MACR Project

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  • 8/7/2019 MACR Project


    Ranbaxy -

    DaiichiMerger Analyst Report

    Submitted by:

    Rajnikant Bajaj 2009190

    Rakesh Bawari 2009191

    Rashmi Prasad 2009192

    Richa Agarwal 2009193

    Ritu Prakash 2009194

    Rohit Jain 2009196

    Samir Bajaj 2009197

    Sanjesh Dubey 2009198

    Siddharth M 2009201

    Sneha Agarwal 2009203

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    Ranbaxy Laboratories Limited (Ranbaxy), India's largest pharmaceutical company, is an

    integrated, research based, international pharmaceutical company, producing a wide range

    of quality, affordable generic medicines, trusted by healthcare professionals and patients

    across geographies. Ranbaxy today has a presence in 23 of the top 25 pharmaceutical

    markets of the world. The Company has a global footprint in 46 countries, world-class

    manufacturing facilities in 7 countries and serves customers in over 125 countries. Ranbaxy

    was incorporated in 1961 and went public in 1973.

    Ranbaxy's mission is To become a Research-based International Pharmaceutical Company.

    The Company is driven by its vision to Achieve significant business in proprietary

    prescription products by 2012 with a strong presence in developed markets.

    DAIICHI SANKYOIt was founded by Sankyo Shoten (financed jointly by Matasaku Shiobara, Shotaro

    Nishimura, Genjiro Fukui) and is involved in Research & Development, Manufacturing ,

    Import, and Sales & Marketing of pharmaceutical products.

    DAIICHI SANKYO's goal is to establish itself as a "Global Pharma Innovator." The

    pharmaceutical industry is one of the 21st century's growth industries, and what this vision

    of the company signifies is DAIICHI SANKYO making it the leading industry of Japan, a nation

    built on the platform of scientific and technological creativity, and establishing itself as a

    firm presence by continued success as a flagship company. This is the vision that guides the

    development of our global pharmaceutical operations.

    They have about 2,300 overseas medical representatives in 33 locations, mainly in Europe

    and the United States. Their U.S. subsidiary, Daiichi Sankyo, Inc. (DSI) has research and

    development and sales sections, and as the organization that forms the nucleus of our U.S.

    operations, is expected to grow in the future. The European subsidiary, Daiichi Sankyo

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    Europe GmbH (DSE), is headquartered in Munich, Germany, and has around 800 medical

    representatives in operational bases in 10 European countries.

    In June 2008, Ranbaxy entered into an alliance with one of the largest Japanese innovator

    companies, Daiichi Sankyo Company Ltd., to create an innovator and generic pharmaceutical

    powerhouse. The combined entity now ranks among the top 20 pharmaceutical companies,

    globally. The transformational deal will place Ranbaxy in a higher growth trajectory and it

    will emerge stronger in terms of its global reach and in its capabilities in drug development

    and manufacturing.

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    Accounting analysis or Quality of earnings analysis is done to evaluate the degree to which

    accounting numbers capture underlying business reality. Sound accounting analysis

    improves reliability of the financial conclusions drawn.

    Accounting Policies of RANBAXY

    By going through the Annual Reports of RANBAXY for five financial years (from 2002-05 to

    2008-09), it can be observed that RANBAXY has selected and applied accounting policies

    consistently, and estimates made are reasonable and prudent in order to give a fair picture

    of state of affairs of the company to its stakeholders. Some of the salient features are as


    The Annual Accounts have been prepared on a going concern basis.

    The financial statements are prepared based on a going concern concept and

    historical cost convention, and on accrual method of accounting in accordance with

    the generally accepted accounting principles and the provisions of the Companies

    Act, 1956.

    Fixed assets are carried at the cost of acquisition or construction or book value less

    accumulated depreciation.

    Depreciation on fixed assets is charged up to the total cost of the assets on straight-

    line method as per the rates prescribed in the Companies Act, 1956.

    Intangible Assets are capitalized at cost, provided it is probable that the future

    economic benefits that are attributable to the asset will flow to the company and the

    company will have control over the assets.

    Sales are recorded based on significant risks and rewards of ownership being

    transferred in favor of the customer. Sales include goods dispatched to customers by

    partial shipment.

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    Revenue is recognized on percentage completion method based on the percentage

    of actual cost incurred up to the reporting date to the total estimated cost of the


    Exchange difference arising on settlement of transactions and translation of

    monetary items are recognized as income or expense in the year in which they arise.

    Quality of accounting principles can be influenced by three factors i.e. Rigidity of accounting

    rules, Forecast errors, Systematic reporting choices made by the managers.

    It can be observed that RANBAXY follows almost rigid accounting rules which may

    decrease the quality as nature of every transaction is not same whereas, regulations

    treat every transaction uniformly. But in here RANBAXY, being a PSU, has implicit

    commitment to follow the regulations etc.

    As future is uncertain future predictions may go wrong. RANBAXYs forecasts had not

    been very far away from the real figures as future figures released are based on the

    concept of reasonably certain and it is a mature company with extremely stable

    operations and income.

    Managers often window dress the accounting numbers due to incentive attached to

    cheating the various reasons would be:

    o Meeting contractual obligations of debt convents: but as RANBAXY currently

    maintains zero working capital finance and secured term deposits (although it

    has unsecured loans of the amount 166 crore rupees, majority of which is in

    the form of leases) there is no incentive to give biased accounting data. And

    in addition to this, RANBAXY had cash and bank balances of 10314 crore

    rupees on 31st March 2009 which is 23% higher from the previous year.

    o Corporate control contests: RANBAXY has been so big and stable to fall prey

    to corporate control contests.

    o Tax consideration: RANBAXY being a Public Sector Company would not

    temper with the numbers to save the taxes to be paid. The external auditor

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    of the RANBAXY also states that the company was found to be paying

    accurate taxes on time.

    o Capital Market Consideration: Often accounting decisions are taken to

    influence the perceptions of the investors, although temporarily, but

    RANBAXY being a stable company cannot take risk of taking Time

    Inconsistency Problem (in short-run you are involved in certain activities that

    are not aligned to your long-run objective).

    o Competitive Consideration: the problem of competition often comes in front

    of the emerging companies which havent made their space secure and/or

    due to greed of earning more profits but neither is the case with RANBAXY.

    Accounting Flexibility

    The accounting policies of RANBAXY have not been changes - leaving a few exceptional

    changes- in the past 5 financial years company has remain stuck with its accounting policies,

    the reasons may vary from it is a PSUI to non-requirement of funds to its stability. Flexibility

    of the accounting policies has often been used to take advantage for the wrong purposes

    (discussed earlier).

    Accounting Strategy

    The Accounting strategy gives the overall holistic view of the accounting of a firm.

    Accounting at RANBAXY is more rigid than flexible. RANBAXY closely follows the

    GAAP and other Regulations while preparing annual accounts and it is in line with

    the industry norms. For example, Purely Temporary Erection such as wooden

    structures is fully depreciated in the year of construction.

    Management does not have much incentive and scope to use accounting discretion.

    RANBAXY has not changed its policies and estimates in past five financial years.

    Certain deviations have been observed that are written a little later.

    Past policies and the estimates has been found realistic in five years of time. The

    estimates were not very from the actual figures.

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    There has been found no business transaction that would have been made to

    achieve some accounting objectives.

    Quality of DisclosuresDisclosures in the Annual report states the degree of the transparency the firm is trying to

    keep. RANBAXY has many disclosures in its Annual reports that are mentioned in various

    Sections of the Companies Act, 1956.

    RANBAXY has an internal audit committee which ensures that Proper and sufficient care has

    been taken for the maintenance of adequate accounting records in accordance with the

    provisions of the Companies Act for safeguarding the assets of th

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