A project report

on capital structure

of RANBAXY

Prepared by :

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

Submitted to :

Pro.shandhaya harkawat

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INDEX

1 Acknowledgement 3

2 Preface 4

3 Company Information 5

4 Company Vision 6-7

5 Board of Directors 8

6 Capital structure Analysis 9-13

7 Conclusions 14

8 Annexure 15-19

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Acknowledgement

We would like to express our sense of gratitude to all those who have helped us in successfully completion of the study and report of “study of Ranbaxy with special focus on capital structure”.

We are very grateful to Dr. Chinnam Reddy, The director and Prof. Sandhya Harkawat, Project guide the core faculty of SKPIMCS for giving us opportunity to under go project training and experience the most competitive environment in today’s financial market.

We are also grateful to Mr.Ramalulu, the librarian of S.K.P.IMCS for giving us secondary information about the same.

Besides all those mentioned above, we would like to express our heartiest sense of gratitude to all those who has supported us in our endeavors directly or indirectly. We are glad to thank many people who have directly or indirectly helped us to make a financial report.

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Preface

As we all know that business finance can be broadly defined as the activity concerned with planning, raising, controlling and administering of funds used in the business, we can understand the importance of doing a financial report.

As to get the knowledge of Marketing Management and Personnel Management we have industrial visits so in the same way for financial understanding we have seen all the areas of finance management where critical decisions are to be taken for the company progress.

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Company Information

During the year 2006, company consolidated it’s position as a key global player. It’s strategic acquisitions and expansions in different parts of the world provided momentum to company’s aspiration to achieve a turnover of US $ 5 Bn by 2012. Growing ahead of the market, achieved the No. 1 position in the Indian market.successfully leveraged inherent skills to deliver a winning performance with global sales of over US $ 1.3 Bn. Trajectory towards global leadership

was reinforced through it’s investments in emerging markets. Accordingly, company’s focus has been on enhancing operational efficiencies, cost competitiveness, market reach and the dedication to offer the bestin- class products. It’s business philosophy, based on delivering value to stakeholders, constantly inspires to innovate, achieve excellence and set new global benchmarks. With globalization, innovation and excellence as a part of DNA, company is expanding global footprint and challenging every leadership paradigm.Foundations rooted in it’s value system and strong ethics, inspire to deliver value consistently. Driven by the passion of a highly committed Team at Ranbaxy,employees are moving rapidly towards attaining globalleadership

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Company Vision

During the year, the R&D function has shown distinctimprovement in terms of productivity and cost efficiency, as well as the development of generic equivalents of new molecules which will be coming off patent. More focused effort is also underway, vis-à-vis New Drug Discovery Research (NDDR). Inclusion of the Oncology segment in the NDDR agenda of your Company, reflects a desire to be present in a very important and fast-growing therapeutic segment. Seeking synergies from discovery alliances withother leading pharmaceutical research organizations, reflects your Company's growing commitment towards drug discovery. The Company is focusing on nurturing its human resources optimally. Thus, attention is being given to not only the development of high performers, but also to the career needs and aspirations of every single person working in the Company, irrespective of their hierarchical position. We believe, only when a person perceives that the Company wants to specifically promote his or her welfare by providing appropriate guidance, training and growth opportunities, in line with that person's potential, will a sense of deeper staff commitment to the Company ensue. Your Company is engaged in promoting a caring and receptive culture of open communication, that encourages sharing of ideas and constructive criticism to bring about innovation and positive change. As a Corporate leader aiming at becoming a respected player in the global pharmaceutical space, based on its vertically integrated production and research competencies, your Company constantly strives towards benchmarking its internal work processes against global best practices. This will have to be a continuing effort, since the global benchmarks tend to become more stringent with technological advances, on the one hand, and increase in transparency and reporting requirements, on the other. We are pursuing a well strategized plan to strengthen and develop our business. Several initiatives aligned to our objectives are currently

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underway. We have ensured that the imperatives for organic growth robust and quality product flow, and a strong market position – are well in place across markets. We are moving towards a well-balanced mix of revenues from developed and emerging markets, and will be well positioned to maximize and leverage their varied growth potential. We will continue to actively pursue our inorganicstrategy in order to a c c e n t u a t e o u r p r e s e n c e a n d competitiveness on the front and back end of our business. We will continue to and Bio-generics. We have further strengthened our vertical integration capabilities and our fermentation capacities, through the acquisition of Cardinal Drugs and a strategic stake in Krebs Biochemicals, both in India. We also invested in a specialized delivery technology, during the year. Strengthening Innovation Innovation is the life force that drives our organization; its pursuit is enshrined in our m i s s i o n a n d i s undamental to value eneration and growth n our business. Our fforts on this fronthave been targeted at e x t e n d i n g t h eproductivity of our innovation cycle, while optimizing cost structures. Thus, during the year, we ensured a robust product flow into our key markets and lowered R&D costs by 20% over last year. We continued to work towards new alliances with big pharma companies to expand and leverage our New Drug Discovery Research (NDDR) program. To this effect, we entered into a new multiyear R&D agreement with\ GSK, which provides Ranbaxy expanded drug development responsibilities and the prospects of significant financial returns, in terms of milestones and royalties, going forward. Responsible Corporate Citizen We remain cognizant of the increasing burden of neglected diseases and are committed to reducing their impact on mankind. We have worked tirelessly to create greater access to affordable and new generation HIV / AIDS drugs, and have developed and filed the first set of medicines for pediatric use.Today, Ranbaxy is providing to patients in over 50 countries across the world, a wide range of generic ARVs, at onehundredth the cost at which branded medicines were available less than 10 years ago. Our Anti-malaria molecule under development is also

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progressing well in Phase II clinical trials. Human Capital Our people have been our most enduring strength. As a result of their dedication, determination and passion, our Company has consistently risen above all challenges, maximized opportunities and positioned itself as a leader in the global We are moving towards a well-balanced mix of revenues from developed & emerging markets and will be well positioned to maximize and leverage their varied growth potential.DevelopedMarketsEmergingMarkets

6Our focus on in

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Capital structure Analysis

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

ICR = Earnings before interest and taxesInterest on debt

CFCR = EBIT + Deprication + Other non-cash charges

Interest on debt + Loan repayment instalment/(1-t)

DSCR = Σ(PATi +DEPi + INTi +Li) Σ( INTi + LRI ii)

FACR = Fixed assets Term loans

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

ICR = Earnings before interest and taxes Interest on debt

= 5014.2 1036.32

= 4.84

company is capable to repay its debt 5 time from the profit.it suggests that company has very good capital strucutre and it could take more DEBT in future. Company has very good working capital it can be used as repayment.

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

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interest of Rs 584.44. loan repayment amount is Rs 1722.69 and tax rate is 25% CFCR is as under

CFCR = EBIT + Deprication + Other non-cash charges Interest on debt + Loan repayment instalment/(1-t)

= 5014.2 + 1067.5.+ 0 584.44 +1722.69/(1-0.25)

= 2.64

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

3. Financial institution which provide the bulk of long term debt finance judge the capacity of a firm in terms of its debt service coverage ratio. Normally, financial institution regrad a debt service coverage ratio of 2 as satisfactory. if the ratio is less than 2 the maturity period of taken loan for the repayment of the debt is enough for the adjustment but if itis more than 2 the loan repayment period is shorter so company

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will have to make other arrangements for the debt coverage and for the loan repayment also. Here, company has total ten years PAT is Rs 34859.6 millon.total ten years deprication is Rs 8450 millon,ten years interest paid is Rs 11399.52 million ,loan repayment instalment is Rs 18343 million.putting all these value in the DSCR formula

DSCR = Σ(PATi +DEPi + INTi +Li) Σ( INTi + LRI i)

= (34859.6 +8450 + 11399.52 + 18343) (11399.52 +18343) = 73052.12 29742.52

= 2.45

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

4. FACR is the main ratio because it indicates the assets of the company from which finacial institutions can recover the amount that has been given to the company.financial

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institution feel comfortable if the fixed asset coverage ratio is atleast 1.25. form the balancesheet we can get the amount of fixed assets which is Rs 17359.1million. the term loans are Rs11332.8,So ,the FACR is 1.53

FACR = Fixed assests Term loans

= 1.53

financial institution can trust in the company because it has crossed the minimum requrement of FACR (1.25) which is 1.53.comapany has enough assests to recver the term loan .comapny can able pay the term 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.

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Conclusion

Company has very good financial structure as we can see from the all capital ratios that company can repay its debt easily,debt interest can also be paid easily .company has enough assets form that comapy can pay its all term loans.from the cash flow statement we can see that company has adequate cash in circulation company can have more cash as CFCR is more than 2 times.comapny is having very good capital structure .in future company can think for more leverage because all ratios ffavourthe company .if company is enough to pay its all debt,interest and loans company is progresssing and there are more chance to get more leverage in future. The Company's top line and bottom line have both shown substantial improvement in 2006, relative to the preceding year. Important markets, notably India, US, Eastern Europe, Russia, Africa and South East Asia, have recorded encouraging performances. Some markets however, experienced pricing pressures due to changing dynamics witnessed by the global healthcare industry.

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CIPLA

IntroductionCipla was incorporated in 1935, in the name of Chemical Industrial and Pharmaceutical Laboratories. The name was changed to the acronym ‘Cipla’ in 1984. Over the last 6 decades Cipla has set up plants at five locations, mainly concentrated in Maharashtra. The Hammed brothers, sons of the founder, late Dr K A Hammed, manage Cipla. Dr Y K Hammed, with a doctorate in Organic Chemistry from Cambridge, is the Chairman and Managing Director. He himself heads the research division, which has around 200 people. His brother, M K Hammed, looks after marketing. Cipla has four plants located at Patalaganga, Kurkumbh, Mumbai in Maharashtra and one at Bangalore in Karnataka. All plants make bulk drugs as well as formulations and have secured FDA (USA)/ MCA (UK) for most of its plants. Cipla has crossed the USD 1 billion mark in terms of turnover for the year 2007-08. While domestic sales grew by more than 13%, export sales posted a growth of about 23% for the quarter. Total sales for the year 2007-08 has increased by 16% which has been in line with the estimates.

BackgroundCipla was officially opened on September 22, 1937 when the first products were ready for the market. The Sunday Standard wrote: "The birth of Cipla which was launched into the world by Dr. K.A. Hammed will be a red letter day in the annals of Bombay Industries. The first city in India can now boast of a concern, which will supersede all existing firms in the magnitude of its operations. India has lagged behind in the march of science but she is now awakening from her lethargy. The new company has mapped out an ambitious programme and with intelligent direction and skillful

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production bids fair to establish a great reputation in the East. "

Business

Cipla occupies the third position in the domestic formulations market and commands a market share of 4.74 per cent. Cipla currently markets over 350 products and is the market leader in the generic segment consisting of more than 100 products. The company has strong presence in antiasthmatic, antibiotics, cardiovascular, anti-AIDS and anticancer areas. Cipla was the first one to enter into the competitive generics business and has occupied the leadership position in this segment. Cipla is the market leader in anti asthmatic inhaler segment with over 70 per cent market share. This segment is growing rapidly mainly due to increase in pollution leading to a spurt in the number of asthma cases in patients. One of its major products, Asthalin inhaler has annual sales of more than Rs 30 crore. The company offers full range of inhalers, rotahalers and spacers that have gained excellent acceptance among the asthma patients. The company has introduced CFCfree, environment-friendly Budecort inhalers for the first time in India. The CFC- free products have a huge export potential .The inhaler therapy is preferred to tablets since the dose required is about 1/ 10 of the oral dose. Moreover, the drug directly goes to the lung and gives instantaneous relief to the patient. Cipla will be maintaining a leadership position due to the entire range of inhalers and with the advantage of economies of scale. Cipla has presence in niche segments such as cardiovascular, anti-AIDS, and anticancer. The company has several products in each of these segments that will help it maintain a steady growth in the long run. Cipla is building a strong presence in the anti-AIDS segment and is offering the entire range of products. The company has reduced the prices of anti-AIDS drug five times in the domestic market through technological advancements. The company's recent offer to supply the cocktail of drugs consisting of Lamivudine, Nevirapine and

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

FINANCIALS:

CAPITAL STRUCTURE:

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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.

Capital Structure of Cipla: Year After Year (2000-2007)

From

To Class of

share

Authorized

Capital

Issued

Capital

Paid UpShares (Nos)

Paid Up

FaceValu

e

Paid Up

capital

2007

2008

Equity

Share

175.00 155.66

777291357

2 155.46

2006

2007

Equity

Share

175.00 155.66

777291357

2 155.46

2005

2006

Equity

Share

175.00 60.17 299870233

2 59.97

2004

2005

Equity

Share

65.00 60.17 299870233

2 59.97

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2003

2004

Equity

Share

65.00 60.17 59972349

10 59.97

2002

2003

Equity

Share

65.00 60.17 59972349

10 59.97

2001

2002

Equity

Share

65.00 60.17 59972349

10 59.97

2000

2001

Equity

Share

65.00 60.17 59972349

10 59.97

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

Ratios: Net Profit marginProfit After tax /sales

Year- 2007 Year-2008= 668.03/3438.24 = 701.43/3997.9= .1942 or 19.42% = .1755 or 17.55%

GROSS PROFIT MARGINGross profit/Sales

Year-2007 Year-2008

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= 814.93/3438.24 =850.05/3997.90=.2370 or 23.7% =.2126 or 21.26%

Total Assets TurnoverSales/Total Assets

Year-2007 Year-2008= 4413.74/3438.24 = 5733.21/3997.90= 1.28 Times = 1.43 Times

Debt/Equity RatioYear-2007 Year -2008

=123.56/3236.27 = 580.53/3755.82= .038 = .154

Working capital turnover

Sales/Net current AssetsYear-2007 Year-2008

=3438.24/1893.42 =3997.90/2496.27=1.816 = 1.60

Return on Investments(ROI)

EBIT/Net Assets

Year-2007 Year-2008= 814.93/1893.42 = 850.05/2496.27=.43 = .34

Return on Equity(ROE)PAT/ Net worth(Equity)

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

Leverage Calculation:Degree of Operating Leverage (DOL)DFL = 1+ Interest /PBT

Year-2007 Year-2008= 1+(6.95/807.98) = 1+ (11.69/838.36)= 1.0086 = 1.014

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