SUMMER INTERNSHIP PROJECT

REPORT

Under the guidance of

(Mr. Manoj Vyas)

Submitted for the partial completion of the degree of Master of Business

Administration
at

SubmittedBy:

Sunny
Chauhan

BGIET, SANGRUR 1
 TABLE OF CONTENTS
 Declaration
 Certificate from the Organization
 Certificate of Supervisor (Guide)
 Acknowledgement
 Executive Summary
 Chapter-1 Introduction Page No
1.1 To the topic

1.2 Overview of the Industry

1.3 Profile of the Organization

1.4 Need of the study

1.5 Objectives of the study

 Chapter-2 Research Methodology

2.1 Statement of the Problem
2.2 Research Design
2.3 Sampling Techniques used
2.4 Selection of Sample Size
2.5 Data Collection
2.6 Statistical Tools Used
2.7 Limitations of the Study

 Chapter-3 Data Analysis and interpretation

Chapter-4 Conclusion and Suggestions

BGIET, SANGRUR 2
  Bibliography

DECLARATION

I, Sunny chauhan, a Student of MBA 2009-11 Batch, Bhai

Gurdas Institute of Engg. & Technology, hereby declare that the
project on “Working capital management in Dr.Reddy’s
laboratories ltd.” is my original work and that it has not
previously formed the basis for the award of any other Degree,
Diploma, Fellowship or other similar titles.

It has been done under the guidance of Mr.Manoj Vyas(external

guide).

(Signature)

NAME
Sunny Chauhan

BGIET, SANGRUR 3
BGIET, SANGRUR 4
 CERTIFICATE OF APPROVAL

This is to certify that the project work entitled “Working Capital

Management in Dr. Reddy’s laboratories ltd.” is a bonafide
work carried out by Ms. / Mr. Sunny Chauhan in partial
fulfillment for the degree of Master Business Administration from
BGIET, Punjab Technical University, and Jalandhar. The project
report has been approved here with.

_______________

Designation (Internal guide)

BGIET, SANGRUR

BGIET, SANGRUR 5
 ACKNOWLEDGEMENT
I feel immense pleasure to give the credit of my project work not
only to one individual as this work is integrated effort of all those
who concerned with it. I want to owe my thanks to all those
individuals who guided me to move on the track.

This report entitled “ Working Capital Management.” is the

outcome of my summer training at “Dr. Reddy’s laboratories
ltd.., Baddi.

I would like to appreciate the pain staking effort of Mr. Manoj

vyas (finance Manager) for educating and guiding me at each and
every stage and providing me the information related to my chosen
topic. I am equally thankful to the whole team of Finance & IT
Department of Dr.Reddy’s Laboratories LTD., Baddi. who
extended their full co-operation and assistance. .

Last but not least, I owe my special regards to my parents and

my elders for their blessings and good wishes.

Sunny chauhan

BGIET, SANGRUR 6
 PREFACE

A project work programme in industry is to get an overall view

and exposure of the industry and its working environment. It
enhances the confidence and boosts the morale of the students
who go for their project in the industry. These programmes are
included in the curriculum of studies for development of the
personality of the finance students and get a first hand experience
about the working of the industry.

This project helps the students to increase their job perspective.

Training can be done in industries, business-houses, sales and
income tax department of various central, state, local,
government societies etc.

BGIET, SANGRUR 7
 EXECUTIVE SUMMERY

1st chapter of the report contains introduction to Dr.Reddy’s, which

includes company profile showing the company status, ISO
certification etc., Historical background which shows how Dr.Reddy’s
comes into being?
It contains the brief information about the Dr.Reddy’s Baddi plant
like no. of employees, etc. Department overview, which shows how
various departments works for the company, Then comes Dr.Reddy’s
vision and mission which shows company’s dedication towards the
society and an overview about its financial and marketing implications.

2nd chapter contains the Research Methodology, which includes

justification about the topic selected, the objective of the study, Unit
where the study is conducted, time period for which the study is
conducted. Scope of the study and sources of information (primary as
well as secondary). It also includes various limitations during the
course of the project.

3rd chapter contains the introduction to topic Working Capital

Management this includes the information, as to what working capital
Management is all about, the aspects of working capital Management,
its importance, the objectives for working capital management and
scope, etc. and all this is well supported with the data of Dr.Reddy’s.

4th chapter is about the analysis of the data which includes the
present scenario of working capital management in Dr.Reddy’s, Baddi,
the ways in which working capital could be utilized effectively.

5th chapter of this report is about the findings and suggestions, the
various proposals that the company could apply for maintaining the
working capital and the suggestions for the improvement in it.

The last part of the report is that of Bibliography in which the various
books, web sites and articles consulted for the preparation of this report
are mentioned.
 INTRODUCTION
COMPANY PROFILE:

Dr Reddy's Laboratories Ltd.

Type Public

Industry Pharmaceuticals

Founded 1984

Headquarters Hyderabad, Andhra Pradesh, India

Anji Reddy, Chairman

Key people
GV Prasad, CEO
Revenue $1.5 billion (May 2007)
Net income $216 million (May 2007)
Employees 8,225
Website http://www.drreddys.com

INDUSTRY OVERVIEW :
Sector structure/Market size
India's pharmaceutical industry is now the third largest in the
world in terms of volume and accounts for 10 per cent of the
world’s production. According to the Mr Srikant Kumar Jena,
Minister of State for Chemicals and Fertilisers, the Indian
pharmaceutical industry is now over US$ 20 billion.
India ranks fourteenth in terms of value. The country ranks fourth
in terms of generic production and seventeenth in terms of
export value of bulk actives and dosage forms, according to Mr
Jena. By 2015, India is expected to rank among the top 10 global
pharmaceutical markets. The industry is typically growing at
around 1.5-1.6 times the country’s gross domestic product (GDP)
growth.
Moreover, according to a FICCI-Ernst & Young study, the
increasing populations of the higher-income group in the country
will, by 2015, open a potential US$ 8 billion market for
multinational companies selling costly drugs. Besides, the report
said the domestic pharma market is likely to touch US$ 20
billion by 2015, making India a lucrative destination for clinical
trials for global giants. The Indian pharmaceutical offshoring
industry is slated to become a US$ 2.5 billion opportunity by
2012,

Exports
India's exports of drugs, pharmaceuticals and fine chemicals grew
by 29 per cent in 2008-09 to US$ 8.25 billion compared to 2007-
08. According to Mr Anand Sharma,Union Minister of Commerce
and Industry, the Indian pharmaceutical sector has emerged as one
of the major contributors to Indian exports with export earnings
rising from a negligible amount in the early 1990s to US$ 6.08
billion by 2007-08.

A report by industry research firm, RNCOS, forecasts that

pharmaceutical exports will
grow at a compound annual growth rate (CAGR) of 18.5 per cent
between 2007-08 and 2011-12. This growth will be fuelled by
multi-billion dollar patent expirations and growth in the global
generics market.

Growth
The domestic pharma market will outshine the global market,
growing at a compounded annual rate of 12-15 per cent as against
a global average of 4-7 per cent during 2008-2013, according to a
study by market research firm IMS.

According to detailed research by Angel Broking, socio-economic

factors such as rising income levels, increasing affordability,
gradual penetration of health insurance and the rise in chronic
diseases would see the Indian formulation market touch US$ 13.7
billion by 2013, at a CAGR of 12.2 per cent over the period from
fiscal year 2008 to 2013 (estimated).

Denmark-based world leader in diabetes care, Novo Nordisk, is

looking at making India the hub for manufacturing insulin for the
sub-continent. The company has set
up a dedicated facility with a capacity of 26 million vials per
annum in partnership with Ahmedabad-based Torrent
Pharmaceuticals Ltd.

Rural Market
According to estimates, rural areas account for 21 per cent of the
country's pharmaceuticals market. In 2006-07, the rural Indian
pharmaceuticals market was estimated at around US$ 1.4 billion,
having grown at about 40 per cent in 2006-07 against 21 per cent
in the previous year. French company Aventis Pharma has
launched a rural market division with 10 products and a sales team
of 300 people as it eyes a bigger share of the fast growing Indian
rural market.

Pharmaceutical Retail
The Indian drug retail market grew by a 29.24 per cent in value
terms in October 2009 over the same period a year ago. This is
more than double the average monthly revenue growth rate of 13-
14 per cent posted in the recent past, as per market research firm
ORG IMS.

Generics
According to a report by IMS Health, the Indian generic
manufacturers will grow to more than US$ 70 billion as drugs
worth approximately US$ 20 billion in annual sales faced patent
expiry in 2008. With nearly US$ 80 billion worth of patent
Protected drugs to go off patent by 2012, Indian generic
manufacturers are positioning themselves to offer generic versions
of these drugs. Indian generic drug makers received half a dozen
more approvals from the US Food and Drug Administration
(FDA) in 2009, over the previous year. Dr Reddy's Laboratories
received the highest number of tentative and final approvals in
2009 at 32, followed by Aurobindo at 26 and Wockhardt at 23.

Diagnostics Outsourcing/Clinical Trials

The Indian diagnostics and pathology laboratory business is
presently around US$ 864 million and is growing at a rate of 20
per cent annually, according to industry experts. Moreover, the
US$ 200 million Indian clinical research outsourcing market is
estimated to reach up to US$ 600 million by 2010, according to a
joint study done by KPMG and the Confederation of Indian
Industry (CII).

HISTORY -
Dr. Reddy's Laboratories is a 25-year old company catering to the
needs of the pharmaceutical sector. Dr Reddy's started its operation
in 1984 in the Actove Pharmaceutical Ingredients (API) segment,
with a single drug in 60 tonne facility near Hyderabad. In 1986
its shipped its first consignment of Methyldopa drug to West
Germany.
It is among the top three API players in world.

INTRODUCTION -
Dr Reddy's, a global pharmaceutical company, has its headquarters
located in India. It has a global presence in more than 100
countries, with subsidiaries in the US, UK, Russia, Germany and
Brazil; joint ventures in China, South Africa and Australia;
representative offices in 16 countries and third-party distribution
set ups in 21 countries.
It is first pharmaceutical company in Asia, outside Japan, to be
listed on the NYSE.
It is largest player in the custom pharmaceutical services
(CPS) business in India.

Established in 1984, Dr. Reddy’s Laboratories pharmaceutical

company committed to providing affordable and innovative
medicines through its three core businesses:
Global Generics, which includes branded and unbranded
prescription and over-the-counter (OTC) drug products.
Pharmaceutical Services and Active Ingredients (PSAI),
comprising ActivePharmaceutical Ingredients and Custom
Pharmaceutical Services.

Proprietary Products, comprising Generic Biopharmaceuticals,

New ChemicalEntities (NCEs), Differentiated Formulations and a
dermatology focused specialty company– Promius TM Pharma.
The Company has a strong presence — in highly regulated markets
such as the UnitedStates, the United Kingdom, Germany, as well
as in emerging markets including India,Russia, Venezuela,
Romania and certain CIS countries

PRODUCT BRAND -
The pharma major has launched brands like Ciprolet, Nise, Enam,
Stamlo, Omez, and Ketorol among others.
Businesses
Pharma Services and API business
Under this it offer over 100 molecules to customers across the
world. APIs are its core strength, having a wide range of portfolio.
It submits the largest number of US DMF from India. It entered
into the custom pharmaceutical services (CPS) in 2001 .With
acquisition of Roche’s API manufacturing unit Mexico in 2005, it
got boost in the CPS business. It also acquired the small molecule
business of Dow Pharma at its Mirfield and Cambridge sites, UK
in 2008 , strengthening its CPS business.

Generics Medicines It also manufactures generic

medicines with business spread across India, Russia, US and
Germany. It is amongst the top ten players in India.
Proprietary Products
Under this it includes NCE research, biologics business and
differentiated formulations conducted in the US. Under this it has
launched Grafeel(Filgrastim) and Reditux(Rituximab).
Milestones
It was ranked among top ten in ‘The Best Companies to Work
for in India’ Survey conducted jointly by Business Today, Mercer
Human Resource Consulting and TNS India. It received the
Recruitment and Staffing Best in Class (RASBIC) Award for the
‘Best Use of Technology for Recruiting’ at the Asia Pacific HRM
Congress.
It received the Certificate of Merit for Innovative Training
Practices among Indian organization by ISTD (Indian Society
for Training and Development).
Outlook
Dr Reddy’s Laboratories will use eco-friendly measures to
manufacturing of drugs. It will focus on “green chemistry” to
create the system of drug design and manufacture more
environmental friendly.
Dr Reddy’s Laboratories launched Imitrex (sumatriptan succinate)
tablets in dosages of 25mg, 50mg, and 100mg in the US. It is the
authorized generic version of GlaxoSmithKline’s Imitrex. It is first
company to launch Imitrex (generic version) in the US market.
These tablets are for treatment of acute treatment of migraine in
adults.

VISSION & MISSION OF COMPANY

Vission
To be an Institute of Academic Excellence known for
total commitment to superiority in management and
IT education and research with a holistic concern for
quality of life, environment, society and ethics.

Mission

Our mission is to groom professionals of

tomorrow by
• Imparting high quality education in Management
and Information Technology

• Developing intellectual capabilities through a

challenging curriculum

• Providing training and development services

• Fostering research

• Extending consultancy services to the industry

• Disseminating information through the

publication of books, journals and magazines.
KEY PEOPLE:-
On March 31, 2006 board members and senior executives
included.
 • Mr. Amit Patel - Vice President, Corporate Development
& Strategic Planning
• Dr. K Anji Reddy - Chairman
• Mr. GV Prasad - Vice Chairman & Chief Executive
• Mr. Satish Reddy - Managing director & COO
• Mr. B.Koteswar rao- Independent director
• Mr. Anupam Puri - Independent director
• Dr. Omkar Goswami - Independent director
• Mr. P N Devarajan - Independent director
• Mr. Ravi Bhoothalingam - Independent director
• Dr. V. Mohan - Independent director
• Dr. Rajinder Kumar - President, Research,
Development and Commercialization (joined on April 30,
2007)

Top-10 brands in India:

• Omez
• Nise
• Stamlo
• Stamlo Beta
• Enam
• Atocor
• Razo
• Reclimet
• Clamp
• Mintop

PROJECT OBJECTIVES
1)To learn the effective management of working capital.

2)To study how to keep the capital that is tied up in the

working capital cycle at a minimum and maximizing profit.

3)To study the different components of working capital and its

impact on the performance of the firm.

4)To study how dr.reddy’s finances working capital

requirements of the firms.

RESEARCH METHODOLOGY
Statement of the Problem:-
“To Study the method of working capital management and it’s
financing for the dr.reddy’s laboratories with special reference to
baddi Plant.”
The pharma industry is going through a very critical phase, with
prices of raw material rising, high demand both in domestic and
international market, increasing pressure from the government and
a production crunch.
In such a situation, effective management of working capital is
very essential for optimizing operating cost and to deal with such
adverse situations efficiently.
The project will be highlighting the various strategies and methods
for managing of working capital and it’s financing.

Scope of the Study

A study on financial strategy of dr.reddy’s laboratories plant at
baddi with the practical training on working capital management &
it’s financing.
• To find out the working capital management & it’s financing
to Plant.
• To gain familiarity with the components of working capital in
dr.reddy’s plant.
• To find how different components of working capital are
managed atdr.reddy’s plant .
• To come out with any solution for improvement in working
Capital Management at baddi plant.
• To know the practical practices.

Objectives of the Study

This study can help in following ways:

This study will help the new players to decide which method of
working capital management and its financing they can adapt to
fully utilize their resources, in the pharma industry.

The study will help the existing players to understand and

implement an appropriate working capital management.

To find out the feasibility of the working capital management and

financing method followed by dr.reddy’s laboratories at baddi
Plant.
This study will help players in the pharma industry to reduce costs
incurred.
The study will help in reducing the idleness of cash and provide
efficient working capital through maintaining need based cash
balance without distributing the liquidity needs of the business.

The study will also show the challenges that the steel industry will
face and market share and growth rate they will have in the future.

Tools for Data Collection:-

To have a proper understanding and defining the boundaries of
research brainstorming was done within the team, discussion were
held with experts in management fields, and a few relevant books
and magazines were studied.
I have prepared my project to collect both Primary data &
Secondary data.

1. Primary Data
The data are taken from meetings and interviews with various
managers and employees of finance department ofdr.reddy’s
 laboratories at baddi. As per instruction of my external
guide, I have visited to the following departments.

• Main Cash Department

• Billing and Operation Department
• Cash & Budget Department
• Raw-Material Department
• Purchase Department
• Sales Department
• Project Management Department

2. Secondary Data
The other already available data were obtained from various
sources namely.
• Balance Sheet.
• Profit & Loss Account.
• Annual Report.
• Accounting Reports.
• Costs & Budgets Report.
• Cash Report.
• Creditors Report.
• Debtors Report.
• Raw Material Report.
• Stock Report.
• Production Report.
• Sales Report.
• Financial Report.
• Plant Account Books.

DURATION
We have the time constraint of 45 days.
Contact Method :- Interview

Limitations
1. Dr.reddy’s laboratories at baddi is a huge pharma plant so
that in 4 weeks it is not possible to study deeply.

2. Components of inventories are huge in number and are

materials wise, so, it is not again possible to study deep
into each of those inventories.

3. In some cases actual figure is not available.

4. Due to financial year ending, the concerns officers were

not available at the time when needed.
 WORKING CAPITAL

Meaning of Working Capital

Capital required for a business can be classified under two

main categories via,

1) Fixed Capital

2) Working Capital

Every business needs funds for two purposes for its establishment
and to carry out its day- to-day operations. Long terms funds are
required to create production facilities through purchase of fixed
assets such as p&m, land, building, furniture, etc. Investments
in these assets represent that part of firm’s capital which is
blocked on permanent or fixed basis and is called fixed capital.
Funds are also needed for short-term purposes for the purchase of
raw material, payment of wages and other day – to- day expenses
etc.
 These funds are known as working capital. In simple
words, working capital refers to that part of the firm’s capital
which is required for financing short- term or current assets such as
cash, marketable securities, debtors & inventories. Funds, thus,
invested in current assts keep revolving fast and are being
constantly converted in to cash and this cash flows out again in
exchange for other current assets. Hence, it is also known as
revolving or circulating capital or short term capital.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital

2. Net working capital

The gross working capital is the capital invested in the total

current assets of the enterprises current assets are those

Assets which can convert in to cash within a short period

normally one accounting year.
 CONSTITUENTS OF CURRENT ASSETS

1) Cash in hand and cash at bank

2) Bills receivables

3) Sundry debtors

4) Short term loans and advances.

5) Inventories of stock as:

a. Raw material

b. Work in process

c. Stores and spares

d. Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses

8. Accrued incomes.

9. Marketable securities.
 In a narrow sense, the term working capital refers to the net
working. Net working capital is the excess of current
assets over current liability, or, say:

NET WORKING CAPITAL = CURRENT ASSETS –

CURRENT LIABILITIES.

Net working capital can be positive or negative. When the

current assets exceeds the current liabilities are more than
the current assets. Current liabilities are those liabilities,
which are intended to be paid in the ordinary course of
business within a short period of normally one accounting
year out of the current assts or the income business.

CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.

4. Bank overdraft.

5. Provision for taxation, if it does not amt. to app. Of profit.

6. Bills payable. 7. Sundry creditors.

 The gross working capital concept is financial or going
concern concept whereas net working capital is an accounting
concept of working capital. Both the concepts have their own
merits.

The gross concept is sometimes preferred to the concept of

working capital for the following reasons:

1. It enables the enterprise to provide correct amount of

working capital at correct time.

2. Every management is more interested in total current assets

with which it has to operate then the source from where it is
made available.

3. It take into consideration of the fact every increase in the

funds of the enterprise would increase its working capital.

4. This concept is also useful in determining the rate of return

on investments in working capital. The net working capital
concept, however, is also important for following reasons:
OBJECTIVES OF WORKING CAPITAL

Every business needs some amount of working capital. It is

needed for following purpose:

• For the purchase of raw materials, components and spares.

•To pay wages and salaries.
• To incur day to day expenses and overhead costs such as fuel,
power, and office expenses etc.
• To provide credit facilities to customers .

SOURCES OF WORKING CAPITAL

The working capital requirements should be met both from short
term as well as long term sources of funds.

1.Financing of working capital through short term sources of funds

has the benefits of lower cost and establishing close relationship
withbanks.
2. Financing of working capital through long term sources provides
the benefits of reduces risk and increases liquidity.
WORKING CAPITAL CYCLE
OPERATING CYCLE APPROACH: -

According to this approach, the requirements of working capital

depend upon the operating cycle of the business.
The operating cycle begins with the acquisition of raw
materials and ends with the collection of receivables

It may be broadly classified into the following four stages viz.

1. Raw materials and stores storage stage.
2. Work-in-progress stage.
3. Finished goods inventory stage.
4. Receivables collection stage.
 The duration of the operating cycle for the purpose of estimating
working capital requirements is equivalent to the sum of the
durations of each of these stages less the credit period allowed by
the suppliers of the firm.
Symbolically the duration of the working capital cycle can be put
as follows: -

O=R+W+F+D-C
Where,
O=Duration of operating cycle;
R=Raw materials and stores storage period;
W=Work-in-progress period;
F=Finished stock storage period;
D=Debtors collection period;
C=Creditors payment period.
CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in to ways:

o On the basis of concept.

o On the basis of time.

On the basis of concept working capital can be classified as

gross working capital and net working capital. On the basis
of time, working capital may be classified as:

 Permanent or fixed working capital.

 Temporary or variable working capital

PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is

required to ensure effective utilization of fixed facilities and for
maintaining the circulation of current assets. Every firm has to
maintain a minimum level of raw material, work- in-process,
finished goods and cash balance. This minimum level of current
assets is called permanent or fixed working capital as this part of
working is permanently blocked in current assets. As the business
grow the requirements of working capital also increases due to
increase in current assets.
TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working

capital which is required to meet the seasonal demands and some
special exigencies. Variable working capital can further be
classified as seasonal working capital and special working capital.
The capital required to meet the seasonal need of the enterprise is
called seasonal working capital. Special working capital is that part
of working capital which is required to meet special exigencies
such as launching of extensive marketing for conducting research,
etc.

Temporary working capital differs from permanent working capital

in the sense that is required for short periods and cannot be
permanently employed gainfully in the business.

IMPORTANCE OR ADVANTAGE OF ADEQUATE

WORKING CAPITAL

 SOLVENCY OF THE BUSINESS: Adequate working

capital helps in maintaining the solvency of the business by
providing uninterrupted of production.
 Goodwill: Sufficient amount of working capital enables a
firm to make prompt payments and makes and maintain the
goodwill.

 Easy loans: Adequate working capital leads to high

solvency and credit standing can arrange loans from banks
and other on easy and favorable terms.

 Cash Discounts: Adequate working capital also enables a

concern to avail cash discounts on the purchases and hence
reduces cost.

 Regular Supply of Raw Material: Sufficient working

capital ensures regular supply of raw material and continuous
production.

 Regular Payment Of Salaries, Wages And Other Day TO

Day Commitments: It leads to the satisfaction of the
employees and raises the morale of its employees, increases
their efficiency, reduces wastage and costs and enhances
production and profits.

 Exploitation Of Favorable Market Conditions.

 Ability To Face Crises.

EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of

working capital to run its business operations. It should have
neither redundant or excess working capital nor inadequate nor
shortages of working capital. Both excess as well as short
working capital positions are bad for any business. However, it
is the inadequate working capital which is more dangerous from
the point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE

WORKING CAPITAL

1. Excessive working capital means ideal funds which earn

no profit for the firm and business cannot earn the required
rate of return on its investments.

2. Redundant working capital leads to unnecessary

purchasing and accumulation of inventories.

3. Excessive working capital implies excessive debtors and

defective credit policy which causes higher incidence of
bad debts.

4. It may reduce the overall efficiency of the business.

DISADVANTAGES OF INADEQUATE WORKING
CAPITAL:

Every business needs some amounts of working capital. The need

for working capital arises due to the time gap between production
and realization of cash from sales. There is an operating cycle
involved in sales and realization of cash. There are time gaps in
purchase of raw material and production; production and sales; and
realization of cash.

Thus working capital is needed for the following purposes:

 For the purpose of raw material, components and spares.

 To pay wages and salaries.

 To incur day-to-day expenses and overload costs such as

office expenses.

 To meet the selling costs as packing, advertising, etc.

 To provide credit facilities to the customer.

 To maintain the inventories of the raw material, work-in-

progress, stores and spares and finished stock.
FACTORS DETERMINING THE WORKING
CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS: The requirements of working

is very limited in public utility undertakings such as
electricity, water supply and railways because they offer
cash sale only and supply services not products, and no
funds are tied up in inventories and receivables.

2. SIZE OF THE BUSINESS: Greater the size of the

business, greater is the requirement of working capital.

3. PRODUCTION POLICY: If the policy is to keep

production steady by accumulating inventories it will
require higher working capital.

4. LENTH OF PRDUCTION CYCLE: The longer the

manufacturing time the raw material and other supplies
have to be carried for a longer in the process with
progressive increment of labor and service costs before the
final product is obtained. So working capital is directly
proportional to the length of the manufacturing process.

6. WORKING CAPITAL CYCLE: The speed with which

the working cycle completes one cycle determines the
 requirements of working capital. Longer the cycle larger is
the requirement of working capital.

7. RATE OF STOCK TURNOVER: There is an inverse

co-relationship between the question of working capital and
the velocity or speed with which the sales are affected. A
firm having a high rate of stock turnover wuill needs lower
amt. of working capital as compared to a firm having a low
rate of turnover.

8. CREDIT POLICY: A concern that purchases its

requirements on credit and sales its product / services on
cash requires lesser amt. of working capital and vice-
versa.

9. BUSINESS CYCLE: In period of boom, when the

business is prosperous, there is need for larger amt. of
working capital due to rise in sales, rise in prices,
optimistic expansion of business, etc. On the contrary in
time of depression, the business contracts, sales decline,
difficulties are faced in collection from debtor and the firm
may have a large amt. of working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing

concern, we shall require large amt. of working capital.
.
MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the

problem that arises in attempting to manage the current
assets, current liabilities. The basic goal of working capital
management is to manage the current assets and current
liabilities of a firm in such a way that a satisfactory level of
working capital is maintained, i.e. it is neither adequate nor
excessive as both the situations are bad for any firm. There
should be no shortage of funds and also no working capital
should be ideal. ‘WORKING CAPITAL MANAGEMENT
POLICES’ of a firm has a great on its probability, liquidity
and structural health of the organization. So working capital
management is three dimensional in nature as

1. It concerned with the formulation of policies with regard

to profitability, liquidity and risk.

2. It is concerned with the decision about the composition

and level of current assets.

3. It is concerned with the decision about the composition

and level of current liabilities.

WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre

of a business. Adequate amount of working capital is very
much essential for the smooth running of the business. And
the most important part is the efficient management of
working capital in right time. The liquidity position of the
firm is totally effected by the management of working
capital. So, a study of changes in the uses and sources of
working capital is necessary to evaluate the efficiency with
which the working capital is employed in a business. This
involves the need of working capital analysis.

The analysis of working capital can be conducted through a

number of devices, such as:

1. Ratio analysis.

2. Fund flow analysis.

3. Budgeting.

1. RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to

another. The technique of ratio analysis can be employed for
measuring short-term liquidity or working capital position of
a firm. The following ratios can be calculated for these
purposes:
1. Current ratio.

2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover.

5. Receivables turnover.

6. Payable turnover ratio.

7. Working capital turnover ratio.

8. Working capital leverage

9. Ratio of current liabilities to tangible net worth.

2. FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the

study the source from which additional funds were derived
and the use to which these sources were put. The fund flow
analysis consists of:
 a. Preparing schedule of changes of working capital

b. Statement of sources and application of funds.

It is an effective management tool to study the changes in

financial position (working capital) business enterprise
between beginning and ending of the financial dates.

3. WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of

business plans and polices to be pursued in the future period
time. Working capital budget as a part of the total budge ting
process of a business is prepared estimating future long term
and short term working capital needs and sources to finance
them, and then comparing the budgeted figures with actual
performance for calculating the variances, if any, so that
corrective actions may be taken in future. He objective
working capital budget is to ensure availability of funds as
and needed, and to ensure effective utilization of these
resources. The successful implementation of working capital
budget involves the preparing of separate budget for each
element of working capital, such as, cash, inventories and
receivables etc.

ANALYSIS OF SHORT – TERM FINANCIAL

POSITION OR TEST OF LIQUIDITY

The short –term creditors of a company such as suppliers of

goods of credit and commercial banks short-term loans are
primarily interested to know the ability of a firm to meet its
obligations in time. The short term obligations of a firm can
be met in time only when it is having sufficient liquid
assets. So to with the confidence of investors, creditors, the
smooth functioning of the firm and the efficient use of fixed
assets the liquid position of the firm must be strong. But a
very high degree of liquidity of the firm being tied – up in
current assets. Therefore, it is important proper balance in
regard to the liquidity of the firm. Two types of ratios can
be calculated for measuring short-term financial position or
short-term solvency position of the firm.

1. Liquidity ratios.

2. Current assets movements ‘ratios.

A) LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its current

obligations as and when these become due. The short-term
obligations are met by realizing amounts from current,
floating or circulating assts. The current assets should either
be liquid or near about liquidity. These should be
convertible in cash for paying obligations of short-term
nature. The sufficiency or insufficiency of current assets
should be assessed by comparing them with short-term
liabilities. If current assets can pay off the current liabilities
then the liquidity position is satisfactory. On the other hand,
if the current liabilities cannot be met out of the current
assets then the liquidity position is bad. To measure the
liquidity of a firm, the following ratios can be calculated:

1. CURRENT RATIO

2. QUICK RATIO

3. ABSOLUTE LIQUID RATIO

1. CURRENT RATIO

Current Ratio, also known as working capital ratio is a

measure of general liquidity and its most widely used to
make the analysis of short-term financial position or
liquidity of a firm. It is defined as the relation between
current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITES

The two components of this ratio are:

1) CURRENT ASSETS

2) CURRENT LIABILITES

Current assets include cash, marketable securities, bill

receivables, sundry debtors, inventories and work-in-
progresses. Current liabilities include outstanding expenses,
bill payable, dividend payable etc.

A relatively high current ratio is an indication that the firm

is liquid and has the ability to pay its current obligations in

time. On the hand a low current ratio represents that the
liquidity position of the firm is not good and the firm shall
not be able to pay its current liabilities in time. A ratio equal
 or near to the rule of thumb of 2:1 i.e. current assets
double the current liabilities is considered to be
satisfactory.

CALCULATION OF CURRENT RATIO

(Rupees in crores)

Example=

Year 2006 2007 2008

Current Assets 81.29 83.12 13,6.57
Current 27.42 20.58 33.48
Liabilities
Current Ratio 2.96:1 4.03:1 4.08:1

Interpretation:-

As we know that ideal current ratio for any firm is 2:1. If

we see the current ratio of the company for last three years
it has increased from 2006 to 2008. The current ratio of
company is more than the ideal ratio. This depicts that
company’s liquidity position is sound. Its current assets are
more than its current liabilities.

2. QUICK RATIO

Quick ratio is a more rigorous test of liquidity than current

ratio. Quick ratio may be defined as the relationship
between quick/liquid assets and current or liquid liabilities.
An asset is said to be liquid if it can be converted into cash
with a short period without loss of value. It measures the
firms’ capacity to pay off current obligations immediately.

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITES

Where Quick Assets are:

1) Marketable Securities

2) Cash in hand and Cash at bank.

 3) Debtors.

A high ratio is an indication that the firm is liquid and has

the ability to meet its current liabilities in time and on the
other hand a low quick ratio represents that the firms’
liquidity position is not good.

As a rule of thumb ratio of 1:1 is considered satisfactory. It

is generally thought that if quick assets are equal to the
current liabilities then the concern may be able to meet its
short-term obligations. However, a firm having high quick
ratio may not have a satisfactory liquidity position if it has
slow paying debtors. On the other hand, a firm having a low
liquidity position if it has fast moving inventories.

CALCULATION OF QUICK RATIO

(e.g.) (Rupees in Crore)

Year 2006 2007 2008

Quick Assets 44.14 47.43 61.55
Current Liabilities 27.42 20.58 33.48
Quick Ratio 1.6 : 1 2.3 : 1 1.8 : 1

Interpretation :

A quick ratio is an indication that the firm is liquid and

has the ability to meet its current liabilities in time. The

ideal quick ratio is 1:1. Company’s quick ratio is more

than ideal ratio. This shows company has no liquidity
problem.

3. ABSOLUTE LIQUID RATIO

Although receivables, debtors and bills receivable are

generally more liquid than inventories, yet there may be
doubts regarding their realization into cash immediately or
in time. So absolute liquid ratio should be calculated
together with current ratio and acid test ratio so as to
exclude even receivables from the current assets and findout
the absolute liquid assets. Absolute Liquid Assets includes :

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID

ASSETS

CURRENT LIABILITES

ABSOLUTE LIQUID ASSETS = CASH & BANK

BALANCES.
 e.g. (Rupees in Crore)

Year 2006 2007 2008

Absolute Liquid 4.69 1.79 5.06
Assets
Current Liabilities 27.42 20.58 33.48
Absolute Liquid Ratio .17 : 1 .09 : 1 .15 : 1

Interpretation :

These ratio shows that company carries a small amount

of cash. But there is nothing to be worried about the lack of

cash because company has reserve, borrowing power &

long term investment. In India, firms have credit limits
sanctioned from banks and can easily draw cash.

B) CURRENT ASSETS MOVEMENT RATIOS

Funds are invested in various assets in business to

make sales and earn profits. The efficiency with which
assets are managed directly affects the volume of sales. The
better the management of assets, large is the amount of sales
and profits. Current assets movement ratios measure the
efficiency with which a firm manages its resources. These
 ratios are called turnover ratios because they indicate the
speed with which assets are converted or turned over into
sales. Depending upon the purpose, a number of turnover
ratios can be calculated. These are :

1. Inventory Turnover Ratio

2. Debtors Turnover Ratio

3. Creditors Turnover Ratio

4. Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if

current assets include high amount of debtors due to slow
credit collections and moreover if the assets include high
amount of slow moving inventories. As both the ratios ignore
the movement of current assets, it is important to calculate
the turnover ratio.

1. INVENTORY TURNOVER OR STOCK

TURNOVER RATIO :

Every firm has to maintain a certain amount of

inventory of finished goods so as to meet the
 requirements of the business. But the level of inventory
should neither be too high nor too low. Because it is
harmful to hold more inventory as some amount of
capital is blocked in it and some cost is involved in it. It
will therefore be advisable to dispose the inventory as
soon as possible.

INVENTORY TURNOVER RATIO = COST OF

GOOD SOLD

AVERAGE INVENTORY

Inventory turnover ratio measures the speed with which

the stock is converted into sales. Usually a high
inventory ratio indicates an efficient management of
inventory because more frequently the stocks are sold ;
the lesser amount of money is required to finance the
inventory. Where as low inventory turnover ratio
indicates the inefficient management of inventory. A
low inventory turnover implies over investment in
inventories, dull business, poor quality of goods, stock
 accumulations and slow moving goods and low profits
as compared to total investment.

AVERAGE STOCK = OPENING STOCK + CLOSING

STOCK

(Rupees in Crore)

Year 2006 2007 2008

Cost of Goods sold 110.6 103.2 96.8
Average Stock 73.59 36.42 55.35
Inventory Turnover 1.5 times 2.8 times 1.75 times
Ratio

Interpretation :

These ratio shows how rapidly the inventory is turning

into receivable through sales. In 2007 the company has high
inventory turnover ratio but in 2008 it has reduced to 1.75
times. This shows that the company’s inventory
management technique is less efficient as compare to last
year.
 2. INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION PERIOD =

365 (net working days)

INVENTORY TURNOVER RATIO

e.g.

Year 2006 2007 2008

Days 365 365 365
Inventory Turnover Ratio 1.5 2.8 1.8
Inventory Conversion 243 days 130 days 202 days
Period

Interpretation :

Inventory conversion period shows that how many days

inventories takes to convert from raw material to finished
goods. In the company inventory conversion period is
decreasing. This shows the efficiency of management to
convert the inventory into cash.
3. DEBTORS TURNOVER RATIO :

A concern may sell its goods on cash as well as on

credit to increase its sales and a liberal credit policy may
result in tying up substantial funds of a firm in the form of
trade debtors. Trade debtors are expected to be converted
into cash within a short period and are included in current

assets. So liquidity position of a concern also depends

upon the quality of trade debtors. Two types of ratio can be
calculated to evaluate the quality of debtors.

a) Debtors Turnover Ratio

b) Average Collection Period

DEBTORS TURNOVER RATIO =

TOTAL SALES (CREDIT)

AVERAGE DEBTORS
 Debtor’s velocity indicates the number of times the
debtors are turned over during a year. Generally higher the
value of debtor’s turnover ratio the more efficient is the
management of debtors/sales or more liquid are the debtors.
Whereas a low debtors turnover ratio indicates poor
management of debtors/sales and less liquid debtors. This
ratio should be compared with ratios of other firms doing
the same business and a trend may be found to make a
better interpretation of the ratio.

AVERAGE DEBTORS= OPENING DEBTOR+CLOSING

DEBTOR

e.g.

Year 2006 2007 2008

Sales 166.0 151.5 169.5
Average Debtors 17.33 18.19 22.50
Debtor Turnover 9.6 times 8.3 times 7.5 times
Ratio
 Interpretation :

This ratio indicates the speed with which debtors are

being converted or turnover into sales. The higher the
values or turnover into sales. The higher the values of
debtors turnover, the more efficient is the management of
credit. But in the company the debtor turnover ratio is
decreasing year to year. This shows that company is not
utilizing its debtor’s efficiency. Now their credit policy
become liberal as compare to previous year.

4. AVERAGE COLLECTION PERIOD :

Average Collection Period = No. of Working Days

Debtors Turnover Ratio

The average collection period ratio represents the

average number of days for which a firm has to wait before
its receivables are converted into cash. It measures the
quality of debtors. Generally, shorter the average collection
 period the better is the quality of debtors as a short
collection period implies quick payment by debtors and
vice-versa.

Average Collection Period =

365(NetWorkingDays)
Debtors Turnover Ratio

------------------- in Rs. Cr. -------------------

Key Financial Ratios of
Dr Reddys Laboratories
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Investment Valuation Ratios
Face Value 5.00 5.00 5.00 5.00 5.00
Dividend Per Share 5.00 3.75 3.75 6.25 11.25
Operating Profit Per Share (Rs) 41.34 79.05 34.65 44.99 64.47
Net Operating Profit Per Share
261.20 225.31 198.84 237.40 260.33
(Rs)
Free Reserves Per Share (Rs) 288.37 254.35 278.46 304.97 341.13
Bonus in Equity Capital 45.60 66.54 66.43 66.34 66.19
Profitability Ratios
Operating Profit Margin(%) 15.82 35.08 17.42 18.95 24.76
Profit Before Interest And Tax
9.82 29.43 12.01 13.28 18.92
Margin(%)
Gross Profit Margin(%) 18.65 38.66 12.58 14.11 19.70
Cash Profit Margin(%) 15.39 32.30 17.59 19.10 22.17
Adjusted Cash Margin(%) 15.80 33.50 17.59 19.10 22.17
Net Profit Margin(%) 10.08 29.01 13.57 13.20 18.48
Adjusted Net Profit Margin(%) 9.85 29.77 13.57 13.20 18.48
Return On Capital Employed(%) 8.90 30.79 10.55 13.46 15.87
Return On Net Worth(%) 9.33 26.91 9.87 10.66 14.30
Adjusted Return on Net Worth(%) 9.12 27.60 9.00 11.37 13.07
Return on Assets Excluding
5.30 19.75 7.13 312.17 350.30
Revaluations
Return on Assets Including
5.30 19.75 7.13 312.17 350.30
Revaluations
Return on Long Term Funds(%) 12.48 33.05 11.54 15.08 17.36

Liquidity And Solvency Ratios

Current Ratio 1.29 2.56 1.82 1.85 1.49
Quick Ratio 2.43 2.81 1.94 2.13 1.45
Debt Equity Ratio 0.41 0.08 0.10 0.12 0.10
Long Term Debt Equity Ratio -- -- -- -- --
Debt Coverage Ratios
Interest Cover 16.13 45.49 85.79 53.32 250.76
Total Debt to Owners Fund 0.41 0.08 0.10 0.12 0.10
Financial Charges Coverage Ratio 16.58 30.80 50.33 36.78 79.36
Financial Charges Coverage Ratio
14.63 26.57 45.79 29.26 68.99
Post Tax

Management Efficiency Ratios

Inventory Turnover Ratio 4.73 8.32 5.90 6.09 5.39
Debtors Turnover Ratio 4.01 4.62 3.42 3.45 3.54
Investments Turnover Ratio 5.14 8.72 5.90 6.09 5.39
Fixed Assets Turnover Ratio 3.31 4.95 1.97 1.91 1.86
Total Assets Turnover Ratio 0.64 0.81 0.64 0.69 0.69
Asset Turnover Ratio 2.01 3.06 1.97 1.91 1.86
Average Raw Material Holding 142.58 85.16 104.05 108.84 104.48
Average Finished Goods Held 18.69 10.63 14.65 15.37 18.28
Number of Days In Working
287.52 263.93 211.04 217.13 144.48
Capital

Profit & Loss Account Ratios

Material Cost Composition 39.57 30.26 40.29 38.35 36.38
Imported Composition of Raw
56.72 36.74 26.37 38.75 30.36
Materials Consumed
Selling Distribution Cost
12.13 8.54 11.22 11.21 10.09
Composition
Expenses as Composition of Total
60.40 81.74 70.77 78.09 71.92
Sales

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 20.71 6.25 15.52 21.94 26.19
Dividend Payout Ratio Cash Profit 13.02 5.54 11.21 15.90 20.37
Earning Retention Ratio 78.82 93.90 82.97 79.43 71.35
Cash Earning Retention Ratio 86.79 94.58 88.02 84.84 78.17
AdjustedCash Flow Times 2.79 0.24 0.75 0.79 0.55
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Earnings Per Share 27.53 70.09 28.26 33.29 50.11
Book Value 294.95 260.45 286.12 312.17 350.30

REVENUES FROM TOP TEN BRANS IN INDIA

INRS. MILLIONS
Product 2009-10 2008-09 Growth
Omez 928 776 20%
NiseTM 690 605 14%
Stamlo 473 422 12%
Stamlo Beta 326 301 8%
Omez DR 310 210 48%
Atocor 274 269 2%
RazoTM 247 214 15%
RedituxTM 232 199 17%
MintopTM 196 172 14%
Razo DTM 169 138 23%
Others 6,313 5,172 22%
Total 10,158 8,478 20%

Dr. Reddy’s top-10 brands accounted for revenues of Rs.

3,845 million (38% of India formulations revenue).

REVENUES FROM TOP 5 BRANDS IN RUSSIA

INRS. MILLIONS

Key Products 2009-10 2008-09 Growth

Nise 1,862 1,249 49%

Omez 1,458 1,281 14%
Ketorol 1,287 1,078 19%
Ciprolet 760 701 8%

Cetrine 408 339 20%

DATA ANALYSIS & INTERPRETATION

The methodology, I have adopted for my study is the various tools,

which basically analyze critically financial position of to the
organization:

I. COMMON-SIZE P/L A/C

II. COMMON-SIZE BALANCE SHEET

III. COMPARTIVE P/L A/C

IV. COMPARTIVE BALANCE SHEET

 V. TREND ANALYSIS

VI. RATIO ANALYSIS

The above parameters are used for critical analysis of financial

position. With the evaluation of each component, the financial

position from different angles is tried to be presented in well and

systematic manner. By critical analysis with the help of different

tools, it becomes clear how the financial manager handles the

finance matters in profitable manner in the critical challenging

atmosphere, the recommendation are made which would suggest

the organization in formulation of a healthy and strong position

financially with proper management system.

I sincerely hope, through the evaluation of various percentage,

ratios and comparative analysis, the organization would be

able to conquer its inefficiencies and makes the desired

changes.
ANALYSIS OF FINANCIAL STATEMENTS

FINANCIAL STATEMENTS:

Financial statement is a collection of data organized according to

logical and consistent accounting procedure to convey an under-
standing of some financial aspects of a business firm. It may show
position at a moment in time, as in the case of balance sheet or
may reveal a series of activities over a given period of time, as in
the case of an income statement. Thus, the term ‘financial
statements’ generally refers to the two statements

(1) The position statement or Balance sheet. (2) The income

statement or the profit and loss Account.

OBJECTIVES OF FINANCIAL STATEMENTS:

According to accounting Principal Board of America (APB)
states

The following objectives of financial statements: -

1. To provide reliable financial information about economic

resources and obligation of a business firm.

2. To provide other needed information about charges in such

economic resources and obligation.

3. To provide reliable information about change in net resources

(recourses less obligations) missing out of business activities.
4. To provide financial information that assets in estimating the
learning potential of the business.

LIMITATIONS OF FINANCIAL STATEMENTS:

Though financial statements are relevant and useful for a concern,

still they do not present a final picture a final picture of a concern.
The utility of these statements is dependent upon a number of
factors. The analysis and interpretation of these statements must be
done carefully otherwise misleading conclusion may be drawn.

Financial statements suffer from the following limitations: -

1. Financial statements do not given a final picture of the

concern. The data given in these statements is only approximate.
The actual value can only be determined when the business is sold
or liquidated.

2. Financial statements have been prepared for different

accounting periods, generally one year, during the life of a
concern. The costs and incomes are apportioned to different
periods with a view to determine profits etc. The allocation of
expenses and income depends upon the personal judgment of the
accountant. The existence of contingent assets and liabilities also
make the statements imprecise. So financial statement are at the
most interim reports rather than the final picture of the firm.

3. The financial statements are expressed in monetary value, so

they appear to give final and accurate position. The value of fixed
assets in the balance sheet neither represent the value for which
fixed assets can be sold nor the amount which will be required to
replace these assets. The balance sheet is prepared on the
presumption of a going concern. The concern is expected to
continue in future. So fixed assets are shown at cost less
accumulated deprecation. Moreover, there are certain assets in the
balance sheet which will realize nothing at the time of liquidation
but they are shown in the balance sheets.

4. The financial statements are prepared on the basis of

historical costs or original costs. The value of assets decreases with
the passage of time current price changes are not taken into
account. The statement are not prepared with the keeping in view
the economic conditions. the balance sheet loses the significance of
being an index of current economics realities. Similarly, the

profitability shown by the income statements may be represent the

earning capacity of the concern.

FINANCIAL STATEMENT ANALYSIS

It is the process of identifying the financial strength and

weakness of a firm from the available accounting data and
financial statements. The analysis is done

CALCULATIONS OF RATIOS
Ratios are relationship expressed in mathematical terms between
figures, which are connected with each other in some manner.
 CLASSIFICATION OF RATIOS
Ratios can be classified in to different categories depending upon
the basis of classification

The traditional classification has been on the basis of the financial

statement to which the determination of ratios belongs.

These are:-

 Profit & Loss account ratios

 Balance Sheet ratios

 Composite ratios

Profit & Loss account of ------------------- in Rs. Cr. -------------------

Dr Reddys Laboratories
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 2,101.97 3,872.92 3,428.40 4,080.40 4,469.60
Excise Duty 98.71 89.66 84.51 80.90 74.00
Net Sales 2,003.26 3,783.26 3,343.89 3,999.50 4,395.60
Other Income 95.98 233.95 197.29 212.20 254.00
Stock Adjustments 36.72 23.23 93.87 64.10 117.30
Total Income 2,135.96 4,040.44 3,635.05 4,275.80 4,766.90
Expenditure
Raw Materials 792.87 1,144.82 1,347.33 1,534.00 1,599.40
Power & Fuel Cost 48.23 57.83 77.12 90.00 104.10
Employee Cost 205.85 299.04 366.28 412.50 516.40
Other Manufacturing
74.95 155.63 130.35 105.90 117.30
Expenses
Selling and Admin Expenses 567.59 777.06 896.54 1,117.90 1,036.60
Miscellaneous Expenses 33.42 44.76 37.44 45.30 50.60
Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00
Total Expenses 1,722.91 2,479.14 2,855.06 3,305.60 3,424.40
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths
Operating Profit 317.07 1,327.35 582.70 758.00 1,088.50
PBDIT 413.05 1,561.30 779.99 970.20 1,342.50
Interest 24.63 51.96 14.69 27.40 16.00
PBDT 388.42 1,509.34 765.30 942.80 1,326.50
Depreciation 111.33 133.50 161.99 193.60 222.40
Other Written Off 13.31 18.16 20.71 19.70 19.30
Profit Before Tax 263.78 1,357.68 582.60 729.50 1,084.80
Extra-ordinary items -0.01 -0.02 -0.06 -0.10 -0.10
PBT (Post Extra-ord Items) 263.77 1,357.66 582.54 729.40 1,084.70
Tax 52.64 188.99 108.88 168.60 238.70
Reported Net Profit 211.12 1,176.86 475.22 560.90 846.10
Total Value Addition 930.04 1,334.32 1,507.73 1,771.60 1,825.00
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 38.35 62.97 63.06 105.30 190.00

Corporate Dividend Tax 5.38 10.70 10.72 17.80 31.60

Per share data (annualised)
Shares in issue (lakhs) 766.95 1,679.12 1,681.73 1,684.69 1,688.45
Earning Per Share (Rs) 27.53 70.09 28.26 33.29 50.11
Equity Dividend (%) 100.00 75.00 75.00 125.00 225.00
Book Value (Rs) 294.95 260.45 286.12 312.17 350.30

Balance Sheet of
Dr Reddys ------------------- in Rs. Cr. -------------------
Laboratories
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 38.35 83.96 84.09 84.20 84.40
Equity Share Capital 38.35 83.96 84.09 84.20 84.40
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 2,223.79 4,289.40 4,727.72 5,174.90 5,830.20
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Networth 2,262.14 4,373.36 4,811.81 5,259.10 5,914.60
Secured Loans 145.13 1.92 3.40 2.60 0.80
Unsecured Loans 778.74 327.98 458.91 637.70 562.40
Total Debt 923.87 329.90 462.31 640.30 563.20
Total Liabilities 3,186.01 4,703.26 5,274.12 5,899.40 6,477.80
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths
Application Of Funds
Gross Block 1,052.90 1,291.19 1,750.21 2,157.30 2,425.70
Less: Accum. Depreciation 491.08 609.15 762.80 946.50 1,110.10
Net Block 561.82 682.04 987.41 1,210.80 1,315.60
Capital Work in Progress 112.92 280.61 245.71 411.20 745.40
Investments 911.36 966.99 2,080.71 1,865.10 2,652.70
Inventories 443.10 487.58 640.93 735.10 897.40
Sundry Debtors 581.22 1,055.70 897.71 1,419.70 1,060.50
Cash and Bank Balance 25.50 148.60 67.19 84.30 47.90
Total Current Assets 1,049.82 1,691.88 1,605.83 2,239.10 2,005.80
Loans and Advances 723.61 1,028.56 1,272.02 1,331.20 1,321.40
Fixed Deposits 625.44 1,308.11 470.15 300.10 320.10
Total CA, Loans &
2,398.87 4,028.55 3,348.00 3,870.40 3,647.30
Advances
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 624.25 731.96 786.36 1,163.30 1,543.80
Provisions 174.70 522.97 601.38 294.80 339.40
Total CL & Provisions 798.95 1,254.93 1,387.74 1,458.10 1,883.20
Net Current Assets 1,599.92 2,773.62 1,960.26 2,412.30 1,764.10
Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00
Total Assets 3,186.02 4,703.26 5,274.09 5,899.40 6,477.80
Contingent Liabilities 2,409.27 1,896.92 1,892.55 1,934.80 2,016.10
Book Value (Rs) 294.95 260.45 286.12 312.17 350.30
FINANCIAL HIGHLIGHTS
Consolidated revenues for 2009-10 was Rs. 70,277 million.
Excluding revenues from sumatriptan — Dr. Reddy’s Authorized
Generic version of Imitrex which was launched in 2008-09 — the
Company’s overall revenue grew by 9%. In US dollar terms,
2009-10 revenue was US$ 1.56 billion, compared to US$ 1.37
billion in the previous year. It may be noted that the Company’s
revenue has been rising at a CAGR of 23% over the last 10 years.
Adjusted EBITDA of Rs. 15,828 million is highest among
pharmaceutical companies in India in the year 2009-10.
Return on Capital Employed (RoCE) at 17% for 2009-10 as
against 14% in 2008-09.This increase is attributable to:
• Core business growth of India, Russia and North America;
• Rationalization of business model; and
• Cost optimization and restructuring initiatives.
MANAGEMENT OF CASH

It is the duty of the finance manager to provide adequate cash

to all segments of the organization. He also has to ensure that no
funds are blocked in idle cash since this will involve cost in terms
of interest to the business. A sound cash management scheme,
therefore, maintains the balance between the twin objectives of
liquidity and cost.

Meaning of cash
The term “cash” with reference to cash management is used
in two senses. In a narrower sense it includes coins, currency notes,
cheques, bank drafts held by a firm with it and the demand
deposits held by it in banks.
In a broader sense it also includes “near-cash assets” such as,
marketable securities and time deposits with banks. Such
securities or deposits can immediately be sold or converted into
cash if the circumstances require. The term cash management is
generally used for management of both cash and near-cash assets.

Motives for holding cash

A distinguishing feature of cash as an asset, irrespective of
the firm in which it is held, is that it does not earn any substantial
return for the business. In spite of this fact cash is held by the firm
with following motives.
1. Transaction motive
A firm enters into a variety of business transactions resulting
in both inflows and outflows. In order to meet the business
obligation in such a situation, it is necessary to maintain adequate
cash balance. Thus, cash balance is kept by the firms with the
motive of meeting routine business payments.
2.Precautionary motive
A firm keeps cash balance to meet unexpected cash needs
arising out of unexpected contingencies such as floods, strikes,
presentment of bills for payment earlier than the expected date,
unexpected slowing down of collection of accounts receivable,
sharp increase in prices of raw materials, etc. The more is the
possibility of such contingencies more is the cash kept by the firm
for meeting them.

3.Speculative motive
A firm also keeps cash balance to take advantage of
unexpected opportunities, typically outside the normal course of
the business. Such motive is, therefore, of purely a speculative
nature.
.

4.Compensation motive
Banks provide certain services to their clients free of charge.
They, therefore, usually require clients to keep a minimum cash
balance with them, which help them to earn interest and thus
compensate them for the free services so provided.
Business firms normally do not enter into speculative activities
and, therefore, out of the four motives of holding cash balances,
the two most important motives are the compensation motive.
Objectives of cash management
There are two basic objectives of cash management:
1.To meet the cash disbursement needs as per the payment
schedule;
 2.To minimize the amount locked up as cash balances.

1.Meeting cash disbursements

The first basic objective of cash management is to meet the
payments Schedule. In other words, the firm should have sufficient
cash to meet the various requirements of the firm at different
periods of times. The business has to make payment for purchase
of raw materials, wages, taxes, purchases of plant, etc. The
business activity may come to a grinding halt if the payment
schedule is not maintained. Cash has, therefore, been aptly
described as the “oil to lubricate the ever-turning wheels of the
business, without it the process grinds to a stop.”
2.minimizing funds locked up as cash balances
The second basic objective of cash management is to
minimize the amount locked up as cash balances. In the process of
minimizing the cash balances, the finance manager is confronted
with two conflicting aspects. A higher cash balance ensures proper
payment with all its advantages. But this will result in a large
balance of cash remaining idle. Low level of cash balance may
result in failure of the firm to meet the payment schedule.
The finance manager should, therefore, try to have an optimum
amount of cash balance keeping the above facts in view.

Cash management - - - - - basic problems

Cash management involves the following four basic problems:
1. Controlling levels of cash;
2. Controlling inflows of cash;
3. Controlling outflows of cash;
4. Optimum investment of surplus cash.
------------------- in Rs. Cr. -------------------
Cash Flow of Dr
Reddys
Laboratories
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths
Net Profit Before Tax 263.76 1365.85 584.10 729.50 1084.80
Net Cash From
79.67 893.79 555.87 481.30 1253.20
Operating Activities
Net Cash (used in)/from
-913.94 -397.32 -1515.93 -743.60 -1111.10
Investing Activities
Net Cash (used in)/from
592.99 316.59 46.15 105.60 -152.20
Financing Activities
Net (decrease)/increase
In Cash and Cash -240.78 805.77 -913.91 -156.70 -10.10
Equivalents
Opening Cash & Cash
891.72 650.94 1451.25 541.10 378.10
Equivalents
Closing Cash & Cash
650.94 1456.71 537.34 384.40 368.00
Equivalents

MANAGEMENT OF INVENTORIES
Inventories are good held for eventual sale by a firm. Inventories
are thus one of the major elements, which help the firm in
obtaining the desired level of sales.
Kinds of inventories
Inventories can be classified into three categories.
(i) Raw materials:
These are goods, which have not yet been committed to
production in a manufacturing firm. They may consist of basic raw
materials or finished components.
(ii) Work-in-progress:
This includes those materials, which have been committed to
production process but have not yet been completed.
(iii) Finished goods:
These are completed products awaiting sale. They are the
final output of the production process in a manufacturing firm. In
case of wholesalers and retailers, they are generally referred to as
merchandise inventory.
The levels of the above three kinds of inventories differ depending
upon the nature of the business.
Benefits of holding inventories
Holding of inventories helps a firm in separating the process
of purchasing, producing and selling. In case a firm does not hold
sufficient stock of raw materials, finished goods, etc., the
purchasing would take place only when the firm receives the order
from a customer. It may result in delay in executing the order
because of difficulties in obtaining/ procuring raw materials,
finished goods, etc. thus inventories provide cushion so that the
purchasing, production and sales functions can proceed at optimum
speed.

The specific benefits of holding inventories can be put as follows:

(i) Avoiding losses of sales
If a firm maintains adequate inventories it can avoid losses
on account of losing the customers for non-supply of goods in
time.
(ii) Reducing ordering cost
The variable cost associated with individual orders, e.g.,
typing, checking, approving and mailing the order, etc., can be
reduced if a firm places a few large orders than numerous small
orders.
(iii) Achieving efficient production runs
Maintenance of large inventories helps a firm in reducing the
set-up cost associated with each production run.

Risks and costs associated with inventories

Holding of inventories exposes the firm to a number of risks
and costs. Risk of holding inventories can be put as follows:
(i) Price decline
This may be due to increase in the market supply of the
product, introduction of a new competitive product, price cutting
by the competitors, etc.
(ii) Product deterioration
This may due to holding a product for too long a period or
improper storage conditions.

(iii) Obsolescence
This may be due to change in customers taste, new
production technique, improvements in the product design,
specifications, etc.

The costs of holding inventories are as follows:

(i) Materials cost
This includes the cost of purchasing the goods, transportation
and handling charges less any discount allowed by the supplier of
the goods.

(ii) Ordering cost

 This includes the variable cost associated with placing an
order for the goods. The fewer the orders, the lower will be the
ordering costs for the firm.

(iii) Carrying cost

This includes the expenses for storing the goods. It comprises
storage costs, insurance costs, spoilage costs, cost of funds tied up
in inventories, etc.

Management of inventory
Inventories often constitute a major element of the total
working capital and hence it has been correctly observed, “good
inventory management is good financial management”.
Inventory management covers a large number of issues
including fixation of minimum and maximum levels; determining
the size of the inventory to be carried ; deciding about the issue
price policy; setting up receipt and inspection procedure;
determining the economic order quantity; providing proper storage
facilities, keeping check on obsolescence and setting up effective
information system with regard to the inventories.

However, management inventories involves two basic problems:

(i) Maintaining a sufficiently large size of inventory
for efficient and smooth production and sales
operations;
2)
Maintaining a minimum investment in inventories to
minimize the direct-indirect costs associated with
holding inventories to maximize the profitability.
 Inventories should neither be excessive nor inadequate. If
inventories are kept at a high level, higher interest and storage
costs would be incurred. On the other hand, a low level of
inventories may result in frequent interruption in the production
schedule resulting in underutilization of capacity and lower sales.

Techniques of inventory management

Effective inventory requires an effective control over
inventories.
Inventory control refers to a system which ensures supply of
required quantity and quality of inventories at the required time
and the same time prevent unnecessary investment in inventories.

The techniques of inventory control/ management are as follows:

1)ABC
2)EOQ etc.

Finished --------------------------- in Rs. Cr.

Mar 2010
Products ---------------------------

Product Name Unit Installed Production Sales Sales

Capacit Quantity Quantity Value
y
Active Pharma Metric Tonnes 3,831 3,267.00 3,794.00 1,731.90
Ingredients
Formulations Millions Numbers 5,581 4,282.00 4,856.00 1,693.20
Generic Products Millions Numbers 10,014 6,578.00 6,178.00 1,136.30
Pharmaceuticals - NA NA 1,000,663.0 184.60
(Others) 0
Biotech Products - NA 6,951.00 7,370.00 50.40
Service Income - NA NA NA 35.90
Royalty Income - NA NA NA 1.00
Total 4,833.30

Raw Materials ------------------ in Rs. Cr.

Mar 2010
-------------------

Product Name
Unit Quantity Value

Others Not Reported NA 947.60

Fluoro Quinolonic Acid Kgs 524,245 42.50
2 Acetyl 6 Methoxy Naphthalene Kgs 915,200 39.00
Toluene Kgs 4,079,487 17.90
2,4 Dichloro 5 Fluoro Acetophenone Kgs 439,986 17.60
Methanol Kgs 10,691,128 14.90
Isopropyl Alcohol Kgs 2,057,419 10.90
4-R-Cis-1-1 Dimethylethyl-1-6- Kgs 8,493 10.10
Cynaomethyl

Total 1,100.50

MANAGEMENT OF ACCOUNTS
RECEIVABLES
Accounts receivables (also properly termed as receivables)
constitute a significant portion of the total currents assets of the
business next after inventories. They are a direct consequences of
“trade credit” which has become an essential marketing tool in
modern business.
 When a firm sells goods for cash, payments are received
immediately and, therefore, no receivables are credited. However,
when a firm sells goods or services on credit, the payments are
postponed to future dates and receivables are created. Usually, the
credit sales are made on open account, which means that, no,
formal acknowledgements of debt obligations are taken from the
buyers. The only documents evidencing the same are a purchase
order, shipping invoice or even a billing statement. The policy of
open account sales facilities business transactions and reduces to a
great extent the paper work required in connection with credit
sales.

Meaning of receivables
Receivables are assets accounts representing amounts owed
to the firm as a result of sale of goods / services in the ordinary
course of business.
They, therefore, represent the claims of a firm against its customer

and are carried to the “assets side” of the balance sheet under titles

such as accounts receivables, customer receivables or book debts.

They are, as stated earlier, the result of extension of credit facility

to then customers a reasonable period of time in which they can

pay for the goods purchased by them.

Purpose of receivables
Accounts receivables are created because of credited sales. Hence

the purpose of receivables is directly connected with the objectives

of making credited sales.

The objectives of credited sales are as follows:

(i) Achieving growth in sales:

If a firm sells goods on credit, it will generally be in a

position to sell more goods than if it insisted on immediate cash
payments. This is because many customers are either not prepared
or not in a position to pay cash when they purchase the goods. The
firm can sell goods to such customers, in case it resorts to credit
sales.

(ii) Increasing profits:

Increase in sales results in higher profits for the firm not only

because of increase in the volume of sales but also because of the

firm charging a higher margin of profit on credit sales as compared

to cash sales.

(iii) Meeting competition:

A firm may have to resort to granting of credit facilities to its

customers because of similar facilities being granted by the

competing firms to avoid the loss of sales from customers who

would buy elsewhere if they did not receive the expected output.

The overall objective of committing funds to accounts receivables

is to generate a large flow of operating revenue and hence profit

than what would be achieved in the absence of no such

commitment.

Costs of maintaining receivables

The costs with respect to maintenance of receivables can be

identified as follows:

1. Capital costs:

Maintenance of accounts receivables results in blocking of the

firm’s financial resources in them. This is because there is a time

lag between the sale of goods to customers and the payments by

them. The firm has, therefore, to arrange for additional funds top

meet its own obligations, such as payment to employees, suppliers

of raw materials, etc., while awaiting for payments from its

customers. Additional funds may either be raised from outside or

out of profits retained in the business. In both the cases, the firm

incurs a cost. In the former case, the firm has to pay interest to the

outsider while in the latter case, there is an opportunity cost to the

firm, i.e., the money which the firm could have earned otherwise

by investing the funds elsewhere.

2. Administrative costs:

The firm has to incur additional administrative costs for

maintaining accounts receivable in the form of salaries to the staff

kept for maintaining accounting records relating to customers, cost

of conducting investigation regarding potential credit customers to

determine their creditworthiness, etc.

3. Collection costs: The firm has to incur costs for collecting the

payments from its credit customers. Sometimes, additional steps

may have to be taken to recover money from defaulting customers.

4. Defaulting costs:

Sometimes after making all serious efforts to collect money from

defaulting customers, the firm may not be able to recover the

overdues because of the of the inability of the customers. Such

debts are treated as bad debts and have to be written off since they

cannot be realized.

Factors affecting the size of receivables

The size of the receivable is determined by a number of factors.

Some of the important factors are as follows:

(1) Level of sales:

This is the most important factor in determining the size of

accounts receivable. Generally in the same industry, a firm having

a large volume of sales will be having a larger level of receivables

as compared to a firm with a small volume of sales.

Sales level can also be used for forecasting change in accounts

receivable.

(2) Credited policies:

The term credit policy refers to those decision variables that

influence the amount of trade credit, i.e., the investment in

receivables. These variables include the quantity of trade accounts

to be accepted, the length of the credit period to be extended, the

cash discount to be given and any special terms to be offered

depending upon particular circumstances of the firm and the

customer. A firm’s credit policy, as a matter of fact, determines the

amount of risk the firm is willing to undertake in its sales

activities. If a firm has a lenient or a relatively liberal credit policy,

it will experience a higher level of receivables as compared to a

firm with a more rigid or stringent credit policy.

This is because of two reasons:

(i)A lenient credit policy encourages even the

financially strong customers to make delays in
payments resulting in increasing the size of the
accounts receivables;
(ii) Lenient credit policy will result in greater
defaults in payments by financially weak
customers thus resulting in increasing the size
of receivables.
(3) Terms of trade:

The size of the receivables is also affected by terms of trade

(or credit terms) offered by the firm.

 The two important components of the credit terms are:

(i) Credit period;

(ii) Cash discount.
(i) Credit period:

The term credit period refers to the time duration for which

credit is extended to the customers. It is generally expressed in

terms of “net days”. For example,

If a firm’s credit terms are “net 15”, it means the customers

are expected to pay within 15 days from the date of credit sale.

(ii) Cash discount:

Most firms offer cash discount to their customers for encouraging

them to pay their dues before the expiry of the creditperiod.The

terms of the cash discounts indicate the rate of discount as well as

the period for which the discount has been offered.

Comparison of ------------------- in Rs. Cr. -------------------
Balance Sheet
Dr Reddys Sun Ranbaxy
Cipla
Labs Pharma Labs
Mar '10 Mar '09 Mar '10 Dec '09
Sources Of Funds
Total Share Capital 84.40 103.56 160.58 210.21
Equity Share Capital 84.40 103.56 160.58 210.21
Share Application
0.00 0.00 0.00 175.85
Money
Preference Share
0.00 0.00 0.00 0.00
Capital
Reserves 5,830.20 5,047.86 5,744.54 3,748.54
Revaluation Reserves 0.00 0.00 8.97 0.00
Networth 5,914.60 5,151.42 5,914.09 4,134.60
Secured Loans 0.80 23.60 0.41 175.83
Unsecured Loans 562.40 0.00 4.66 3,172.55
Total Debt 563.20 23.60 5.07 3,348.38
Total Liabilities 6,477.80 5,175.02 5,919.16 7,482.98
Dr Reddys Ranbaxy
Sun Pharma Cipla
Labs Labs
Mar '10 Mar '09 Mar '10 Dec '09
Application Of Funds
Gross Block 2,425.70 1,061.90 2,895.44 2,620.92
Less: Accum.
1,110.10 362.64 884.27 1,027.52
Depreciation

Net Block 1,315.60 699.26 2,011.17 1,593.40

Capital Work in
745.40 75.95 684.24 414.92
Progress
2,652.70 2,694.59 265.10 3,833.69
Investments
Inventories 897.40 486.74 1,512.58 1,230.48
Sundry Debtors 1,060.50 680.03 1,552.71 1,534.65
Cash and Bank Balance 47.90 20.17 60.32 25.56
Total Current Assets 2,005.80 1,186.94 3,125.61 2,790.69
Loans and Advances 1,321.40 311.42 2,357.29 1,967.65
Fixed Deposits 320.10 1,245.30 0.52 728.56
Total CA, Loans &
3,647.30 2,743.66 5,483.42 5,486.90
Advances
Deffered Credit 0.00 0.00 0.00 0.00
Current Liabilities 1,543.80 696.34 1,177.11 3,082.89
Provisions 339.40 342.10 1,347.66 763.03
Total CL & Provisions 1,883.20 1,038.44 2,524.77 3,845.92
1,764.10 1,705.22 2,958.65 1,640.98
Net Current Assets
Miscellaneous
0.00 0.00 0.00 0.00
Expenses
6,477.80 5,175.02 5,919.16 7,482.99
Total Assets
Contingent Liabilities 2,016.10 85.36 423.87 261.05
Book Value (Rs) 350.30 248.72 73.55 94.16
Yearly Results of Dr ------------------- in Rs. Cr. -------------------
Reddys Laboratories
Mar '07 Mar '08 Mar '09 Mar '10
Sales Turnover 3,738.38 3,301.98 4,197.53 4,553.21
Other Income 334.21 254.35 100.21 171.44
Total Income 4,072.59 3,556.33 4,297.74 4,724.65
Total Expenses 2,525.27 2,800.05 3,356.07 3,406.31
Operating Profit 1,213.11 501.93 841.46 1,146.90
Profit On Sale Of Assets -- -- -- --
Profit On Sale Of Investments -- -- -- --
Gain/Loss On Foreign Exchange -- -- -- --

Total Extraordinary
-- -- -- --
Income/Expenses
Tax On Extraordinary Items -- -- -- --
Net Extra Ordinary
-- -- -- --
Income/Expenses
Gross Profit 1,547.32 756.28 941.67 1,318.34
Interest 47.97 10.19 18.50 11.08
PBDT 1,499.35 746.09 923.17 1,307.26
Depreciation 133.50 161.99 193.63 222.43
Depreciation On Revaluation Of
-- -- -- --
Assets
PBT 1,365.85 584.10 729.54 1,084.83
Tax 188.99 108.88 168.65 238.75
Net Profit 1,176.86 475.22 560.89 846.08
Prior Years Income/Expenses -- -- -- --
Depreciation for Previous Years
-- -- -- --
Written Back/ Provided
Dividend -- -- -- --
Dividend Tax -- -- -- --
Dividend (%) -- -- -- --
Earnings Per Share 70.08 28.26 33.30 50.11
Book Value -- -- -- --
Equity 83.96 84.09 84.23 84.42
Reserves 4,289.40 4,727.72 5,174.94 5,830.07
Face Value 5.00 5.00 5.00 5.00

MANAGEMENT OF ACCOUNTS

PAYABLE

Management of accounts payable is as much important as

management of accounts receivable. There is a basic difference

between the approach to be adopted by the finance manager in the

two cases. Whereas the underlying objective in case of accounts

receivable is to maximize the acceleration of the collection

process, the objective in case of accounts payable is to slow down

the payments process as much as possible. But it should be noted

that the delay in payment of accounts payable may result in saving

of some interest costs but it can prove very costly to the firm in the

form of loss credit in the market.

Overtrading and undertrading

 The concepts of overtrading and undertrading are intimately

connected with the net working capable position of the business.

To be more precise they are connected with the cash position of the

business.

OVERTRADING:

Overtrading means an attempt to maintain or expand scale of

operations of the business with insufficient cash resources.

Normally, concerns having overtrading have a high turnover ratio

and a low current ratio. In a situation like this, the company is not

in a position to maintain proper stocks of materials, finished goods,

etc., and has to depend on the mercy of the suppliers to supply

them goods at the right time. It may also not be able to extend

credit to its customers, besides making delay in payment to the

creditors. Overtrading has been amply described as “overblowing

the balloon”. This may, therefore, prove to be dangerous to the

business since disproportionate increase in the operations of the

business without adequate resources may bring its sudden collapse.

Causes of overtrading

The following may be the causes of over-trading:

(i) Depletion of working capital: Depletion of working capital

ultimately results in depletion of cash resources. Cash resources of

the company may get depleted by premature repayment of long-

term loans, excessive drawings, dividend payments, purchase of

fixed assets and excessive net trading losses, etc.

(ii) Faulty financial policy:

Faulty financial policy can result in shortage of cash and

overtrading in several ways:

(a)Using working capital for purchase of fixed assets.

(b) Attempting to expand the volume of the business without
raising the necessary resources, etc.
(iii) Over-expansion:

In national emergencies like war, natural calamities, etc., a

firm may be required to produce goods on a larger scale.

Government may pressurize the manufacturers to increase the

volume of production without providing for adequate finances.

Such pressure results in over-expansion of the business ignoring

the elementary rules of sound finance.

(iv) Inflation and rising prices: Inflation and rising prices make

renewals and replacements of assets costlier. The wages and

material costs also rise. The manufacturer, therefoe, needs more

money even to maintain the existing level of activity.

(v) Excessive taxation:

Heavy taxes result in depletion of cash resources at a scale higher

than what is justified.

The cash position is further strained on account of efforts of the

company to maintain reasonable dividend rates for their

shareholders.

Consequences of overtrading

The consequences of over-trading can be summarized as follows:

(i) Difficulty in paying wages and taxes:

 This is one of the most dangerous consequences of

overtrading. Non-payments of wages in time create a feeling of

uncertainty, insecurity and dissatisfaction in all ranks of the labour.

2)Costly purchases: The company has to pay more for its

purchases on account of its inability to have proper bargaining,

bulk buying and selecting proper source of supplying quality

materials.

(iii) Reduction in sales:

The company may have to suffer in terms of sales because the

pressure for cash requirements may force it to offer liberal cash

discounts to debtors for prompt payments, as well as selling goods

at throwaway prices.

(iv) Difficulties in making payments:

The shortage of cash will force the company to persuade its

creditors to extend credit facilities to it. Worry, anxiety and fear

will be the management’s constant companions.

(v) Obsolete plant and machinery:

 Shortage of cash will force the company to delay even the
necessary repairs and renewals. Inefficient working, unavoidable
breakdowns will have an adverse effect both on volume of
production and rate of profit.

Dr. Reddy’s Consolidated

Working Capital
INRS. MILLIONS
31 March 31 March
Change
10 09
Accounts receivable (A) 11,960 14,592 (2,632)
Inventories (B) 13,371 13,226 145
Trade Accounts Payable (C) 9,322 5,987 3,335
Working Capital (A+B-C) 16,009 21,831 (5,822)
Other current Assets (D) 16,732 11,192 5,540
Total Current Assets
42,063 39,010 3,053
(A+B+D)
Short and long term loans and
borrowings, current portion 9,310 9,569 (259)
(E)
Other current liabilities (F) 10,389 10,973 (584)
Total Current Liabilities
29,021 26,529 2,492
(C+E+F)
CAPITAL STRUCTURE:-

Period Instrument AuthorizedIssued - P A I D U P -

Capital Capital
From To (Rs. cr) (Rs. cr) Shares (nos) Face Capital
Value
2009 2010 Equity Share 120 84.42 168845585 5 84.42
2008 2009 Equity Share 100 84.23 168468777 5 84.23
2007 2008 Equity Share 100 84.09 168172746 5 84.09
2006 2007 Equity Share 100 83.96 167912180 5 83.96
2005 2006 Equity Share 50 38.35 76694570 5 38.35
2004 2005 Equity Share 50 38.26 76518949 5 38.26
2003 2004 Equity Share 50 38.26 76518949 5 38.26
2002 2003 Equity Share 50 38.26 76515948 5 38.26
2001 2002 Equity Share 50 38.26 76515948 5 38.26
2000 2001 Equity Share 50 31.59 31588780 10 31.59
1999 2000 Equity Share 30 26.49 26487238 10 26.49
1995 1999 Equity Share 30 26.49 26487238 10 26.49
1994 1995 Equity Share 30 46.47 23974176 10 23.97
1993 1994 Equity Share 30 6.56 6557700 10 6.56
1992 1993 Equity Share 10 6.56 6557700 10 6.56
1991 1992 Equity Share 5 3.28 3278850 10 3.28
1989 1991 Equity Share 3 2.19 2185900 10 2.19
1988 1989 Equity Share 3 1.37 1366050 10 1.37
1986 1988 Equity Share 1.5 1.37 1366250 10 1.37
1985 1986 Equity Share 1.5 0.24 243500 10 0.24
BUSINESS HIGHLIGHTS
In the US market, 2009 saw Dr. Reddy’s enter the list of the Top
10 generic companies.
The Company has broken into the Top 10 league by improving its
market share from 2.1%to 2.7%. This is a significant milestone,
and corroborates Dr. Reddy’s longer term target of becoming a
leading generics player in the US.

At 6.5%, the Company’s growth in the US generics market was

one percentage point higher than the average growth recorded by
all the generic firms in the industry. In doing so, Dr. Reddy’s
achieved a prescription growth of 40%.

Nine new products were launched in the US generics market in

2009-10, including one over-the-counter (OTC) product. The key
launches include nateglinide, omeprazole magnesium(OTC),
metformin glyburide and fluoxetine DR.

India & Russia, both key emerging markets for the Company,
registered impressive performance.
In India, branded formulation revenues grew by 20% to Rs.
10,158 million. New product revenues contributed to 5% of total
revenues from India formulations. The Company’s new product
rank improved from 25th in 2008-09 to 8th in 2009-10.
In Russia, Dr. Reddy’s revenues grew by 25% — out-performing
market growth of 8% in value terms (Pharmexpert MAT, March
2010).
Germany
Ongoing healthcare reforms and changing market dynamics
continue to cause pricing pressures, leading to low margins. To
remain competitive in this scenario, the Company has rationalized
its field force and moved towards a lean operating model. In 2009-
10, the Company recorded a one-time charge of Rs. 912 million
related to termination benefits payable to a set of identified
employees.
Moreover, the results of additional tenders in Germany led to
further deterioration in the market dynamics, thereby resulting in
the Company recording an impairment loss of:
• Rs. 2,112 million for the product related intangibles.
• Rs. 5,147 million towards carrying value of goodwill, and
• Rs. 1,211 million towards the trademark / brand, ‘beta’,

which forms a significant portion of the beta pharm cash

generating unit.
Successful audits of the Company’s formulations and chemical
plants 2009-10 saw successful US Food and Drug Authority
(USFDA) audits of the Company’s formulation plants at
Bachupally, Hyderabad and Vishakapatnam, the ANVISA audit of
the formulation plant at Vishakapatnam and the MHRA audit of
the chemical plants.

Product pipeline continues to show impressive growth

potential
• The Company has filed 158 cumulative Abbreviated New Drug
Applications (ANDAs) up to date. As on 31 March 2010, there
were 73 ANDAs pending approval at the USFDA, of which 38 are
Para-IV filings and 12 have the status of ‘first to file’.
 • It has filed 19 Drug Master Files (DMFs) in the US during the
year, taking the total filings to 156. It also filed five DMFs in
Canada, eight in Europe, and four in the Rest of the World (RoW).

• In addition, Dr. Reddy’s has generated a sound near-term

pipeline of limited competition / high margin opportunities of
generic products and biosimilars.

TRENDS IN GLOBAL MARKETS

Global market share numbers referred to in this and subsequent
sections are based on latest available reports from IMS Health Inc.

According to IMS Health Inc., the global pharmaceutical market

grew by 7% in 2009 to reach US$ 837 billion on a constant-dollar
basis — compared with 4.8% growth in 2008.In 2010, the market
is expected to grow by 4% to 6% in constant dollar terms, thus
exceeding US$ 850 billion. This growth will be largely driven by
strong overall growth in the emerging countries, as well as the
rising influence of healthcare access and fundingon market
demand.
Moreover, the global market is expected to grow at 5% to 8%
CAGR over the next five years, reaching an anticipated US$ 1.1
trillion in 2014.

REGIONAL PERFORMANCE
The US market’s growth to slow down in 2010
In 2009, the US market grew by 5.5% to US$ 322 billion — thus
crossing US$ 300billion mark for the first time. However, the
growth is expected to slow down to some where between 3% and
5% in 2010. This is due to growing substitution, taking the margin
away from innovator brands in favor of generics. Generics have
been growing much faster than brands due to the enormous number
of patent expiries. Consequently, generics now account for more
than 70% of the total US prescriptions.

Other mature markets: Europe and Japan

Europe contributed US$ 247 billion to the total pharmaceutical
market, and showed a growth of 4.8% in 2009 versus 7% in 2008,
in constant dollar terms. The expected market growth in Europe is
in the 3% to 5% range in 2010. While Europe is seeing increased
demand from an ageing population and for preventive care, growth
is being hindered by constrained government healthcare budgets,
and payer agencies using contracting and auctions to control costs.
The Japanese pharmaceutical market grew by 7.6% to US$ 90
billion in 2009,versus 2.1% growth in 2008.

‘Pharmerging’ markets in the aggregate sustain strong growth

Seven ‘pharmerging’ countries — Brazil, Russia, India, China,
SouthKorea, Turkey and Mexico — are expected in aggregate to
grow by 12% to 14% in 2010,and a CAGR of 13% to 16% over
the next five years.

China’s pharmaceutical market is expected to grow at over 20%

annually, and contribute 21% of overall global growth right up to
2013.
Russia and Turkey may be negatively impacted by new measures
intended to reduce the level of healthcare spending.
TRENDS IN INDIA
Information in this section is based on the Indian Pharmaceutical
Overview Report, published by ORG IMS Research Private Ltd.
for the year ended December 2009, and other latest reports from
ORG IMS.
The Indian pharmaceutical market has seen a CAGR of about
14% in the last five years.It continues to be highly fragmented and
dominated by Indian companies. The domestic pharmaceutical
industry grew by 18% in March 2010 (ORG’s moving annual
total, or MAT) versus 10% in March 2009.
Acute therapy dominates, with a share of over 75% of the total
market value. Thechronic segment has registered a growth of 21%,
versus 16% in the acute segment .Anti- infectives grew by 14%,
respiratory and dermatology by 21%, cardiac by 21% and CNS
by20%.
The Government of India’s Vision 2015 statement indicates an
18% plus CAGR for the pharmaceutical sector, translating to a
doubling of revenues over the next five years. According to this
report, growth will be driven by all verticals: domestic
formulations , generics exports, and outsourcing.
By 2015, the report expects specialty and super-specialty therapies
to account for 45% of the market. Growing lifestyle disorders,
particularly metabolic disorders like diabetes, obesity and
hypertension, coronary heart disease, cardiovascular,
neuropsychiatry and oncology drugs are likely to gain
significance.

REVENUES
The Company’s consolidated revenues increased marginally by
1% to Rs. 70,277million (US$ 1.56 billion) in 2009-10. The
relevant details are:

• Excluding sumatriptan, the Authorized Generic version of

Imitrex , revenues grew by 9% from Rs. 62,253 million in 2008-
09 to Rs. 67,734 million in 2009-10.PSAI grew by 9% and Global
Generics by 8%.

• In 2008-09, the Company launched sumatriptan tablets in North

America. This contributed to Rs 2,543 million in 2009-10, versus
Rs. 7,188 million in 2008-09. In2009-10, share of revenue from
the international businesses stood at 82%, with 18% coming from
India.
The revenue composition between geographies changed
considerably primarily due to sale of sumatriptan in the US. As a
result, North America (US and Canada) contributed to 30% of
total revenues in 2009-10, versus 35% last year.
Europe accounted for 24% of total sales in 2009-10, compared to
26% in 2008-09.
Russia and other CIS countries contributed to 13% of total
revenues.

India delivered 18% of total revenues in 2009-10from 17% in

2008-09.

COMPARISON WITH PEERS

Market
P/E P/BV EV/EBIDT
Cap ROE ROCE D/E
Company (TTM) (TTM) A
(Rs. in (%) (%) (x)
(x) (x) (x)
Cr.)
Sun 36,387
33.09 6.36 16.06 27.0 27.4 0.01
Pharma.Inds. .88
25,608.
Cipla 26.19 4.34 17.79 21.1 24.2 0.09
50
Dr Reddy's 22,528. 0.1
26.10 3.81 16.44 15.1 17.8
Labs 60 1
Ranbaxy 18,767.
11.05 4.74 19.49 14.1 14.5 0.90
Labs. 11
Cadila 12,739.
21.99 7.85 18.10 35.3 26.4 0.50
Health. 58
Piramal 10,074.
23.09 6.71 13.09 33.0 29.3 0.61
Health 85
Glenmark 7,236.0
39.31 4.08 13.91 19.3 17.7 0.71
Pharma. 2
6,238.0
Biocon 22.83 3.98 16.21 16.9 16.9 0.12
0
Aurobindo 5,629.2
12.20 2.76 9.40 10.1 7.5 1.52
Pharma 9
Torrent 4,617.7
15.18 5.24 12.06 25.7 26.2 0.62
Pharma. 1
3,518.1
Ipca Labs. 17.74 4.02 10.91 27.6 25.2 0.60
2
3,273.1
Matrix Labs. 18.91 3.76 8.29 24.4 23.9 0.70
9

SWOT Analysis:
Strengths
 In India DR.Reddy’s is amongst the top ten players.
 This year they have commissioned an integrated R&D facility,
the “InnovationPlaza” and scaled up their generics infrastructure to
become one of the largestsuch manufacturing facilities in Asia.
 Dr. Reddy’s is the first pharmaceutical company in Asia
outside of Japan to belisted on the NYSE.

Weaknesses
 Falling margins.

Opportunities
 Dr. Reddy’s had three molecules or New Chemical Entities
(NCEs), of which two are in clinical development and one is in the
pre-clinical stage.
In Branded Formulations, a total of 307 dossiers have been filed
for product registrations in various countries.
The Company has made cumulative filings of 281 DMFs, with
127 in US.

Threats
The Company is facing temporary problems with thirdparty
suppliers to both its German subsidiary.
The company should address worst performance in Germany,
probably over in terms of further margin pressures by migrating
production of an increasing number of formulations to facility in
India.

SYNOPSIS
Dr. Reddy's Laboratories is a leading India pharmaceutical
company, with presence across the pharmaceutical value chain.

During the FY10, the company launched 103 new generic

products, filed 121 new product registrations and filed 36 DMFs
globally.

The company is planning to acquire brands in Russia and launch

new products in India as it plans to expand businesses in
upcoming markets.

Dr Reddy’s -GSK expects to launch first product out of this

alliance in Mexico in FY11. We believe that this alliance will
enable DRL to tap the emerging market opportunity more
effectively.
DRL has forayed into aesthetics segment in India through the
launch of Stera Professional. This is the first Bi-phasic superficial
peel for specific imperfections available in the domestic markets.

DRL has built up an interesting pipeline of 34 Para I products, of

which, 18 products have FTF status. The company has fair
visibility of monetizing these opportunities going forward.

Net Sales and Net profit of the company are expected to grow at
a CAGR of 11% & 53.42% over FY10 to FY12E.

CONCLUSION AND RECOMMENDATION

i. After analysis of various components of working capital and

trend in last 4 year ,we can conclude that Dr.reddy’s
laboratories is managing its working capital efficiently .It has
reduced inventory of raw materials and increased stock of
finished and semi finished products it has also reduced stores
and spares thus investing reasonable working capital. It has
also reduced its current liability to a large extent.
ii. Again from working capital turnover ratio we can see that
performance of Dr.reddy’s is very close to ideal ratio 1.21:1.
As plant has all capability, a good pool of managerial talent
so very soon it will attain ideal ratio.
iii. I have also done inventory analysis and have shown,
components of inventories separately and found that the
 stock of these different components remain unused in stores
for very brief period. This reduces blockage of fund in terms
of inventories.

Thus by making a component analysis of working capital

management of Dr.reddy’s laboratories by giving individual
focus on working capital turnover ratio , inventory analysis , trend
of turnover of different products .Ultimately we conclude that
Dr.reddy’s is having a good working capital management.

SUGGESTIONS
1.Dr.reddy’s should concentrate more on JIT technique of
manufacturing and inventory management. This will minimize
the blockage of fund by reducing holding cost.
2. Company should search for more supply sources (other than
available sources). So that company can minimize cost of raw
materials.
3. Company must develop a dynamic team of marketing
professionals.
4. Company should have close watch over wastage of
electricity, raw materials and labor hours etc.
5. The equity becomes an important tool of differentiation so
company must incorporate TQM in all departments.
 6. The security should be made sticker to control the losses due
to theft.
7. Use security in case of import or export to control the losses
due to theft.
8. Use new techniques to make the production good or more.

BIBLIOGRAPHY:
1. Financial Management, Dr. S N Maheshwari, Sulthan Chand
& Sons.2007
2. Financial Accounting for Business Management, Ashish K.
Battacharya.2007
3. Management Accounting, R P Trivedi, Pankaj Publications
2007

WEBSITES:
1. www.drreddys.com
2. www.investopedia.com
3. www.moneycontrol.com
4. Money.rediff.com
5. www.wikipedia.com

COMPANY LOGO