Cipla Business analysis

Name of the Student Swarna Biyani Sanket Desai Behram Engineer Rohan Jadhav Rohit Jadhav Namrata Kolte Shama Lonare Shivangi Mathur Ashok Wagh Roll No 04 09 12 18 19 25 27 30 54

Business profile of Cipla

Business profile of Cipla

 It is a prominent Indian Pharmaceutical Company, best-known outside its home country for manufacturing low-cost anti-AIDS drugs for HIV-positive patients in developing countries.  Founded by Khwaja Abdul Hamied as The Chemical, Industrial & Pharmaceutical Laboratories in 1935.  Apart from its core pharmaceuticals offerings, Cipla offers services like consulting, commissioning, engineering, project appraisal, quality control, know-how transfer, support, and plant supply.  Apart from its presence in the Indian market, Cipla also has an export market and regularly exports to more than 185 countries.

Business profile of Cipla

 Board of Directors:  Founder: Dr. K.A. Hamied (1898-1972)  Chairman & Managing Director: Dr. Y.K. Hamied  Joint Managing Director: Mr. M.K. Hamied  Whole-time Director: Mr. S. Radhakrishnan  Non-Executive Directors: Mr. V.C. Kotwal, Dr. H.R. Manchanda, Mr. M.R. Raghavan,  Mr. Ramesh Shroff, Mr. Pankaj Patel, Mr. Amar Lulla.

Business profile of Cipla

Y/E March 3QFY2011 (` cr) Net sales 1,501 2QFY2011 2QFY2011 % chg qoq (5.0) 3QFY2010 % chg yoy

1580

1344

11.7

Other income Gross profit Operating profit Net profit

78

52

49.7

112

(30.2)

806 266

831 331

(3.1) (19.7)

719 286

12.0 (6.9)

233

263

(11.5)

289

(19.4)

Business Analysis of Cipla

Products and offerings.

The company has a wide range of products with more than 150 API and 1600 formulations. No single product contributes to more than 2% of sales. Some of the major Product are Vanlid 150,VC15,Enta Vir 150.

Market Share and Reach

Largest Market share of 5.3% in Indian retail Pharma sales. 20 products in top 200 Pharma brands in India. Market leader in respiratory and Anti-Viral categories. Distribution network of 42 sales depots,2300 stockist, 160000 chemists and over 4800 sales personnel.

Location of plants and Factories

 Plants all over India in locations like Himachal Pradesh, Bangalore, Maharashtra, Goa, Madhya Pradesh.  Company plans to spend around 19Bn Rs over the next few years to modernize and build new plants  Most of the plants have UD FDA approval.  The absence of plants near ports can increase the logistical costs when it comes to exports.

Business Model
 Cipla has low risk Business model where it partners with foreign pharma companies to distribute its APIs.  It has partnership with companies in 170 countries and has 7000 product registrations.  Exports contribute to more than 50% of sales with Africa contributing to 36% of exports.  The RnD expense has increased steadily by 17% YoY enabling CIPLA to gain more patents.

Strengths -Exports to over 175 countries that contribute 54% of the total turnover. -Market leader in key therapeutic areas such as respiratory care and anti-viral. -Company has an extensive distribution network. -Cipla has 18 brands that features among the top 300 brands. -Large basket of around 1500 formulations. -One of the countrys best R&D Process. Weakness -Domestic growth was steady at 10 per cent. -Growth in formulation exports was affected due to various factors including nonavailability of important raw materials, lower tender business in anti-retroviral.

SWOT analysis

Opportunities:- 46 ANDAs pending for approval in US. - Plans of launching bio-similar, particularly relating to the oncology, anti-asthmatic and anti-arthritis categories - Around 10% contribution to the revenue from the Indore SEZ to start coming in from FY2013E. - 56 Inhalers products are at different stages of approvals. Threats:- Some pending legal cases on account of alleged overcharging in respect of certain drugs under the Drug Price Control Order. - Sensitive to fluctuations in foreign currency exchange rates.

Consolidated Balance Sheet and its Analysis

Consolidated Balance Sheet

Balance Sheet (Consolidated)
Y/E March (Rs. Crore) Particulars FY2007 FY2008 FY2009 FY2010

SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholder's Funds Total Loans Deferred tax liabilty Total Liability 155 3081 3236 123.5 112.7 3472 155 3600 3755 540.5 149.2 4445 155 4192 4348 940.2 164.2 5452 161 5750 5911 5.1 179.2 6095

APPILCATION OF FUNDS Gross block Less: Accumulated Depreciation Net block Capital WIP Investments Current Assests Cash Loans & Advances Others Current Liabilties Net Working Capital Total Assets 1800 412 1388 73 118 2834 131 696 2007 941 1893 3472 2202 540 1662 233 93 3745 80 1138 2527 1288 2457 4445 2693 701 1992 366 80 4418 53 1113 3251 1405 3013 5452 2897 886 2011 684 246 4367 62 1226 3079 1214 3153 6095

Interpretation
 In sources of funds, the equity share capital issued to public has increased from 155 in FY2009 to 161 in FY2010.  Investments made by CIPLA in FY2009 had dipped to just 80 crores as against FY2008 which was about 93 crores. But in FY2010 the investments have again raised to astonishing 246 crore.  The current liabilities for the FY2010 have reduced by around 13% as compared to P.Y. This shows that the company has few liabilities to owe to the lenders.  The working capital has increased by about 4.6% for the year FY2010.

Vertical Revenue Statement

Vertical Revenue Statement (Consolidated)
Particulars Gross Sales Less : Excise Duty Net Sales Other Operating Income Total Operating Income Total Expenditure Net Raw material Other Mfg. costs Personnel Other EBITDA Less : Depreciation & Amortisation EBIT FY2007 3533 95 3438 125 3563 2750 1726 387 185 454 688 103 585 FY2008 4101 91 4010 207 4217 3384 2054 314 214 802 626 116 510 FY2009 5022 61 4961 276 5237 4013 2347 439 271 955 948 152 796 FY2010 5410 52 5358 265 5623 4292 2453 445 319 1075 1066 167 899

Particulars
PBT

FY2007 FY2008 FY2009 FY2010

807 838 895 1325

Less: Tax

140

137

124

244

PAT

667

701

771

1081

EPS ( Rs.)

8.6

9.9

13.5

Interpretation
 Net sales increased from 3438 in FY2007 to 5358 in FY2010.  Percentage change in PAT as compared to P.Y. for FY2009 was 43.3% as compared to FY2008 which was just about 5.1%.  Decrease in PAT % in FY2010 by 1.8%.  Even though the Net Sales have increased from FY2009 to FY2010, the PAT has reduced.

Cash Flow
Y/E March (` cr) Profit before tax Depreciation (Inc)/Dec in Working Capital FY2008 838 131 (404) FY2009 897 171 (711) FY2010 1,326 190 (174)

Less: Other income Direct taxes paid Cash Flow from Operations 171 393 165 292 256 1086

(Inc.)/Dec.in Fixed Assets

(563)

(700)

(526)

(Inc.)/Dec. in Investments

25

13

(166)

Other income

Cash Flow contd..

Cash Flow from Investing (538) (687) (692)

Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing

448 (155) (200) 93

395 (155) 130 369

669 (935) (155) 36 (386)

Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances

(52) 132 80

(26) 80 53

9 53 62

Inference from cash flow

 The cash inflow in the year 2008, 2009 was negative, while in the yr 2010, it was positive. However, the closing cash balance for all the 3yrs was positive.  The cash outflow in terms of the dividend paid was consistent for all the 3yrs.  As far as the financing activities are concerned, the cash inflow in the yr 2008, 2009 was less than the cash outflow, whereas in the yr2010 the cash inflow was more than the outflow.  If we compare the years 2008 and 2009 some of the loan was paid off in the year 2009, and additional loan was taken in the year 2010.

Inference from cash flow

 There was no issue of equity shares in the year 2008 and 2009 whereas there was issue of equity shares in the year 2010.

 There was more cash outflow from investing activities in all the three years. From this we can assume the purchases must have been more than the sales.  Cash flow form operating activities decreased in the year 2009 as compared to 2008 but dramatically increased in the year 2010

SOURCES AND APPLICATIONS OF FUNDS

Application & Investments

10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2008 2009 2010

fixed assets investments

Changes in the working capital

5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 2008 2009 2010

current assets current liabilities changes (approx)

Changes in Sources of funds

7000 6000 5000 4000 3000 2000 1000 0 2008 2009 2010

sources

Ratio Analysis
 Ratio Analysis is the process of identifying the financial strengths and weaknesses of the firm by logically establishing the relationship between the figures given in Profit & Loss account and Balance Sheet and interpreting the result thereof in order to derive meaningful conclusions.

Ratio Analysis of cipla

 Current Ratio=Current assets Current Liabilities  Fy2008=745/1288=2.9  Fy2009=4418/1405=3.14  Fy2010=4367/1214=3.59

 The ideal Current ratio is 2:1.If the current ratio is 2:1 the companys position is good.The current assets is more than 2:1 then its shows that the funds are unnecessarily blocked in the current assets. It affects the profitability of the organisation.

 Asset Turnover Ratio= Net Sales/Net assets  Fy2008=2.1  Fy2009 =2.1  Fy2010 =2.0  This ratio indicates whether the assets are efficiently utilized or not. A high ratio indicates efficient utilization of assets. On the other hand a low ratio indicates inefficient utilization. An increase in the ratio indicates that there is improvement in the utilization of fixed assets.

Inventory Turnover Ratio(days)=

cost of goods sold *365/Average stock
 Fy2008 =91  Fy2009 =88  Fy2010 =94  This indicates how fast the inventory is moving through the firm and generating sales.

 Average Collection period= Days in a year/ Debtor turnover ratio  Fy2008=105  Fy2009=114  Fy2010 =111  The main aim of this ratio is to ascertain how much time debtors take to make the payment to the firm. More number of days indicate delayed payments by the debtors. Over here it is found that on an average debtors take 111 day (for fy 2010) to make payment.

 Average Payment Period=Days in a year/Creditors turnover ratio  Fy2008=45  Fy2009=45  Fy2010=54  This ratio indicates the period which is normally taken by the firm to make payments to the creditors. Less number of days implies that the creditors are being paid quickly thereby increasing the credit worthiness of the firm.

Working Capital Cycle(ex cash)days= Net Sales/net working capital  Fy2008= 179  Fy2009 = 186 Fy2010 =196 The ratio indicates the number of days the working capital is being used.

 Net Debt to equity Ratio= Debt (Long term)/ Equity (Shareholders funds)  Fy2008=0.1  Fy2009=0.2  Fy2010 =(0.0)  This ratio judges the long term financial position and soundness of the long term financial policies of the firm. In general lower the debt-equity ratio higher the degree of protection enjoyed by the lenders.

Changes in working capital

Particulars F.Y. 2008 (Rs.in crores) Cash Loans & advances Other Current Assets (A) Less: Current liabilities (B) 1,288 1,405 1,214 80 1,138 2,527 3,745 F.Y. 2009 (Rs.in crores) 53 1,113 3,251 4,418 F. Y. 2010 (Rs.in crores) 62 1,226 3,079 4,367

Working Capital(A-B)

2,457

3,013

3,153

Inference from changes in working capital.

 The cash balance of the company has reduced in the years 2009 and 2010 affecting the net working capital of the company.Though in the year 2010 the cash balance has increased to a certain extent as compared to the year 2009.  The loans and advances granted to others by the company has managed to remain more or less the same, though in the year 2010 they have marginally increased to some extent.  The current assets of the company in the year 2009 has increased considerably over its previous year mainly because of other current assets increasing manifold times. Though in the year 2010 it has dropped a bit due to a drop in the other assets.

Inference from changes in working capital.

 The current liabilities like the current assets has increased in the year 2009 as compared to 2008 though not in the same proportion, hence the increase in working capital has not been affected much. But then again in the year 2010 the current liabilities has decreased marginally over the previous year.  The working capital has managed to increase steadily over the years indicating the companys good health. This has been possible mainly due to an excess of current assets over the current liabilities in all the 3 financial years.  The overall study of the working capital depicts a pleasant picture of the company and calls for a positive response from all the existing and future investors of the company.

Conclusion
Sources and Application of Funds:  There is substantial increase in the profits of the company as compared to the last year i.e. 2009. It is Rs.1324.99 cr. in the year 2010 i.e. an increase of by Rs.423.68 cr. Major transactions that are affecting the profits is the revenue generated from the sale of brand and other related rights which amounts to Rs.95.00 cr. There remarkable increase working capital in the trade payables i.e. it has increased to rs.30.79 cr as compared to Rs 10.99 in the year 2009.The major sources of the company is through the issue of the QIP shares and applications of the funds are diverted towards the purchase of the fixed assets. Revenue Statement:  Net sales increased is from 3438 in FY2007 to 5358 in FY2010.which is positive for companies point of view. There is Decrease in PAT % in FY2010 by 1.8%.Even though the Net Sales have increased from FY2009 to FY2010, the PAT has reduced means operating margin has decreased.

Conclusion
Balance sheet:  In sources of funds, the equity share capital issued to public has increased. Investments made in FY2009 had dipped to just 80 crores as against FY2008, in FY2010 the investments have again raised to 246 crore. Current liabilities for the FY2010 have reduced compared to P.Y.it shows that the company has few liabilities to owe to the lenders. The working capital has increased by about 4.6% for the year FY2010. Working Capital:  There has been continuous increase in working capital. This is mainly due to an excess of current assets over the current liabilities. This is positive sign for investors.