Working Capital Management- Pharma

7/23/2019 Working Capital Management- Pharma

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italManagementinPharma

Report Submitted

by Group 6 Tushar Agarwal (H002)

Supriya Kirtima (H02!)

Kshiti" #ittal (H0$!)

Rupali Sighaia (H06%)

&irati Siha (H062)


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ContentsIntroduction................................................................................................................................

Growth Story of Pharmaceutical Industry in India....................................................................

Liquidity Measurement Ratios...................................................................................................

Current Ratio..........................................................................................................................

Quick Ratio............................................................................................................................

Liquidity ratio analysis of Sun Pharma..............................................................................

Various Liquidity Measurement ratios for Sun Pharma.....................................................

Liquidity ratio analysis of Luin........................................................................................

Various Liquidity Measurement ratios for Luin...............................................................

Liquidity ratio analysis of Cila.........................................................................................

Various Liquidity Measurement ratios for Cila................................................................

Cash Con!ersion Cycle............................................................................................................

Cash Con!ersion Cycle"s #CCC$ of to % Comanies #&y Market Share$................... .......

'orkin( Caital requirement and MP&).................................................................................

'orkin( Caital...............................................................................................................

MP&) #Ma*imum ermissi+le +ank financin($..............................................................

'orkin( caital requirements and Ma*imum Permissi+le &ank )inance for Luin

..........................................................................................................................................

'orkin( caital requirements and Ma*imum Permissi+le &ank )inance for Cila

..........................................................................................................................................

References................................................................................................................................

,*hi+it......................................................................................................................................

)inancial Statements of -o % Indian Pharma Comanies #&y Market Share$...................

Sun Pharma &alance Sheet..............................................................................................

Sun Pharma Income Statement........................................................................................


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'harmaeutial dustry i dia

trodutio

-he Pharmaceutical industry in India is the worlds third/lar(est in terms of !olume.

0ccordin( to 1eartment of Pharmaceuticals2 Ministry of Chemicals and )ertili3ers2 the

total turno!er of Indias harmaceuticals industry +etween 4556 and Setem+er 4557 was

8S94:.5; +illion and the domestic market was worth 8S9:4.4< +illion. -he industry

holds a market share of 9:; +illion in the 8nited States. 0ccordin( to &rand India ,quity

)oundation2 the Indian harmaceutical market is likely to (row at a comound annual

(rowth rate #C0GR$ of :;/:= er cent in +etween 45:4/:


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Growth Story o+ 'harmaeutial dustry i dia

India is now amon( the to fi!e harmaceutical emer(in( markets of the world. ,*orts

of harmaceuticals roducts from India increased from 8S9


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E Latest 1ata a!aila+le with the 1eartment of Pharmaceuticals2 Go!t. >fIndia

-he to % harmaceutical comanies in India in terms of Market Caitalisationare

S.No. Company Name Market Cap Net Sales

1 Sun Pharma 216,643.74 2,828.792 Lupin 90,079.71 8,939.38

3 Dr Reddys Labs 59,169.12 9,728.00

4 Cipla 56,367.82 9,380.29

5 Ranbaxy Labs 35,287.50 6,864.94

E 0ll )i(ures are in Ruees Crores #Source? Money control$

,iuidity #easuremet Ratios

)ollowin( are the liquidity measurement ratios?


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Current Ratio-he current ratio is a oular financial ratio used to test a comanys liquidity #also

referred to as its current or workin( caital osition$ +y deri!in( the roortion of current

assets a!aila+le to co!er current lia+ilities.0 hi(h current ratio is not necessarily (ood2 and a low current ratio is not necessarily +ad.

Contrary to oular ercetion2 the u+iquitous current ratio2 as an indicator of liquidity2 is

flawed +ecause its concetually +ased on the liquidation of all of a comanys current

assets to meet all of its current lia+ilities. In reality2 this is not likely to occur. In!estors

ha!e to look at a comany as a (oin( concern. Its the time it takes to con!ert a comanys

workin( caital assets into cash to ay its current o+li(ations that is the key to its

liquidity. In a word2 the current ratio can +e Fmisleadin(.F

Quick Ratio

-he quick ratio is also called as the quick assets ratio or the acid/test ratio. It is a liquidityindicator that further refines the current ratio +y measurin( the amount of the most liquid

current assets there are to co!er current lia+ilities. -he quick ratio is more conser!ati!e

than the current ratio +ecause it e*cludes in!entory and other current assets2 which are

more difficult to turn into cash. -herefore2 a hi(her ratio means a more liquid current

osition.

,iuidity ratio aalysis o+ Su 'harma

1urret assets 20%03%% 20%%3%2 20%23%$ 20%$3%

In!entory#total$


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7arious ,iuidity #easuremet ratios +or Su 'harma

Ratios 8ormula 20%03%%

20%%

3%2

20%2

3%$

20%$3

%

Current Ratio

Current0ssetsCurrentLia+ilities %.57 4.


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7arious ,iuidity #easuremet ratios +or ,upi

Ratios 8ormula 20%03%%

20%%3

%2

20%23

%$

20%$3

%

Current Ratio

Current0ssetsCurrentLia+ilities :.: :.:7 :.B7

4.6

:

QuickRatio

#Cash H,qui!alents Short -erm :.=B :.B7 :.


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%% 3%$ %

Current Ratio

Current0ssetsCurrentLia+ilities 4.B7 %.:6 :.7B :.74

QuickRatio

#Cash H,qui!alents Short -erm 4.5< :.7B :.1S>/1P>

9ays *etory :utstadig (9:);-his addresses the question of how many days it

takes to sell the entire in!entory. -he smaller this num+er is2 the +etter.

1I> J 0!era(e in!entoryC>GS er day0!era(e In!entory J #+e(innin( in!entory endin( in!entory$4

9ays Sales :utstadig (9S:);-his looks at the num+er of days needed to collect on

sales and in!ol!es 0R. 'hile cash/only sales ha!e a 1S> of 3ero2 eole do use credit

e*tended +y the comany2 so this num+er will +e ositi!e. 0(ain2 smaller is +etter.

1S> J 0!era(e 0R Re!enue er day

0!era(e 0R J #+e(innin( 0R endin( 0R$4

9ays 'ayable :utstadig (9':);-his in!ol!es the comanys ayment of its own

+ills or 0P. If this can +e ma*imi3ed2 the comany holds onto cash lon(er2 ma*imi3in( its

in!estment otentialK therefore2 a lon(er 1P> is +etter.

1P> J 0!era(e 0PC>GS er day

0!era(e 0P J #+e(innin( 0P endin( 0P$4

1ash 1o*ersio 1yle


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Cipla 124 Days 114 Days 108 Days

Cadila Healthcare 72 Days 74 Days 66 Days

Inference:

If we see the a+o!e ta+le we can clearly notice that Cadila Aealthcare has the lowest CashCon!ersion Cycle of the to B comanies initially +ut it is (radually increasin( which shows

they are not mana(in( their cash cycles. Similarly Sun Pharma is also tryin( to redeem itself

and cement its no.: osition in terms of market share +y seedin( u its CCC. 1r Reddys La+s

seems to +e the worst of the to B in terms of CCC. -his shows that too much in!entory is +uild

u and cash is tied u in (oods that cannot +e sold / this is not (ood news for the comany.

'orkin( Caital requirement and MP&)

-or.ig 1apital

-or.ig apital> 1urret assets 1urret ,iabilities


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'hate!er may +e the or(ani3ation2 workin( caital lays an imortant role2 as the comanyneeds caital for its day to day e*enditure. -housands of comanies fail each year due to oorworkin( caital mana(ement ractices. ,ntrereneurs often dont account for short termdisrutions to cash flow and are forced to close their oerations.

In simle term2 workin( caital is an e*cess of current assets o!er the current lia+ilities. Good

workin( caital mana(ement re!eals hi(her returns of current assets than the current lia+ilities to

maintain a steady liquidity osition of a comany. >therwise2 workin( caital is a requirement of

funds to meet the day to day workin( e*enses. So a roer way of mana(ement of workin(

caital is hi(hly essential to ensure a dynamic sta+ility of the financial osition of an

or(ani3ation.

#'=8 (#a?imum permissible ba. +iaig)

It is the ma*imum financin( that a comany can a!ail from the +ank to financeits workin( caital requirements. -he ma*imum amount any +ank can (i!e to

a comany is :B of its own -ier/: caital which is done in order to sread

the risk.

MP&)JModified MP&)

Current assets#less e*ort recei!a+les$

/ Current Lia+ilities

//////////////////////////

'orkin( caital

Self financin(J4B of current assets

MP&)J'orkin( caital/self financin(

Modified MP&)JMP&) e*ort recei!a+les

>ut of MP&) 45 is cash credit while 65 is workin( caital demand loan

#'C1L$.

0ll fi(ures +elow are in Ruees Crores

-or.ig apital reuiremets ad #a?imum 'ermissible =a.

8iae +or Su 'harma

20%%3%2 20%23%$1urret assets 20%03%%


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:%4=.=: ;%:.:4Cash and &ank :4B5.7:

B;.5: B7.47>ther Current 0ssets ;5.74

%75.


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-or.ig apital reuiremets ad #a?imum 'ermissible =a.

8iae +or ,upi

20%%3%2 20%23%$1urret assets 20%03%%

::4%.B< :%%5.6%In!entory#total$ 6;:.::

:;75.65 :6=;.4=-radeRecei!a+les :4%;.46

:7.45 45.:4Cash and &ank %=.;nline 1ata+ases

:$ Crisil research data+ase/ eli+rary MIMS4$ Moneycontrol#)inancial Statements and !arious Ratios$

0rticles for Re!iew

:$ ,rnest '. 'alker2 -owards 0 -heory of 'orkin( CaitalN2 -he,n(ineerin( ,conomist2 'inter :7


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@?hibit

Su 'harma =alae Sheet

Sun Pharma Mar '14 Mar '13 Mar '12 Mar '11 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 207.12 103.56 103.56 103.56 103.56

Equity ShareCapital

207.12 103.56 103.56 103.56 103.56

Share ApplicationMoney

0 0 0 0 0

re!erence ShareCapital

0 0 0 0 0

"eser#es 7$200.76 7$6%5.32 7$77&.56 6$576.'7 5$61&.&2

Networth 7,407.88 7,788.88 7,878.12 ,80.!3 !,717."8

Secure( )oans %.%1 &3.13 &0.3 50.53 2'.&'

*nsecure( )oans 2$&00.20 0 0 0 0

#ota$ %e&t 2,40".01 43.13 40.3 !0.!3 2".4"

#ota$ (a&($(t(es ",81.8" 7,832.01 7,"18.42 ,731.0 !,747.47

Mar '14 Mar '13 Mar '12 Mar '11 Mar '10

)**$(cat(on Of Funds

+ross ,loc- 1$'&7.&7 1$720.70 1$&7%.'3 1$235.51 1$15'.76

)ess "e#aluation"eser#es

0 0 0 0 0

)ess Accum./epreciation

6%0.3 5%&.'1 501.63 &&1.12 &1'.2&

Net +$oc 1,27.17 1,13!.7" "77.3 7"4.3" 740.!2

Capital or- inroress

&%0.&6 3&%.0& 2&%.%7 1'5.65 '2.15

-nestments 7,01!.73 4,317.!4 4,437.78 3,01.42 3,"!1."

n#entories '1%.3% %6%.76 6&0.07 61%.26 570.1&

Sun(ry /etors &52.75 737.53 713.&% 5&2.62 553.2'

Cash an( ,an-,alance

1&1.&% &31.12 1$327.71 1$250.'1 26.11

Total CurrentAssets

1$512.61 2$037.&1 2$6%1.26 2$&11.7' 1$1&'.5&

)oans an(A(#ances

3$561.03 1$&07.71 7%5.'' 603.35 3%3.3&

4ie( /eposits 0 0 0 0 161.16

Total CA$ )oans A(#ances

5$073.6& 3$&&5.12 3$&67.25 3$015.1& 1$6'&.0&

/e!erre( Cre(it 0 0 0 0 0

Current )iailities %07.%' 67&.%& 5'%.67 &&2.&& 3%%.&5

ro#isions 3$212.22 73'.6& 61&.11 &33.1 3&2.&%

Total C) ro#isions

&$020.11 1$&1&.&% 1$212.7% %75.5& 730.'3

Net /urrent)ssets

1,0!3.!3 2,030.4 2,2!4.47 2,13".0 "3.11

MiscellaneousEpenses

0 0 0 0 0

#ota$ )ssets ",81.8" 7,832.01 7,"18.42 ,731.0 !,747.47


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Continent)iailities

1$%16.5% 1$103.37 7%3.65 &77.%3 1%&.2&

,oo- alue 8"s9 35.77 75.21 76.07 6&.51 276.0%

Source : Dion Global Solutions Limited

Su 'harma ome Statemet

Sun Pharma Mar '14 Mar '13 Mar '12 Mar '11 Mar '10


Sales Turno#er 2$%2%.7' 2$&32.1& &$015.56 3$107.57 1$%'1.16

Ecise /uty 0 0 0 0 &6.07

:et Sales 2$%2%.7' 2$&32.1& &$015.56 3$107.57 1$%&5.0'

;ther ncome Materials 1$26&.5' 1$077.%7 1$257.7' ''3.27 %7%.&6

o>er 4uel Cost 115.% '3.& 6%.76 &6.5' &7.3%

Employee Cost 27'.63 23&.%7 316.56 261.0' 17&.71

;ther Manu!acturin Epenses 0 0 0 0 52.'

Sellin an( A(min Epenses 0 0 0 0 &3'.11

Miscellaneous Epenses 1$166.23 523.%5 6'5.56 &%0.55 31.'2

reoperati#e Ep Capitalise( 0 0 0 0 0

Total Epenses 2$%26.25 1$'2'.'' 2$33%.67 1$7%1.50 1$62&.&%


O*erat(n Prof(t17.07 !12.8 1,7!8.2 1,324.08 2!1.!2

,/T


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/epreciation 101.'& %5.%2 75.72 6&.23 6'.&7

;ther ritten ;!! 0 0 0 0 0

ro!it ,e!ore Ta


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,upi =alae Sheet

u*(n Mar '14 Mar '13 Mar '12 Mar '11 Mar '10


Sources Of Funds

Total Share Capital %'.6% %'.51 %'.33 %'.2& %%.'&

Equity Share Capital %'.6% %'.51 %'.33 %'.2& %%.'&

Share ApplicationMoney

0 0 0 0 0

re!erence ShareCapital

0 0 0 0 0

"eser#es 6$%%'.36 &$757.20 3$6&5.0% 3$063.&2 2$&&1.61

Networth ,"7".04 4,84.71 3,734.41 3,1!2. 2,!30.!!

Secure( )oans 50 &11.3 5%0.%2 637.&6 70&

*nsecure( )oans %'.& 1&3.'' &11.%3 3&2 202.%1

#ota$ %e&t 13".4 !!!.2" ""2.! "7".4 "0.81

#ota$ (a&($(t(es 7,118.44 !,402.00 4,727.0 4,132.12 3,437.3




+ross ,loc- 3$056.'6 2$762.'1 2$335.&1 1$%6'.0' 1$616.52

)ess "e#aluation"eser#es 0 0 0 0 0

)ess Accum./epreciation

%77.5 7&'.26 627.'3 51&.&6 &25.13

Net +$oc 2,17".4 2,013.! 1,707.48 1,3!4.3 1,1"1.3"

Capital or- inroress

267.05 2&0.12 357.33 &&2.0' 1&0.%3

-nestments 1,13. 88.04 87.2" 80.88 724.07

n#entories 1$372.2& 1$330.%3 1$123.56 %&1.11 713.7

Sun(ry /etors 2$%5'.'2 1$%7&.27 1$&'0.%0 1$23&.2% '16.5'

Cash an( ,an-,alance

1&6.2% 20.12 1'.2 37.&6 36.53

Total Current Assets &$37%.&& 3$225.22 2$633.56 2$112.%5 1$666.%2

)oans an( A(#ances %10.35 %7%.7 773.05 621.32 665.7'

4ie( /eposits 0 0 0 0 0.%'


5$1%%.7' &$103.'2 3$&06.61 2$73&.17 2$333.50


Current )iailities 1$367.%0 1$332.67 1$1'3.%1 %%0.2' 7%5.62

ro#isions 312.72 311.06 237.%& 1''.36 166.%1

Total C) ro#isions 1$6%0.52 1$6&3.73 1$&31.65 1$07'.65 '52.&3

Net /urrent )ssets 3,!08.27 2,40.1" 1,"74." 1,!4.!2 1,381.07

MiscellaneousEpenses 0 0 0 0 0


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#ota$ )ssets 7,118.44 !,402.00 4,727.0 4,132.12 3,437.3

Continent )iailities 53%.52 &%&.51 557.2% 235.67 113.7

,oo- alue 8"s9 155.65 10%.3 %3.61 70.66 2%&.51


,upi ome Statemetu*(n Mar '14 Mar '13 Mar '12 Mar '11 Mar '10


-ncome

Sales Turno#er %$'3'.3% 7$122.51 5$3%&.%3 &$&'&.%% 3$723.'6

Ecise /uty 0 0 0 0 33.%7

:et Sales %$'3'.3% 7$122.51 5$3%&.%3 &$&'&.%% 3$6'0.0'

;ther ncome &15.3% 23.31 3.&' 16.5% er 4uel Cost 30'.36 2''.76 257.13 1'6.%3 1&1.6%

Employee Cost %&&.32 713.0% 5%1.22 &'1.23 376.55

;ther Manu!acturinEpenses

0 0 0 0 115.15

Sellin an( A(minEpenses

0 0 0 0 562.13

Miscellaneous Epenses 1$726.12 1$&%3.73 1$13'.71 '27.2 5&.72

reoperati#e EpCapitalise(

0 0 0 0 0

Total Epenses 6$103.26 5$&21.03 &$355.50 3$536.&& 2$%&7.00




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O*erat(n Prof(t2,"12.33 1,883."2 1,02".33 "!8.44 841.11

,/T 3$327.71 1$'07.23 1$032.%2 '75.02 %26.''

nterest 20.'' 33.2% 2%.6% 27.57 36.76

,/T 3$306.72 1$%73.'5 1$00&.1& '&7.&5 7'0.23

/epreciation 167.63 150.1& 131.'6 10&.2% %1.57

;ther ritten ;!! 0 0 0 0 0

ro!it ,e!ore Ta 3$13'.0' 1$723.%1 %72.1% %&3.17 70%.66

Etra


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/(*$a Mar '14 Mar '13 Mar '12 Mar '11 Mar '10


Sources Of Funds

Total Share Capital 160.5% 160.5% 160.5% 160.5% 160.5%

Equity Share Capital 160.5% 160.5% 160.5% 160.5% 160.5%

Share Application Money 0 0 0 0 0

re!erence Share Capital 0 0 0 0 0

"eser#es '$'31.06 %$70%.'& 7$3%'.70 6$&52.37 5$7&&.5&

Networth 10,0"1.4 8,8".!2 7,!!0.28 ,12."! !,"0!.12

Secure( )oans 0 '.&' 10 2.'5 0.&1

*nsecure( )oans %77.3& '56.32 2.2 &37.53 &.66

#ota$ %e&t 877.34 "!.81 12.2 440.48 !.07

#ota$ (a&($(t(es 10,"8."8 ",83!.33 7,!2.48 7,0!3.43 !,"10.1"




+ross ,loc- 5$3'&.36 &$'%3.%1 &$2'%.1% 3$'2%.&7 2$%'5.&&

)ess "e#aluation"eser#es

0 0 0 0 %.'7

)ess Accum. /epreciation 1$%70.17 1$565.52 1$2'5.52 1$060.%2 %%&.27

Net +$oc 3,!24.1" 3,418.2" 3,002. 2,87.! 2,002.20

Capital or- in roress 376.6' 350.3& 3&3.&5 253.07 6%&.2&

-nestments 3,!87.13 2,01.82 1,03!.1! !70.! 2!.1

n#entories 2$511.16 2$3&3.37 1$%2&.50 1$%%3.16 1$512.5%

Sun(ry /etors 1$72%.10 1$6&5.22 1$51'.31 1$&'7.0& 1$552.71

Cash an( ,an- ,alance &6.0& 105.07 55.06 %3.'% 60.32


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Total Current Assets &$2%5.30 &$0'3.66 3$3'%.%7 3$&6&.1% 3$125.61

)oans an( A(#ances 1$150.6' 1$02'.10 1$213.66 1$2'2.2% 2$357.2'

4ie( /eposits 0 0 0 0 0.52


5$&35.'' 5$122.76 &$612.53 &$756.&6 5$&%3.&2


Current )iailities 1$636.'6 1$3%0.'1 1$1'0.7% 1$17&.52 1$177.11

ro#isions 31%.06 276.'7 2&0.53 21'.%% 1$3&7.66

Total C) ro#isions 1$'55.02 1$657.%% 1$&31.31 1$3'&.&0 2$52&.77

Net /urrent )ssets 3,480."7 3,44.88 3,181.22 3,32.0 2,"!8.!

Miscellaneous Epenses 0 0 0 0 0

#ota$ )ssets 10,"8."8 ",83!.33 7,!2.48 7,0!3.43 !,"10.1"

Continent )iailities 1$201.36 3$''3.66 1$320.07 1$110.'6 &23.%7

,oo- alue 8"s9 125.6' 110.&7 '&.0& %2.36 73.55


1ipla ome Statemet

/(*$a Mar '14 Mar '13 Mar '12 Mar '11 Mar '10


-ncome

Sales Turno#er '$3%0.2' %$202.&2 6$'77.50 6$331.0' 5$657.%5

Ecise /uty 0 0 0 0 52.16

:et Sales '$3%0.2' %$202.&2 6$'77.50 6$331.0' 5$605.6'

;ther ncome 2%0.2% 22'.13 1&%.3 '1.6& 125.71

Stoc-A(=ustments

15%.12 2'0.75


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Employee Cost 1$2%&.75 '6'.2% 72%.21 5&0.33 31%.%7

;therManu!acturinEpenses

0 0 0 0 25'.67

Sellin an(A(min Epenses

0 0 0 0 %67.'%

MiscellaneousEpenses

2$06'.50 1$753.&3 1$&'6.'0 1$2%%.%3 1%2.6&

reoperati#e EpCapitalise(

0 0 0 0 0

Total Epenses 7$5&%.%% 6$37&.03 5$3%&.&0 5$1&'.10 &$&0%.%5



O*erat(n Prof(t1,"8".!3 2,11".14 1,!81.8 1,320.70 1,380."3

,/T 2$26'.%1 2$3&%.27 1$730.16 1$&12.3& 1$506.6&

nterest 127.%6 33.3% 26.63 12.'2 2%.3

,/T 2$1&1.'5 2$31&.%' 1$703.53 1$3''.&2 1$&7%.3&

/epreciation 323.61 303.03 2%2.07 2&%.03 165.25

;ther ritten ;!! 0 0 0 0 0

ro!it ,e!ore Ta 1$%1%.3& 2$011.%6 1$&21.&6 1$151.3' 1$313.0'

Etra


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Documents

Working Capital Management- Pharma