Financial Accounting-

Analysis of Pharmaceutical
Industry
Final Report, Group-5
Submitted to Dr. Lata Chakravarthy








Murali Krishna Yamsani-1411032
Naresh Goud Gadagoni-1411034
Sabarni Sen-1411051
Sheikh Farzyn -1411055
Tanulekha Roy-1411062
V Swapnika Nag-1411065

Table of Contents

1. Industry Analysis ................................................................................................. 3
1.1 Introduction Indian Pharmaceutical Industry ......................................................... 3
1.2 Macro Economic Factors and Policy Pronouncements impacting Indian Pharma ................. 3
Macroeconomic Factors: ........................................................................................ 3
Policy Procurements: ........................................................................................... 3
1.3 SWOT Analysis of Indian Pharma Industry ............................................................. 4
1.4 Porters Analysis of Competitive Forces ................................................................. 4
2. Evaluation Of Companys Performance ..................................................................... 5
3. Trend Analysis ............................................................................................... 10
Profit and Loss .................................................................................................. 10
Balance Sheet ................................................................................................... 11
4. Vertical Analysis ............................................................................................... 12
Balance Sheet- Dr.Reddys ................................................................................... 12
Profit and Loss Statement- Dr.Reddys .................................................................... 13
Balance Sheet-CIPLA .......................................................................................... 14
Profit and Loss Statement-CIPLA ........................................................................... 15
5. Ratios used for Calculation................................................................................... 16
6. References ...................................................................................................... 17
7. Annual Report Sources ....................................................................................... 17










1. Industry Analysis
1.1 Introduction Indian Pharmaceutical Industry
Indian pharmaceutical currently valued at ~ 70000 crores had shown a growth rate of 9.8 % in 2013.
According to 2013 PWC (PricewaterhouseCoopers) report, Indian Pharmaceutical Industry market is
expected to reach US $74 billion sales by 2020. In terms of volume, it ranks third and in terms of
values, its rank is 10
th
globally. In terms of OTC market size, Indias rank is 11
th
globally. According to
the report India Pharma 2020 by McKinsey & Co, Indian market has grown at the compound annual
growth rate of 13% in FY2008-13.Indian industry accounts for 1.4% in terms of value and 10% in
terms of volume of the global pharmaceutical industry.
Major players of Indian Pharmaceutical industry

1.2 Macro Economic Factors and Policy Pronouncements impacting Indian Pharma
Macroeconomic Factors:
The Growing Indian Economy: The Indian economy was valued at US$1.430 trillion in 2010. GDP
growth, calculated on a PPP basis had reached 9.66% in the year 2010
Growing Middle Class With Higher Purchasing Power: Huge and rapidly growing middle class
population from 25 million people in 1996 to 153 million people in 2010.
Changing Disease Profile: Disease profile is gradually shifting towards growth in chronic diseases
segment - with increase in affluence, life expectancy and the onset of lifestyle related conditions
Healthcare Insurance: Indias healthcare insurance industry is currently very small and limited, but is
expected to grow at a CAGR of 15% till 2015.

Policy Procurements:
The Drugs Price Control Order (DPCO), 1995 is an order issued by the Government of India under
Section 3 of the Essential Commodities Act, 1955 to regulate the prices of drugs. The Order inter alia
provides the list of price controlled drugs, procedures for fixation of prices of drugs, method of
implementation of prices fixed by Government and penalties for contravention of provisions among
other things. Revision in 2013, 2014.
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) provides for
minimum norms and standards in respect of the following categories of intellectual property rights: -
Copyrights and related rights, Trademarks, Geographical Indications, Industrial Designs, Patents, Lay
out designs of integrated circuits, Protection of undisclosed information (trade secrets)
Pharmaceutical Policy-2002 for cost effective quality production and exports of pharmaceuticals by
reducing barriers to trade in the pharmaceutical sector.

0 5000 10000 15000 20000 25000
Dr Reddy
Cadila Health
Biocon
Lupin
Aurobindo Pharm
Net Profit (millions)
1.3 SWOT Analysis of Indian Pharma Industry

STRENGTHS
- Low labour and production costs
Cost competitiveness
- Strong generic industry experience
in reverse engineering
- Strong manufacturing base
- Access to pool of highly trained and
skilled scientists, both in India and
abroad
WEAKNESS
- Low investment in innovative R&D
- Inadequate regulatory standards
- Low per capita healthcare & medical
expenditure

OPPORTUNITIES
- Export potential to the developing &
developed countries
- Licensing deals and collaborations
with MNCs
- India can be niche player in global
pharmaceutical R & D by developing
world class infrastructure
THREATS
- R&D efforts hampered by lack of
enabling regulatory requirement.
- High ceilings on product prices and
profitability set by DPCO
- Procedural issues hampering export
efforts


1.4 Porters Analysis of Competitive Forces



Branded generics market - entry barriers low
Regulations from Indian Govt could be barrier to entry.
Threat of New
Entrants
Majority suppliers produce products easy to manufacture
Medium power of suppliers
Power of Suppliers
Generic drugs offer cost effective alternatives to innovator drugs
High power of buyers

Power of Buyers
One generic easily substituted by other
High threat of substitutes
Threat of Substitutes
About 24000 companies; around 330 are in organised sector.
It is a highly fragmented,hence high competition
Rivalry among
existing Competitors
2. Evaluation Of Companys Performance

Is the business profitable? Is it more or less profitable as compared to previous years,
competitor? Analyse the reasons for changes.
Profit Margins:
Dr. Reddys is showing a healthy net profit margin of 19.9% in the current year (FY14). This is a
~5% increase from 15% in FY 12-13. This is also higher than CIPLAs profit margin of 15% for
FY14. This clearly indicates that the revenue earned by Dr. Reddys for FY14 for given expenses is
higher than that of CIPLA.

Dr. Reddys operating profit margin of 28.4% and gross profit margin of 24.5% for FY14 are both
higher than the respective values for FY13: 23.5% & 19.8%. CIPLAs operating and gross profit
margins for FY14 are 21.2% & 17.5% Hence Dr. Reddys is performing better than CIPLA in terms of
profitability. This is because both revenues and profits have increased from FY13 to FY14 and
operating expenses show only a slight increase, which has reflected in increase of all profit margins.

Return on Assets:
Dr. Reddys ROA for FY14 of 14.59% shows an increase from last year (11.33%), and is also much
higher than both the industry average of 9.35% and ROA of CIPLA 11.37%. This shows that Dr.
Reddys is employing its assets efficiently and getting more profit per unit of resource.

Equity Multiplier (Leverage):
The EM for Dr. Reddys (1.55) is slightly higher than the industry average of 1.50. Since profit
margins are increasing, this is not necessarily a bad thing. We might infer that financing through debt
might be more cost effective in this case.

Return on Equity:
The companys return on equity for FY14 of 23% is much higher than the industry average of 13.9%
and CIPLAs 14.64%. It has also increased from a value of 17% from FY13. Hence, we can infer that
Dr. Reddys is profitable and the profitability has been increasing steadily.

Is the business liquid in the short-term? Comment on changes over the years. Is the business
more liquid at the cost of profitability? Substantiate.
Dr. Reddys has a quick ratio of 1.78 for FY14, which is much higher than the minimum expected
value, i.e. 1:1. This implies that the business has sufficient easily liquefiable assets compared to its
current obligations. And hence it will not have any difficulty in re-paying debts. The current ratio for
FY14 is 2.17, which is higher than the rule of thumb value of 2:1. This further implies that the firm is
in a position to re-pay its current liabilities. Hence the firm has appreciable liquidity.
The liquidity for the firm has improved in the current year with respect to the previous year. The
primary reason for this improvement in liquidity can be attributed to the increase in current assets
(current investments and trade receivables) figure. The current liabilities have been more or less
constant. As the increase is current assets is arising from increase in current investments and not from
an increase in inventories (which would result in higher carrying costs), the higher liquidity of
business is not at the cost of profitability.

Is the business financially stable in the long term? Substantiate.
An increase of 45 % is observed in the Debt to Equity ratio from financial year 2013 to 2014.Also as
compared to CIPLA this growth is 79 % higher. DE ratio in 2014 is 0.29 implying that the borrowings
have increased over the time period. Also financing the company growth with debt is not a very
positive implication for financial stability. Thus the earnings will be volatile as a result of additional
interest expense. But this would reduce the net income that is taxable. The major component that has
led to this increase is the increase in long term borrowing from 63 million in 2013 to 9015 million in
2014.Since the profitability has increased by 32.46 % and the DE industry average of .46 is higher, the
the company is not in a bad situation with respect to financially stability in the long run.

Debt ratio that is the total liabilities to total assets ratio has also increased from 0.35 to 0.36. The
percentage increase in assets has been 21% and for liabilities this number is around 22%, which is a
minimal increase of 0.1.This could possibly imply that the increase in the liabilities by means of
borrowings could have been utilised for asset acquisition/creation.

Since both these ratios are lower than the industry averages of .46 and .33, it implies that this might
probably be the usual trend for the pharmaceutical industry. It is possible that the borrowings were
used to take care of the R&D expenses that increased by 62% to `12,402 million in FY2014 and
accounted for 9.4% of sales, compared to 6.6% in FY2013.

Times interest earned is another way of measuring solvency. It is the EBIT to interest costs. An
increase in the times interest earned from 24.67 to 32.35 shows that the percentage decrease in the
interest expense has been lower than the percentage increase in the EBIT for the current year. The
interest expense increased by 27.5 % while EBIT by 39.57 %.Thus the earnings can cover for the
interest expense which again is a positive indicator for future stability of the company. The company is
doing better than CIPLA whose interest coverage ratio decreased by 75.17%(due to decreased net
earnings).Yet in comparison to industry average Dr Reddys still has to make up by 45.31%.

Is profitability high enough to justify owners continued investment in the company?
As seen above, the companys ROE is higher that of both the competitor and the industry, and hence
the profitability is high. The ROE has also been consistently rising for the past 3 years. To see if it is
enough to justify owners continued investment, we should look at what is driving the ROE. The
operating profit margin is an indicator of companys earning power from its current operations. This is
the core source of the companys cash flow, and an increase in the operating profit margin from one
period to the next is considered a sign of a healthy, growing company. Since the operating profit
margin here is increasing in line with ROE, the income is generated from operating activities.
From the cash flow statement, we see that the operating cash flows have also increased from 2888
million to 9055 million rupees. It is hence justifiable for owners continued investment in the
company.





How well has the company managed its overall business as compared to its competitor?

The company has managed its overall business pretty well as compared to its competitor CIPLA. The
ratio analysis clearly projects this trend. Among the profitability ratios, there has been a significant
improvement in gross, operating and net profit margin along with Return on Assets with respect to the
previous year. In fact the ROA figures have steadily improved over the last 5 years. This implies that
the company has generated profits out of operating activities and also utilized its assets more
effectively as compared to the previous year. As a result of a steadily increasing ROA value and a
relatively steady equity multiplier, the Return on equity (ROE) has also experienced steady increase.
Whereas its competitor CIPLA has a lower value for these ratios and furthermore their ratios have
declined over the past year.

However if we compare the Receivable Turnover for last 2 years in case of Dr. Reddys, the RTO has
reduced as a result of increase in Trade Receivables. This implies that Trade receivables could have
been managed in a better way by the company. In this aspect, the competitor has fared better as they
have experienced an increase in RTO. In other words they have been able to manage their receivables
better

In general, a high debt-to-equity ratio indicates that a company may not be able to generate enough
cash to satisfy its debt obligations. However, low debt-to-equity ratios may also indicate that a
company is not taking advantage of the increased profits that financial leverage may bring.
Debt to Equity ratio (0.29) for Dr. Reddys is higher as compared to that of competitor (0.09). So
fraction of companys financing through debt is more than that for Cipla. Since the ratio is below that
of market average (0.46) nothing can be said about it.


Comment on the operating performance of the company.
The operating profit margin of the company has increased from 23.54% to 28.38%. The industry
average in 2014 is 23.05%. It is a healthy growth when compared to the previous year and also with
respect to the industry. Increase in sales contributed more to the rise in margin. There was no
considerable change in the operating expenses.

Fixed asset turnover ratio is a rough measure of the productivity of a company's fixed assets with
respect to generating sales. We see that fixed asset turnover ratio remains the same for the company
compared to the previous year at 3.17. But it is much higher than industry average of 1.47. It can be
thus said that the company is operating more efficiently in comparison to the industry.

Net operating profit margin (NOPAT/Revenue from operations) has increased from 25% to 30%
which is also a reflection of the good operational health.
All these ratios indicate that the company is performing well in operations both YoY and when
compared to the industry.

What inferences can you draw from the companys cash flow statement about its ability to
generate future cash flows, repay its borrowings and pay dividends?
Cash flows from operating activities are seen to increase from 2888 million in 2013 to 9055 million
in 2014(349% increment).We can see a 3900 million increment through foreign exchange and an
increment of 7000 million in profit before taxation. The cash spent on inventories are seen to fall by
40% (from 3326 to 1974) and the trade receivables are seen to increase by 80% (from 10571 to
18274). The cash and cash equivalent increase from 561 in 2013 to 1156 million rupees in 2014. This
implies that the company is attempting to increase the availability of cash for utilisation in other
activities. This increases companys capacity to generate more future cash flows and ability to repay
borrowings.
Cash flows from investing activities increase from 5189 to 8808 million (69.75% increment). A major
chunk is spent in investing activities. This is evident since the company increased its purchase of
investments three fold and purchase of fixed assets increased from 5802 to 8718 across the two years.
Also the attempt to increase current assets (and or cash) is observed since the firm advocates the
increase in sales of investments from 12626 to 31069 million. With this inflow of money one can
repay the borrowings as well as pay dividends. We see that there is a net outflow which implies that
the firm distributes some of the cash received from operations in investing activities. Thus the
company has the potential to pay dividends and also repay borrowings.
Cash flows from financial activities are observed to decrease from 1518 to 282 million. Even though
there has been an increase in repayment of short term borrowings from 25165 to 35230 million and the
company has redeemed 5078 million rupee worth of debentures, the borrowings still have increased
(short term and long term) by very large margins as mentioned earlier. There by the company spends
more money on repayment of borrowings in the current financial year.

How is the market viewing the performance of the company as compared to its competitor? Is it
in line with your analysis of performance?
a) The share capital has remained the same approximately (with a .2% increase) for FY2014 for Dr.
Reddys and hasnt changed for CIPLA.
b) When Dr.Reddys released its FY14 report for the year 2013-2014 on 13 May, 2014 the market
price fell from Rs.2743.05 to Rs.2610.70 at the end of the day, a decrease of nearly 5%. The
unfavourable market reaction was mainly due to the companys poor performance in FY14 Q4 (There
was a dip in its shares till 15
th
May and then it became stable. There was a rise in the share price on
20
th
May 2014 again. CIPLA released its annual report of FY2014 on 29 May,

2014. The opening
price on that day was Rs.380.00 and fell to Rs.372.95 at the end of the day (decline of 1.9%, lesser
than Dr.Reddyss))
c)











Nevertheless, the stock prices appreciated over time for Dr.Reddys whereas there were huge
variations in the prices (Crests and troughs) seen for CIPLA. The market is more positive toward
Dr.Reddys than CIPLA which is clearly evident from the graph of share price values over time. Thus
it can be inferred that the markets view on the performance of Dr.Reddys is more optimistic than that
Dr.Reddys 2013-2014 CIPLA 2013-2014
of CIPLA during the current fiscal period. It is in line with the analysis that Dr.Reddys has performed
better than CIPLA in the FY2014.
d) Extending the analysis further to the fiscal year FY2015: Closing price of Dr. Reddys on 13

May,
2014 was Rs.2610.70 and that on 13 Aug, 2014 Rs.2736.7. There has been an increase of 4.6% for the
next 3 months after the release of annual report. For CIPLA the increase has been 37.8% for the same
period after the reports release.
One of the possible explanations could be the drastic increase in long term borrowings for Dr.Reddys
or the reported decrease in profit for Q4. The investors and shareholders might have lost their faith in
the company thereby resulting in a drop in the share price yet, soon after the prices rose & have been
constantly increasing up until now. Infact the price per share for a Dr.Reddys share is the highest
among other pharma companies in India.
On contrary there was decrease in the long term borrowings of CIPLA by 20% and this can be attributed
as a reason for market prices going up for the few days following the release of the annual report. The
analysis of our performance leads us to believe that the share value or the market perception of
Dr.Reddys will increase with time and this was seen to happen.

What are the key sources of competitive advantage for the company as compared to its
competitor/s? What are the key drivers of profitability and growth?
Competitive advantage
Presence in emerging markets and low cost operations due to low cost skilled labour gives Dr Reddys
an advantage against those companies that do not operate out of emerging countries. With the expiry
of rule on patents and Governments encouragement of biosimilar drugs, Dr Reddy has an early mover
advantage.
Key driving and profitability factors:-
a. Increase in life expectancy, increase in affluence and increase in disposable income
b. Top products performed well and resulted in 50 % of its sales
c. Launch of eleven new products
d. Efficient systems and processes and strong and distribution network
e. Focus on niche limited competition products
f. Special initiatives taken to capitalise on the immense potential of Government and private hospitals
g. The focus has been on launch of difficult make products
h. Strengthening the foundation of injectable portfolio and new launches in non-injectable segment
i. Innovation and a strong focus on first to market and differentiated products in this financial year
j. Field force coverage increased in super speciality areas
k. Patient care services were launched
Comment on earnings quality
ROE= ROA * Equity Multiplier
Dr. Reddys equity multiplier has been fairly stable while ROA has steadily increased thus leading to a
steady increase in assets as well and the ROE figures are not misleading for investors and creditors.
Also it can be observed that the Net Cash from operating activities has increased significantly (from
Rs 2,888 in 2013 to Rs 9,055 in 2014; in millions). Therefore the net profit has majorly coming from
operating activities and hence we can conclude that Dr. Reddys earnings quality is fairly high.



3. Trend Analysis
Profit and Loss
Dr.Reddy's 2010 2011 2012 2013 2014
Net sales 100.00 118.04 152.11 191.87 221.31
PBIDT 100.00 99.55 124.38 158.47 217.00
PAT 100.00 105.59 107.84 149.57 228.44
Expenses 100.00 118.21 143.95 191.24 206.77


CIPLA 2010 2011 2012 2013 2014
Net sales 100.00 112.94 124.47 146.32 167.34
PBIDT 100.00 93.74 114.84 155.86 150.65
PAT 100.00 88.80 103.93 139.35 128.37
Expenses 100.00 116.79 122.13 144.57 171.22





0.00
50.00
100.00
150.00
200.00
250.00
2010 2011 2012 2013 2014
Trend Analysis - Dr.Reddy's (P&L)
Net sales PBIDT PAT Expenses
0.00
50.00
100.00
150.00
200.00
2010 2011 2012 2013 2014
Trend Analysis - Cipla (P&L)
Net sales PBIDT PAT Expenses


Balance Sheet
Dr.Reddy's 2010 2011 2012 2013 2014
Networth 100.00 101.79 113.58 131.60 157.73
Total Debt 100.00 256.53 272.27 282.16 473.10
Investments 100.00 92.81 93.40 89.69 105.80
Total Assets 100.00 115.24 127.38 144.69 185.15



CIPLA 2010 2011 2012

2013 2014
Networth 100.00 111.82 127.67

149.97 170.64
Total Debt 100.00 8687.97 240.63

19049.51 17304.54
Investments 100.00 215.26 390.48

981.45 1353.12
Total Assets 100.00 119.16 127.76

166.16 185.31




0.00
100.00
200.00
300.00
400.00
500.00
2010 2011 2012 2013 2014
Trend Analysis - Dr.Reddy's (BS)
Networth Total Debt
Investments Total Assets
0.00
5000.00
10000.00
15000.00
20000.00
25000.00
2010 2011 2012 2013 2014
Trend Analysis - Cipla (BS)
Networth Total Debt Investments Total Assets
4. Vertical Analysis

Balance Sheet- Dr.Reddys
PARTICULARS
Mar
2014

Mar
2013
Change %

Million INR

Million INR

EQUITY AND LIABILITIES

Shareholders funds
Share capital 851 0.59% 849 0.71% 0.24%
Reserves and surplus 92,439 63.72% 76,985 64.21% 20.07%
93,290 64.30% 77,834 64.92% 19.86%
Non current liabilities
Long term borrowings 9,015 6.21% 63 0.05% 14209.52%
Deferred tax liabilities, net 1,252 0.86% 937 0.78% 33.62%
Other long term liabilities 47 0.03% 28 0.02% 67.86%
Long term provisions 335 0.23% 298 0.25% 12.42%
10,649 7.34% 1,326 1.11% 703.09%
Current liabilities
Short term borrowings 17,630 12.15% 15,828 13.20% 11.38%
Trade payables 8,423 5.81% 7,678 6.40% 9.70%
Other current liabilities 10,294 7.10% 13,011 10.85% -20.88%
Short term provisions 4,795 3.31% 4,214 3.51% 13.79%
41,142 28.36% 40,731 33.97% 1.01%

TOTAL 1,45,081 100.00% 1,19,891 100.00% 21.01%

ASSETS
Non current assets
Fixed assets
Tangible assets 23,937 16.50% 23,355 19.48% 2.49%
Intangible assets 546 0.38% 515 0.43% 6.02%
Capital work-in-progress 5,761 3.97% 4,232 3.53% 36.13%
Non current investments 17,401 11.99% 21,826 18.20% -20.27%
Long term loans and advances 5,358 3.69% 3,752 3.13% 42.80%
Other non current assets - 209 0.17%
56,003 38.60% 53,889 44.95% 3.92%
Current assets 0.00%
Current investments 10,664 7.35% 1,966 1.64% 442.42%
Inventories 15,921 10.97% 15,265 12.73% 4.30%
Trade receivables 45,615 31.44% 29,639 24.72% 53.90%
Cash and bank balances 6,651 4.58% 9,191 7.67% -27.64%
Short term loans and advances 8,287 5.71% 8,634 7.20% -4.02%
Other current assets 1,940 1.34% 1,307 1.09% 48.43%
89,078 61.40% 66,002 55.05% 34.96%

TOTAL 1,45,081 100.00% 1,19,891 100.00% 21.01%

Profit and Loss Statement- Dr.Reddys

PARTICULARS
For the
year
ending
on 31
March
2014

For the
year
ending on
31 March
2013
% Change

Million INR

Million INR

INCOME
Sales, gross 95,777 98.45% 81,462 96.59% 17.57%
Less: Excise duty -820 -0.84% -718 -0.85% 14.21%
Sales, net 94,957 97.61% 80,744 95.74% 17.60%
Service income 335 0.34% 388 0.46% -13.66%
License fees 1,176 1.21% 1,315 1.56% -10.57%
Other operating revenue 812 0.83% 1,893 2.24% -57.11%
Revenue from operations 97,280 100.00% 84,340 100.00% 15.34%
Other income 1,515 1.56% 1,417 1.68% 6.92%
Total revenue 98,795 101.56% 85,757 101.68% 15.20%

EXPENSES
Cost of material consumed 21,918 22.53% 22,773 27.00% -3.75%
Purchase of stock-in-trade 4,690 4.82% 3,931 4.66% 19.31%
Changes in inventories of
nished goods,work-in-progress
and stock-in-trade -1,706 -1.75% -1,006 -1.19% 69.58%
Conversion charges 785 0.81% 592 0.70% 32.60%
Excise duty 562 0.58% 636 0.75% -11.64%
Employee benets expense 11,849 12.18% 11,381 13.49% 4.11%
Finance costs 783 0.80% 614 0.73% 27.52%
Depreciation and amortization
expense 3,805 3.91% 3,128 3.71% 21.64%
Research and development
expenses 9,982 10.26% 6,509 7.72% 53.36%
Other expenses 21,583 22.19% 19,667 23.32% 9.74%
Total expenses 74,251 76.33% 68,225 80.89% 8.83%
Prot before exceptional and
extraordinary items and tax 24,544 25.23% 17,532 20.79% 40.00%






Balance Sheet-CIPLA
PARTICULARS
On Mar
2014

On Mar
2013
Change %

Million INR

Million INR
EQUITY AND LIABILITIES
Shareholders funds
Share capital 1,606 1.24% 1,606 1.40% 0.01%
Reserves and surplus 99,310 76.84% 87,089 75.77% 14.03%
1,00,916 78.08% 88,695 77.17% 13.78%
Non current liabilities
Long term borrowings 4 0.00% 6 0.00% -27.27%
Deferred tax liabilities, net 3,112 2.41% 2,812 2.45% 10.67%
Other long term liabilities 300 0.23% 300 0.26% 0.00%
Long term provisions 740 0.57% 473 0.41% 56.32%
4,156 3.22% 3,591 3.12% 15.74%
Current liabilities
Short term borrowings 8,769 6.79% 9,653 8.40% -9.15%
Trade payables 9,626 7.45% 8,271 7.20% 16.38%
Other current liabilities 3,332 2.58% 2,426 2.11% 37.33%
Short term provisions 2,441 1.89% 2,296 2.00% 6.30%
24,168 18.70% 22,646 19.70% 6.72%

TOTAL 1,29,240 100.00% 1,14,932 100.00% 12.45%

ASSETS
Non current assets
Fixed assets
Tangible assets 35,196 27.23% 34,183 29.74% 2.96%
Intangible assets 46 0.04% -
Capital work-in-progress 3,196 2.47% 3,400 2.96% -6.00%
Intangible assets under
development 570 0.44% 104 0.09% 450.72%
Non current investments 33,283 25.75% 5,144 4.48% 547.08%
Long term loans and advances 5,353 4.14% 3,737 3.25% 43.24%
Other Non current assets 616 0.48% 616 0.54% 0.05%
78,260 60.55% 47,183 41.05% 65.87%
Current assets
Current investments 2,588 2.00% 20,875 18.16% -87.60%
Inventories 25,112 19.43% 23,434 20.39% 7.16%
Trade receivables 17,281 13.37% 16,452 14.31% 5.04%
Cash and bank balances 460 0.36% 1,051 0.91% -56.22%
Short term loans and advances 5,156 3.99% 5,915 5.15% -12.84%
Other current assets 383 0.30% 23 0.02% 1579.82%
50,980 39.45% 67,749 58.95% -24.75%

TOTAL 1,29,240 100.00% 1,14,932 100.00% 12.45%
Profit and Loss Statement-CIPLA
PARTICULARS
For the
year
ending
on 31
MAR
2014

For the
year
ending on
31 Mar
2013
Change %

Million INR

Million INR


INCOME
Revenue from operations
(gross) 94,794 101.06% 82,946 101.12% 14.28%
Less: Excise duty -991 -1.06% -921 -1.12% 7.60%
Revenue from operations (net) 93,803 100.00% 82,025 100.00% 14.36%
Other income 2,803 2.99% 2,291 2.79% 22.35%
Total revenue 96,606 102.99% 84,316 102.79% 14.58%



EXPENDITURE
Cost of material consumed 31,453 33.53% 26,468 32.27% 18.83%
Purchase of stock-in-trade 7,734 8.24% 7,069 8.62% 9.41%
Changes in inventories of
nished goods,work-in-progress
and stock-in-trade -1,581 -1.69% -2,907 -3.54% -45.61%
Employee benets expense 12,848 13.70% 9,693 11.82% 32.55%
Finance costs 1,279 1.36% 334 0.41% 282.93%
Depreciation and amortization
expense 3,236 3.45% 3,030 3.69% 6.80%
Other expenses 23,454 25.00% 20,510 25.00% 14.35%
Total expenses 78,423 83.60% 64,197 78.27% 22.16%
Prot before tax 18,183 19.38% 20,119 24.53% -9.62%
Tax expense
Current tax expense 4,000 4.26% 3,860 4.71% 3.63%
MAT Credit utilization - 700 0.85%
Deferred tax expense 300 0.32% 488 0.59% -38.52%
Prot for the year 13,883 14.80% 15,071 18.37% -7.88%







5. Ratios used for Calculation
Dr Reddy's Peer Analysis- CIPLA Industry Average
PROFITABILITY RATIOS 2014 2013 2014 2013 2014

Net Profit Margin 19.87% 15.00% 15.00% 18.00% 12.9%
Operating Profit Margin 28.38% 23.54% 21.20% 25.83% 22.9%
Gross Profit Margin 24.47% 19.83% 17.75% 22.14% 19.15%
Return on Assets 14.59% 11.33% 11.37% 14.71%
9.35%
Equity Multiplier 1.55 1.54 1.29 1.25 1.50
Return on Equity 23.00% 17.00% 14.64% 18.36% 13.99%
Return on Capital
Employed (ROCE)
27.66% 19.94% 18.52% 22.16% 20.90%
ACTIVITY RATIOS 2014 2013 2014 2013 2014
Total Asset Turnover(TAT) 0.73 0.76 0.77 0.8 0.73
Fixed Asset Turnover 3.17 3.17 2.45 2.31 1.47
Receivables Turnover 2.59 3.44 5.56 5.18 3.09
Inventory Turnover 4.69 4.67 3.10 2.97 3.97
Average Collection Period
(Daily Sales Outstanding)
139.24 104.73 64.73 69.44 116.5
Inventory Holding Period
(Days Inventory)
76.83 77.16 116.28 121.26 90.68
LIQUIDITY RATIOS 2014 2013 2014 2013 2014
Current Ratio 2.17 1.62 2.11 2.99 2.20
Quick Ratio 1.78 1.25 1.07 1.96 1.48
SOLVENCY RATIOS 2014 2013 2014 2013 2014
Debt to Equity 0.29 0.20 0.09 0.11 0.46
Debt Ratio 0.36 0.35 0.22 0.23 0.33
Times Interest Earned 32.35 24.67 15.22 61.24 59.16
CAPITAL MARKET RATIOS 2014 2013 2014 2013 2014
Earnings per Share 113.62 74.51 17.27 18.75 14.69
Price to Earnings (PE) 20.71 23.46 23.57 19.62 36.3
Dividend Yield 0.76% 0.86% 0.49% 0.54% -
PEG 1.07 1.17 1.42 1.18 -
Dividend Pay-out Yield 0.16 0.20 0.12 0.11 0.34







6. References
- http://timesofindia.indiatimes.com/business/india-business/Pharma-market-valued-at-Rs-72069
- http://iglobalpharma.com/update.aspx?lid=10004
- http://www.livemint.com/Industry/B34uFIUIXgi6BKJ2I6CuWJ/Indian-pharma-sales-up-113-in-
January.html
- http://www.ibef.org/industry/pharmaceutical-india.aspx
- http://pharma.financialexpress.com/sections/market-section/1593-indian-pharmaceutical-
industry-growth-intact-amid-current-headwinds-faced-by-industry
- http://www.ijpcbs.com/files/2106-22.pdf
- http://www.livemint.com/Money/ZDks5632ZdqI77aGLaS16N/Sebi-fines-Sun-Pharma-Advanced-
Researchs-promoter-entity.html
- http://www.tarunspeaks.com/corporate-level-strategy-indian-pharmaceutical-industry/
- http://www.livemint.com/Money/ZDks5632ZdqI77aGLaS16N/Sebi-fines-Sun-Pharma-Advanced-
Researchs-promoter-entity.html
- http://www.wikinvest.com/stock/Dr._Reddy's_Laboratories_(RDY)
- http://www.livemint.com/Companies/pxlbnrT9va1V8oUtLHdtkL/Dr-Reddys-to-focus-on-Europe-
and-India-markets.html
- http://cci.gov.in/images/media/ResearchReports/nidhifeb12.pdf
- http://www.equitymaster.com/research-it/sector-info/pharma/Pharmaceuticals-Sector-Analysis-
Report.asp
- http://www.cci.in/pdfs/surveys-reports/Pharmaceutical-Industry-in-India.pdf
- http://www.pharmaceutical-drug-manufacturers.com/pharma-industry-statistics/
- http://www.business-standard.com/article/news-cm/dr-reddy-s-lab-drops-on-poor-q4-result-
114051300818_1.html)
- http://www.capitaline.com/user/Framepage.asp?Page=FactSheetI.asp|Id=SSC~codeval=0000022
4

7. Annual Report Sources
- http://www.drreddys.com/investors/pdf/annualreport2014.pdf
- http://www.CIPLA.com/Home/Global/Financial/Annual-Report-Chairman-s
Speech.aspx?gid=1296&id=2