.
The formulation business is systematically organized with a divisional structure, and has a focused team for
key international markets. Leveraging on its large manufacturing infrastructure for APIs and formulations,
wide and diversified basket of products and confidence of its customers, it aims to achieve USD 2 billion
revenues by 2015-16. Aurobindo's nine units for APIs / intermediates and seven units for formulations are
designed to meet the requirements of both advanced as well as emerging market opportunities.
A well integrated pharma company, Aurobindo Pharma features among the top 10 companies in India in
terms of consolidated revenues. Aurobindo exports to over 125 countries across the globe with more than
70% of its revenues derived out of international operations. Our customers include premium multi-national
companies.. With multiple facilities approved by leading regulatory agencies such as USFDA, EU GMP, UK
MHRA, South Africa-MCC, Health Canada and Brazil ANVISA, Aurobindo makes use of in-house R&D for
rapid filing of patents, Drug Master Files (DMFs), Abbreviated New Drug Applications (ANDAs) and
formulation dossiers across the world. Aurobindo Pharma is among the largest filers of DMFs and ANDAs
from India.
VISION
"To become Asia's leading generic Pharma Company and one among the top 15 in the world,
by 2015"
MISSION
Aurobindo's mission is to become the most valued Pharma partner to the World Pharma
fraternity by continuously researching, developing and manufacturing a wide range of
pharmaceutical products that comply with the highest regulatory standards.
OUR EVOLUTION
CORE STRENGTHS
SCALES AND LEADERSHIP
OPERATIONAL EXCELLENCE
Vertical integration
Proven regulatory expertise
Technology and know-how for specialty formulations
SERVICE DELIVERY
SWOT Analysis
1. A new drug Nevirapine discovered against the HIV infective disease
has been approved by the US FDA, which will increase the market
size and profits of the company.
2. Approval of generic version of Clopidogrel from FDA will boost
revenue of company
3. A greater growth in terms of sales in the US and Europe due to
various US approvals
Strength
4.
Strong
marketing
5. Aurobindo exports to over 125 countries across the globe
network
Opportunity
Threats
Competitors
1. Cipla
2. Dr.Reddy's Laboratories
3. Sun Pharma Industries
4. Ranbaxy
Board of directors
1. Mr. K. Ragunathan
2. Mr. K. Nityananda Reddy
3. Mr. P.V.Ramaprasad Reddy
4. Dr.M.Sivakumaran
5. Mr. M. Madan Mohan Reddy
6. Mr.N.Govindarajan
7. Mr. M.Sitarama Murthy
8. Dr. D. Rajagopala Reddy
9. Mr.P.Sarath Chandra Reddy
10. Dr. (Mrs.) AvnitBimal Singh
Corporate Values
MedicalCamps
Aurobindo holds regular medical camps for employees and and their families in several
districts of Andhra Pradesh. Distinct personalities and leading political leaders are invited to
preside over these events.
Community
Service
Aurobindo Pharma received a State Award for the Best Community Service from the
Government of Andhra Pradesh. Aurobindo has provided subsidized transportation to
the local people.
Vocational Training
Aurobindo Pharma's aim is to provide relevant and reliable education to women and
children in different parts of India. This program was initiated to introduce nonacademic traditional trade to the society which has been overlapped by science and
technology.
CHAPTER -4
RESEARCH METHODOLOGY
The scope of the study is limited to collecting financial data published in the annual
reports of the company every year. The scope of the study limited to collecting the data
published in the reports of the company and opinions of the employees of the organization
with reference to the objective stated above and theoretical framework of the data. With a
view to suggest solutions to various problems relating to Credit risk management. The
analysis is done to suggest the possible solutions.
To study the credit policies of Aurobindo pharma ltd and its credit risk management
process.
To study the need for credit risk management in Aurobindo pharma ltd.
RESEARCH DESIGN:
The data used for analysis and interpretation from annual reports of the company.
That is secondary forms of data. DTR, ACP and Increase in credit period analysis are the
Techniques used for calculation purpose. The project is presented by using tables, graphs and
with their interpretations.
Primary data
The primary data is very important source for to make suggestions to the title
obtained.
This data can be collected in various methods like survey, interviewing, feedback, i.e.
Group Discussion etc., for collection of primary data the survey method is used,
which involved predetermined questions.
The structured questionnaire contained a form list of question framed so as to get the
facts.
But it involves high risk and huge expensive method to get the facts.
Secondary Data:
The Secondary data are those which have already been collected by some other
agency and which have already been processed. The sources of Secondary data are Annual
Reports, browsing Internet, through magazines.
1. It includes data gathered from the annual reports of Aurobindo pharma ltd.
2. Articles are collected from official website of Aurobindo pharma ltd.
CHAPTER 5
Total sales
Closing Debtors
3252.06
1151.35
= 2.82
YEAR
TOTAL SALES
CLOSING
BEBTORS
DTR
2009-10
3252.06
1151.35
2.82
2010-2011
4130.45
1480.71
2.78
2011-12
4284.63
1426.28
3.00
2012-13
5425.10
1730.59
3.13
2013-14
7110.71
2970.12
2.39
2
1.5
1
0.5
0
2009-10
2010-11
2011-12
2012-13
2013-14
Interpretation:
DTR indicates velocity of debt collection of the company. In other words it shows the number
of times average turnover during a year.
A high debtor turnover ratio indicates a more efficient management of debtors and low ratio
implies inefficient management of debtors
In the present analysis the debtor turnover ratio of Aurobindo pharma ltd shows that in the
year 2012-13 with 3.13 and lowest in the year 2013-14 with 2.39
ACP
127.65
2009-10
129.49
2010-11
120.00
2011-12
115.01
2012-13
150.62
2013-14
80
60
40
20
0
2009-10
2010-11
2011-12
2012-13
2013-14
Interpretation:
ACP (Average collection period) indicates the average debt collection periods of the
company.
A higher ACP indicates that more time is taken by the management for collection of debts.
And lower ACP implies efficient and faster collection of debts.
In the present analysis the average collection period of Aurobindo pharma ltd shows that in
the year 2013-14 with 150.62 (150) days and lowest in the year 2012-13 with 115.01 or 115
days.
It shows that the collection period of the company has been decreasing every year from 201011 to 2012-13.
But a tremendous increase in the year 2013-14 with 150 days
A SCENARIO ANALYSIS:+
Suppose credit period is extended to 100 days.
Then sales may increase by 15%. If credit period is decreased to 80 days.
EXISTING
DAYS (+15%)
DAYS (- 10%)
A)Credit period
90
100
80
B)Annual sales
3252.06
3739.86
2926.85
1038.85
650.41
225.84
-(162.6)
45.16
-(32.52)
C)Levels
receivables
(@sales value)
(AxB /360)
of 813.01
D)Increment
investment
in receivable
(C- 813.01)
E)Assume
incremental
profit @20% (0.2xD)
= 3252.06 (3252.06x10%)
=
3252.06 325.20
= 2926.85
2) Level of receivables:
90 days = (annual sales*period)/360
= (3252.06*90)/360
292685.4/360
813.01
100days = (3739.86*100)/360
= 1038.85
80days = (2926.85*80)/360
= (234148/360)
= 650.41
3) Incremental investment in receivables : -(C 813.01)
90days =
813.01-813.01 = 0
650.41-813.01 = - (162.6)
EXISTING
DAYS (+15%)
DAYS (- 10%)
A)Credit period
90
100
80
B)Annual sales
4130.45
4750.01
3717.40
C)Levels
receivables
(@sales value)
(AxB /360)
of 1032.61
1319.44
826.08
286.83
-(206.53)
57.366
-(41.306)
D)Increment
investment
in receivable
(C- 1032.61)
E)
Assume
incremental
profit @20% (0.2xD)
WORKING NOTES:1) Annual sales:
100days =4130.45 + (4130.45x15%)
=4130.45 + 619.56
= 4750.01
80days = 4130.45 (4130.45x10%)
=
4130.45 413.045
= 3717.40
2) Level of receivables:
90 days = (annual sales*period)/360
= (4130.45*90)/360
=
371740.5/360
= 1032.61
100days = (4750.01*100)/360
= 475001/360
= 1319.44
80days = (3717.40*80)/360
= (297392/360)
= 826.08
3) Incremental investment in receivables : -(C 1032.61)
90days =
1032.61-1032.61 = 0
PARTICULARS
EXISTING
DAYS (+15%)
DAYS (- 10%)
A)Credit period
90
100
80
B)Annual sales
4284.63
4927.32
3856.16
C)Levels
receivables
(@sales value)
(AxB /360)
of 1071.15
1368.7
856.92
297.55
-(214.23)
59.51
-(42.84)
D)Increment
investment
in receivable
(C- 1071.15)
E)
Assume
incremental
profit @20% (0.2xD)
4284.63 428.463
= 3856.16
2) Level of receivables:
90 days = (annual sales*period)/360
= (4284.63*90)/360
=
385616.7/360
= 1071.15
100days = (4927.32*100)/360
= 492732/360
= 1368.7
80days = (3856.16*80)/360
= (308492.8/360)
= 856.92
3) Incremental investment in receivables : -(C 1071.15)
90days = 1071.15-1071.15 = 0
100days 1368.7-1071.15 = 297.55
80days = 856.92 -1071.15= - (214.23)
4) Assume incremental profit @ 20% (0.20x D) :90 days =
EXISTING
DAYS (+15%)
DAYS (- 10%)
A)Credit period
90
100
80
B)Annual sales
5425.10
6238.86
4882.59
C)Levels
receivables
(@sales value)
(AxB /360)
of 1356.27
1733.01
1085.02
376.74
-(271.25)
75.34
-(54.25)
D)Increment
investment
in receivable
(C- 1356.27)
E)
Assume
incremental
profit @20% (0.2xD)
WORKING NOTES:1) Annual sales:
100days =5425.10 + (5425.10x15%)
=5425.10 + 813.76
= 6238.86
80days = 5425.10 (5425.10x10%)
=
5425.10 542.51
= 4882.59
2) Level of receivables:
90 days = (annual sales*period)/360
= (5425.10*90)/360
=
488259/360
= 1356.27
100days = (6238.86*100)/360
= 623886/360
= 1733.01
80days = (4882.59*80)/360
= (390607.2/360)
= 1085.02
3) Incremental investment in receivables : -(C 1356.27)
90days =
1356.27-1356.27 = 0
PARTICULARS
EXISTING
DAYS (+15%)
DAYS (- 10%)
A)Credit period
90
100
80
B)Annual sales
7110.71
8177.31
6399.63
C)Levels
receivables
(@sales value)
(AxB /360)
of 1777.67
2271.47
1422.14
493.8
-(355.53)
98.76
-(71.10)
D)Increment
investment
in receivable
(C- 1777.67)
E)
Assume
incremental
profit @20% (0.2xD)
WORKING NOTES:1) Annual sales:
100days =7110.71 + (7110.71x15%)
=7110.71 + 1066.60
= 8177.31
80days = 7110.71 (7110.71x10%)
=
7110.71 711.07
= 6399.63
2) Level of receivables:
90 days = (annual sales*period)/360
= (7110.71*90)/360
=
639963.9/360
= 1777.67
100days = (8177.31*100)/360
= 817731/360
= 2271.47
80days = (6399.63*80)/360
= (511970.4/360)
= 1422.14
3) Incremental investment in receivables : -(C 1777.67)
90days = 1777.67-1777.67 = 0
100days = 2271.47-1777.67 = 493.8
80days =1422.14 -1777.67= - (355.53)
4) Assume incremental profit @ 20% (0.20x D) :90 days = 0
100days = (493.8x20%) = 98.76
80dys = - (355.53x20%) = - (71.10)
CHAPTER 6
FINDINGS, SUGGESTIONS
& CONCLUSION
Findings:
Suggestions:
On the basis of the analysis given above the following suggestions can be made.
Management is advised to increase credit period to 100 days so that company can
earn more profits.
Management should offer more incentives for prompt payment of credit. So that
receivables are collected promptly by dealers.
The management should have liberal credit policies.
Relaxing credit standards will enable to increase the customers.
Company should employ the skilled persons to collect payments and deal with
customer.
Management should control the fluctuations.
Conclusion:
Although a relatively young discipline, credit risk management has matured rapidly.
Improved risk measurement and reporting techniques paired with comprehensive credit risk
policies can provide extremely effective protection against credit risk losses. The best risk
management techniques are operational and legal, with collateral providing the best financial
risk mitigation. Credit insurance and credit default swaps offer financial protection against
default, but each at its own costwhich must be compared to the benefits of reducing the
specific risk it is intended to mitigate.
In view of these limitations, we believe that an alternative approach is now needed
which should have two components. First we believe that the regulatory capital regime
should seek directly to assess the extent to which a firm's earnings are vulnerable to stress
losses of any type - a measure we refer to as regulatory equity at risk - and should then
establish a capital requirement which is sufficient to provide a high level of assurance that the
firm could survive such a stress event and still remain solvent during a workout period.
We argue that there needs to be much more explicit regulatory oversight of the
liquidity management arrangements in place at the firm, since effective liquidity management
arrangements rather than capital provide the primary protection against any stress events
affecting the firm.
CHAPTER 7
ANNUXURE
&
BIBLIOGRAPHY
ANNEXURE
Balance
Pharma
Sheet
of
Sources Of Funds
Total Share Capital
Equity Share Capital
Share Application Money
Preference Share Capital
Reserves
Networth
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities
Aurobindo
Mar '12
Mar '11
Mar '10
12 mths
12 mths
12 mths
12 mths
12 mths
29.15
29.15
0.00
0.00
3,983.2
4
4,012.3
9
1,970.2
0
844.66
2,814.8
6
6,827.2
5
Mar '14
29.12
29.12
0.00
0.00
29.11
29.11
0.00
0.00
29.11
29.11
0.00
0.00
27.86
27.86
0.00
0.00
2,909.98
2,464.06
2,540.50
1,886.50
2,939.10
2,493.17
2,569.61
1,914.36
1,875.72
2,346.33
1,038.01
702.25
899.24
95.62
1,279.71
1,242.53
2,774.96
2,441.95
2,317.72
1,944.78
5,714.06
4,935.12
4,887.33
3,859.14
Mar '13
Mar '12
Mar '11
Mar '10
12 mths 12 mths
12 mths
12 mths
12 mths
2,903.53
2,359.40
1,955.17
1,526.88
0.00
0.00
0.00
0.00
891.62
732.66
605.28
481.54
2,011.91
1,626.74
1,349.89
1,045.34
166.34
707.98
1,431.73
563.56
629.00
1,219.26
582.92
493.09
1,261.02
499.47
379.24
944.82
1,730.59
1,426.28
1,480.71
1,151.35
114.57
14.01
4.21
4.02
3,276.89
2,659.55
2,745.94
2,100.19
Application Of Funds
Gross Block
Less: Revaluation Reserves
Less: Accum. Depreciation
Net Block
Capital Work in Progress
Investments
Inventories
Sundry Debtors
Cash and Bank Balance
Total Current Assets
3,004.8
6
0.00
1,066.9
2
1,937.9
4
203.89
872.62
1,711.81
2,970.1
2
9.72
4,691.6
5
869.43
0.00
5,561.0
8
0.00
1,633.8
0
114.48
1,748.2
8
661.45
0.00
677.41
0.12
568.61
118.12
593.67
0.54
3,938.34
3,337.08
3,432.67
2,694.40
0.00
0.00
0.00
0.00
1,037.26
1,159.59
913.82
719.94
73.25
61.67
57.42
39.37
1,110.51
1,221.26
971.24
759.31
2,115.82
2,461.43
1,935.09
0.00
0.00
0.00
4,935.12
4,887.33
3,859.14
74.59
85.64
219.10
88.27
139.04
343.51
3,812.8
2,827.83
0
0.00
0.00
6,827.2
5,714.06
5
358.37
137.67
474.51
100.93
Income
Sales Turnover
Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income
Mar '12
Mar '11
Mar '10
12 mths 12 mths
12 mths
12 mths
12 mths
7,110.71
0.00
7,110.71
74.80
35.75
7,221.2
6
5,425.10
0.00
5,425.10
26.51
121.08
4,378.73
94.10
4,284.63
-525.06
-89.87
4,229.99
99.54
4,130.45
17.61
136.37
3,319.60
67.54
3,252.06
112.22
147.48
5,572.69
3,669.70
4,284.43
3,511.76
3,273.04
2,599.02
2,487.19
2,010.02
316.34
431.42
0.00
0.00
567.32
0.00
225.54
364.10
75.61
234.56
74.07
0.00
184.55
303.60
79.03
207.53
37.22
0.00
135.48
232.62
59.14
186.29
18.71
0.00
4,588.12
3,572.90
3,299.12
2,642.26
Mar '13
Mar '12
Mar '11
Mar '10
12 mths 12 mths
12 mths
12 mths
12 mths
Expenditure
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Admin Expenses
Miscellaneous Expenses
Preoperative Exp Capitalised
Total Expenses
3,689.0
5
335.71
514.21
0.00
0.00
688.02
0.00
5,226.9
9
Mar '14
Operating Profit
PBDIT
Interest
PBDT
Depreciation
Other Written Off
Profit Before Tax
Extra-ordinary items
PBT (Post Extra-ord Items)
Tax
Reported Net Profit
Total Value Addition
Preference Dividend
Equity Dividend
Corporate Dividend Tax
Per share data (annualised)
Shares in issue (lakhs)
Earning Per Share (Rs)
Equity Dividend (%)
Book Value (Rs)
1,919.4
7
1,994.2
7
288.84
1,705.4
3
185.97
0.00
1,519.4
6
0.00
1,519.4
6
347.37
1,172.0
9
1,537.9
4
0.00
87.41
14.85
2,914.5
7
40.21
300.00
137.67
958.06
621.86
967.70
757.28
984.57
96.80
985.31
869.50
250.06
93.11
55.02
62.58
734.51
3.69
930.29
806.92
171.39
0.00
142.94
0.00
125.04
0.00
95.46
0.00
563.12
-139.25
805.25
711.46
0.00
-16.52
-0.95
-1.61
563.12
-155.77
804.30
709.85
67.13
-113.16
210.50
184.09
495.99
-42.61
593.80
525.76
1,315.08
973.88
811.93
632.24
0.00
43.68
7.20
0.00
29.11
4.72
0.00
58.72
9.64
0.00
27.74
4.67
2,912.11
2,911.21
2,911.21
557.29
17.03
150.00
100.93
-1.46
100.00
85.64
20.40
200.00
88.27
94.34
100.00
343.51
BIBLIOGRAPHY
BOOKS:
1. Financial management -
by I.M.PANDEY
2. Financial management -
by MY KHAN PK JAIN
3. Management Accounting -
by RP TRIVEDI.
WEBSITES:
www.moneycontrol.com
www.aurobindo.com