Equity Research- Pharmaceutical Sector

PROJECT REPORT ON “EQUITY RESEARCH IN PHARMACEUTICAL SECTOR” Submitted in Partial Fulfillment of the Award of the Degree of Master in Management Studies of University of Mumbai

By SEEMA GUJJAR ROLL NO: 78

Under the guidance of Prof. Dr. AshishTripathi

PILLAI INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH, NEW PANVEL MMS 2013-2015

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DECLARATION

I Ms. SeemaGujjar of Pillai Institute of Management Studies and Research hereby declare that the project work titled “Equity Research in Pharmaceutical Sector” submitted as part of my curriculum of MMS degree is the original work done by me the project has not forms the basis for an award of my degree, associate ship, fellowship or any similar titles.

(SeemaGujjar)

Place: Date:

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CERTIFICATE

This is to certify that the Project Work titled “Equity Research in Pharmaceutical sector” is a bonfide work of Ms. Seema Gujjar carried out in partial fulfillment for the award of degree of MMS under my guidance. This project work is original and not submitted earlier for the award of any degree/ diploma of this or any other University/ Institution.

Mr. AshishTripathi

Dr. Vijayaragavan

Project Guide

Director

Place: Date:

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ACKNOWLEDGEMENT

I take this opportunity to sincerely thank and express my gratitude to my project guide Mr. Nikesh Ruparel for guiding me throughout my entire project. The experience and the knowledge acquired over the interactions with the guide have been invaluable to say the least and will help me a great deal in my future education and career. I would also like to thank my co-guide Prof. AshishTripathi for valuable input on coordination in my project. My project was completed in a very supportive and interactive environment and has been great learning experience. Last but not the least I would like to thank my family and friends for all the support they have provided me.

Seema Gujjar

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EXECUTIVE SUMMARY

The field of equity research is very vast and one has to look into various aspects of the functioning of the company to get to any conclusion about the possible performance of the company in the market. Investors like Warren Buffet made a fortune out of investments in the stock market, which is quiet impossible without proper research about the companies. The field of equity research is full of challenge. In a world that is shrinking in size due to information technology and blurring boundaries between nation, stock market (or the equities market), which is considered to be in its infant stage, is all set to grow in size. The project on “Equity Research” was carried out by self-study. It also provided an insight on what various services such as broking houses provide and what efforts are required to manage such organizations. The reason behind choosing this project is that it provides hands on experience with what goes on in the stock market on a day-to-day basis. Some value investors only look at present assets/earnings and don’t place any value on future growth. Other value investors base strategies completely around the estimation of future growth and cash flows. Despite the different methodologies. The project initiated with understanding the mannerisms of the stock market trading followed by the dynamics of the pharmaceutical sector. Some of the major players in pharmaceutical sector were then chosen for further analysis. These companies were further studied in detail with respect to their financials and the management’s future plans regarding the functioning of the companies and their global forays.

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TABLE OF CONTENTS

Sr. No.

CONTENT

1.      2.          3.   

4. 

INRODUCTION EQUITY OBJECTIVE RESEARCH METHODOLOGY SCOPE LIMITATION COMPANY PROFILE INTRODUCTION EQUITY RESEARCH RESEARCH TECHNIQUES FUNDAMENTAL ANALYSIS TECHNICAL ANALYSIS TYPES OF CHART OVERVIEW OF PHARMACEUTICAL SECTOR SWOT ANLAYSIS LEADING PLAYERS IN PHARMACEUTICAL SECTOR ANLAYSIS AND INTERPRETATION ANALYSIS OF 10 LISTED PHARMA COMPANIES ABOUT AUROBINDO PHARMA ABOUT TORRENT PHARMA FINDINS AND CONCLUSION SUGGESTION AND RECOMMENDATION BIBLIOGRAPHY

CHPATER-1 INTRODUCTION

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PAGE NO. 8 9 11 12 13 14 15 17 18 19 20 21 27 30 32 33 34 37 40 41 42

EQUITY:In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists. In an accounting context, Shareholders equity represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock. At the start of a business, owners put some funding into the business to finance assets. This creates liability on the business in the shape of capital as the business is a separate entity form its owners. Businesses can be considered to be, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for, the positive remainder is deemed the owners interest in the business. This definition is helpful to understand the liquidation process in case of bankruptcy. At first, all the secured creditors are paid against proceeds from assets. Afterwards, a series of creditors, ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership equity is the last or residual claim against assets, paid only after all other creditors are paid. In such cases where even creditors could not get enough money to pay their bills, nothing is left over to reimburse owners’ equity. Thus owners’ equity is reduced to zero. Ownership equity is also known as risk capital, liable capital and equity.

EQUTY SHARES Total equity capital of a company is divided into equal units of small denominations, each called a share. For example, in a company the total equity capital of 1,00,00,000 is divided into 10,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share. Thus, the company then 8

is said to have 10,00,000 equity shares of Rs 10 each. The holders of such shares are members of the company and have voting rights.

EQUITY INVESTMENT Equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gain as the value of the stock rises. It also sometimes refers to the acquisition of equity participation in a private company or a startup. When the investment is in infant companies, it is referred to as venture capital investing and is generally understood to be higher risk than investment in listed going-concern situations.

Why should one invest in Equity in particular? When you buy a share of a company you become a shareholder in that company. Equities have the potential to increase in value over time. It also provides your portfolio with the growth necessary to reach your long term investment goals. Research studies have proved that the equities have outperformed most other forms of investments in the long term. Equities are considered the most challenging and the rewarding, when compared to other investment options. Research studies have proved that investments in some share with a longer tenure of investment have yielded far superior returns than any other investment. However, this does not mean all equity investments would guarantee similar high returns. Equities are high risk investments. One needs to study them carefully before investing.

How to invest in Equity Shares?

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Investors can buy equity from Security market that is from Primary market or Secondary market. The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporate, to raise resources to meet their requirements of investment and/or discharge some obligation. Investors can buy shares of a company through IPO when it is first time issued to public. Once shares are issued to the public it is traded in the secondary market. Stock exchange only acts as facilitator for trading of equity shares. Anyone who wishes to buy shares of a company can buy it form existing shareholder of a company.

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OBJECTIVES

 The main objective of project is to do fundamental analysis of pharmaceutical companies.  To provide an overview of Pharmaceutical sector.  To study about some of the major players in pharmaceutical sector which has good investment prospects.  To study the present scenario of pharmaceutical industry which analyze the information collected on sales, profit, earning per share, market price etc.  To conclude about the fundamental position of the selected companies.

RESEARCH METHODOLOGY AND DESIGN: The research has been based on primary and secondary data analysis. The study has been exploratory as it aims at examining the secondary data for analyzing the previous researches that 11

have been done in the area of fundamental analysis of stocks. The knowledge thus gained from preliminary study forms the basis for future detailed descriptive research. In the exploratory study, the various technical indicators that are important for analyzing stock were actually is identified and important ones short listed.

SAMPLE DESIGN: The sample of the stocks for the purpose of collecting primary and secondary data has been selected on the basis of random sampling. The stocks are chosen in an unbiased manner and each stock is chosen independent of the other stock chosen. The stocks are chosen from the Pharmaceutical sector.

SELECTION OF SAMPLE: SAMPLE POPULATION: The entire pharmaceutical sector is my population. SAMPLE: The have selected ten companies as per market capitalization.

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SCOPE OF STUDY: The stock market in the country is on a remarkable growth path in India, there has been a significant growth in income and wealth levels over the past few years. Financial intermediaries have begun to recognize the important of wealth management as a profitable business. Investment areas in India normally include equities, mutual fund, bonds.

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LIMITATIONS OF THE STUDY:     

This study has been conducted purely to understand Equity analysis for investors. The study is restricted to two companies based on Fundamental analysis. The study is limited to the companies having equities. Detailed study of the topic was not possible due to limited size of the project. There was a constraint with regard to time allocation for the research study i.e. for a

period of 55days.  Suggestions and conclusions are based on the limited data of five years.

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COMPANY PROFILE BIRLA SUNLIFE INSURANCE Established in 2000, Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla Group, a well-known and trusted name globally amongst Indian conglomerates and Sun Life Financial Inc, leading international financial services organization from Canada. The local knowledge of the Aditya Birla Group combined with the domain expertise of Sun Life Financial Inc., offers a formidable protection for its customers' future. With an experience of over 10 years, BSLI has contributed significantly to the growth and development of the life insurance industry in India and currently ranks amongst the top 6 private life insurance companies in the country Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla Group, a well-known Indian conglomerate and Sun Life Financial Inc., one of the leading international financial services organisations from Canada. With an experience of over a decade, BSLI has contributed to the growth and development of the Indian life insurance industry, and currently is one of the life insurance companies in the country. BSLI offers a complete range of offerings, comprising of protection solutions, children's future solutions, wealth with protection solutions, health and wellness solutions, as well as retirement solutions; it has an extensive distribution reach of over 500 cities through its network of over 550 branches, over 1,05,000 empanelled advisors, and over 100 partnerships with corporate agents, brokers and banks. The AUM of Birla Sun Life Insurance is close to Rs. 22,300 Crores and it has a robust capital base of over Rs. 2,200 Crores, as on 30th September, 2013.

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VISION: To be a leader and role model in a broad based and integrated financial services business.

MISSION: To help people mitigate risks of life, accidents, health and money at all stages and under all circumstances.

VALUES:     

Integrity Commitment Passion Seamlessness Speed

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CHAPTER-3 ANALYSIS AND INTERPRETATAIONS EQUITY RESEARCH Equity research is what an equity research analyst does. Equity research is a study of equities or stocks for the purpose of investments. Equities or common stock comprises a big chunk in any company’s capital and shareholders need to know whether to stay invested in the company or sale the shares and come out. As an individual, it is time consuming to do equity research i.e. to study the company, its financial statements, products, management and take a decision about investment. Exactly for the same reason there are people working in research companies whose job is to do equity research and recommend companies for investment.

PURPOSE: Purpose of equity research is to study companies, analyze financials, and look at quantitative and qualitative aspects mainly for decision: Whether to invest or not.

RESEARCH TECHNIQUE 17

The project is on equity research analysis of the sectors. Hence study has to be done on the basis of information and news available about the sectors i.e. secondary data by various modes. This research had to be completed by doing Fundamental analysis and Technical analysis of the companies. Secondary data was collected from the internet, company websites, magazines and various articles. However the main source of information is Annual Report issued by the companies and also quarterly reports of the current year showing their performances in current market scenario. Firstly data was analyzed on the basis of the industry. The industry i.e. Pharmaceutical industry is focused on and its performance and relation with the Indian economy was monitored and then specific stocks were chosen to be invested in depending upon the fundamentals of the company stocks. These stocks were individually analyzed and then measured whether it would give maximum returns if invested in. The research on the sectors and companies in those sectors is explained in the later part of the report.

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FUNDAMENTAL ANALYSIS Fundamental analysisof a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are several possible objectives:  To conduct a company stock valuation and predict its probable price evolution,  To make a projection on its business performance,  To evaluate its management and make projected decisions, Fundamental analysis includes: 1. Economic analysis 2. Industry analysis 3. Company analysis On the basis of these three analyses the intrinsic value of the shares are determined. This is considered as the true value of the share. If the intrinsic value is higher than the market price it is recommended to buy the share. If it is equal to market price then hold the share and if it is less than the market price then sell the shares.

TECHNICAL ANALYSIS Should I buy today? What will prices be tomorrow, next week, or next year? Wouldn’t investing be easy if we knew the answers to these seemingly simple questions? Technical analysis has the answers to these questions.

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Technical analysis is the process of analysing a security’s historical prices in an effort to determine probable future prices. This is done by comparing current price action with comparable historical price action to predict a reasonable outcome. Simply put, technical analysis is the study of prices, with charts being the primary tool. Technical analysts are sometimes referred to as chartists because they rely almost exclusively on charts for their analysis. Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand. Price refers to any combination of the open, high, low or close for a given security over a specific timeframe. The time frame can be based on intraday, daily, weekly or monthly price data and last a few hours or many years. Technicians, as technical analysts are called, are only concerned with two things: 1. What is the current price? 2. What is the history of the price movement? The price is the end result of the battle between the forces of supply and demand for the company’s stock. The objective of analysis is to forecast the direction of the future price. By focusing on price and only price, technical analysis represents a direct approach. Technicians believe it is best to concentrate on what and never mind why. Why did the price go up? It is simple, more buyers than sellers. After all, the value of any asset is only what someone is willing to pay for it.

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TYPES OF CHARTS USED IN TECHNICAL ANALYSIS

LINE CHART

The line chart is one of the simplest charts. It is formed by plotting one price point, usually the close, of a security over a period of time. Connecting the dots, or price points, over a period of time, creates the line. Some investors and traders consider the closing level to be more important than the open, high or low. By paying attention to only the close, intraday swings can be ignored. Line charts are also used when open, high, and low data points are not available.

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BAR CHART

Perhaps the most popular charting method is the bar chart. The high, low and close are required to form the price plot for each period of a bar chart. The high and low are represented by the top and bottom of the vertical bar and the close is the short horizontal line crossing the vertical bar. On a daily chart, each bar represents the high, low and close for a particular day. Weekly charts would have a bar for each week based on Friday’s close and the high and low for that week.

CANDLESTICK CHART 22

Originating in Japan over 300 years ago, candlestick charts have become quite popular in recent years. For a candlestick chart, the open , high, low and close are all required. A daily candlestick is based on the open price, the intraday high and low, and the close. A weekly candlestick is based on Monday’s open, the weekly high-low range and Friday’s close. Many traders and investors believe that candlestick charts are easy to read, especially the relationship between the open and the close. White (clear) candlesticks from when the close is higher than the open black (soild) candlesticks from when the close is lower than the open. The white and black portion formed from the open and close is called the body (white body or black body). The lines above and below are called shadows and represent the high and low.

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INTRODUCTION TO TRENDLINES

Trendlines are an important tool in technical analysis for both trend identification and confirmation. A trendline is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. Trends in charts are found to take decisions regarding buying, selling, or holding the stock. When a stock is in uptrend it is good stock to buy and when a stock is in down trend it is advisable to sell that particular stock or wait for trend in the stock to change before taking buying decision.

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INTRODUCTION TO SUPPORT AND RESISTANCE Once you understand the concept of a trend, the next major concept is that of support and resistance. You’ll often hear technical analysts talk about the opening battle between the bulls and the bears, or the struggle between buyers and sellers. This is revealed by the prices a security seldom moves above (resistance) or below (support).

What is Support? Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers, become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support.

What is Resistance? Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and present the price form rising above resistance.

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As you can see in above figure, support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the red arrows).

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OVERVIEW OF PHARMA SECTOR

 As per ‘Pharma Vision 2020’, the Government of India aims to make India a global leader in end-to-end drug manufacturing.  Manufacturing costs in India are approximately 35-40 per cent of those in the US due to low installation and manufacturing costs.  Pharmaceutical exports have grown at a CARG of 68 per cent over the last decade.  Healthcare expenditure by the Government of India is expected to touch US$ 86.9 billion by 2014.  The projected human resources requirement in the Indian pharma sector is estimates to be about 21,50,000 by 2020.

PHARMA MANUFACTURING AND PATENTS

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 India is home to 10,500 manufacturing units and over 3,000 pharma companies.  India accounts for 35.7 per cent (3000) of 8,374 Drug Master Files (DMF’s) filed with the USA, which is the highest outside of USA.  Higher spending on R&D, owing to Products Patents have made India a major destination for generic drug manufacturing.  India has been accredited with approximately 907 CEPs, 845 TGA and 513 sites registered with the USFDA.  Following the introduction of product patents, several multinational companies are expected to launch patented drugs in India.

HEALTH INSURANCE

 Penetration of health insurance is expected to more than double with over 650 million people to be covered by 2020.  Increasing penetration of health insurance is likely to be driven by government-sponsored initiatives such as RSBY and ESIC.

HOUSEHOLD SPEND AND GROWTH IN RURAL INDIA

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 Due to increasing population and income levels, demand for high-end drugs is expected to reach US$ 8 billion by 2015.  Expenditure on pharmaceutical is likely to increase to over 40 per cent of the total spending on healthcare by households by 2015 from 28 per cent in 2007.  With 70 per cent of India’s population residing in rural markets, various pharma companies are investing in the distribution network in rural areas.  Increased penetration of chemists, especially in rural parts of the country would make OTC drugs easily available.

SWOT ANALYSIS OF PHARMA INDUSTRY STRENGHTS:    

Low cost of production. Large pool of installed capacities. Efficient technologies for large number of Generics. Large pool of skilled technical manpower. 29

 Increasing liberalization of government policies.

Opportunities:             

Aging of the world population. Growing incomes. Growing attention for health. New diagnoses and new social diseases. Spreading prophylactic approaches. Saturation point of market is far away. New therapy approaches. New delivery systems. Spreading attitude for soft medication (OTC drugs). Spreading use of Generic Drugs. Globalization. Easier international trading. New markets are opening.

Weakness:      

Fragmentation of installed capacities. Low technology level of Capital Goods of this section. Non-availability of major intermediaries for bulk drugs. Lack of experience to exploit efficiency the new patent regime. Very low key R&D. Low share of India in World Pharmaceutical Production (1.2% of world production but

having 16.1% of world’s population).  Very low level of Biotechnology in India and also for New Drug Discovery System.  Lack of experience in International Trade.  Low level of strategic planning for future and also for technology forecasting.

Threats:     

Containment of rising health-care cost. High cost of discovering new products and fewer discoveries. Stricter registration procedures. High entry cost in newer markets. High cost of sales and marketing. 30

 Competition particularly from generic products.  More potential new drugs and more efficient therapies.  Switching over form process patent to product patent.

LEADING PLAYERS IN PHARMACEUTICAL INDUSTRY Top companies in India by Net Sales NET SALES (Rs. Cr)

COMPANIES NAME DR REDDY LABS CIPLA LUPIN AUROBINDO PHARMA CADILA HEALTHCARE IPCA LABORATORIES JUBLILANT LIFE TORRENT PHARMA GLAXO SMITHKLINE WOCKHARDT

8,434 8,202.42 7,122.51 5,425.10 3,675.70 3,234.82 3,146.30 2,766.23 2,546.15 2,471.18

ANALYSIS OF 10 LISTED PHARMACEUTICAL COMPANIES 31

COMPANIES NAME

PRICE

P.E

EPS

LONG TERM

DIFFRENCE

PRICE TARGET BETWEEN MP (Sector P.E * EPS) AND LTPT 419.63 2753.91 203.91 1257.67 210.02

CIPLA DR REDDY LABS LUPIN

437.3 2550 1047.6

25.29↑ 17.29 24.47↑ 113.47 20.22 51.82

DIVIS LAB TORRENT PHARMA IPCA LABORATORIES WOCKHARDT CADILA HEALTHCARE

5 1438.2 702.55 864.15 571.70 1055.1

24.11 15.6 22.84 31.67↑ 24.46↑

59.65 45.03 37.83 18.05 43.13

1447.71 1092.88 918.13 438.07 1046.77

9.51 390.33 53.98 -

AUROBINDO PHARMA GLENMARK PHARMA

5 741.65 569.65

18.44 40.21 35.63↑ 15.99

975.89 388.08

234.24 -

SECTOR P.E – 24.27 Here we can see that out of ten pharmaceutical companies there are five companies with undervalued sector p.e ratio like Lupin, Divis Lab, Torrent Laboratories, Ipca Laboratories, AurobindoPharma. And with the calculated LTPT we can make out that its better to purchase shares of companies like Torrent Laboratories and AurobindoPharma.

TOP TWO PALYERS IN PHARMACEUTICAL INDUSTRY OUT OF THE ANALYSIS DONE

AUROBINDO PHARMA

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Founded in 1986 by Mr. P.V. Ramaprasad Reddy, Mr. K. Nityananda Reddy and a small group of highly committed professionals, AurobindoPharma was born off a vision. The company commenced operations in 1988-89 with a single unit manufacturing Semi-Synthetic Penicillin (SSP) at Pondicherry. AurobindoPharma became a public company in 1992 and listed its shares in the Indian stock exchanges in 1995. In addition to being the market leader in Semi-Synthetic Penicillins, it has a presence in key therapeutic segments such as neurosciences, cardiovascular, anti-retrovirals, anti-diabetics, gastroenterology and cephalosporins, among others. Through cost effective manufacturing capabilities and a few loyal customers, the company entered the high margin specialty generic formulations segment. In less than a decade AurobindoPharma today has evolved into a knowledge driven company manufacturing active pharmaceutical ingredients and formulation products. It is R&D focused and has a multi-product portfolio with manufacturing facilities in several countries.

The formulation business is systematically organized with a divisional structure, and has a focused team for key international markets. Leveraging on its large manufacturing infrastructure for APIs and formulations, wide and diversified basket of products and confidence of its customers, it aims to achieve USD 2 billion revenues by 2015-16. Aurobindo's nine units for APIs / intermediates and seven units for formulations are designed to meet the requirements of both advanced as well as emerging market opportunities.

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A well integratedpharma company, AurobindoPharma features among the top 10 companies in India in terms of consolidated revenues. Aurobindo exports to over 125 countries across the globe with more than 70% of its revenues derived out of international operations. Our customers include premium multi-national companies.. With multiple facilities approved by leading regulatory agencies such as USFDA, EU GMP, UK MHRA, South Africa-MCC, Health Canada and Brazil ANVISA, Aurobindo makes use of in-house R&D for rapid filing of patents, Drug Master Files (DMFs), Abbreviated New Drug Applications (ANDAs) and formulation dossiers across the world. AurobindoPharma is among the largest filers of DMFs and ANDAs from India.

Balance Sheet of AurobindoPharma

------------------- in Rs. Cr. ------------------Mar '13

Mar '12

Mar '11

Mar '10

Mar '09

12 mths

12 mths

12 mths

12 mths 12 mths

Total Share Capital

29.12

29.11

29.11

27.86

26.88

Equity Share Capital

29.12

29.11

29.11

27.86

26.88

Share Application Money

0.00

0.00

0.00

0.00

0.00

Preference Share Capital

0.00

0.00

0.00

0.00

0.00

2,909.9 8

2,464.06

2,540.50

1,886.50

1,293.9 5

Sources Of Funds

Reserves Revaluation Reserves Networth

0.00

0.00

0.00

0.00

0.00

2,939.1

2,493.17

2,569.61

1,914.36

1,320.8

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Secured Loans

0 1,875.7 2

3 2,346.33

1,038.01

702.25

813.02

95.62

1,279.71

1,242.53

1,301.6 6

2,441.95

2,317.72

1,944.78 2,114.68

4,935.12

4,887.33

3,859.14

Mar '13

Mar '12

Mar '11

Mar '10 Mar '09

12 mths

12 mths

12 mths

12 mths 12 mths

Gross Block

2,903.5 3

2,359.40

1,955.17

1,526.88

1,258.7 0

Less: Accum. Depreciation

891.62

732.66

605.28

481.54

385.83

2,011.91

1,626.74

1,349.89

1,045.34

872.87

166.34

563.56

582.92

499.47

285.96

707.98

629.00

493.09

379.24

277.74

1,219.26

1,261.02

944.82

735.52

1,426.28

1,480.71

1,151.35

1,105.6 7

114.57

14.01

4.21

4.02

79.03

Total Current Assets

3,276.8 9

2,659.55

2,745.94

2,100.19

1,920.2 2

Loans and Advances

661.45

677.41

568.61

593.67

696.60

0.00

0.12

118.12

0.54

7.91

3,938.3 4

3,337.08

3,432.67

2,694.40

2,624.7 3

0.00

0.00

0.00

0.00

0.00

1,037.2 6

1,159.59

913.82

719.94

595.02

Unsecured Loans Total Debt Total Liabilities

899.24 2,774.9 6 5,714.0 6

3,435.5 1

Application Of Funds

Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance

Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions

1,431.7 3 1,730.5 9

73.25

61.67

57.42

39.37

30.77

Total CL & Provisions

1,110.51

1,221.26

971.24

759.31

625.79

Net Current Assets

2,827.8 3

2,115.82

2,461.43

1,935.09

1,998.9 4

0.00

0.00

0.00

0.00

0.00

Miscellaneous Expenses Total Assets

5,714.0 6

4,935.12

4,887.33

3,859.14

3,435.5 1

Contingent Liabilities

474.51

74.59

219.10

139.04

90.03

Book Value (Rs)

100.93

85.64

88.27

343.51

245.67

TORRENT PHARMA 35

Torrent Pharma, the flagship company of Torrent Group, is ranked amongst the top pharma companies of India. It is a dominant player in the therapeutic areas of cardiovascular (CV) and central nervous system (CNS) and has achieved significant presence in gastro-intestinal, diabetology, anti-infective and pain management segments. Recently it has also forayed into the oncology therapeutic segment while also strengthening its focus on gynecology and pediatric segments. Right from pioneering niche marketing in India to earning the sobriquet of ‘the Company with the most first launches’, Torrent Pharma has always remained ahead of its competition. Torrent Pharma’s competitive advantage stems from its world-class manufacturing facilities, advanced R&D capabilities, extensive domestic network and a widespread global presence. It has three world-class manufacturing facilities at Indrad (Gujarat), Baddi (Himachal Pradesh) and Sikkim. The facilities are approved by USFDA, WHO, MHRA, TGA and other global regulatory bodies. A new facility is taking shape at Dahej SEZ in Western India, which will cater to the international markets. Torrent Pharma is the sole manufacturer of Insulin Formulations for Novo Nordisk in India since the early ‘90s and has also set up a dedicated formulation and packaging facility for Insulin. It is also amongst the few Indian pharma majors to recognize the importance of research and development in the post 2005 GATT era. Its modern and well-equipped R&D Centre is ranked amongst the best in the country and has a team of highly qualified scientists working on various

36

Drug Discovery and Development projects. The R&D Centre has been approved by USFDA and various other regulatory authorities. The Indian operations of the company are controlled through well-segregated marketing divisions, strategically structured on specific therapeutic areas. Together, these divisions spearhead the company’s dominant position in the various therapeutic segments that it operates in. Recently Torrent Pharma entered into a definitive binding agreement with Elder Pharma to acquire its branded domestic formulations business in India and Nepal. This will be the largest acquisition by an Indian pharma company in the domestic market and will significantly strengthen its position in the neutraceuticals and women healthcare segments. Torrent Pharma has a strong international presence spanning over 70 countries across five continents with over 1200 product registrations. It has wholly owned subsidiaries in USA, UK, Germany, Brazil, Russia, Mexico, Philippines Australia and other major markets. These wholly owned subsidiaries spearheads the company’s entry into several new regulated and semi regulated international markets. Today, Torrent Pharma, with its state of the art manufacturing and research facilities and a global presence, is all poised to carve a niche for itself in the international pharma arena. It is well set on an exciting growth phase in all directions.

Balance Sheet of Torrent Pharmaceuticals

------------------- in Rs. Cr. ------------------Mar '13

Mar '12

Mar '11

Mar '10

Mar '09

12 mths

12 mths

12 mths

12 mths

12 mths

37

Sources Of Funds Total Share Capital

42.31

42.31

42.31

42.31

42.31

Equity Share Capital

42.31

42.31

42.31

42.31

42.31

0.00

0.00

0.00

0.00

0.00

Share Application Money Preference Share Capital

0.00

0.00

0.00

0.00

0.00

1,608.7 8

1,262.18

1,050.74

838.54

690.37

0.00

0.00

0.00

0.00

0.00

Networth

1,651.0 9

1,304.49

1,093.05

880.85

732.68

Secured Loans

471.87

298.01

428.47

364.64

318.27

Unsecured Loans

107.29

162.17

143.59

157.75

163.79

Total Debt

579.16

460.18

572.06

522.39

482.06

Total Liabilities

2,230.2 5

1,764.67

1,665.11

1,403.24

1,214.74

Mar '13

Mar '12

Mar '11

Mar '10

Mar '09

12 mths

12 mths

12 mths

12 mths

12 mths

Gross Block

1,185.7 0

987.11

884.93

771.79

680.78

Less: Accum. Depreciation

394.32

350.80

297.32

246.16

193.55

Net Block

791.38

636.31

587.61

525.63

487.23

Capital Work in Progress

276.31

33.65

67.83

105.38

45.73

Investments

190.26

477.82

430.52

231.48

244.96

Inventories

697.09

393.12

342.83

227.88

191.84

Sundry Debtors

831.27

409.61

340.01

259.78

240.81

Cash and Bank Balance

277.76

43.56

22.79

11.62

12.26

Total Current Assets

1,806.1 2

846.29

705.63

499.28

444.91

Loans and Advances

291.24

275.06

200.53

164.05

231.58

0.00

323.12

242.53

335.17

171.05

2,097.3 6

1,444.47

1,148.69

998.50

847.54

Reserves Revaluation Reserves

Application Of Funds

Fixed Deposits Total CA, Loans & Advances Deffered Credit

0.00

0.00

0.00

0.00

0.00

846.21

708.28

464.44

375.18

353.17

Provisions

278.85

119.32

105.12

82.55

57.54

Total CL & Provisions

1,125.0 6

827.60

569.56

457.73

410.71

Net Current Assets

972.30

616.87

579.13

540.77

436.83

Current Liabilities

Miscellaneous Expenses

0.00

0.00

0.00

0.00

0.00

Total Assets

2,230.2 5

1,764.65

1,665.09

1,403.26

1,214.75

Contingent Liabilities

346.68

51.11

49.76

72.91

35.80

38

Book Value (Rs)

195.14

39

154.17

129.18

104.11

86.59

CHAPTER-4 FINDINGS AND CONCLUSION

With the above conclusion done we can conclude by saying that after analyzing top ten pharmaceutical companies Torrent Pharma emerged the top performing company in the list. The market price of various pharmaceutical companies was taken along with the P/E ratio. After that EPS was calculated with the help of market price and P/E ratio. The sector P/E was compared with P/E ratio of all the companies. Finally, the target price was calculated by multiplying the values of sector P/E ratio and EPS. Lastly, the difference between target price and market price was calculated were the amount arrived was maximum for Torrent Pharma. Thus, we can conclude by saying that Torrent Pharma is best performing company as compared to other companies in the list as there would be guaranteed maximum return in future in this company and if the current market price in this manner there would definitely be more investors for the company.

40

SUGGESTION AND RECOMMENDATION

STOCK TORRENT PHARMA AUROBINDO PHARMA

TARGET PRICE(Rs) 1092.88 975.89

RECOMMENDATION BUY BUY

Current scenario suggests, markets are on a bullish run, especially in case of pharmaceutical industry. Analysis suggests that all the chosen stocks i.e. Torrent Pharma and Aurobindo Pharma are going to perform well, with huge potential of earning for equity holders.

It is recommended to increase the investments in following companies:

STOCK TORRENT PHARMA AUROBINDO PHARMA

P.E RATIO 15.6 18.44

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BIBLIOGRAPHY NEWSPAPER AND BOOKS THE ECONOMIC TIMES BUSINESS STANDARD

WEBSITES http://www.wallstreetoasis.com/finance-dictionary/equity-research-overview http://www.ibef.org/industry/pharmaceutical-india/showcase http://www.ibef.org/industry/pharmaceutical-india.aspx http://www.brandindiapharma.in/infographic-on-pharma-sector-business/ http://www.nse.com/ www.bse.com www.moneycontrol.com www.torrent.com

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