Financial Vitality of the Pharma Companies in India

 

Dr. R. Gayathri¹, S. Aravindh², S. L. Dhivya³, R. Gowsalya⁴

¹Faculty, School of Management, Sastra University, Thanjavur

^2,3,4MBA Student, School of Management, Sastra University, Thanjavur

ABSTRACT:

“Staying fit” is new mantra of the present generation and the status of healthcare of a country are reflected in the human development index. Changing lifestyles are causal to increased expenses in health care. Insurance and pharma companies are an important constituent of health care and also contribute to the growth of employment opportunities and Gross domestic product (GDP). The article discusses the growth of the Indian pharmaceutical industry in the recent years. It enlightens the financial soundness of the Indian pharmaceutical companies through various financial ratios. It also explains the proposals undertaken by the government to augment the pharmaceutical industry amidst the challenges it faces regarding patents, pricing etc. The article concludes that the pharmaceutical companies need to align with the government initiatives for achieving Vision 2020.

 

 

INTRODUCTION:

India has emerged as the global manufacturer and research hub of pharmaceuticals markets in the world. India has a competitive advantage when compared to that of the other countries due to the availability of abundant unprocessed materials, enormous human resource potential and technology. India nowadays is recognized worldwide as a global researcher and manufacturer of generic drugs at affordable rates. India has bagged 201 approvals in the year 2015-16 from the US Food and Drug Administration. Indian pharmacy exports constitute 20 percent of the global export volume. India is expected to rank third in terms of incremental growth rate among the pharmaceutical markets by 2020.The reports from the Pharmaceutical Export Promotion Council of India 2016, has estimated that the Indian pharmaceutical industry is anticipated to expand from $20 billion in 2015 to $55 billion by 2020, indicated in fig.1[1]. Generic drugs account for 70 percent of the Indian pharmaceutical production. India produces drugs approximately 30 per cent (by volume) and about 10 per cent (by value) in the $70-80 billion USA generics division.[2]

 

INDIAN PHARMA COMPANIES:

The Ministry of Commerce and Industry in India had reported that during 2015-16, India had surpassed Chinese pharmaceutical exports with an annual growth of 11.44 percent to $12.91 billion. Pharmaceutical imports rose slightly by 0.80 per cent annually to $1,641.15 million. Some of the leading pharmacy companies in India are mentioned below.

 

SUN PHARMACEUTICAL INDUSTRIES LTD:

Sun Pharma is an Indian multinational company with its headquarters located in Mumbai, Maharashtra where they produce and trade pharmaceutical formulations and active pharmaceuticals. During, March 2017 the revenue generated was 315.8 billion INR ($4.9 billion).[3]

 

LUPIN LTD:

Lupin is a global company headquartered in Mumbai .It is the 7^th leading pharmaceutical group by market capitalization (June 30th, 2017, Bloomberg) and the 6^th largest in terms of total revenue generated (March 31st, 2017, Bloomberg).The revenue generated by Lupin during 2016-17 was $2.55 billion.[4]

 

DR.REDDY’ S LABORATORIES:

Dr.Reddy’s laboratory is an Indian global pharma company with its headquarters located in Hyderabad. It manufactures wide range of pharmaceuticals like diagnostic kits, bi technological products etc for the domestic and overseas market. The revenue generated was 4081crore (US$2.2 billion) during the year 2017.[5]

 

CIPLA:

Cipla Ltd. is an Indian global biotechnology and pharmaceutical company with its headquarters located in Mumbai. It manufactures medicines to treat arthritis, diabetes, weight control etc. Based on the unaudited financial outcome for the quarter Sept. 30, 2017 the Company stated that the quarterly revenues of Rs 4,082 crores was growing at 9% on a annual basis and profit after tax stood at Rs 423 crores.[6]

 

AUROBINDO PHARMA LTD:

Aurobindo Pharma Ltd. is one of the leading pharma manufacturing company headquartered in Hyderabad. It manufactures medicines especially for anti-allergics, anti-retrovirals, central nervous system, cardiovascular products etc. During 2017 the company had generated revenue of 136.50 billion (US$2.1 billion) [7].Financial ratios are numerical comparisons taken from various financial statements like balance sheet, fund flow, income statement etc to assess the financial reliability of an organization. These ratios assist various stakeholders to comprehend the financial strength of the company and facilitate in business decision making. Sun Pharma and Cipla had a higher efficiency in utilizing their resources as the asset turnover ratio in 2016 was comparatively high in contrast to that of the previous years, indicated in the Table 1.

 

TABLE 1.RATIO ANALYSIS FOR PHARMA COMPANIES IN 2016

RATIO ANALYSIS	SUN PHARMACEUTICAL INDUSTRIES LTD			LUPIN			DR.REDDY’ S LABORATORIES			CIPLA			AUROBINDO PHARMA LTD
YEARS	2016	2015	2014	2016	2015	2014	2016	2015	2014	2016	2015	2014	2016	2015	2014
ASSET TURNOVER	22.27	21.41	20.44	79.34	88.59	101.59	58.1	60.83	67.05	75.1	66.6	72.5	76.81	76.16	82.91
CURRENT	0.60	0.49	1.40	3.15	3.89	3.45	2.10	2.22	2.17	2.10	1.83	2.11	1.54	1.61	1.53
QUICK	0.36	0.30	1.15	2.32	2.84	2.51	1.75	1.86	1.78	1.15	0.91	1.07	1.00	1.07	1.02
RETURN ON EQUITY (ROE)	-4.99	-6.48	-38.18	24.88	26.55	33.30	11.6	15.79	20.71	11.3	10.6	13.7	23.78	28.29	29.21
EARNING PER SHARE (EPS)	-4.50	-6.10	-13.70	64.10	53.41	51.88	79.4	98.60	113.6	17.4	14.7	17.2	29.16	52.01	40.24
DEBT EQUITY	0.26	0.24	0.33	0.03	0.00	0.02	0.27	0.29	0.29	0.09	0.12	0.09	0.43	0.54	0.70
INVENTORY TURNOVER	3.57	3.66	3.08	5.89	5.61	6.51	6.01	5.89	6.11	4.12	3.08	3.74	3.77	3.77	4.15
PRICE PER SHARE	481.15	481.15	481.15	987.65	987.6	987.65	2032	2032	2032	568	568	568	731	731	731
DIVIDEND PAY OUT (%)	-22.42	-48.97	-10.98	11.71	14.06	11.57	25.1	20.29	15.84	11.4	13.5	11.5	9.02	8.65	7.45
PRICE PER BOOK VALUE	9.18	9.31	16.03	5.75	9.99	6.01	4.46	5.59	4.67	3.34	5.15	3.06	6.40	6.65	3.71

Data accessed from money control.com. Data analysis by the author’s own calculation.

 

 

 

PHARMA GIANTS R&D SPENDING:

Some of the Pharma companies which had the highest expenditure on R&D were Sun Pharma, Dr.Reddy, Lupin etc. Sun pharma’s expenditure on R&D was 9.1 percent of the total sales during the first quarter of 2016 which resulted in a considerable growth of 23 percent Lupins R& D expenditure is expected to increase to 12-15 percent during 2017 from 12 percent in 2016.Fig.2 illustrates the expenditure incurred on R&D by the Pharma giants.

 

 

Fig.2 R&D spending by top 6 pharma giants during 2016

Source: Company websites TechSci Research Notes: R&D - Research and Development* Data is up to Dec 2015,**Data is up to September 2015*** Data is for FY15 (Reports from ibef –Jan17)

 

 

 

Cost efficiency:

India is one of the countries that have the least amount of production costs in the world. The manufacturing cost in India is approximately 35 to 40 per cent lower than in the US, as installation and personnel costs are comparatively low by 50 -55 percent when compared with the rest of the countries. Setting a fabrication place in India is 40 percent lesser when compared to that of the western countries Refer fig.3 indicates the manufacturing costs by country.

 

 

Fig.3 Manufacturing cost Index by country

Source: Deloitte, BMI, Financial Express, TechSci Research Note: USFDA - United States Food and Drug Administration (reports from www.ibef.org – June 2017)

 

GOVERNMENT INITIATIVES:

The Government of India has initiated the 'Pharma Vision 2020' intended at making India a universal leader in medicine manufacturing. A new facility for setting up of clusters and chemical hubs has been instigated. The government is gearing up for a multibillion dollar investment through the PPP model with the intention of making India, one among the top five innovative pharma hub by 2020.[8]

 

MERGERS, ACQUISITIONS AND OTHER INVESTMENTS IN RESEARCH AND

DEVELOPMENT:

Between April 2000 and March 2016, the Indian pharmaceutical industry attracted FDI inflows worth $ 13.85 billion, according to report released by the Department of Industrial Policy and Promotion (DIPP). The Union Cabinet has accepted FDI up to 100 percent under the automatic route for producing certain medical devices. Some of the foremost investments in the Indian pharmaceutical sector are as follows:

·         Sun Pharmaceutical Industries Limited has partnered with Japan's Mitsubishi Tanabe Pharma Corporation to promote 14 prescription brands in Japan.

·         The fourth elite R&D center named Syngene Amgen Research and Development Center (SARC) will be situated in Bengaluru.

·         Cipla has acquired two US companies - InvaGen Pharmaceuticals and Exelan Pharmaceuticals Inc., for $550 million and it plans to invest Rs.600 crore (US$ 89.47 million) to set a plant in South Africa to manufacture cancer drugs at an affordable rate.

·         Lupin in order to strengthen its global presence has acquired Gavis and Novel laboratories Inc, worth $880 million and has also planned to acquire 21 generic brands from Japan’s Shionogi & Co Ltd for Rs.10.08 billion (US$ 150.3 million ).

·         Rusan Pharma, a firm which specialises in de-addiction and pain management products, plans to invest Rs 100 crore (US$ 14.91 million) in a R&D centre and a manufacturing unit in Kandla, located in Kutch District in Gujarat.

 

ROAD AHEAD:

India’s pharmaceutical exports stood at $16.4 billion during 2016-17 and is probable to develop by 30 per cent over the next three years to accomplish $20 billion by 2020, according to the Pharmaceuticals Export Promotion Council of India (PHARMEXCIL).[9]. Recently the government has introduced Goods and Services tax (GST) in India and it is up to the government to create a conducive environment for setting up research labs across the country, reduce the taxes on the import/export duties and improve the quality of healthcare and availability of medicines at affordable prices .To further intensify growth rates, the pharma companies need to ponder on psychoanalysis for diseases like cancer, cardio ailments, anti depressants etc and also introduce generic drugs at affordable price.

 

REFERENCES:

1         SIndiaBiz, PWC, Department of Industrial Policy and Promotion, Deloitte, PharmaBiz, Frost and Sullivan Report on Indian Pharmaceutical Market, McKinsey, Aranca Research(Reports from ibef july 2017)

2         Business Monitor International, FCCI Indian Pharma Summit 2014-15, TechSci Research(Reports from ibef july 2017)

3         "Sun Pharmaceutical Industries Consolidated Yearly Results, Sun Pharmaceutical Industries Financial Statement & Accounts". www.moneycontrol.com. Retrieved 28 July 2017.

4         Jump up^http://www.lupin.com/pdf/17/05/investor-meet-24-May-17-vF.pdf

5         www.reddy’s.com

6         http://www.cipla.com/uploads/investor/1510050269_Press%20Release%20-%20Q2FY18.pdf

7         http://www.aurobindo.com/investor-relations/finance/financial-highlights

8         https://health.economictimes.indiatimes.com/news/pharma/ppp-model-can-make-india-one-of-top-5-global-pharma-innovation-hubs-study/53928668

9         https://www.ibef.org/industry/pharmaceutical-india.aspx

 

 

Accepted on 16.02.2018           © RJPT All right reserved

Research J. Pharm. and Tech 2018; 11(6): 2715-2718.