Sectoral analysis of the Indian

pharma industry

DIANA JACOB M-10-19

DIVYA NAYAK M-10-35
DISHA SHETH M-10-50
PRIYANKA SINGH M-10-56
Acknowledgement

The architecture of success stands on a strong foundation made up of strenuous hard work,
determination, presence of mind and above all timely advice from the learned and experienced
people. This word of acknowledgement is to express our deep sense of gratitude to all those
luminaries and unseen hands without whose support the completion of this dissertation would
not have been materialized.

We express our thanks to the Director of IESMCRC Dr Dinesh D Harsolekar for giving us the
opportunity to work on this project.

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 INDEX

1. Introduction about the Indian Pharmaceutical Industry………………….04

3. Major Pharmaceutical Players……………………………….…………….07
4. Growth Scenario in 2010………………………………….………….……..09
5. Future Prospects……………………………………………….……….……09
6. Contribution of Pharma Industry in Exports…………….……………....11
7. Key developments and Challenges……....………………..…………....…..12
8. PEST Analysis…………………………………….………………….….…..14
9. Government Policies………………………………………………….……..16
10. Foreign Investment in the industry………………..……............…...…...18
11. Employment opportunities and contribution to GDP……........…….…20
12. Financial Ratio Analysis……………………………………........…….…21

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INTRODUCTION

Indian Pharmaceutical Industry

India currently represents just U.S. $6 billion of the $550 billion global pharmaceutical industry
but its share is increasing at 10 percent a year, compared to 7 percent annual growth for the
world market overall. Also, while the Indian sector represents just 8 percent of the global
industry total by volume, putting it in fourth place worldwide, it accounts for 13 percent by
value, and its drug exports have been growing 30 percent annually. The “organized” sector of
India's pharmaceutical industry consists of 250 to 300 companies, which account for 70 percent
of products on the market, with the top 10 firms representing 30 percent. However, the total
sector is estimated at nearly 20,000 businesses, some of which are extremely small.
Approximately 75 percent of India's demand for medicines is met by local manufacturing.
According to the German Chemicals Association, in 2005, India's top 10 pharmaceutical
companies were Ranbaxy, Cipla, Dr. Reddy's Laboratories, Lupin, Nicolas Piramal, Aurobindo
Pharma, Cadila Pharmaceuticals, Sun Pharma, Wockhardt Ltd. and Aventis Pharma. Indian-
owned firms currently account for 70 percent of the domestic market, up from less than 20
percent in 1970. In 2005, nine of the top 10 companies in India were domestically owned,
compared with just four in 1994. India's potential to further boost its already-leading role in
global generics production, as well as an offshore location of choice for multinational drug
manufacturers seeking to curb the increasing costs of their manufacturing, R&D and other
support services, presents an opportunity for the pharma sector.

The pharmaceutical industry in India is among the most highly organized sectors. This industry
plays an important role in promoting and sustaining development in the field of global
medicine.

Due to the presence of low cost manufacturing facilities, educated and skilled manpower and
cheap labor force among others, the industry is set to scale new heights in the fields of
production, development, manufacturing and research. The Indian pharmaceutical industry
consists of manufacturers of bulk drugs and formulations. According to estimates, the
proportion of formulations and bulk drugs is in the order of 75:25. There are believed to be over
60,000 formulations manufactured in India in more than 60 therapeutic segments. More than

4
85% of the formulations produced in the country are sold in the domestic market. India is
largely self-sufficient in case of formulations, though some life saving, new-generation-
technology-barrier formulations continue to be imported.

Among the therapeutic segments, the anti-infectives top domestic production in volumes. Bulk
drug manufacturing is largely concentrated in Andhra Pradesh, which accounts for more than
one-third of the country’s total bulk drug production, followed by Gujarat. The Indian bulk drug
industry has lately been gaining significant presence in the global market as foreign and
multinational companies are looking to sourcing APIs and intermediates from Indian
manufacturers. Factors favouring the industry are a vast resource of technical people, state of-
the-art manufacturing facilities, low cost and the advantage of the English language. As part of
government’s support to increase exports, duty free zones have been set up and several
manufacturers of bulk drugs have been shifting their facilities to these areas. As a result, the
diverse spread has now started getting consolidated and concentrated in certain regions across
the country.

Industry Trends

 The pharma industry generally grows at about 1.5-1.6 times the Gross Domestic Product
growth
 Globally, India ranks third in terms of manufacturing pharma products by volume
 In 2007-08, India exported drugs worth US$7.2 billion in to the US and Europe followed
by Central and Eastern Europe, Africa and Latin America
 The Indian vaccine market which was worth US$665 million in 2007-08 is growing at a
rate of more than 20%
 The retail pharmaceutical market in India is expected to cross US$ 12-13 billion by 2012
 The Indian drug and pharmaceuticals segment received foreign direct investment to the
tune of US$ 1.43 billion from April 2000 to December 2008

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SCOPE AND IMPORTANCE OF PHARMA INDUSTRY

Over the years pharmacy has grown in the form of pharmaceuticals sciences through research
and development processes. It is related to product as well as to services. The various drugs
discovered and developed are its products and the healthcare it provides comes under the
category of services.

Pharmacy involves all the stages that are associated with the drugs i.e. discovery, development,
action, safety, formulation, use, quality control, packaging, storage, marketing, etc. This
profession has a large socio-economic relevance to the Indian economy. In India this sector is
among the future economy drivers. It is committed to deliver high quality drugs and
formulations at an affordable price, so that majority of people can afford them.

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Major Pharmaceutical Players
The Key Players In The Indian Pharmaceutical Industry are also examined and Companies
Mentioned in this report include:

- Aarti Drugs - Organon

- Abbott India - Panacea Bio
- Ajanta Pharma
- Pfizer
- Alembic
- Astrazeneca Pharma - Pharmacia
- Aurobindo Pharma - Ranbaxy
- Aventis Pharma
- R P G Life Sciences
- Cadila Health
- Cipla - Shasun Chemicals
- Dr. Reddy - Siris Limited
- Elder Pharma
- Sterling Biotech
- German Remedies
- Glaxo Smithkline - Strides Arcolab
- Ind Swift Lab - Sun Pharma
- Ipca Laboratories - Suven Life Sciences
- J B Chemical
- Jagson Pharma - Torrent Pharma
- K D L Biotech - Unichem Lab
- Kopran - Wockhardt
- Krebs Biochem
- Wyeth Ltd
- Lupin
- Lyka Labs - Zandu Pharma
- Medicorp Tech
- Merck
- Natco Pharma
- Nicholas Piramal
- Novartis
- Orchid Chemicals

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Key Players in the Industry
Most of the country's requirements for pharmaceutical products are met by these companies.
Some of them are briefly described below:

Ranbaxy Laboratories
The company is ranked at the 8th position among the global generic pharmaceutical companies
and has presence in 48 countries including world class manufacturing facilities in 10 countries
and serves to customers from over 125 countries.

Dr. Reddy's Laboratories

The company has 60 active pharmaceutical ingredients to manufacture drugs, critical care
products, diagnostic kits and biotechnology products. The company has 6 FDA plants that
produce active pharma ingredients and 7 FDA inspected and ISO 9001 and ISO 14001 certified
plants.

Cipla

It is an Indian pharmaceutical company renowned for the manufacture of low cost anti AIDS
drugs. The company's product range comprises of anthelmintics, oncology, anti-bacterials,
cardiovascular drugs, antibiotics, nutritional supplements, anti-ulcerants, anti-asthmatics and
corticosteroids.

Nicholas Piramal
It is the second largest pharmaceutical healthcare company in India. The brands manufactured by
the company include Gardenal, Ismo, Stemetil, Rejoint, Supradyn, Phensedyl and Haemaccel.

Glaxo Smithkline (GSK)

It is a United Kingdom based pharma company; it is the world's second largest pharmaceutical
company. The company's portfolio of pharma products consist of central nervous system,
respiratory, oncology, vaccines, anti-infectives and gastro-intestinal/metabolic products among
others.

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Growth Scenario in 2010

India's pharmaceutical industry is now the third largest in the world in terms of volume. Its rank
is 14th in terms of value. Between September 2008 and September 2009, the total turnover of
India's pharmaceuticals industry was US$ 21.04 billion. The domestic market was worth US$
12.26 billion. This was reported by the Department of Pharmaceuticals, Ministry of Chemicals
and Fertilizers. As per a report by IMS Health India, the Indian pharmaceutical market reached
US$ 10.04 billion in size in July 2010. A highly organized sector, the Indian Pharma Industry is
estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually.

Future Prospects
With several companies slated to make investments in India, the future scenario of the
pharmaceutical industry in looks pretty promising. The country's pharmaceutical industry has
tremendous potential of growth considering all the projects that are in the pipeline. Some of the
future initiatives are:

 According to a study by FICCI-Ernst & Young India will open a probable US$ 8 billion
market for MNCs selling expensive drugs by 2015
 The study also says that the domestic pharma market is likely to reach US$ 20 billion by
2015
 The Minister of Commerce estimates that US$ 6.31 billion will be invested in the
domestic pharmaceutical sector
 Public spending on healthcare is likely to raise from 7 per cent of GDP in 2007 to 13 per
cent of GDP by 2015
 Dr Reddy's Laboratories has tied up with GlaxoSmithKline to develop and market
generics and formulations in upcoming markets overseas
 Lupin, a Mumbai based pharmaceutical company is looking to tap opportunities of about
US$ 200 million in the US oral contraceptives market
 Due to the low cost of R&D, the Indian pharmaceutical off-shoring industry is designated
to turn out to be a US$ 2.5 billion opportunity by 2012

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The Indian pharmaceuticals market is expected to reach US$ 55 billion in 2020 from US$ 12.6
billion in 2009. This was stated in a report title "India Pharma 2020: Propelling access and
acceptance, realising true potential" by McKinsey & Company. In the same report, it was also
mentioned that in an aggressive growth scenario, the pharma market has the further potential to
reach US$ 70 billion by 2020

The domestic pharma market is estimated to touch US$ 20 billion by 2015. The healthcare
market in India to reach US$ 31.59 billion by 2020. The sale of all types of pharmaceutical drugs
and medicines in the country stands at US$ 9.61 billion, which is expected to reach around US$
19.22 billion by 2012. Thus India would really become a lucrative destination for clinical trials
for global giants.

There was another report by RNCOS titled "Booming Pharma Sector in India" in which it was
projected that the pharmaceutical formulations industry is expected to prosper in the same
manner as the pharmaceutical industry. The domestic formulations market will grow at an annual
rate of around 17% in 2010-11, owing to increasing middle class population and rapid
urbanization.

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Contribution of Pharma Industry in Exports

The Indian pharmaceutical industry is highly regulated. The Government controls prices of a
large number of bulk drugs and formulations.

Exports

Over 60% of India’s bulk drug production is exported. The balance is sold locally to other
formulators. India’s pharmaceutical exports are to the tune of Rs87bn, of which formulations
contribute nearly 55% and the rest 45% comes from bulk drugs.

During 2009-10, the pharmaceutical exports saw only 4.13 per cent growth over the previous
year. While the effect of slowdown on the other sectors was visible during 2008-09, the
pharmaceutical sector witnessed it only during 2009-10. However, barring 2009-10, the
pharmaceutical sector saw a compounded annual growth rate of around 17 per cent over the
years. During 2008-09, bulk drugs accounted for 42 per cent of the exports, formulations 56 per
cent and herbals and ayurveda contributed the balance 2 per cent.
The US imports 22 cent of the total pharma exports from India, Africa 16 per cent and
Commonwealth of Independent states eight per cent. In all, the pharma products are exported to
220 countries and colonies. Singapore, Malaysia, Vietnam, Russia, Ukraine, South Africa,
Nigeria and Kenya are now the focus countries for exports.
Among the pharma exporting states, Maharashtra leads with 38 per cent contribution, followed
by Andhra Pradesh at 23 per cent.

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Key developments in the Pharma Industry

Multiple branded drug patent expirations in the short term. According to IMS Health, in 2006
and 2007 a total of US$ 28 bn and US$ 20 bn, respectively, of branded sales were likely to
become susceptible to the entry of generic equivalents

 Increasing confidence of consumers in generics in the developed markets

 A pro-generic sentiment from healthcare authorities driven by the pressure of containing
rising healthcare costs
 An aging population across the world, leading to increasing demand for low cost
therapies
 Global healthcare crisis like AIDS in the developing world, necessitating affordable
medication for the masses

Generic companies in India are recognizing the importance of patent expiries and are making
significant incremental investments in research and drug development.

Challenges Faced by the Industry

Every industry has its own sets of advantages and disadvantages under which they have to work;
the pharmaceutical industry is no exception to this. Some of the challenges the industry faces are:

 Regulatory obstacles
 Lack of proper infrastructure
 Lack of qualified professionals
 Expensive research equipments
 Lack of academic collaboration
 Underdeveloped molecular discovery program
 Divide between the industry and study curriculum

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Key issues facing the Pharmaceutical Industry

Some of the issues the domestic industry is facing are as under:

 Increasing span of price control

The draft National Pharmaceuticals Policy, 2006, currently underway and awaiting
approval from the Parliament, intends to bring 354 drugs under price control, which is in
addition to the 74 bulk drugs already notified under price control. The price control as
proposed in the Policy is likely to cover at least 50-60% of the domestic market under
price control. The proposed control on prices is set to impact the industry margin
significantly, especially those players having only local operations. However, to secure
the profitability, firms will have to increase their scale of production. The number of
drugs under price control had come down from nearly 400 in the 1970s to 72 in 1995,
and further reduced to 29 in 2002. The new draft policy consists of these 354 drugs that
are likely to be under the cost based price control.

 Price erosion in generics

Indian generics market is witnessing a margin pressure in most of the product categories
due to two main reasons: the proposed price control likely to be imposed by the
Government and the stiff competition among domestic players. Moreover, the expansion
of capacities by certain leading players has also fuelled competition in certain product
categories, which restricts margins of the smaller players.Indian players, which have
been operating in overseas markets, have also witnessed erosion in margins in certain
therapeutic segments.

 Low R&D productivity

Despite the increasing expenditure on R&D, the introduction of new molecules by Indian
players has been limited. Very few discoveries reach the final stages of approvals, and in
most of the cases, the claim for patent gets stuck in legal battles.
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 In spite of the rising expenditure in R&D, the level of investment in R&D is still low, at
average 4% as compared to the global practice of spending 12-16% of sales on R&D. In
2005, acquisitions by the Indian pharmaceutical companies were the highest, with 20
buyouts abroad. Europe has emerged as the most preferred destination for acquisitions
by Indian companies. The European generics market has emerged as a major attraction
for acquisitions by Indian companies. The Government has estimated that by year 2010,
the industry has the potential to achieve a size of US$ 28 bn.

PEST Analysis
Environmental Analysis (PEST)
Technological advancements, tighter regulatory-compliance overheads, rafts of patent expiries
and volatile investor confidence have made the modern pharmaceutical industry an increasingly
tough and competitive environment. Below is an analysis of the structure of the pharmaceutical
industry using the PEST (political, economic, social and technological) model.

Increasing Political Attention:

Over the years, the industry has witnessed increased political attention due to the increased
recognition of the economic importance of healthcare as a component of social welfare. Political
interest has also been generated because of the increasing social and financial burden of the
healthcare. Examples are the UK’s National Health Service debate and Medicare in the US.

Economic Value Added:

In the decade to 2003 the pharmaceutical industry witnessed high value mergers and
Acquisitions. With a projected stock value growth rate of 10.5% (2003-2010) and Health Care
growth rate of 12.5% (2003-2010), the audited value of the global pharmaceutical market is
estimated to reach a huge 500 billion dollars by 2004. Only information technology has a higher
expected growth rate of 12.6%.
Majority of pharmaceutical sales originate in the US, EU and Japanese markets. Nine geographic
markets account for over 80% of global pharmaceutical sales these are, US, Japan, France,
Germany, UK, Italy, Canada, Brazil and Spain.

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The Social Dimension:
Good health is an important personal and social requirement and the unique role pharmaceutical
firms’ play in meeting society’s need for popular wellbeing cannot be underestimated. In recent
times, the impacts of various global epidemics like SARS, AIDS etc has also attracted popular
and media attention to the industry. The effect of the intense media and political attention has
resulted in increasing industry efforts to create and maintain good government-industry-society
communications.

Technological Advances:
A modern scientific and technological advance in science is forcing industry players to adapt
ever faster to the evolving environments in which they participate. Scientific advancements have
also increased the need for increased spending on research and development in order to
encourage innovation.

Legal Environment:
The pharmaceutical industry is a highly regulated and compliance enforcing industry. As a result
there are immense legal, regulatory and compliance overheads which the industry has to absorb.
This tends to restrict it’s dynamism but in recent years, government have begun to request
industry proposals on regulatory overheads to so as not to discourage innovation in the face of
mounting global challenges from external markets.

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Government Policies

The basic objectives of Government’s Policy relating to the drugs and pharmaceutical sector
were enumerated in the Drug Policy of 1986. These basic objectives still remain largely valid.
However, the drug and pharmaceutical industry in the country today faces new challenges on
account of liberalization, the globalization and on account of new obligations undertaken by
India under the WTO Agreements. These challenges require a change in emphasis in the current
pharmaceutical policy and the need for new initiatives beyond those enumerated in the Drug
Policy 1986, as modified in 1994, so that policy inputs are directed more towards promoting
accelerated growth of the pharmaceutical industry and towards making it more internationally
competitive. The need for radically improving the policy framework for knowledge-based
industry has also been acknowledged by the Government. The Prime Minister’s Advisory
Council on Trade and Industry has made important recommendations regarding knowledge-
based industry. The pharmaceutical industry has been identified as one of the most important
knowledge based industries in which India has a comparative advantage.

Indian Regulations & Guidelines:

Central Drugs Standard Control Organization (CDSCO), Ministry of

CDSCO  Health & Family Welfare, Government of India provides general
information about drug regulatory requirements in India.
Drugs (Price Control) Order 1995 and other orders enforced byNational
NPPA Pharmaceutical Pricing Authority (NPPA),Government of India. View
the list of drugs under price controlhere.....

The Drugs & Cosmetics Act, 1940 regulates the import, manufacture,

D & C Act, 1940
distribution and sale of drugs in India.

Schedule Mof the D&C Act specifies the general and specific
requirements for factory premises and materials, plant and equipment and
Schedule M
minimum recommended areas for basic installation for certain categories of
drugs.

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 Schedule T of the D&C Act prescribes GMP specifications for
Schedule T
manufacture of Ayurvedic, Siddha and Unani medicines.

The clinical trials legislative requirements are guided by specifications

Schedule Y
of Schedule Yof The D&C Act.

The Ministry of Health, along with Drugs Controller General of India

(DCGI) and Indian Council for Medical Research (ICMR)has come out
GCP guidelines  with draft guidelines for research in human subjects. These GCP
guidelines are essentially based on Declaration of Helsinki, WHO
guidelines and ICH requirements for good clinical practice.

The Pharmacy The Pharmacy Act, 1948 is meant to regulate the profession of Pharmacy
Act,1948  in India.

The Drugs and

Magic Remedies The Drugs and Magic Remedies (Objectionable Advertisement) Act,
(Objectionable 1954 provides to control the advertisements regarding drugs; it prohibits
 Advertisement) the advertising of remedies alleged to possess magic qualities.
Act, 1954
The Narcotic Drugs
The Narcotic Drugs and Psychotropic Substances Act, 1985 is an act
and Psychotropic
concerned with control and regulation of operations relating to Narcotic
Substances
Drugs and Psychotropic Substances.
 Act, 1985

FOREIGN INVESTMENT IN THE INDUSTRY:

The Government is expected to soon take a call on slashing the foreign direct investment (FDI)
limit in the pharmaceutical sector in order to bring down the prices of drugs, chiefly essential
drugs. It is mulling capping the FDI in the sector at 49 per cent and routing it through the
government. Currently, the FDI limit in the sector stands at 100 per cent through the automatic
route.

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The government fears that 100 per cent FDI will lead to uncontrolled mergers and acquisitions
(M&A) by foreign drug firms, which could lead to further increase in drug prices and also
cartelization.

Earlier, the PMO had also sent a note based on the recommendations submitted by global
drugmakers, which seeks key changes such as a legislative review of the Indian patent laws, data
exclusivity and implementation of patent linkages.

The acquisition of Indian pharma companies by multinational corporations (MNCs) was

impacting the availability of low-cost medicines. The commerce ministry had proposed
tightening the rules so that Indian acquisitions by MNCs flow through it and not through the
automatic route.

The finance ministry as well as the Planning Commission has also advised the concerned
ministries to expedite the process to ensure that 65 per cent Indians, who according to the World
Health Organisation (WHO) still lack access to essential medicines are not deprived of affordable
and high-quality medicines.

India's Rs35, 175 crore ($7.5 billion) drug industry is among the world's top five bulk drug
producers. It is also among the world's 20 top pharmaceutical exporters, with exports growing at
17.8 per cent per annum. India currently ranks third in terms of the volume of production (9.3 per
cent of global share) and 14th in terms of value (1.5 per cent of global share). 

WTO And Pharmaceuticals Industry

Economic liberalization the world over has paved the way for globalization. The most prominent
trend of this process is the emergence of trade agreements as instruments, that are legally binding
and enforceable and ones, which are primarily developed by a few developed countries for the
developing countries to follow. The World Trade Organization, which is a multilateral trading
body, is a polished sword in the scabbard of the industrialized nations for organizing and
enforcing global economic governance. Being a member country of WTO, India is bound by the

18
trade agreement and policies set out in the charter of the World Trade Organization. 

India that till now has adopted process patent has been directed by the WTO to do away with it
and adopt product patent to comply with the rules charted in the TRIPs agreement. According to
the WTO agreement India has been given time up to year 2005 to amend its IPA to allow product
patent instead of process patent. 

Trade cross-retaliation is one prime problem that India will have to encounter if it does not
comply with the specified regulations. In the light of this, an attempt has been made to study the
impact of WTO directives post-2005, in the pharmaceutical sector in India. Given the current
industry scenario in India, it is in no way a minnow to the global pharmaceutical majors. Yet it is
beset with many implications. The policies of the Government apropos of, the pharmaceutical
industry show promise and the current budgetary announcements scatter a ray of hope.

Article 8 and Article 30 of the TRIPs Agreement provide some relief to the Indian policy makers
through some lenient provisions set out in them. The government has to take full advantage of the
provisions thus laid, by adopting a proactive approach.

In the light of the implementation of TRIPs Agreement after 2005, options like collaborative
research, contract research, stepping up of research and development expenditure, developing and
exporting of tropical drugs, manufacturing through licensing are open to the business.

Prospects of Getting a Job in the Pharma Trade

Since the pharmaceutical industry is fast growing in India, Jobs in pharmaceutical Industry are
plenty. The pharmaceutical company employs people by way of medical representatives as also
has expenditure for advertising which creates job opportunities. An individual can set up a local
pharmacy and on its expansion can set up branches throughout the nation.
The Jobs in pharmaceutical Industry of the managed care pharmacist is to formulate rules and
regulations pertaining to the utilization of different drugs. One can also venture along academic
lines as basic scientist, clinical practitioners or educators.

19
The job of the pharmacy consultant is to serve as a trained clinician or an educator in adult day
care centers or home care agencies. The pharmaceutical industry also provides job opportunities
for biological scientists, chemists, medical scientists and chemists.

Indian Pharma Industry is likely to post a GDP growth of 9.2 % in FY 2011 & 11% in
2012Pharma Sources & insiders claimed that on the whole, hiring in the pharmaceutical Industry
has grown by 11-12 per cent this year. This includes personnel for R&D and general
management, among other categories. In the healthcare sector, pharmaceuticals have been the
leader in hiring experienced staff at 83.7 per cent.

Recent projections from Mercer tip Pharma as one of the hottest sectors for 2011 which will pay
average hikes in the neighborhood of 13 per cent. This will have deep impact in other sectors as
well.

Financial Ratio Analysis

In order to carry out the financial analysis of the Indian Pharmaceutical industry, we selected 5
major companies, viz.

1. Dr. Reddy’s Laboratories Ltd

2. Nicholas Piramal Healthcare Ltd
3. Aurobindo Pharma
4. Cipla
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 5. Lupin Pharmaceuticals

SOLVENCY RATIOS

Current Ratio Current ratio may be defined as the

relationship between current assets and current
liabilities. This ratio is also known as
"working capital ratio". It is a measure of
general liquidity and is most widely used to
make the analysis for short term financial
position or liquidity of a firm. This ratio is a
general and quick measure of liquidity of a
firm. It represents the margin of safety or
cushion available to the creditors.
Current Ratio = Current assets/Current liabilities

It is high for Aurobindo, because their Inventories have increased by nearly by Rs. 2100 million.
The major reason is due to the huge quantities of Finished goods of the value Rs 1100 million.

It is low for Cipla, because their Sundry Debtors have reduced which in turn reduced their
Current Assets (CA).

Quick Ratio Liquid ratio is also termed as "Liquidity

Ratio", "Acid Test Ratio" or "Quick Ratio".
.
The true liquidity refers to the ability of a firm to
pay its short term obligations as and when they
become due.

It measures the firm's capacity to pay off current

obligations immediately and is more rigorous test
of liquidity than the current ratio because it
21
eliminates inventories and prepaid expenses as a
part of current assets.
Quick Ratio = QA / QL = (CA – Stock – Prepaid exp.) / (CL – BOD)

It is high for Dr Reddy, because this year the company reduced its quick ratio from 2.13 to 1.45 .
30% of Current Assets are debtors due to which the quick ratio is high.It is lowest for Cipla,
because the major CA included Inventory with high value of finished goods, thus when
Inventory is removed their effective QA value becomes very less.

PROFITABILITY RATIOS

Return on Net Worth

It is the ratio of net profit to share

  holder's investment. This ratio establishes

the profitability from the share holders'
point of view. As the primary objective of
business is to maximize its earnings, this
ratio indicates the extent to which this
primary objective of businesses being
achieved.

RONW (Return on Net Worth) = PAT/ Avg. Net Worth * 100

It is Highest for Aurobindo, because their Sales increased and are of the value Rs. 3252.27
crores. Also they have reduced their Administrative expenses whichThe
increased
ratio is the PAT thus
considered an indicator of how
making their RONW high. It is Lowest for Dr Reddy. Dr Reddy’s Net Worth is
effectively Rs. 5914 is
a company crore
using its assets to
and PAT 773. generate earnings before contractual
obligations must be paid. The return on
Return on Total Assets
assets (ROA) percentage shows how
profitable a company's assets are in
generating revenue. Return on assets gives
an indication of the capital intensity of
22 the
company, which will depend on the
industry.
ROTA (Return on Total Assets) = PAT/ Avg. Total Assets * 100
It is Highest for Dr Reddy’s, because decrease in Current Assets by Rs. 727 crore and increase in
PAT by 29% helped the company to improve its ROTA. It is lowest for Aurobindo, because their
Avg. Total assets is only approx Rs. 3.6 crore which is very low comparatively.

EPS The portion of a company's profit allocated to

each outstanding share of common
stock. Earnings per share, serves as an indicator
of a company's profitability.

Compared with EPS of similar companies, it

gives a view of the comparative earnings or
earnings power of the firm. EPS ratio calculated
for a number of years indicates whether or not
the earning power of the company has
P/E reflects the capital structure of the company
increased.
in question. P/E is a financial ratio used for
EPS (adjusted) = Net Income (= PAT – Preference dividend)/ No. of Equity Shares
valuation: a higher P/E ratio means that
It is Highest for Aurobindo because their PAT is very high are
investors andpaying
their number of each
more for equityunit
shares is
of net
lowest as compared to other companies. It is Lowest for Cipla
income, because
so the stock their PAT is almost
is more expensive
similar to other companies but their number of equity shares to
compared is very highlower
one with of around 80 crores
P/E ratio. Price
which brings the value of EPS very down. earnings ratio helps the investor in deciding
whether to buy or not to buy the shares of a
P/E ratio 
particular company at a particular market
price.Generally, higher the price earnings ratio
the better it is. If the P/E ratio falls, the 23
management should look into the causes that
have resulted into the fall of this ratio.
 P/E Ratio = MPS / EPS

It is highest is for Dr Reddy’s because during recession company had sales up by 10%. Strong
brand of Dr Reddy and positive outlook towards Pharmaceutical industry are some of the reasons
behind P/E of company. It is lowest for Aurobindo because their EPS is very high with respect to
its market value.

Gross Profit

It reflects efficiency with which a firm

produces its products. However, the
gross profit earned should be sufficient
to recover all operating expenses and to
build up reserves after paying all fixed
interest charges and dividends.
Gross Profit Ratio = Gross Profit/ Net Sales

It is Highest for Dr Reddy Gross profit margin of Dr Reddy’s was 18% in

2008 -9 in 2009 – 10 it is 24%. Sales increased by Rs. 400 crore. Other operating income
increased from Rs. 100 crore to Rs. 212 crore. It is Lowest for Piramal since its Net sales is Rs.
2651 crores only, which is very less as compared to other companies.

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Debt-to-Equity ratio 

It indicates the relationship between

the external equities or outsiders
funds and the internal equities or
shareholders funds.

It is also known as external internal

equity ratio. It is determined to
ascertain soundness of the long term

Debt/Equity Ratio = (Secured Loan + Unsecured Loan) / (Share Capital (Eq. + Pref.) +
R&S – Misc. Exp.)

Decrease in Long Term Loans from 9768 to 6609. Secured loan = 4065 (Last year = 4480) (Due
to reduction in Cash Credit from Banks from 980 to 565). Unsecured loan = 2544 (Last year =
5288). Equity Share Capital the same as last year, Increase in R & S from 11472 to 14588.
Miscellaneous Exp. Reduced from 513 in the previous year to 507

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