PROJECT FINANCING

CASE STUDY PROJECT AT A GLANCE

1. PROJECT: Project is for setting up a new unit for manufacturing the following pharmaceutical formulation: a) Tablets b) Capsules c) Oral Liquids d) Injectables e) Ointments
2.

TYPE OF UNIT: Medium Scale project. TECHNOLOGY: The technology is fully indigenous and very well tried in the country. INSTALLED CAPACITY: (On single shift basis only) a) Tablets b) Capsules c) Oral Liquids d) Injectables e) Ointments 2 Crore Nos. 3 Crore Nos. 2 Lacs Ltrs. 150 Lacs Vials 15,200 Kgs.

5.

6.

7.

COMMERCIAL PRODUCTION: From April 1996.

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PROJECT FINANCING

8. CAPACITY UTILISATION: Year 2001-02 50% 2002-03 60% 2003-04 70% 2004-05 80% 2005-06 90% 2006-07 93%

9. ENVISAGED NET TURNOVER: (Rs. In lacs) Products a. Tablets b. Capsules c. Injectables d. Oral Liquids e. Ointments 2001-02 411.50 137.00 511.50 54.50 24.00 1138.50 2002-03 493.80 164.40 613.80 65.40 28.80 1366.20 2003-04 576.10 191.80 716.10 76.30 33.60 1593.90 2004-05 658.40 219.20 818.40 87.20 38.40 1821.60 2005-06 740.70 246.60 920.70 98.10 43.20 2049.30 INDIA 2006-07 765.39 254.82 951.39 101.37 44.64 2117.61

10.

SOURCE OF TECHNOLOGY OF PLANT & MACHINERY:

11. COST OF PROJECT Rs. In lacs

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PROJECT FINANCING LAND INCLUDING SITE DEVELOPMETN BUILDING PLANT AND MACHINERY ELECTRICAL INSTALLATIONS OTHER ASSETS PRELIMINARY & ISSUE EXPENSES PRE OPERATIVE EXPENSES CONTINGENCIES MARKET DEVELOPMENT AND PRODUCT LAUNCHING EXPENSES WORKING CAPITAL MARGIN 12. MEANS OF FINANCE: SHARE CAPITAL - From Promoters 131.00 - Through Public Issue 370.00 TERM LOAN FROM BANK / FINANCIAL INST. 13. FINANCIAL ASSISTANCE: a) Term Loan Rs. 70 lacs b) Working capital loan Rs. 110 lacs 469.08 101.92 571.00 25.23 86.50 182.35 19.50 39.50 55.00 20.00 11.00 30.00

501.00 70.00 571.003

14. UTILISATION OF FUNDS: a) Term loan is partly required for purchase of Plane & Machinery, Building and other fixed assets. b) Working capital assistance is required for purchase of Raw Material, Packing Materials, Semi-finished, finished goods storage, Outstanding debtors etc. 15. RAW MATERIAL: Easily available in the local market 16. UTILITIES:

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PROJECT FINANCING a) Power: 100 KVA b) Water: 10.000 Ltrs. / Day 17. KEY FINANCIAL DATA: 1ST FULL YEAR OF OPERATIONS 2001-02 1,138.50 267.16 249.76 214.68 154.77 13.59 501.00 580.62 3.09 3.75 15.00 0.12:1 1.89 8.10 19.11 (Rs. Lacs) 2002-03 2003-04

TOTAL INCOMES PROFIT BEFORE INTEREST & DEPR. PROFIT BEFORE INTERST PROFIT BEFORE TAX PROFIT AFTER TAX NET PROFIT TO SALES (%) SHARE CAPITAL NET WORTH EARNING PER SHARE CASH EARNING PER SHARE DIVIDEND DEBT EQUITY RATIO CURRENT RATIO D.S.C.R. BREAK EVEN POINT IN TERMS OF CAPACITY UTILISATION 18. TERM LOAN PAYMENT SCHEDULE: 6 Years including moratorium period of six months
19.

1,366.20 358.37 340.97 295.03 180.60 13.22 501.00 661.02 3.60 4.26 20.00 0.08:1 1.92 8.81 19.69

1,593.90 447.38 430.30 381.17 223.28 14.00 501.00 774.00 4.40 5.1 25.00 0.08:1 2.1 11.70 20.00

BREAK EVEN POINT ( AT 93% CAPACITY): 22.26%

Introduction: Being a core industry since planned economic development of the country started in 1951, pharmaceutical industry assumes a strategic importance. It is described as a life line industry looking to its crucial role in alleviating suffering from disease and increasing longevity of human life. Also, with changing life style of urban people, pharmaceutical industry and in particular drugs like anti-inflationary, anti-hypertensive, antiulcer, etc. would emerge as the most essential need of the society .

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PROJECT FINANCING

Brief History: The XYZ company ltd. Is a company promoted by experienced promoters having proven track record in various business activities with the object to manufacture pharmaceutical formulations comprising of tablets(antibiotic, anti-malarial, Anti-acid, Analgesic, Anti-hypertensive, Anti-amoebis, etc.), capsules (penecilin, multivitamins,doxycycline ,etc.) liquid (Erythromicine, IB+pra, Antiacid suspension, cough syrup etc.), Injectible (Analgin, Cloroquine, Oxytetracycline, Gentamycine, etc.) and ointments (flocinomycine, Miconazole, etc.) The XYZ ltd., is a company promoted with firm determination to become an ideal pharmaceutical company manufacturing as per WHO GMP standards and thereby setting guiding road for others. The proposed project is located in the Category B backward area and is eligible for subsidy and sales tax exemption. The company has started implementation of the project after acquiring land and completing the site development works. The construction of the company work has also been completed. There are 5 promoters for the company each one with expertise in their field. Promoter 1: is a science graduate and a well known builder and the land developer. He has the rich experience in development of as many as 14 societies in 13 years. Promoter 2: has more than 12 years of experience in the field of construction and development of many societies. Promoter 3: is a M.Pharm. (Pharmaceutical Chemistry) DHRM and has experience of 8 yrs, in Pharma Industry and is fully devoted to Pharma line. He has visited to USA to acquaint himself with latest promotional know-how and technology of Pharma industry. He will look after production as well as development of the new product development in drugs. Other directors; 1st : Ph. D in synthesis of Heterocycles and potential drugs. He has done his doctoral studies in Viena in 1083-84. 2nd : is a well known industrialist having rich experience of about 50yrs. in the industry.

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PROJECT FINANCING 3rd : is a 49 yr MD (Gen. Medicine) a consulting Physician since 1978. he was also Hon. Asst. Prof. Of nephrology at an renowned institution for 8yrs. The overall power of the organization west in the board of directors comprising of experienced and reputed professional from different fields.

About the Proposed Project: The proposed project is located at ( ABC ROAD, Dist - DEF, Taluka- www) The proposed project shall be for setting up of versatile plant for manufacturing of pharmaceutical formulations. The company proposes to have following section: SECTION a) Tablet Section b) Capsule Section c) Oral Liquid Section d) Injectable Section e) Ointment Section PRODUCT / PRODUCT GROUP Antibiotics, Antimalarials, Antacids, Analgesic Antiinflammatory, Antipsychotic, Anti Amoebic etc. Penicillin group and other than Penicillin group i.e. Multivitamins, Doxycyclin, Tetracycline etc. Erythromycin, Ilouprofen plus paracetamol, Antheid suspension, Cough Syrup etc. Analgin, Chloroquine, Oxytetracycline, gentamicine etc. Fluocinolone, Miconazole, Betamethasone, Clotrimezole, Nitrofurazone etc. Project Technical Aspects: Mr. Promoter 3 . M. Pharma. (Pharmaceutical Chemistry), D.H.R.M. who is Director of the Company and having 8 years experience in pharmaceutical Industry shall be looking after total technical aspects of the company. He will be assisted by Production In-charge and no. of the Chemists. Dr. Chaintanya G. Dave who has long experience in Pharmaceutical line will also extend required guidance in case of a problem or in development of new product range. In view of the same Company does not foresee any technical problem.

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PROJECT FINANCING

COST OF PROJECT Rs. In lacs 25.23 86.50 182.35 19.50 39.50 55.00 20.00 11.00 30.00 469.08 101.92 571.00

LAND INCLUDING SITE DEVELOPMETN BUILDING PLANT AND MACHINERY ELECTRICAL INSTALLATIONS OTHER ASSETS PRELIMINARY & ISSUE EXPENSES PRE OPERATIVE EXPENSES CONTINGENCIES MARKET DEVELOPMENT AND PRODUCT LAUNCHING EXPENSES WORKING CAPITAL MARGIN
571

572MEANS OF FINANCE: SHARE CAPITAL - From Promoters - Through Public Issue 131.00 370.00 501.00

STATE CASH SUBSIDY 0.00 TERM LOAN FROM BANK / FINANCIAL INST. 70.00 571.003 BUSINESS PROSPECTS AND PROFITABILITY: The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. There are about 250 large units and about 8000 Small Scale Units which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the complete range of pharmaceutical formulations i.e. medicines ready for consumption by patients and about 350 bulk drugs i.e. chemicals having therapeutic value and used for production of pharmaceutical formulations. India's USD 3.1 billion pharmaceutical industry is growing at the rate of 14 percent per year. It is one of the largest and most

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PROJECT FINANCING advanced among the developing countries.

The production value of bulk drugs during the year 1997-98 was 2623.00 and that of pharmaceutical formulations was Rs.12068 crores. The production of pharmaceuticals in India increased by 13.68% during the year 1997-98 against the previous year. The exports of Pharmaceuticals during the year 1998-97 was Rs 49780 million. From a meager Rs.46 crores worth of Pharmaceuticals, Drugs and Fine Chemicals exports in 1980-81, pharmaceutical exports has risen to approximately Rs. 6152 Crores (Prov.1998-99), a rise of 11.91% against the last year exports. Amongst the total exports of India, the percentage share of Drugs, Pharmaceuticals and Fine Chemicals during April-October (2000-2001) was 4.1%, an increase of 7%. Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs and pharmaceutical products has been done away with; manufacturers are free to produce any drug duly approved by the Drug Control Authority. Technologically strong and totally self reliant, the pharmaceutical industry in India has low costs of production, low R&D costs, innovative scientific manpower, strength of national laboratories and an increasing balance of trade.

Budget review: (2001) Pharmaceutical Important Measures

Overall Impact: Positive

Government would substantially reduce price control on drugs. The government would reserve its right to intervene while relaxing price controls. To boost research and development activities and provide impetus to growth, it has proposed to provide weighted deduction on expenditure for R&D shall be available for the business of biotechnology. Expenditure on scientific research shall include expenditure shall include expenditure incurred on clinical trials, regulatory approval and filing of patents. Tax concessions for scientific research. The pharmaceutical industry will benefit from the removal of the 10% surcharge on customs duty. Dividend tax has been reduced from 20% to 10%.

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PROJECT FINANCING Corporate surcharge has been removed. Import duty surcharge of 3.5% on vaccines and life saving drugs has been removed. Government has taken steps to protect the intellectual property residing in traditional Indian medicines. Impact

The actual impact to each company can only be estimated after the new drug policy is announced. The new drug policy is expected to exclude drugs in the multivitamin and cardiac category. But the logic of letting market force control the prices of medicines, rather than price fixation by Government cannot be questioned. Multinationals companies like Glaxo, EMerck may benefit from the relaxation. DPCO may bring about an increase in MAPE (Maximum allowable post manufacturing expenses) to 125% from the current level of 100%, so that the surplus could be invested in R&D.

Key to survival of Indian pharmaceutical companies in the WTO era would be indigenous research & development. Allowing the 150% weighted deduction of research expenses in biotechnology, clinical trials and patenting research efforts for the purposes of income tax is a welcome step. Indian companies like Ranbaxy, Sun Pharma, Dr Reddy's Lab and Wockhardt would benefit from this move as the companies have been actively involved in filing of ANDAs and carrying out clinical trials on new researched drugs. This essentially will reduce costs incurred in the first few phases of clinical trials.

Tax concessions on the sum paid to an approved body like National lab or a University for carrying our scientific research has been made eligible for weighted deduction of one and one-fourth times of the sum so paid. This would further encourage investments in basic research by pharmaceutical companies and forge an alliance between the industry and the research community.

Import duty surcharge on vaccines and life saving drug like cyclosporin has been reduced. This has been positive for multinationals like SmithKline Beecham Pharma and Novartis who are the leading players in the above segments.

Cut in dividend tax from 20% to 10% has been positive, as the pharmaceutical sector has maintained one of the highest dividend rates (25-30%) in the industry. The cut in the dividend taxes would increase the dividend at the hands of the shareholders.

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PROJECT FINANCING MNCs like Glaxo would benefit from the 10% reduction of customs duty as it imports a substantial portion (34%) of its raw material and intermediaries.

With the FM reducing the rates on PPF and other saving instruments by 150 bps the overall direction is towards a lower interest rate regime. Therefore, one could see further lowering of interest rates. This could benefit the domestic companies like Dr Reddy's and Wockhardt with high interest burden.

Company Impact Company Name Ranbaxy Overall Impact Reasons Positive Weighted deduction on R&D include clinical trial, regulatory filing and patents. Tax concessions, Dividend tax cut. Dr. Reddy's Lab Glaxo Wellcome Wockhardt Positive Positive Positive Same as above DPCO policy relaxation's, custom duty reduction Biotech tax concessions, Weighted deduction on regulatory filings.

Impact of recession on Pharma Industry - Can we overcome it? Pharma Industry is a vibrant industry. There is a saying that pharma industry will continue to grow as long as diseases continue to affect people. Still, off-late industry, inspite of covering only 60% of the market is facing the impact of slow growth. The only silver line is that the last three months August 2001 to October 2001 were much better. Degree of competition, changing market scenario, change in customer profile who is an influencer, awareness among end users have resulted in a dramatic change in the market environment. Year 2000 was not so good for many companies. Similarly, 2001 appears to be heading in the same direction. A closure scrutiny of growth analysis of top 100 companies revealed the following. No. of companies with >20% growth >15% growth No. of company 23 8 % 23% 8%

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PROJECT FINANCING

Total

100

100%

This has never happened. Companies should relook at their own strategies, people, products mix etc to face competition better. Growth comes from either:

Adding more people Improving productivity from existing people Expanding territory and customers base New high volume products Retaining and increasing usage by existing customers

What pharmacy companies have done to be on growth path? Old methods and style have resulted in lower growth of many companies. No wonder, in 2000 year only 2 new products could be listed among top 250 products! Why? The deterioration in capability has started during the last four years. Is it due to lack of good quality of people? or people are more comfortable in adopting yesterdays method in solving todays problem? New product success is the barometer for any marketing professionals. Really, it is not upto the mark for many companies. Year 1998 1999 2000 No. of new product listed in top 250 products 9 7 2

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PROJECT FINANCING New products add growth. Unfortunately, due to lack of success, it has affected the growth of many pharma companies. However, there is some silver lining too. There are 25 companies who have grown over 20%. A review of these companies revealed that high growth rate has come due to new products. Top 50 companys growth analysis No. of new products

Growing more than all India growth

Incl. Line Extensions with more than 15 new product

introduction 19 10 There are other reasons too. These companies have changed their marketing style of operations. The major changes are as under. 1] Focus on growing market Companies should be more alert to changing market environment. Heavy dependency on antibiotic led to slow growth of Ranbaxy, Hoechst, Lyka, Bluecross. More alert companies like Sun, Alkem, Aristo, Lupin, Unichem, Microlab, Glenmark etc. could change their product mix by introducing products in markets, which were growing. This focused approach led to better growth of these companies.

2] Activities to improve prescriptions base from existing customers It appears that marketing team members of these star companies were more alert and could fight much better compared to others. Alkem, Glenmark, Sun Pharma, Unichem etc. started different divisions in order to get more focused. More products started getting more attention during detailing to doctors. This helped the companies to get quick business and also helped to improve productivity and growth. Therefore, companies should relook at their investment portfolio and take decisions accordingly. The author can suggest some decisions, which are given below: Some selected therapeutic segment analysis HOLD Existing in market INVEST DIVEST Deworming, Anti-malarial red, Cough prep.,

Digestive enzyme, Haematinic, Antioxidant, Doxycycline, Macroloids, Protein malarial, supplement, Diabetic, Anti- Cholesterol Hypotensive,

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PROJECT FINANCING

Cough and cold, Anti-inflammatory, Analgesic, Vaccine

Oestrogen and comb., Anti-asthmatic, Nimesulide, Ceftizoxime, Cefuroxime, Cefixime, Antidepressant, Opthalmological,

Analgesic, Ibuprofen, Tonic , Protein supplement

New in market

Anti-malarial, Cough and cold, Analgesic, Diclofenac, Vaccine,

Drug for sexual disorder, Protein supplement, Anti-asthamatic, Hypotensive, Deworming, Ibuprofen,

Haematinic, Antioxidant, Doxycycline, Digestive enzyme Macroloids, Tonics

The above suggestions are based on market attractiveness. However, companies must also look at their strengths before taking any decision. 3] Expanding the coverage These star companies are always looking for an opportunity not waiting for the opportunity to knock at them. This attitude has really made them different than others. Growth has come due to expansion through addition of:

Areas People New therapeutic segments

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PROJECT FINANCING What about others? Today, marketing environment has become more demanding and changing fast. It is therefore, survival of the fittest. Alertness, investing in right segment/areas only will help the companies to progress. 4] Updating skills of people One of the major areas of weakness in pharma industry is developing "know all syndrome" among executives. This self-developed ego led to downfall of people and companies. They are not able to face competition today due to different mindset. There is a saying that when companies are not doing well they should invest in people so that they can become more capable. But, how many companies are updating the skills of people? The author very sadly says that this is the most important missing link. Due to lack of skills, company today is not able to take decisions in the right way leading to stagnant growth or degrowth. Mindset should change. Skills of yesterday will not be useful today. Growing during recession gives challenge to marketing personnel. It is the crucial test of their ability. Recession gives an opportunity to show skills. A good marketing oriented company will not degrow but will continue to grow. When environment is good anybody can grow but in a stagnant environment growing at a good pace is a challenge to any marketing professional. DPCO: Introduction DPCO controls the domestic prices of major bulk drugs and their formulations with an aim to provide patients with medicines at affordable prices. DPCO ascertains, as per Drug Policy guidelines, the bulk drugs (and their formulations) to be kept under price control. Under DPCO, a bulk drug and formulation are as follows:

Bulk drug means any pharmaceutical-chemical, biological or plant product including its salts, derivatives

etc used as such or as an ingredient in any formulation.

Formulation means any medicine processed out of or containing one or more bulk drug or drugs for

internal or external use or for diagnosis, treatment, mitigation or prevention of disease in human beings or animals, but shall not include any medicine included in any bonafide Ayurvedic, Homeopathic or Unani system of medicine.

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PROJECT FINANCING Thus, DPCO is applicable only to allopathic drugs. Ceiling prices for the DPCO bulk drugs and formulations are notified by the Government authorities and periodically revised. DPCO came into existence in 1970 thereafter revised in 1979, 1987 and 1995. Key Issues In DPCO 95 Based on outdated data : The criteria of selection for drugs to be put under price control were decided so as to prevent a cartel of manufacturers from exploiting the customers (patients). But, the basis of selection was the 1990 turnover values. As a result some drugs where there was high level of competition as players had mushroomed after 1990, were unnecessarily included under DPCO. High span of control : As per the 1990 turnover records, only 50% of the pharma industry is under DPCO 95. But, as sales of some of the controlled drugs, earlier outside price control, have grown at a higher rate than the overall industry, the actual span of control encompasses 60-65% of the domestic pharma industry. Lack of stability : The number of drugs under DPCO can be modified, either increased or decreased any time. There is no stability about the inclusion or exclusion of any drug or formulation under DPCO. So, prices of drugs and formulations in the domestic market can undergo drastic changes, irrespective of the competitive market forces. Prices of input materials are not controlled : Even key intermediates used in the pharma sector are outside DPCO purview. These intermediates often find application in various other chemical industries. As a result their price trends, both in India as well as internationally follow a very different cycle compared to the bulk drugs wherein they are used. Prices of some intermediates get indirectly regulated, if they are largely used in a bulk drugs under DPCO. For eg Penicillin G and Amoxycillin are both bulk drugs under DPCO. Amoxycillin can be developed from basic Pen G stage or from 6-APA, a derivative of Pen G. As 6-APA is classified as an intermediate (it has no medicinal properties), it remains free from any direct price controls. But naturally, its price varies due to presence of alternate process of manufacturing Amoxycillin from Pen-G stage. Artificial disallowances : Prices of DPCO drugs and formulations have to be fixed after taking into the cognisance the cost of inputs used in their manufacture. But, in many cases the actual input costs are not recognised by the Government. For eg in case of sugar, a common ingredient in most formulations, the Government considers price of levy sugar as a benchmark while actually the pharma companies procure their

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PROJECT FINANCING requirement from the open market at a price thats 20-25% higher. In case of wages, power etc the norms are as prevalent 3-5 years earlier and inflationary impact is not considered. Delays in announcing prices : Price fixation exercise for DPCO drugs (and their formulations) is undertaken only once every 4 years by the Government. Interim price changes are made only on specific price revision applications made by any manufacturer. In such a case, the Government has to collate data of other manufacturers and then come to a conclusive judgment whether the price revision is justified. The Government is expected to give the revised price within 4 months of submitting the application in case of bulk drugs and within 2 months in case of formulations or reject the application with reasons thereof recorded in writing. But, in reality the revisions are much delayed, even taking upto a year after an application for price revision has been filed. Market forces : For the drugs and formulations under DPCO, only the maximum price is specified. As a result of competition from various players and price undercutting in some products where supply exceeds demand, the actual price may fall below that specified under DPCO. In such cases, artificial price regulation becomes unnecessary. New product launch delayed : A product made by an indigenous process for the first time in India gets a 5 year exemption under DPCO. If any other company launches the same product through another new process, it too has to apply for a separate DPCO exemption pre-launch. Else, if the application has not been filed, the product may be included under DPCO for the second manufacturer. However, once the drug/ formulation developer has filed his application for his new process, he can launch the product without waiting for DPCO clearance. So product launches are not unduly delayed. Trade margins : For formulations derived from DPCO drugs, Government decides the trade margins as well. For DPCO formulations, the minimum retail margin is 16% (otherwise 20% as per industry norms) and minimum wholesale margin is 8% (otherwise 10%) as fixed by the Government. Formulators are free to give higher margins. Some also try to push their products by giving free packs to retailers for eg against 6 injection vials, 1 vial comes free. This is as good as giving the retailer a higher margin. Drug Price Equalisation Account (DPEA) : As directed by the Government since DPCO 1979, any pharma company which makes undue profits by selling a DPCO controlled bulk drug or formulation at a price higher than the ceiling price notified by the Government, must deposit the same into the DPEA. The amounts collected in this manner will be used to

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PROJECT FINANCING Paying a manufacturer, importer or distributor, as the case may be, the shortfall between his retention price

and the common selling price.

Meeting the expenses of the Government in discharging the functions under enforcing compliance to

DPEA regulations.

Promoting higher education and research in Pharmaceutical Sciences.

National Pharmaceuticals Pricing Authority : It has been proposed to set up this regulatory authority for governing the pharma sector. The NPPA is also supposed to take over the role of pharma product pricing from BICP (Bureau for Industrial Costs & Prices). But, the formation of NPPA continues to be delayed time and again. Also, for some of the new drugs included under DPCO 95, revised prices have not been announced. So these drugs and their formulations are under price freeze ie they are sold at the same price by their manufacturers as at the time of inclusion under DPCO.

Present Scenario Over 20,000 registered pharmaceutical manufacturers exist in the country. The market share of MNCs has fallen from 75% in 1971to around 35% in the Indian pharmaceuticals market, while the share of Indian companies has increased from 20% in 1971 to nearly 65%. PSUs have almost lost out completely. The sector has undergone several policy swells as attitudinal changes over the past two years. It was one of the major beneficiaries from the budget proposals. Some of the positive steps taken were:

Pharmaceutical industry is recognized as knowledge based industry. The government has plans to increase

the investment in research and development.

Rationalization of excise duty and reduction in interest rates in export financing. Additional deductions under Income Tax laws for R&D expenses. Foreign direct investments permit up to 74% through automatic route.

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PROJECT FINANCING Setting up two high levels committees to review the drug policy for strengthening R&D capabilities and

reducing the price control regime. Besides, the Indian Parliament has enacted the required changes in the Indian Patent Act 1970 (IPR) regarding mailbox arrangement and exclusive marketing rights (EMR). Emerging Trends:

Increased focus on R&D: Major domestic players namely Ranbaxy, Dr Reddys Labs, Cipla, Nicholas

Piramal and Wockhardt are aggressively investing in R&D. Dr Reddys Labs and Ranbaxy have already discovered one new chemical entity (NCE) and are in Phase II and Phase I of the clinical trail respectively. Wockhardt is expected to come out with in new molecule by F12/2000.

Marketing tie-ups: Domestic players and MNCs have entered into marketing arrangements to increase

market penetration and further strengthen positions in respective therapeutic segments. Ranbaxy has tied up with Cipla, Glaxo and Hoechst Marion for products in specific therapeutic segment. Similarly Hoechst Marion has tied up with Nicholas Piramal.

Product rationalization/ brand acquisition/ company acquisition: Most of the top pharmaceutical

companies are consolidating their position in the domestic market either through product rationalization brand acquisition or company acquisition. Hoechst, Glaxo, Wockhardt and Ranbaxy have cut down their product portfolio in order to be more focused. Similarly companies such as Sun Pharma, Nicholas Piramal and Dr Reddys Labs have opted for brand/ company acquisition to increase the therapeutic reach and market penetration Domestic Market The domestic pharmaceuticals industry output exceeds Rs170bn, which accounts for merely 1.3% of the global pharmaceutical sector. Of this formulations account for 81.5% and 18.5% is bulk drugs. In FY99 exports was at Rs53.7bn and imports stood at Rs31.3bn. Rs mn Capital Investment Production: 1965-66 1400 1998-99 21500

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PROJECT FINANCING

Formulations Bulk Drugs Import Export R & D Expenditure Source : OPPI

1500 180 82 30.5 30

138780 31480 31280 53660 2600

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has increased drastically in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader having nearly 7% of the market share. It has become extremely competitive industry mainly due to lower affordability, fragmented market with severe price competition and government price control. Year 1969-70 1979-80 1989-90 1998-99 Source: OPPI Over the years the Indian Pharmaceutical Industry has evolved around the opportunities presented in the regulated environment: # Of units 2,257 5,156 16,000 20,053

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PROJECT FINANCING Lack of product patent: The Indian Patents Act 1970 allowed the Indian companies to reverse engineer the

patented molecules and launch it in the domestic market.

Price ceiling under DPCO limited the margins and shifted the focus to cost control. FERA led to reduced MNC exposure in India. Small-scale industry (SSI) exemptions led to proliferation of small formulation manufacturers and low

cost drug manufacturers.

Consequently the capital investment has also increased over the years, especially in the last two decades. Year 1973 1977 1979 1982 1985 1988 1993 1994 1995 1996 Rs bn 2.3 4.5 5.0 6.0 6.5 8.0 10.6 12.0 13.8 16.0

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PROJECT FINANCING

1997 1998 Source: OPPI

18.4 21.5

Bulk drugs: Over 60% of Indias bulk drugs production is exported. The balance is sold locally to other formulators. However, many of the MNCs affiliates/ subsidiaries in India import bulk drugs from the parent company and formulate it for local markets. Also, local players who export formulations avail of duty free imports of bulk drugs. Exports are mainly to developing countries incase of under patent drugs and to the developed nations in case of generics. In FY99, exports stood at Rs53.7bn while import was at Rs31.3bn.

Production- Bulk Drugs Year 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 Rs bn 2.4 2.9 3.5 3.6 3.8 4.2 4.6 4.8 5.5 6.4 7.3 9.0 11.5

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PROJECT FINANCING

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Source: OPPI

13.2 15.2 18.2 21.9 26.2 31.5

Formulations: More than 85% of the formulation production in the country is sold in the domestic market. India is largely self sufficient in case of formulations. Some life saving, new generation under-patent formulations continue to be imported, especially by MNCs, which then market them in India. Overall, the size of the domestic formulations market is around Rs130bn and it is growing at 10% pa. Formulation exports are largely to developing nations like China, South Africa,CIS etc. Production- Formulation Year 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 Rs bn 12.0 14.3 16.6 17.6 18.3 19.5 21.4 23.5 31.5

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PROJECT FINANCING

1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

34.2 38.4 48.0 60.0 69.0 79.4 91.3 104.9 120.7 138.8

Exports Indias pharmaceutical exports are tithe tune of Rs53.7bn, of which formulations contribute nearly 57% and the rest 43% comes from bulk drugs. In FY99 exports grew by 5.6% yoy. Formulations export declined by 9.1%yoy while bulk drugs export jumped up by 33.9% yoy. Erstwhile USSR was a major market for Indian formulations, but its disintegration adversely affected company exports in1991-92. Again the economic crisis in Russia depressed the export of formulations in 1999.Overall pharma exports have registered a CAGR of 24% in the past 5 years. This is because low domestic margins on account of competitive pressures and DPCO, led more players to focus on export markets. In exports, domestic companies have a 3-pronged advantage over MNCs:

Process patents give freedom to make MNCs patented products, thus enabling wide therapeutic reach. Strong process R&D and low manufacturing costs. No restrictions on export markets by parents overseas ventures.

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PROJECT FINANCING

Year

Formulations Rs bn

% of total

Bulk Drugs Rs bn

% of total

Total Rs bn

1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Source: OPPI

0.4 0.7 0.5 0.6 1.0 1.1 1.0 0.9 1.6 3.1 3.7 5.6 9.7 13.1 15.1 20.4 25.1 33.4 30.4

(76) (82) (83) (77) (77) (76) (54) (39) (39) (47) (47) (44) (70) (71) (66) (64) (61) (66) (57)

0.1 0.2 0.1 0.2 0.3 0.3 0.9 1.4 2.4 3.5 4.1 7.2 4.1 5.3 7.6 11.3 15.8 17.4 23.3

(24) (18) (17) (23) (23) (24) (46) (61) (61) (53) (53) (56) (30) (29) (34) (36) (39) (34) (43)

0.5 0.8 0.7 0.8 1.3 1.4 1.9 2.3 4.0 6.6 7.8 12.8 13.8 18.4 22.7 31.8 40.9 50.8 53.7

Page no.24 of 39

PROJECT FINANCING Imports Indias pharmaceuticals imports (including bulk drugs, formulations, intermediates, chemicals, solvents etc) are to the tune of Rs31.3bn. Imports have registered a CAGR of nearly 23% in the past 5 years. Imports of formulations have increased significantly in the past 5 years registering CAGRof 32.9% in the past 5 years. In FY99 import of formulations grew by 25.5% yoy. Import of bulk drugs have slowed down in the past 2-3 years mainly due to two reasons firstly there is over capacity in the domestic market and secondly the quality of bulk drugs manufactured by the local manufacturers have improved significantly and they act as import substitute for MNCs requirements. (Rs bn) Year 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 0.87 1.05 1.16 1.23 1.78 2.08 2.07 2.34 3.28 4.26 3.23 4.59 5.08 6.13 0.10 0.02 0.05 0.03 0.10 0.16 0.22 0.21 0.35 0.55 0.85 0.96 1.20 1.38 Bulk Drugs Formulations Intermediates, Chemicals & others 0.16 0.29 0.28 0.37 0.27 0.43 0.58 0.94 0.83 1.71 1.96 2.53 5.09 4.15 1.13 1.36 1.48 1.63 2.16 2.67 2.88 3.49 4.47 6.52 6.04 8.07 11.37 11.67 Total

Page no.25 of 39

PROJECT FINANCING

1994-95 1995-96 1996-97 1997-98 1998-99 Source: OPPI MNCs vsLocal Players

8.11 16.30 17.05 18.27 19.18

1.73 2.70 3.45 4.30 5.40

3.84 5.05 5.56 6.11 6.70

13.69 24.05 26.06 28.68 31.28

Overall, the pharma MNCs are at disadvantage compared to local players, due to:

Limitation to parent companys portfolio and lack of freedom to reverse engineer any other MNCs

products.

Higher DPCO coverage due to a more mature product range. Parent companys reluctance to launch new products due to absence of patent protection and threat of

process piracy and compulsion to price the product lower in India compared to other countries.

Lack of export opportunities due to parents global presence.

Higher cost of manufacture due to parent companys insistence on stricter compliance of GMP (Good manufacturing Practices).

XYZ. PHARMACEUTICALS LTD. LIST OF ANNEXURES Annexure No. 1 2 3 4 PARTICULARS Statement showing cost of project and mean of finance. Statement showing Performance and Profitability Projection Cashflow statement. Statement showing Projected Balance Sheet.

Page no.26 of 39

PROJECT FINANCING

5 6 7 8 9 10 11 12 13 14 15 16 Annexture : 1 COST OF PROJECT

Statement showing Details of land and site development. Statement showing details of building Statement showing details of electrical installations. Statement showing details of other assets. Statement showing details of preliminary and preoperative expenses. Statement showing gross and net sales value at installed capacity Statement showing interest charges repayment of term loan. Statement showing calculation of debt service coverage ratio. Statement showing calculation of break even point Statement showing capacity utilisation and sales value Statement showing key financial data. Statement showing list of assumptions.

LAND INCLUDING SITE DEVELOPMETN BUILDING PLANT AND MACHINERY ELECTRICAL INSTALLATIONS OTHER ASSETS PRELIMINARY & ISSUE EXPENSES PRE OPERATIVE EXPENSES CONTINGENCIES MARKET DEVELOPMENT AND PRODUCT LAUNCHING EXPENSES WORKING CAPITAL MARGIN MEANS OF FINANCE: SHARE CAPITAL - From Promoters 131.00 - Through Public Issue 370.00 TERM LOAN FROM BANK / FINANCIAL INST. 20. FINANCIAL ASSISTANCE: c) Term Loan Rs. 70 lacs

Rs. In lacs 25.23 86.50 182.35 19.50 39.50 55.00 20.00 11.00 30.00 469.08 101.92 571.00

501.00 70.00 571.003

Page no.27 of 39

PROJECT FINANCING d) Working capital loan Rs. 110 lacs

Annexure : 2 PROJECTION OF PERFORMANCE AND PROFITABILITY STATEMENT NET TURNOVER @ 100% CAPACITY UTILISATION ON SINGLE SHIFT BASIS PARTICULARS Capacity Utilisation % INCOME (Gross sales) Less S.T. & E.D. NET SALES EXPENDITURE MATERIALS (Indigenous) `Materials (Imported) Packing Material Salary / Wages Electricity, Fuel & Water charges Repairs and Maintenance Consumables and spares Other manufacturing cost Depreciation on SLM INTEREST - On term loan (19.75%) - On working capital (19.75%) - On unsecured loan Selling & Administrative expenses Miscellaneous Expenses written off TOTAL COST OF PRODUCTION PROFIT BEFORE TAX PROVISION FOR TAX PROFIT AFTER TAX ADD BACK DEPRECIATION 2,277.00 2,277.00 2,277.00 2,277.00 (RS. LACS) 2,277.00 2,277.00

2001 -02 2002 -03 2003 -04 50% 60% 70% 1,202.93 64.43 1,138.50 468.84 82.05 14.85 4.50 2.46 9.38 11.3 17.40 13.35 21.73 0.00 262.38 15.50 923.82 214.68 59.91 154.77 32.90 1,443.51 77.31 1,366.20 562.61 98.46 16.34 4.95 3.28 11.25 13.66 17.40 11.00 34.94 0.00 281.79 15.50 1,071.17 295.03 114.43 180.60 32.90 1,684.10 90.20 1,593.90 656.38 114.87 17.97 5.45 4.10 13.13 15.94 17.40 8.49 40.73 0.00 302.80 15.0 1,212.73 381.17 157.89 223.28 32.90

2004 - 05 80% 1,924.68 103.00 1,821.60 750.14 131.28 19.77 5.99 4.92 15.00 18.22 17.40 5.97 46.52 0.00 325.54 5.50 1,346.24 475.36 199.70 275.66 22.90

2005 - 06 90% 2,165.27 115.97 2,049.30 843.91 147.68 21.74 6.59 5.74 16.88 20.49 17.40 3.46 52.31 0.00 350.19 5.50 1,491.89 557.1 239.89 317.52 22.90

2006 -07 93% 2,237.44 119.83 2,117.61 872.04 152.61 23.92 7.25 6.56 17.44 21.18 17.40 0.95 54.07 0.00 376.91 5.50 1,555.81 561.80 244.54 317.27 22.90

Page no.28 of 39

PROJECT FINANCING

& AMORTISATION NET CASH ACCRUALS CUMMULATIVE CASH ACCRUALS PROPOSED DIVIDED AMOUNT EARNING PER SHARE

187.67 187.67 15.00% 75.15 3.09

213.50 401.17 20.00% 100.20 3.60

256.17 657.35 25.00% 125.25 4.46

298.56 955.91 30.00% 150.30 5.50

340.41 1,296.32 30.00% 150.30 6.34

340.16 1,636.48 30.00% 150.30 6.33

Annexture 3: CASH FLOW STATEMENT PARTICULARS SOURCE OF FUNDS P.B.T. + INTEREST Depreciation (Book) Amortisation Incr. in share capital Incr. in term loan Incr. in working capital Incr. in subsidy Incr. in current liabilities Incr. In reserves Sub total DISPOSITION OF FUNDS Incr. in fixed assets Incr. in preliminary exps. Incr. in product launching exps. Incr. in inventories Incr. in Sundry Debtors Incr. in other current assets Decr. in term loans Interest payment Taxation Dividend Sub total Surplus / Deficit for the year Cumulative cash balance D.S.C.R. 200102 0.00 0.00 0.00 501.00 70.00 0.00 0.00 0.00 0.00 571.00 384.08 55.00 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 469.08 101.92 101.92 0.00 2002 -03 249.76 17.40 15.50 0.00 0.00 110.00 0.00 45.28 0.00 437.94 0.00 0.00 0.00 59.46 197.74 0.00 9.54 35.08 59.91 0.00 361.73 76.21 178.13 8.10 2003 -04 340.97 17.40 15.50 0.00 0.00 66.92 0.00 9.06 0.00 449.84 0.00 0.00 0.00 11.85 39.55 0.00 12.72 45.94 114.43 75.15 299.37 150.47 328.60 8.81 2004 05 430.39 17.40 15.50 0.00 0.00 29.30 15.00 9.06 0.00 516.64 0.00 0.00 0.00 11.60 39.55 0.00 12.72 49.21 157.89 100.20 371.17 145.47 474.07 11.75 2005 06 527.85 17.40 5.50 0.00 0.00 29.31 0.00 9.06 0.00 589.11 0.00 0.00 0.00 11.61 39.55 0.00 12.72 52.49 199.70 125.25 441.32 147.80 621.87 16.00 (RS. LACS) 2006 2007 -07 613.18 17.40 5.50 0.00 0.00 29.32 0.00 9.06 0.00 674.45 0.00 0.00 0.00 11.62 39.55 0.00 12.72 55.77 239.89 150.30 509.85 164.60 786.47 20.91 08 616.82 17.40 5.50 0.00 0.00 8.92 0.00 2.72 0.00 651.35 0.00 0.00 0.00 3.65 39.55 0.00 12.72 55.02 244.54 150.30 474.94 176.41 962.87 31.88

Page no.29 of 39

PROJECT FINANCING

Annexure : 4 PROJECTED BALANCE SHEET PARTICULARS LIABILITIES EQUITY SHARE CAPITAL RESERVES & SURPLUS General Reserve Subsidy SECURED LOANS Term loans Foreign currency loan Working capital loan UNSECURED LOANS CURRENT LIABILITIES / PROVISION Creditors for goods Others Proposed Dividend Total ASSETS FIXED ASSETS Gross block Less depreciation Net block INVESTE,EMTS CURRENT ASSETS Inventories Book debts Other current assets Cash & bank balance LOANS & ADVANCES 2001 -02 501.00 0.00 0.00 70.00 0.00 0.00 2002 -03 501.00 79.62 0.00 60.46 110.00 0.00 2003 -04 501.00 160.02 0.00 47.74 146.92 0.00 2004 05 501.00 258.05 15.00 35.02 206.22 0.00 2005 06 501.00 383.41 15.00 22.30 235.53 0.00 (RS. LACS) 2006 2007 -07 501.00 550.63 15.00 9.58 264.85 0.00 -08 501.00 717.60 15.00 0.00 273.77 0.00

0.00 0.00 0.00

571.00

45.28 0.00 75.15

871.51

54.33 0.00 100.20

1,040.21

63.39 0.00 125.25

1,203.93

72.45 0.00 150.30

1,379.99

81.50 0.00 150.30

1,572.86

84.22 0.00 150.30

1,741.88

384.08 0.00 384.08

384.08 17.40 366.68

384.08 34.80 349.28

384.08 52.19 331.89

384.08 69.59 314.49

384.08 86.99 297.09

384.08 104.39 279.69

0.00 0.00 0.00 101.92

59.46 197.74 0.00 178.13

71.04 237.29 0.00 328.60

82.64 276.84 0.00 474.07

94.25 316.39 0.00 621.87

105.87 355.93 0.00 786.47

109.52 367.80 0.00 962.87

Page no.30 of 39

PROJECT FINANCING

PRELIMINARY EXPENSES MISCELLANEOUS EXPENSES TOTAL Annexure 5:

55.00 30.00
571.00

49.50 20.00
871.51

44.00 10.00
1,040.21

38.50 0.00
1,203.93

33.00 0.00
1,379.93

27.50 0.00
1,572.86

22.00 0.00
1,741.88

DETAILS OF LAND INCLUDING SITE DEVELOPMENT LAND INCLUDING CONVEYANCE CHARGES COST OF LEVE BOREWELL EITH PUMP INTERNAL ROADS FENCING & BOUNDRY WALL GATES WATER STORAGE TANKS ILLUMINATION PARKING STAND ANTITERMITE TREATMENT TOILET BLOCKS SECURITY ROOM Annexure 6 DETAILS OF BUILDING FACTORY BUILDING OFFICE BUILDING AT NAVRANGPURA CONSULATION FEE 80.00 5.00 1.50 86.50 (RS. LACS) 6.52 5.86 2.50 3.00 3.00 0.60 1.25 0.50 0.70 0.40 0.60 0.30 25.23

Annexure 7: DETAILS OF ELECTRICAL INSTALLATION (RS. LACS)

Page no.31 of 39

PROJECT FINANCING

QUANTITY

NAME OF MANUFACTUR ER / SUPPLIER KIRLOSKAR

COST

REMARKS

DIESEL GENERATING SET 11 KV SUBSTATION POWER DISTRIBUTION SWITCH BOARDS 650 V GRADE CABLING LIGHTNING OTHERS Annexure 8: OTHER ASSETS OFFICE EQUIPEMENT FURNITURE & FIXTURES VEHICLES Annexure 9: PRE-OPERATIVE EXPENSES

1 1

4.50 4.00 2.70 3.75 3.87 0.68 19.50

4.00 16.50 19.00 39.50

(RS. LACS) ESTABLISHMENT EXPENSES TRAVELLING MORTAGE, STAMP DUTY, UPRONT FEE STARTUP EXPENSES INTERNET DURING CONSTRUCTION PERIOD OTHERS 3.00 3.00 6.00 3.00 4.00 1.00 20.00

PRELIMINARY EXPENSES UNDERWRUTERS BROKERAGE PRINTERS REGISTRAR 9.25 5.55 6.00 3.70

Page no.32 of 39

PROJECT FINANCING

ADVERTISING LEAGAL, STAMPS & OTHERS LEAD MANAGERS COMPANY FORMATION

12.50 9.00 4.00 5.00 55.00

Annexure 10: INSTALLED CAPACITY (RS. LACS) SR.NO. NAME OF PRODUCT QUANTITY NET SALES 1 Tablets (Excisable) Tablets (Not Excisable) Capsules (Excisable) Capsules (Not Excisable) Injectables (Not Excisable) Oral Liquids (Excisable) Ointments (Excisable) 60,000,000 Nos. 180,000,000 Nos. 240,000,000,Nos. 13,400,000 Nos. 16,600,000 Nos. 30,000,000 Nos. 15,000,000 Nos. 200,000 Liters 15,200 Kgs. VALUE 492.00 331.00 823.00 210.00 64.00 274.00 1,023.00 109.00 48.00 2,277.00 EXCISE @ 15% 73.80 0.00 73.80 31.50 0.00 31.50 0.00 16.35 7.20 128.52 GROSS SALES 565.80 331.00 896.80 241.50 64.00 305.50 1,.023.00 125.35 55.20 2,405.85

3 4 5

Annexure 11: COMPUTATION OF TERM LOAN INTEREST AND REPAYMENT YEAR QUARTER PRINCIPAL REPAYMENT INTEREST (RS. LACS) YEARWISE YEARWISE REPAYMEN INTEREST

Page no.33 of 39

PROJECT FINANCING

T 2001-02 2002-03 IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 70.00 70.00 70.00 66.82 63.64 60.46 57.28 54.10 50.92 47.74 44.56 41.38 38.20 35.02 31.84 28.66 25.48 22.30 19.12 15.94 12.76 9.58 6.40 3.22 0.00 0.00 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.22 0.00 70.00 70.00 Assumption: 1) Rate of interest 19.75% 2) Moratorium period 6 months 3) Repayment period 6 years including moratorium period. Annexure 12: CALCULATION OF DEBT SERVICE COVERAGE RATIO (RS. LACS) 0.00 3.46 3.46 3.46 3.30 3.14 2.99 2.83 2.67 2.51 2.36 2.20 2.04 1.89 1.73 1.57 1.42 1.26 1.10 0.94 0.79 0.63 0.47 0.32 0.16 0.00 3.46

9.54

13.35

2003-04

12.72

11.00

2004-05

12.72

8.49

2005-06

12.72

5.97

2006-07

12.72

3.46

2007-08

9.58

0.95

Page no.34 of 39

PROJECT FINANCING

PARTICULARS NET PROFIT (AFTER TAX) DEPRECIATION & AMORTISATION INTEREST ON TERM LOAN TOTAL

2001 -02 154.77 32.90 13.35 201.03

2002 -03 180.6 0 32.90 11.00 224.5 0

2003 -04 223.28 32.90 8.49 264.66

2004 - 05 275.66 22.90 5.97 304.53

2005 - 06 317.52 22.90 3.46 343.88

2006 -07 317.27 22.90 0.95 341.11

REPAYMENT OF TERM LOAN INTEREST ON TERM LOAN TOTAL D.S.C.R. Annexure 13:

9.54 13.35 22.89 8.78

12.72 11.00 23.72 9.46

12.72 8.49 21.21 12.48

12.72 5.97 18.69 16.29

12.72 3.46 16.18 21.25

9.58 0.95 10.53 32.40

CALCULATION OF BREAK EVEN POINT 2001-02 FIXED EXPENSES INTEREST ON TERM LOAN & UNSECURED LOAN DIRECT LABOUR (25%) DEPRECIATION & OTHER EXPS. (50%) REPAIRS & MAINTENANCE TOTAL VARIABLE EXPENSES RAW MATERIALS ADMINISTRATIVE & OTHER EXPS. (50%) DIRECT LABOUR (75%) POWER & FUEL OTHER MANUFACTURING EXPS. CONSUMABLES AND SPARES INTEREST ON WORKING CAPITAL 13.35 3.71 131.19 2.46 183.61 468.84 131.19 11.14 4.50 11.39 9.38 21.73 2002-03 11.00 4.08 140.89 3.28 192.15 562.61 140.89 12.25 4.95 13.66 11.25 34.94 2003-04 8.49 4.49 151.40 4.10 201.37 656.38 15140 13.48 5.45 15.94 13.13 40.73 2004-05 5.97 4.94 162.77 4.92 201.50 750.14 162.77 14.82 5.99 18.22 15.00 46.52 205-06 3.46 5.44 175.10 5.74 212.63 843.91 175.10 16.31 6.59 20.49 16.88 52.31 2006-07 0.95 5.98 188.45 6.56 224.83 872.04 188.45 17.94 7.25 21.18 17.44 54.07

Page no.35 of 39

PROJECT FINANCING

ANTICIPATED NET SALES AT INSTALLED CAP. ANTICIPATED SALES REALISATION CONTRIBUTION B.E.P. SALES B.E.P. IN TERM OF PERCENTAGE Annexure 14: Capacity Utilization, Sales & sales Value : Particulars Installed Capacity (Net Sales Value) Excise Duty Installed Capacity (Gross Sales Value) No. of working days No. of working Hours No. of shifts Capacity Utilization

658.16 2,277.00 1,138.50 480.34 435.20 19.11%

780.56 2,277.00 1,366.20 585.64 448.26 19.69%

896.49 2,277.00 1,593.90 697.41 460.23 20.21%

1,013.47 2,277.00 1,821.60 808.13 454.20 19.95%

1,131.58 2,277.00 2,049.30 917.72 474.81 20.85%

1,178.37 2,277.00 2,117.61 939.24 506.91 22.26%

2001-02 2,277.00 128.85 2,405.85 300.00 0.00 1.00 0.50

2002-03 2,277.00 128.85 2,405.85 300.00 0.00 1.00 0.60

2003-04 2,277.00 128.85 2,405.85 300.00 0.00 1.00 0.70

2004-05 2,277.00 128.85 2,405.85 300.00 0.00 1.00 0.80

205-06 2,277.00 128.85 2,405.85 300.00 0.00 1.00 0.90

2006-07 2,277.00 128.85 2,405.85 300.00 0.00 1.00 0.93

Annexure 15: KEY FINACIAL DATA (RS. LACS) 1ST FULL YEAR OF OPERATIONS TOTAL INCOME PROFIT BEFORE INTEREST & DEPR. PROFIT BEFORE INTEREST 2001-02 1,138.50 267.19 249.76 1,366.20 358.37 340.97 1,593.90 447.78 430.39 2002-03 2003-04

Page no.36 of 39

PROJECT FINANCING

PROFIT BEFORE TAX PROFIT AFTER TAX NET FROFIT TO SALES (%) SHARE CAPITAL NET WORTH EARNING PER SHARE CASH EARNING SHARE DIVIDEND DEBT EQUITY RATIO CURRENT RATIO D.S.C.R.
BREAK EVEN POINT IN TERMS OF CAPACITY UTILISATION

241.68 157.77 13.59% 501.00 580.62 3.09 3.75 15.00% 0.21:1 1.89 8.10
19.11%

295.03 180.60 13.22% 501.00 661.02 3.60 4.26 20.00% 0.08:1 1.92 8.81
19.69%

387.17 223.28 14.01% 501.00 774.05 4.46 5.11 25.00% 0.08:1 2.11 11.75
20.21%

Annexure 16:

ASSUMPTIONS 1) The company shall commence commercial production from April 1996. The company will operate for 300 days per year on single shift per day basis. It will utilize 50%, 60%, 70%, 80%, 90% and 93% of its capacity during 1996-97, 1997-98, 1998-99, 1999-2000, 2000-2001 and 2001-2002 respectively. 2) The selling price and cost of raw material purchase have been assumed at current levels and to remain uniform throughout the project, the underlying assumption being that any increase in purchase cost would be offset commensurately by increase in selling price. 3) Sales tax rate considered nil as the unit is eligible for sales tax benefit. 4) Cost of packing materials has been assumed at 17.5% of raw materials consumed.

Page no.37 of 39

PROJECT FINANCING

5) Cost of consumables and spares has been assumed at 2% of raw materials consumed. 6) The power cost assumed at a subsidized of Rs. 2.50 per unit. 7) Repairs and maintenance has been levied at 0.75%, 1%, 1.25%, 1.5%, 1.75%, and 2% respectively in seven years on the cost of factory building and plant & machinery. 8) Selling expenses considered at 12% of annual net sales. 9) Other manufacturing expenses considered at 1% of annual net sales. 10) Depreciation charged on SLM method as per the rates prescribed by schedule XIV of the companies Act., 1956.
11)

1/10th of preliminary and issue expenses have been amortized every year.

12) Miscellaneous Expenses (Market Development & Product launching) have been written off over a period of three years. 13) Assumptions for working capital requirement: a) Raw materials holing b) Work in process c) Finished goodsd) Packing materials e) Sundry Debtors f) Sundry Creditors 15 days 7 days 15 days 60 days outstanding of gross sales. 30 days credit from suppliers.

15 days

Page no.38 of 39

PROJECT FINANCING 14) During 1996-97 (First full year of working) export sales assumed at Rs. 100 lacs and thereafter an increase of 10% considered every year on this assumption only.

Page no.39 of 39