Panel Data

Analysis
Indian Pharmacy Industry
Sanyam
Saswat
Srikanth
Murali
Anirudh

10FN-100
10FN-101
10FN-109
10IB-041
10IB-069

FE Project
Presentation

Agenda
1. Project Objectives
2. Companies chosen for Study
3. Data Collection
4. Methodology
5. Analysis
6. SAS Output Interpretation
7. Conclusion
8. Limitations of the Study
9. Recommendation & Further Scope

Project Objectives
To identify the impact of R&D on profit of
pharmaceutical firms in India
To determine the company specific variations in
profit
To determine the interaction effect of MNC firms,
R&D on profit
We have assumed Cost of Raw Materials, R&D
Expenses, Power & Fuel, Exports & Imports to
affect profit of a Pharmaceutical firm based on
research paper published by NIFM on 12Feb2011

Companies chosen for

Study
We have picked the companies for study based on
the recent study performed by Edelweiss capital
to cover 45%-50% of Indian Pharma market:
CADILA
CIPLA
Dr. Reddy's
Lupin
Sun Pharma
Torrent Pharma
IPCA
Glenmark
Ranbaxy
GSK India
Pfzier India

Data Collection
The following data related to the chosen firms is
taken on a yearly basis for FY2001-FY2010 from
CMIE Prowess database:
Sales
Net Income
R&D Expenditure
Raw Material Expenditure
Power & Fuel Expenditure
Export Earnings
Import Spending

Log values of the collected information are taken

before proceeding with Econometrics treatment to
smoothen the variations

Methodology
Panel data regression is used to capture both the
Company specific & Year specific effects on the
Profit
We have also included dummy variables to
explain the interaction effects
So that the overall model will be:
(Profit) = f(R&D expense, Power-Fuel expense,
Raw Material expense, Export earnings, Import
spending)

Analysis
There are 10 Dummy variables introduced for 11 companies
A Dummy variable to distinguish between Indian firms &
MNCs. Also one for interaction between MNC, R&D
Hypothesis to be tested:
(1) H0: The factors R&D, Raw Material, Fuel-Power, Export, Import
have negligible effect on Profit of a firm
(2) H0: The effect of R&D on firms Profit is same for all firms and
any company specific effects are negligible
(3) H0: The effect of R&D on firms Profit is same for both Indian and
MNC firms

SAS Output Interpretation

We have used 1-fixed effect while running the
Panel Data Regression
From the results of F-Table, where Pr<0.0001, it
can be concluded that the model is valid
Adjusted R2 value shows that model is able to
explain 88% of the variation in Profit
Based on the t-values of individual variables,
corresponding dummies we get to know their
significance in the model

Conclusion
Only the Dummies of and the variables are
significant in driving the Profit of a firm
A 1% change in R&D expense results in x%
change of profits for a Indian firm while results in
only y% profit for a MNC firm
The effect of R&D is beneficial for the firms:
While for the firms, there are yet to realize the
benefits of their R&D activity

Limitations of the Study

We have tried to capture the best possible
information available from CMIE, Prowess, which
might not be adequate to comprehensively
explain the variation

Recommendation &
Further Scope
This work can be further fine tuned by adjusting
the terms R&D, Exports & Imports with their
Intensities, which are the original equivalents
divided by Sales of firms