AN ANALYSIS OF THE INDIAN

PHARMACEUTICAL INDUSTRY

GROUP MEMBERS

• NEHA TIWARI 11BSP0611• NIDHI MALHOTRA 11BSP0614• NIKHAR RADHESHYAM 11BSP0616

AGRAWAL• NIMISHA PATHAR 11BSP0629• PIYOOSH BAJORIA 11BSP0688

OVERVIEW OF PHARMACEUTICAL INDUSTRY

• Pharmaceutical Industry in India is one of the largest and most advanced among the developing countries

• The Indian pharmaceutical industry has come a long way from waiting for imports of bulk drugs from global players to breaking new grounds in medical research worldwide.

• The Indian pharmaceutical industry ranks third globally by volume.

• The products manufactured by the Indian pharmaceutical industry can be broadly classified into bulk drugs (active pharmaceutical ingredients - API) and formulations.

OVERVIEW OF PHARMACEUTICAL INDUSTRY

• Based on the pharmaceutical customer base, the Indian API manufacturing segment can be divided into two sectors – innovative or branded and generic or unbranded.

• Pharmaceutical manufacturing units are largely concentrated in Maharashtra and Gujarat. These states account for about 45% of the total number of pharmaceutical manufacturing units in India.

• The current revenues are estimated at US $ 5.5 billion and it is expected to grow at a CAGR of 19% and touch US $ 25 billion in revenue by 2015.

GROWTH OF THE INDUSTRY

• Worth of the industry – $ 6 billion• CAGR – 13%• Accounts for - 1% of the world's pharma industry in

value terms and 8% in volume terms. • M&As: Over 25 with 15 cross border transaction

worth $600-700 million. • Revenues generated - US$ 7.6 billion and have grown

at an average rate of 10% over last five years

STRUCTURE OF THE INDUSTRY

• Fragmented with 24000 players – 300 organized• Leading 250 – 70% of the market • Market leaders hold 7%• Manufactures : Bulk drugs – APIs

Formulations (75:25)• Adopts high technology & produces high value

products

MICHAEL PORTER 5 FORCES MODEL

INDUSTRY COMPETITION

Power of Suppliers

Volume benefits occur.

Inputs standard, available locally.

Numerous suppliers-switching cost low .

Suppliers can go for forward integration .

Raw material cost constitute more than 50% of the total expenses.

Threats of Substitutes

No substitutes for the medicines.

Biotechnology is a threat to synthetic pharma products.

Power of Buyers

End consumers do not have bargaining power

Brand identity exists but is in the hands

Of Influencer (Doctors)

Price Sensitivity is less

Highly fragmented market, so buyer

Concentration v/s industry is low

Barriers to Entry

Very low barriers to entry

Government policies supportive

For entry price regulation exists

Economies of scale exist

SWOT ANALYSISStrengths :- 1.Cost Competitiveness 2 Developed Industry with Strong Manufacturing Base 3.Well Established R&D infrastructure 4. Access to pool of highly trained scientists,

Weaknesses:- 1. Low investments in innovative R&D. 2. Lack of resources to compete with MNCs for New Drug Discovery & Research 3. Lack of strong linkages between industry and academia. 4. Low medical and healthcare expenditure in the country

SWOT ANALYSISOpportunities :- 1. Significant export potential. 2. Marketing alliances for MNC products in domestic market and international market. 3.Contract manufacturing arrangements with MNCs 4. Potential for developing India as a centre for international clinical trials.

Threats :- 1.Product patent regime poses serious challenge to domestic industry unless it invests in research and development 2. R&D efforts of Indian pharmaceutical companies hampered by lack of enabling regulatory requirement. 3.Drug Price Control Order puts unrealistic ceilings on product prices and profitability 4. Export effort hampered by procedural hurdles in India as well as non-tariff barriers imposed abroad

Challenges faced by pharmaceutical industry

• Impact of GATT-TRIPS agreement.

• Pricing

• Drug diversions by institutions.

ANALYSIS OF RANBAXY laboratories ltd

INTRODUCTION TO RANBAXY

• 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 was incorporated in 1961 and went public in 1973.

ANALYSIS OF RANBAXY BY RATIOS

Investment Valuation Ratios

Face Value 2.00 2.00 2.00 2.00 2.00

Dividend Per Share 2.00 2.80 2.00 2.00 2.00

Operating Profit Per Share (Rs) 19.90 15.96 17.20 16.02 10.96

Net Operating Profit Per Share (Rs) 86.90 78.70 69.82 67.34 54.08

Free Reserves Per Share (Rs) 91.92 80.25 71.54 53.86 46.20

Bonus in Equity Capital 94.44 94.44 94.44 97.55 97.55

Face Value

Dividend P.S

Operating Profit P.S

Net Operating Profit P.S

Free Reservers P.S

Bonus in Equity Capital

0 20 40 60 80 100 120

2

2

19.9

86.9

91.92

94.44

2

2

17.2

69.82

71.54

94.44

2

2

10.96

54.08

46.2

97.55

20082009201020112012

Profitability Ratios

Operating Profit Margin(%) 22.89 20.27 24.63 23.78 20.27

Profit Before Interest And Tax Margin(%) 18.94 16.41 21.32 20.52 16.90

Gross Profit Margin(%) 19.15 16.65 21.68 20.88 17.16

Cash Profit Margin(%) 19.37 18.25 21.11 21.75 17.85

Net Profit Margin(%) 15.92 14.98 18.97 14.58 16.43

Return On Capital Employed(%) 18.74 16.22 22.16 22.39 18.17

Return On Net Worth(%) 14.90 14.54 18.31 17.89 18.72

Operating Profit Margin

PBIT

Gross Profit Margin

Cash Profit Margin

Net Profit Margin

ROCE

Return on Net Worth

0 5 10 15 20 25 30

23.78

20.52

20.88

21.75

14.58

22.39

17.89

20.27

16.9

17.16

17.85

16.43

18.17

18.72

2008 2009

2010 2011

2012

Liquidity And Solvency Ratios

Current Ratio 3.12 1.94 2.17 1.81 2.62

Quick Ratio 1.89 1.56 1.57 1.93 1.88

Debt Equity Ratio 0.04 0.07 0.15 0.22 0.15

Long Term Debt Equity Ratio 0.01 0.01 0.02 0.02 0.15

2012 2011 2010 2009 2008

Management Efficiency Ratios

Inventory Turnover Ratio 3.88 3.73 4.18 3.79 3.83

Debtors Turnover Ratio 4.63 4.14 3.31 3.24 3.47

Investments Turnover Ratio 3.88 3.73 4.18 3.79 3.83

Fixed Assets Turnover Ratio 1.62 1.61 1.94 1.94 1.91

Total Assets Turnover Ratio 0.92 0.90 0.95 0.99 0.97

Asset Turnover Ratio 1.62 1.61 1.94 1.94 1.91

Current Ratio

Quick Ratio

Debt Equity Ratio

Long Term Debt Equity Ratio

0 0.5 1 1.5 2 2.5 3 3.5

3.12

1.89

0.04

0.01

2.17

1.57

0.15

0.02

2.62

1.88

0.15

0.15

20082009201020112012

InventoryTurnover Ratio

Debtor Turnover Ratio

Investment Turnover Ratio

Fixed Asset Turnover Ratio

Total Asset Turnover Ratio

Asset Turnover ratio

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

3.73

4.14

3.73

1.61

0.9

1.61

3.83

3.47

3.83

1.91

0.970000000000001

1.91

20082009201020112012

Key Ratios Dr Reddys Laboratories

Sun Pharmaceutical Industries

Lupin Cipla

2011 2012 2011 2012 2011 2012 2011 2012

Current Ratio 1.49 1.66 2.14 3.04 0.96 1.09 1.34 3.12

Quick Ratio 1.45 1.91 1.52 2.68 1.68 1.68 1.56 1.89

Debt Equity Ratio

0.10 0.24 0.01 0.01 0.36 0.31 0.07 0

Interest coverage Ratio

250.76 220.9 228.18 396.92 2.25 34.63 222.40 116.74

Inventory Turnover Ratio

5.39 5.36 3.65 3.62 5.70 5.95 3.73 3.88

Fixed Assets Turnover Ratio

1.86 1.75 1.65 1.58 1.08 1.09 1.61 1.62

Gross Profit Ratio

19.70 18.72 9.86 4.58 20.58 19.75 16.65 19.15

Operating Profit Margin

27.84 23.50 13.63 7.90 22.08 22.47 20.27 22.89

MERGERS AND AQUISITIONSAnnounce date Target Acquirer Reason Deal Value

Target Country

Feb-06

Betapharm Dr.Reddy’s Labs

Front end line in Germany

570 Germany

May-04

Espama Gmbh Wockhardt Front end line in Germany

11 Germany

Nov-05

Ranbaxy Daichii Sankyo Low cost manufacturing and supply chain management

33.5 Japan

Nov-05

Roche’s API Facility

Dr.Reddy’s Labs

Increasing presence in Contract Mfg

58.97 Mexico

Oct-05

Avecia Nicholas Piramal

Increasing presence in Contract Mfg

17.1 UK,Canada

CONCLUSION

• Mergers & Acquisitions have played a vital role in expansion of Pharma industry

• Pharma industry being a growth industry• Unaffected by the business cycle• As per the present growth rate, the Indian Pharma Industry is expected to

be a US$ 20 billion industry by the year 2015• India has competitive strength in research services availability of low cost skilled doctors and scientists large patient population with diverse disease characteristics adherence to international quality standards• Vietnam Living Standards Survey(VLSS )agencies recommends

investment in this industry to be a wise decision.