Pharmaceutical

Industry
INDUSTRY ANALYSIS ON WORKING CAPITAL FINANCIAL
DISTRESS MERGER AND ACQUISITION AND DERIVATIVES
 INDUSTRY OVERVIEW
1. The pharmaceutical industry in the Indian market has been one of the
most profitable one. The Indian pharmaceuticals market is the third
largest in terms of volume and thirteenth largest in terms of value, as per
a report by Equity Master
2. India is the largest provider of generic drugs globally with the Indian
generics accounting for 20 per cent of global exports in terms of volume
3. It is expected to rise with a growth of close to 15% annually for the next
four years. India's biotechnology industry comprising bio-
pharmaceuticals, bio-services, bio-agriculture, bio-industry and
bioinformatics is expected grow at an average growth rate of around 30
per cent a year and reach US$ 100 billion by 2025.
 WORKING CAPITAL
1. If the net working capital figure is substantially positive, it
indicates that the amount of short-term funds available from
current assets are more than adequate to pay for current
liabilities as they come due for payment.
2. If the figure is substantially negative, then the business may
not have sufficient funds available to pay for its current
liabilities, and may be in danger of bankruptcy.
WORKING CAPITAL INDUSTRY
OVERVIEW
INDUSTRY WORKING CAPITAL
72,000.00

70,000.00
69,849.74
68,000.00

66,000.00
65,433.86
64,000.00
63,802.36
62,000.00

60,000.00
FY16 F15 F14
 WORKING CAPITAL OVERVIEW
OF FEW IMPORTANT COMPANIES
Sun pharma Glenmark Cipla

2016 2015 2014 2016 2015 2014 2016 2015 2014

Current 5450.2 5172.0 4616.5 3597.9 1609.6 6558.6 5097.9
5343.7 6463.9
assets 8 4 1 6 1 6 7

Current 11052. 3706.0 2810.2 2444.4 1235.2 3578.7 2416.7

8838.78 3081.2
liabilities 08 7 7 7 7 4 4

Net working - 1465.9 1806.2 1153.4 2979.9 2681.2

-3495.08 374.34 3382.7
capital 5601.8 7 4 9 2 3
 WORKING CAPITAL OVERVIEW
OF FEW IMPORTANT COMPANIES

Aurbindo Pharma Lupin Glaxo

2016 2015 2014 2016 2015 2014 2016 2015 2014
Current 6995. 6368. 5081. 7235. 6452. 5043. 2146. 2565. 2601.
assets 73 08 18 33 12 7 19 18 73
Current 4553. 3946. 3317. 2293. 1659. 1461. 1053. 1105. 883.0
liabilities 87 19 28 55 99 32 64 86 7
Net 2441. 2421. 1763. 4941. 4792. 3582. 1092. 1459. 1718.
working 86 89 9 78 13 38 55 32 66
capital
 WORKING CAPITAL RATIO
1. The working capital ratio is the same as thecurrent ratio. It is
the relative proportion of an entity's current assets to its
current liabilities, and is intended to show the ability of a
business to pay for its current liabilities with its current assets.
2. A working capital ratio of less than 1.0 is a strong indicator
that there will be liquidity problems in the future, while a ratio
in the vicinity of 2.0 is considered to represent good short-
term liquidity
WORKING CAPITAL RATIO
COMPANY WISE
Current ratio
2016 2015 2014
0.6045743 0.49314 1.39555
Sun Pharma
87 5 9
0.5600395 1.47187 1.30304
Glenmark
78 7 3
2.0978514 1.83267 2.10944
Cipla
86 3 1
Aurbindo 1.5362164 1.61372 1.53173
Pharma 49 9 1
3.1546423 3.88684 3.45146
Lupin
67 3 9
2.0369291 2.31962 2.94623
Glaxo
22 5 3
 WORKING CAPITAL RATIO
COMPANY WISE
Industry is having working capital ratio of 3.03
CURRENT RATIO
4.5

3.5

2.5
RATIO
2

1.5

0.5

0
Sun Pharma Glenmark Cipla Aurbindo Pharma Lupin Glaxo

BLUE-2016 RED-2015 GREEN-2014

 Z score current ratio ratio
16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00
0 50 100 150 200 250 300

-2.00
 OPERATING AND CASH
CONVERSION CYCLE
Operating and cash conversion cycle consists of the following
cycle of events:
Phase 1: Conversion cash into inventory
Phase 2: Conversion of inventory into receivables
Phase 3: Conversion of receivables into cash
 CASH CYCLE

Receivabl
Phase es
3

Cash Phase
2

Phase
1 Inventory
 TERMS RELEATED TO CASH
CYCLE
Net operating Cycle (Cash operating cycle):
Thenet operating cycle, also called the cash conversion cycle,
is the number of days it takes a company to generaterevenues
with assets. Thenet operating cycleis a measure of how long
aninvestmentis locked up in production before turning
intocash
Inventory conversion period:
The inventory conversion period is essentially the time period
during which a company must invest cash while it converts
materials into a sale
 TERMS RELEATED TO CASH
CYCLE
Debtors conversion period -
It determine the companys credit function on profitability by taking
account receivable variable. This impact considers the risk
associated with the credit extending. In terms of business
management, the average collection period is an extension of
operating efficiency
Creditors conversion period
An indicator measures the average time it takes a company to settle
its debts with suppliers or creditors. Thus, among other things, it
gives information about payment habits and also whether a
business is taking full advantage of trade credit available or not
 FACTS RELEATED TO CASH
CYCLE-INDUSTRY
ICP = RMCP + WPCP + FGCP Drugs & pharmaceuticals
GOC = ICP + DCP Mar-14 Mar-15 Mar-16
NOC = GOC - CDP
Raw material cycle 87.1 90.73 95.48
WIP cycle 38.74 36.66 36.33
Finished goods
32.85 31.84 31.66
cycle
Debtors cycle 85.4 91.52 87.89
Gross working
244.09 250.76 251.36
capital cycle
Creditors cycle 94.49 98.65 105.48
Net working
149.6 152.1 145.89
capital cycle
 Cash cycle 2014
350

329.7
323.8
300

250 256.5 252.3

200 205

169.97
150 158.69
149.1 149.6
140.76 143.7
129.6 125.7
119.22
100 106.3
100.4 96.1 97.2
90.01 91.8 94.49
85.4
66.9 71.1 71.4 70.3
50

20.7 16
0
Sun pharma Glenmark Cipla Aurbindo pharma Lupin Glaxo Industry

ICP DCP CDP NOC

 Cash cycle 2015
300
281.1
270.9

250

209.68
197.6
200

164.3 163.7
156.3 159.23
151.44
148.28 150.6 152.1
150
126

108.9
100.7 98.65
100 96.1
90.04 87.6 91.52
79.6 79.8
69.6
62.8 64.9
55.6
49.3
50

11.6

0
Sun pharma Glenmark Cipla Aurbindo pharma Lupin Glaxo Industry

ICP DCP CDP NOC

 Cash cycle analysis 2016
350

300
285.8
279.1
265.6

250

218.7
205 205.2
200
180.3
166.3 163.47
161.1 159.16 159.7 155.6
150 143.07 145.89
130
115.1
105.48
100 92.2 94.5 95.1
85.9 83.53 87.89
81.8
76.4
61.6
50

15.9

0
Sun pharma Glenmark Cipla Aurbindo pharma Lupin Glaxo Industry

ICP DCP CDP NOC

 ICP CYCLE BREAK UP 2016

202.8
195.4

106.9
101.1
93.1 95.5

78.7
65.8

47.6
43.6 42.4
36.1 39.2 36.5 36.3
31.7
21 23.1
15.9
9.8 11.1
Sun pharma Glenmark Cipla Aurbindo pharma Lupin Glaxo Industry

RAW MATERIAL CYCLE WORK IN PROCESS CYCLE FINISHED GOOD CYCLE

 Merger & Acquisition
Merger
Amalgamati
on
Acquisition

Merger Acquisition
Firm-A + Firm-B =Firm-C Firm-A + Firm-B =Firm-A
Hindalco + Novelis = Hindalco- Vodafone + HUTCHISON-
Novelis ESSAR= Vodafone
Benefits of Merger & Acquisition
Synergy
Operational Synergy
Financial Synergy
Growth
Increasing Market Power
Acquiring Unique resources or capabilities
Diversification (Conglomerate Merger)
Tax Consideration
Cross-Border Motivation
 Synergy
Operating Synergy
Financial Synergy
Cost Due to cash slack
I. Procurement Example- Rewa electric
II. R&D by Mahindra
III. Sales & Distribution Rewa- have Technology but low
IV. Manufacturing cash
V. Administration Mahindra- have cash but low
Technology
Revenue Debt capacity
I. Cross-Selling I. To increase debt-equity
Product(Tata Steel & ratio.
Millennium Steel) II. To increase size of firm.
II. Expanded Market Share III. To reduce equity ratio
III. Influence price through Tax benefit
reduced competition
 Types of
Merger

Horizontal Vertical Conglomer

Merger Merger ate
Horizontal Merger
A merger occurring between companies producing similar products,
goods and offering similar services.
For example: Tata steel and Corus
Tech Mahindra and Satyam
Vertical Merger
A merger between two companies producing different goods and
services for one specific finished products.
For example: Arcelor Mittal-London mining
Conglomerate Merger
A merger between firms that are involved in totally interrelated
business activity.
For example: ITC ltd.
 MERGERS & ACQUISITION
1. Lupin Ltd
2. Glenmark Pharmaceuticals Ltd
3. Glaxosmithkline India Ltd
4. Sun Pharmaceutical Inds. Ltd
5. Aurobindo Pharmaceuticals Ltd
6. Cipla Ltd
 LUPIN LTD.
COMPANY NAME DEAL TYPE REASON
Gavis 1. Gives lupin a strong base in
Pharmaceuticals U.S. generic drug industry.
Acquisition of
LLC 2. Gives Lupin a dedicated team
shares
Novel in R&D facility which would
Laboratories Inc. open market up to $9billion.
1. To extend their base in Latin
Medquimica
Acquisition of America.
Industria
shares 2. To target high growth therapy
Pharmaceuticals
segments market.
Ltd.

Acquisition of 1. Able to cater south African

Pharma Dynamics shares market which is third largest
prescription drug market.
 Glenmark pharmaceuticals LTD.

COMPANY NAME DEAL TYPE REASON

Aranda Acquisition 1. Company raised rs.945 Crore

Investments Pte. of shares by issuing 1 crore shares to
Ltd.(Mauritius) randa.
2. This reduced its Debt-equity
ratio from .8 to .5
 GLAXOSMITHKLINE INDIA LTD

COMPANY
DEAL TYPE REASON
NAME
1. It is a kind of product extension
mergers where two business that
deal in products that are related to
each other and operate in the
same market.
Novartis Healthcare
Sale of assets 2. Novartis was to acquire
Pvt Ltd
GlaxoSmithKline plc's cancer drugs
portfolio for $16 billion and sell its
vaccines business in return for
$7.1 billion.
 SUN PHARMACEUTICAL INDS. LTD
COMPANY NAME DEAL TYPE REASON
1. To invest in strategic emerging
market.
Acquisition of 2. Access to local manufacturing
J S C Biosintez (Russia)
shares capabilities across multiple dosage
forms in Russia.

1. Ranbaxy had lost brand equity in U.S.,

Europe and Indian market.
2. Their manufacturing units were bared
Ranbaxy labs Ltd. for selling their products in U.S.
Merger
3. In one stroke sun pharma doubled in
size.
 AUROBINDO PHARMACEUTICALS LTD

COMPANY NAME DEAL TYPE REASON

1. Vertical acquisition of shares .
2. To make silicon life sciences its
subsidiary.
Silicon Life Sciences Acquisition of shares 3. It acquired the company to
Pvt Ltd grow its injectable business by
spinning off to a wholly owned
subsidiary.

1. This acquisition will benefit the

Hyacinths Pharma Acquisition of shares company to consolidate its
Pvt.Ltd operations.
 CIPLA
COMPANY
DEAL TYPE REASON
NAME
Jay Precision 1. By having access of inhalation
Pharmaceuticals Acquisition of therapy of jay precision and to use it
Pvt. Ltd. shares as a platform for next Generation
respiratory devices.

Cipla Medpro 1. To strengthen south African

Acquisition of
South Africa Ltd. operations.
shares
2. Shares rose by 2.6%
FINANCIAL DISTRESS
 DEBT EQUITY RATIO

Sun Pharma Glaxo

Debt to equity ratio (times) 0.325 0.299 0.272 Debt to equity ratio (times) 0.002 0.002 0.001

2,075. 1,682. 1,365.

Interest cover (times) 5.103 -4.127 -2.292 Interest cover (times)
55 92 31

PAT as % of total income -89.1 -17.4 -12.9 PAT as % of total income 17.3 12.9 12.4

Aurobindo

Debt to equity ratio (times) 0.729 0.613 0.488

Interest cover (times) 20.473 40.163 36.948

PAT as % of total income 16 18.2 17

 DEBT EQUITY RATIO

cipla Lupin

Debt to equity ratio (times) 0.091 0.129 0.092 Debt to equity ratio (times) 0.021 0.005 0.034
150.69 653.43 263.76
Interest cover (times) 34.796 39.025 41.618 Interest cover (times)
7 1 5
PAT as % of total income 14.1 11.4 11.3 PAT as % of total income 24.9 23.8 24.9

glenmark

Debt to equity ratio (times) 0.122 0.083 0.108

15.43 44.12 48.63
Interest cover (times)
8 2 7
PAT as % of total income 17.3 18.8 22.7
 Mean 1.28
Standard Error 0.22
Median 0.33
Mode 0.00
Standard Deviation 3.70
Sample Variance 13.66
Kurtosis 69.36
Skewness 7.35
Range 43.70
Minimum 0.00
Maximum 43.70
Sum 367.20
Count 286.00
14.00
Z-SCORE OF DEBT EQUITY RATIO

12.00

10.00

8.00

6.00

4.00

2.00

0.00
0 50 100 150 200 250 300 350

-2.00