a present at in on capital structure of ranbaxy

A A project reportproject report

on on capital structure capital structure

of of RANBAXY RANBAXY

A A project reportproject report

on on capital structure capital structure

of of RANBAXY RANBAXY

Prepared by :Prepared by :Rutvij Bhatt Rutvij Bhatt (6) (6)Darshan zaveri Darshan zaveri (36) (36)Akshay jadav Akshay jadav (38) (38)Hiren Makwana Hiren Makwana (49) (49)

Submitted to :Submitted to :

Pro.shandhaya Pro.shandhaya harkawatharkawat

Company InformationCompany Information

• During the year 2006, company During the year 2006, company consolidated it’s position as a key global consolidated it’s position as a key global player. player.

• It’s strategic acquisitions and expansions in It’s strategic acquisitions and expansions in different parts of the world provided different parts of the world provided momentum to company’s aspiration to momentum to company’s aspiration to achieve a turnover of US $ 5 Bn by 2012.achieve a turnover of US $ 5 Bn by 2012.

• Growing ahead of the market, achieved the Growing ahead of the market, achieved the No. 1 position in the Indian No. 1 position in the Indian market.successfully leveraged inherent market.successfully leveraged inherent skills to deliver a winning performance with skills to deliver a winning performance with global sales of over US $ 1.3 Bn.global sales of over US $ 1.3 Bn.

Capital structure Capital structure AnalysisAnalysis

• Every company has to have a balanced Every company has to have a balanced capital structure,means there should be capital structure,means there should be balance of equity and debt in the balance of equity and debt in the company’s capital formation. traditionally, company’s capital formation. traditionally, firms have looked at certain ratios to firms have looked at certain ratios to assess whether they have a satisfactory assess whether they have a satisfactory capital structure. The commonaly used capital structure. The commonaly used ratios are:interesrt coverageratio, cash ratios are:interesrt coverageratio, cash flow coverage ratio,debt servicecoverage flow coverage ratio,debt servicecoverage ratio, and fixed asset coverage ratioratio, and fixed asset coverage ratio

• Here, company has earned gross profit Here, company has earned gross profit (PBITDA) Rs 6081.70.And the depriciation (PBITDA) Rs 6081.70.And the depriciation amount given in the balace sheet is Rs amount given in the balace sheet is Rs 1067.5,this amount would be deducted 1067.5,this amount would be deducted from the PBITDA .it would be 5014.2 from the PBITDA .it would be 5014.2 (PBIT).The interest on debt is Rs1036.32.(PBIT).The interest on debt is Rs1036.32.

• ICR =ICR = Earnings before interest and taxesEarnings before interest and taxes Interest on debtInterest on debt

= = 5014.25014.2 1036.321036.32

= 4.84= 4.84• company is capable to repay its debt 5 time company is capable to repay its debt 5 time

from the profit.it suggests that company has from the profit.it suggests that company has very good capital strucutre and it could take very good capital strucutre and it could take more DEBT in future. Company has very good more DEBT in future. Company has very good working capital it can be used as repayment. working capital it can be used as repayment.

• The cash flow coverge ratio is a distinct The cash flow coverge ratio is a distinct improvement over the interest ceverage ratio in improvement over the interest ceverage ratio in measuring the debt capacity, it covers sthe debt measuring the debt capacity, it covers sthe debt service burden fully and it focuses on cash flows. service burden fully and it focuses on cash flows. However, it too is characterised by sthe problem However, it too is characterised by sthe problem of establishing a suitable norm for judging its of establishing a suitable norm for judging its adequacy.Here company has PBT of Rs 4429.76, adequacy.Here company has PBT of Rs 4429.76, and it has paid interest of Rs 584.44 so the EBIT and it has paid interest of Rs 584.44 so the EBIT is Rs 5014.2 in EBIT we will add depriciation of is Rs 5014.2 in EBIT we will add depriciation of Rs 1067.5. there are no other non cash charges Rs 1067.5. there are no other non cash charges so, the total amoun is Rs 6081.7.company has so, the total amoun is Rs 6081.7.company has paid interest of Rs 584.44. loan repayment paid interest of Rs 584.44. loan repayment amount is Rs 1722.69 and tax rate is 25% CFCR amount is Rs 1722.69 and tax rate is 25% CFCR is as,is as,

CFCR = CFCR = EBIT + Deprication + Othernon-EBIT + Deprication + Othernon-cashchargescashcharges

Interest on debt + Loanrepayment Interest on debt + Loanrepayment instalment/(1-t)instalment/(1-t)

= = 5014.2 + 1067.5.+ 05014.2 + 1067.5.+ 0

584.44 +1722.69/(1-0.25)584.44 +1722.69/(1-0.25)

= 2.64= 2.64

• company is capable of repayment of its debt company is capable of repayment of its debt more than twice from its internal cash more than twice from its internal cash flow.company need not to take any more debt flow.company need not to take any more debt for reapyment of the debt so it is good for the for reapyment of the debt so it is good for the company that it will benifit in future because company that it will benifit in future because there will be less amount of interest company there will be less amount of interest company have to pay as it wil have less debt .there will have to pay as it wil have less debt .there will increase in cash flow in future because increase in cash flow in future because company can pay its debt right now or it can company can pay its debt right now or it can hold the debt for the short term as it has hold the debt for the short term as it has interest repayment ratio is more than 4 time interest repayment ratio is more than 4 time from its profit.company will have good credit from its profit.company will have good credit in market and can have more amount of debt in market and can have more amount of debt because of good debt reapyment history.because of good debt reapyment history.

• Here, company has total ten years PAT is Here, company has total ten years PAT is Rs 34859.6 millon.total ten years Rs 34859.6 millon.total ten years deprication is Rs 8450 millon,ten years deprication is Rs 8450 millon,ten years interest paid is Rs 11399.52 million ,loan interest paid is Rs 11399.52 million ,loan repayment instalment is Rs 18343 repayment instalment is Rs 18343 million.putting all these value in the million.putting all these value in the DSCR formulaDSCR formula

• DSCR = DSCR = Σ(Σ(PATPATii +DEP +DEPii + INTi +Li) + INTi +Li)

Σ(Σ( INTi + LRI i) INTi + LRI i)

= ((34859.6 +8450 + 11399.52 + 1834334859.6 +8450 + 11399.52 + 18343))

(11399.52 +18343)(11399.52 +18343)

= = 73052.1273052.12

29742.5229742.52

= 2.45= 2.45

• The company has very good DSCR it is more The company has very good DSCR it is more than 2 so we can say that comapny whatever than 2 so we can say that comapny whatever the loans company had taken it’s repayment the loans company had taken it’s repayment time is shorter so company will have to seek time is shorter so company will have to seek for the other resources for the balace of the for the other resources for the balace of the leverage.there are less possibilities for the leverage.there are less possibilities for the company to take more loans now because company to take more loans now because here the ratio suggests that the company is here the ratio suggests that the company is almost having less loan repayment cycle and almost having less loan repayment cycle and at this time comapny can only afford at this time comapny can only afford equity .equity will increase the repayment equity .equity will increase the repayment amount of loans without affecting the debt. amount of loans without affecting the debt.

• get the amount of fixed assets which is Rs get the amount of fixed assets which is Rs 17359.1million. the term loans are Rs11332.8,17359.1million. the term loans are Rs11332.8,

• So ,the FACR is 1.53So ,the FACR is 1.53• FACRFACR = = Fixed assestsFixed assests • Term loansTerm loans

== 1.531.53

• financial institution can trust in the company because financial institution can trust in the company because it has crossed the minimum requrement of FACR it has crossed the minimum requrement of FACR (1.25) which is 1.53.comapany has enough assests to (1.25) which is 1.53.comapany has enough assests to recver the term loan .comapny can able pay the term recver the term loan .comapny can able pay the term loan interest if FACR is more than 1.25,here it is 1.53 loan interest if FACR is more than 1.25,here it is 1.53 so it is good for the company to have term loans.so it is good for the company to have term loans.

•

ICRICR CFCRCFCR DSCRDSCR FACRFACR

20032003 3.923.92 2.442.44 2.382.38 1.301.30

20042004 3.083.08 2.052.05 2.092.09 1.1671.167

20052005 4.124.12 2.562.56 2.352.35 1.371.37

20062006 3.453.45 2.312.31 2.292.29 1.271.27

20072007 4.844.84 2.642.64 2.452.45 1.531.53

RatiosRatiosYearsYears

Conclusion

• Company has very good financial structure as we Company has very good financial structure as we can see from the all capital ratios that company can see from the all capital ratios that company can repay its debt easily,debt interest can also be can repay its debt easily,debt interest can also be paid easily .company has enough assets form that paid easily .company has enough assets form that comapy can pay its all term loans.from the cash comapy can pay its all term loans.from the cash flow statement we can see that company has flow statement we can see that company has adequate cash in circulation company can have adequate cash in circulation company can have more cash as CFCR is more than 2 times.comapny more cash as CFCR is more than 2 times.comapny is having very good capital structure .in future is having very good capital structure .in future company can think for more leverage because all company can think for more leverage because all ratios ffavourthe company .if company is enough to ratios ffavourthe company .if company is enough to pay its all debt,interest and loans company is pay its all debt,interest and loans company is progresssing and there are more chance to get progresssing and there are more chance to get more leverage in future. more leverage in future.

IntroductionIntroduction• Cipla was incorporated in 1935, in the name of Chemical Cipla was incorporated in 1935, in the name of Chemical

Industrial and Pharmaceutical Laboratories. The name was Industrial and Pharmaceutical Laboratories. The name was changed to the acronym ‘Cipla’ in 1984. Over the last 6 changed to the acronym ‘Cipla’ in 1984. Over the last 6 decades Cipla has set up plants at five locations, mainly decades Cipla has set up plants at five locations, mainly concentrated in Maharashtra. The Hammed brothers, sons of concentrated in Maharashtra. The Hammed brothers, sons of the founder, late Dr K A Hammed, manage Cipla. Dr Y K the founder, late Dr K A Hammed, manage Cipla. Dr Y K Hammed, with a doctorate in Organic Chemistry from Hammed, with a doctorate in Organic Chemistry from Cambridge, is the Chairman and Managing Director. He Cambridge, is the Chairman and Managing Director. He himself heads the research division, which has around 200 himself heads the research division, which has around 200 people. His brother, M K Hammed, looks after marketing. people. His brother, M K Hammed, looks after marketing. Cipla has four plants located at Patalaganga, Kurkumbh, Cipla has four plants located at Patalaganga, Kurkumbh, Mumbai in Maharashtra and one at Bangalore in Karnataka. Mumbai in Maharashtra and one at Bangalore in Karnataka. All plants make bulk drugs as well as formulations and have All plants make bulk drugs as well as formulations and have secured FDA (USA)/ MCA (UK) for most of its plants. Cipla has secured FDA (USA)/ MCA (UK) for most of its plants. Cipla has crossed the USD 1 billion mark in terms of turnover for the crossed the USD 1 billion mark in terms of turnover for the year 2007-08. While domestic sales grew by more than 13%, year 2007-08. While domestic sales grew by more than 13%, export sales posted a growth of about 23% for the quarter. export sales posted a growth of about 23% for the quarter. Total sales for the year 2007-08 has increased by 16% which Total sales for the year 2007-08 has increased by 16% which has been in line with the estimates.has been in line with the estimates.

CiplaCipla

BackgroundBackground• Cipla was officially opened on September 22, Cipla was officially opened on September 22,

1937 when the first products were ready for the 1937 when the first products were ready for the market. The Sunday Standard wrote: "The birth market. The Sunday Standard wrote: "The birth of Cipla which was launched into the world by of Cipla which was launched into the world by Dr. K.A. Hammed will be a red letter day in the Dr. K.A. Hammed will be a red letter day in the annals of Bombay Industries. The first city in annals of Bombay Industries. The first city in India can now boast of a concern, which will India can now boast of a concern, which will supersede all existing firms in the magnitude of supersede all existing firms in the magnitude of its operations. India has lagged behind in the its operations. India has lagged behind in the march of science but she is now awakening from march of science but she is now awakening from her lethargy. The new company has mapped out her lethargy. The new company has mapped out an ambitious programme and with intelligent an ambitious programme and with intelligent direction and skillful production bids fair to direction and skillful production bids fair to establish a great reputation in the East. "establish a great reputation in the East. "

CiplaCipla

BusinessBusiness• Cipla occupies the third position in the domestic Cipla occupies the third position in the domestic

formulations market and commands a market share formulations market and commands a market share of 4.74 per cent. Cipla currently markets over 350 of 4.74 per cent. Cipla currently markets over 350 products and is the market leader in the generic products and is the market leader in the generic segment consisting of more than 100 products. The segment consisting of more than 100 products. The company has strong presence in antiasthmatic, company has strong presence in antiasthmatic, antibiotics, cardiovascular, anti-AIDS and anticancer antibiotics, cardiovascular, anti-AIDS and anticancer areas. Cipla was the first one to enter into the areas. Cipla was the first one to enter into the competitive generics business and has occupied the competitive generics business and has occupied the leadership position in this segment. Cipla is the leadership position in this segment. Cipla is the market leader in anti asthmatic inhaler segment with market leader in anti asthmatic inhaler segment with over 70 per cent market share. This segment is over 70 per cent market share. This segment is growing rapidly mainly due to increase in pollution growing rapidly mainly due to increase in pollution leading to a spurt in the number of asthma cases in leading to a spurt in the number of asthma cases in patients. One of its major products, Asthalin inhaler patients. One of its major products, Asthalin inhaler has annual sales of more than Rs 30 crore. has annual sales of more than Rs 30 crore.

CiplaCipla

• The company offers full range of inhalers, rotahalers The company offers full range of inhalers, rotahalers and spacers that have gained excellent acceptance and spacers that have gained excellent acceptance among the asthma patients. The company has among the asthma patients. The company has introduced CFCfree, environment-friendly Budecort introduced CFCfree, environment-friendly Budecort inhalers for the first time in India. The CFC- free inhalers for the first time in India. The CFC- free products have a huge export potential .The inhaler products have a huge export potential .The inhaler therapy is preferred to tablets since the dose required therapy is preferred to tablets since the dose required is about 1/ 10 of the oral dose. Moreover, the drug is about 1/ 10 of the oral dose. Moreover, the drug directly goes to the lung and gives instantaneous directly goes to the lung and gives instantaneous relief to the patient. Cipla will be maintaining a relief to the patient. Cipla will be maintaining a leadership position due to the entire range of inhalers leadership position due to the entire range of inhalers and with the advantage of economies of scale. Cipla and with the advantage of economies of scale. Cipla has presence in niche segments such as has presence in niche segments such as cardiovascular, anti-AIDS, and anticancer. The cardiovascular, anti-AIDS, and anticancer. The company has several products in each of these company has several products in each of these segments that will help it maintain a steady growth in segments that will help it maintain a steady growth in the long run. the long run.

CiplaCipla

• Cipla is building a strong presence in the anti-AIDS segment and is Cipla is building a strong presence in the anti-AIDS segment and is offering the entire range of products. The company has reduced the offering the entire range of products. The company has reduced the prices of anti-AIDS drug five times in the domestic market through prices of anti-AIDS drug five times in the domestic market through technological advancements. The company's recent offer to supply technological advancements. The company's recent offer to supply the cocktail of drugs consisting of Lamivudine, Nevirapine and the cocktail of drugs consisting of Lamivudine, Nevirapine and Stavudine at US $ 350 per patient per year to Medicins Sans Stavudine at US $ 350 per patient per year to Medicins Sans Frontieres (MSF) has given it an international recognition. Cipla has Frontieres (MSF) has given it an international recognition. Cipla has ambitious plans to supply anti-AIDS drugs at concessional prices to ambitious plans to supply anti-AIDS drugs at concessional prices to African countries at a fraction of international price ranging from US $ African countries at a fraction of international price ranging from US $ 5000-8000 charged by MNCs. The company manufactures the entire 5000-8000 charged by MNCs. The company manufactures the entire range of anti-AIDS drugs namely: Lamivudine, Zidovudine, range of anti-AIDS drugs namely: Lamivudine, Zidovudine, Navirapine, Didanosine and Stavudine. Cipla has introduced more Navirapine, Didanosine and Stavudine. Cipla has introduced more than 100 new products in the generic segment. The company has than 100 new products in the generic segment. The company has also introduced branded products in anti-epilepsy, anti- AIDS, also introduced branded products in anti-epilepsy, anti- AIDS, psychiatry, Obesity and NSAIDS segments. These products are likely psychiatry, Obesity and NSAIDS segments. These products are likely to contribute significantly in the current year and will help the to contribute significantly in the current year and will help the company to improve the market share. Apart from the anti-aids company to improve the market share. Apart from the anti-aids products, some of the new products launched by the company are products, some of the new products launched by the company are Silagra (Sildenafil citrate) for erectile dysfunction, Venlor(Venlafaxine) Silagra (Sildenafil citrate) for erectile dysfunction, Venlor(Venlafaxine) an anti-depressant, Obestat (Sibutramine) for obesity and an anti-depressant, Obestat (Sibutramine) for obesity and Rofixx(Rofecoxib) a Cox-2 inhibitor for acute and chronic pain.Rofixx(Rofecoxib) a Cox-2 inhibitor for acute and chronic pain.

CiplaCipla

FINANCIALS

• CAPITAL STRUCTURE:• A mix of a company's long-term debt, specific short-

term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.

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Capital Structure of Cipla: Capital Structure of Cipla: Year After Year (2000-Year After Year (2000-

2007)2007)

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FromFrom ToTo Class of shareClass of share AuthorizeAuthorizedd

CapitalCapital

Issued Issued CapCapitalital

Paid UpPaid UpShares Shares

(Nos(Nos))

Paid Up Paid Up FaceFace

ValueValue

Paid UpPaid Upcapitalcapital

20072007 20082008 Equity ShareEquity Share 175.00175.00 155.66155.66 777291777291357357

22 155.46155.46


22 155.46155.46


22 59.9759.97


22 59.9759.97


1010 59.9759.97


1010 59.9759.97


1010 59.9759.97


1010 59.9759.97

• The aspect that stands out in Cipla's The aspect that stands out in Cipla's financial statements is the high profit financial statements is the high profit margins over the last five years. The margins over the last five years. The operating profit margins ranged operating profit margins ranged around 27 per cent, while the net around 27 per cent, while the net profit margins have been around 17 profit margins have been around 17 per cent during the last few years.per cent during the last few years.

CiplaCipla

Ratios:Ratios:

• Profit After tax Profit After tax /sales/sales

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Year- 2007 Year- 2007 Year-2008Year-2008= 668.03/3438.24= 668.03/3438.24 = 701.43/3997.9 = 701.43/3997.9

= .1942 or 19.42% = .1942 or 19.42% = .1755 or 17.55% = .1755 or 17.55%

GROSS PROFIT MARGINGROSS PROFIT MARGIN

Gross profit/SalesGross profit/Sales

Year-2007 Year-2007 Year-2008Year-2008= 814.93/3438.24 = 814.93/3438.24 =850.05/3997.90 =850.05/3997.90=.2370 or 23.7%=.2370 or 23.7% =.2126 or 21.26% =.2126 or 21.26%

• Total Assets Total Assets TurnoverTurnover

• Sales/Total Sales/Total AssetsAssets

CiplaCipla

Year-2007 Year-2007 Year-2008Year-2008= 4413.74/3438.24 = 4413.74/3438.24 = 5733.21/3997.90= 5733.21/3997.90

= 1.28 Times = 1.28 Times = 1.43 Times= 1.43 Times

Debt/Equity RatioDebt/Equity Ratio

Year-2007 Year-2007 Year -2008Year -2008=123.56/3236.27 =123.56/3236.27 = 580.53/3755.82= 580.53/3755.82

= .038 = .038 = .154= .154

• Working capital Working capital turnoverturnover

• Sales/Net current Sales/Net current AssetsAssets

CiplaCipla

Year-2007 Year-2007 Year-2008Year-2008=3438.24/1893.42 =3438.24/1893.42 =3997.90/2496.27 =3997.90/2496.27

=1.816 =1.816 = 1.60 = 1.60

Return on Investments(ROI)Return on Investments(ROI)

EBIT/Net AssetsEBIT/Net AssetsYear-2007 Year-2007 Year-2008Year-2008

= 814.93/1893.42 = 814.93/1893.42 = 850.05/2496.27= 850.05/2496.27=.43 =.43 = .34= .34

• Return on Return on Equity(ROE)Equity(ROE)

• PAT/ Net PAT/ Net worth(Equity)worth(Equity)

CiplaCipla

Year-2007 Year-2007 Year-2008Year-2008=668.03/3236.27 =668.03/3236.27 = 701.43/3755.82= 701.43/3755.82=.206 or 20.6% =.206 or 20.6% = .1867or 18.67%= .1867or 18.67%

Leverage Calculation:Leverage Calculation:Degree of Operating Leverage (DOL)Degree of Operating Leverage (DOL)

DFL = 1+ Interest /PBTDFL = 1+ Interest /PBTYear-2007 Year-2007 Year-2008Year-2008

= 1+(6.95/807.98) = 1+(6.95/807.98) = 1+ (11.69/838.36)= 1+ (11.69/838.36)= 1.0086 = 1.0086 = 1.014= 1.014

Capital ratiosCapital ratios

• ICR:101.78ICR:101.78– Company uses debt fund rarely and Company uses debt fund rarely and

owned fund mostly.if compnay uses debt owned fund mostly.if compnay uses debt fund share holder get more benefits. fund share holder get more benefits. Because interest is a cheaper source.it Because interest is a cheaper source.it gives also a tax benefit.gives also a tax benefit.

• CFCR:8.84CFCR:8.84– Company can pay its lease and repayment Company can pay its lease and repayment

of loans and interest 8.84 times company of loans and interest 8.84 times company has good cashflow. Company should has good cashflow. Company should increase debt portion in capital structure.increase debt portion in capital structure.

CiplaCipla

• DSCR:83.57DSCR:83.57

Company is able to pay 83.57 timeloan and Company is able to pay 83.57 timeloan and interest from its PBITDS based on this interest from its PBITDS based on this ratio company can increase leverage.ratio company can increase leverage.

FCR:6.48FCR:6.48

On a time of liquidation company can able On a time of liquidation company can able to pay its debt from of company is good to pay its debt from of company is good but sometime less debt portion affects but sometime less debt portion affects EPS. EPS.

CiplaCipla

CiplaCipla

a present at in on capital structure of ranbaxy

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