CHAPTER-I

INTRODUCTION

Financial management is that managerial activity which is concerned with the planning
and controlling of the firms financial resources. It was a branch of economics till 1890, and as a
separate discipline, it is of recent origin. Still, it has no unique body of knowledge of its own, and
draws heavily on economics for its theoretical concepts even today.

Meaning of Finance
Finance is called the science of money. Finance is a branch of economics till
1890.Economics is defined as a study of the efficient use of scarce resources. The decision made
by the business firm in production, marketing finance and personnel matters forms the subject
matter of economics.
Finance is the process of conversion of accumulated funds to productive use. In simple
terms finance is defined as the activity concerned with the planning, raising, controlling and
administering of the funds used in the business. Thus finance is the activity concerned with the
raising and administering of funds used in business.

Definition of Finance
Howard and Uptron in their book introduction to business finance defined as that
administrative area of cash or set of administrative of cash and credit, so that the organization
may have the mean to carry out its objectives as satisfactorily as possible.

Meaning of Financial Management

Financial Management is very important to every type of organization. Financial
management is managerial activity which is concern with the planning and controlling of the
firms financial resource.

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Definitions of Financial Management
Howard and Uptron define Financial Management as on application of general
managerial principle to the area of financial decision making.

Weston and Brigham define Financial Management as an area of financial decision

making, harmonizing individual motives and enterprise goal.

Ezra Solomon quotes, Financial Management is concerned with the efficient use of an
important economic resource, namely, capital funds.
The financial Management is concerned with
1) Estimation of Fixed and Working Capital requirements.
2) Formulation of capital structure.
3) Procurement of Fixed and Working Capital and
4) Management of earnings.

The Scope of Financial Management

The scope of financial management has undergone far reaching changes over time. The
finance function assumes a lot of significance in the modern days in view of the increased size of
business operations and growing complexities associates thereto. The scope of financial
management can be studies in two broad categories I.e.,

1) Traditional Approach
2) Modern Approach.

Traditional Approach:
The scope of financial management refers to its evaluation as a separate branch of academic
study. Traditional finance function was considered only as an activity of rising of funds from
external sources, maintaining financial record, preparing the financial reports and statement.
The traditional approach to the scope of finance function evolved during the 1920s and
1930s. During 1930s the great depression resulted in the failure of large number of firms.

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The traditional finance function was suffered from two limitations:
The raising and administering of funds, through external source rather than internal
sources.
The financing problem of corporate enterprises like long term finance was recognized
rather than short term finance, (or) working capital management.

Modern approach:
The modern finance function provides a conceptual and analytical frame work for the
short coming of traditional finance function. The finance function was witnessed a number of
changes during 1950s and 1960s. New analytical techniques were developed for wise
investment decision. According to the modern approach the finance function covers both
acquisitions of funds as well as allocation of funds.
During 1970s through 1980s with the advent of computers there were revolutionary
changes in the information systems making them more useful to the finance manager in
discharging his functions. The financial manager is using the new mathematical and analytical
techniques for solving the complex financial problems of the corporate world.

Importance or Functions of Financial Management

Financial management is indeed, the key to successful business operation. Without
proper administration and effective utilization of finance, no business enterprise can utilize its
potential for growth and expansion.
Financial management is concerned with the acquisition, financing and management of
assets with some overall goals in mind. The discussion on financial management can be divided
into three major decisions. They are

1. Investment Decision
2. Financing Decision
3. Dividend Decision

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 Investment Decision
It is the most important than to be held by the firm. In other words, investment decision
relates to the selection of assets, that the firm will invest funds. The required assets fall into two
groups:
i. Long- term Assets
ii. Short-term Assets

2. Financing Decision
After estimation of the amount required and the assets that require purchasing, comes the
next financing decision into picture. Here, the financial Manager is concerned
with makeup of the left side of the balance sheet. It is related to the financing mix or capital
structure or leverage and he has to determine the proportion of debt and equity. It should
optimum finance mix, which maximizes shareholders wealth.

3. Dividend Decision
This is the third financial decision, which related to dividend policy. Dividend is a part of
profits that are available for distribution, to equity shareholders. Payment of dividends should be
analyzed in relation to the financial decision of the firm. There are two options available in
dealing with the net profits of the firm, viz., distribution of profits as dividends to the ordinary
shareholders, where, there is no need of retention of earnings or they can be retained in the firm
itself, if they require, for financing of any business activity.

Objectives of Financial Management

The objectives of the financial management can be classified into two categories. They are:

Profit Maximization
Wealth Maximization

Traditionally the basic objective of financial management have been

Maintenance of liquid assets
Maximization of profitability of the firm

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 Shareholders wealth maximization rather than profit maximization
Earnings per share maximization

Financial Management aims at maintenance of adequate liquid assets with the firm to meet
its obligation at all time. Investment in liquid asset has to be adequate either to know and to
access finance manager has to maintain balance between liquidity and profitability

Maximization of profitability of the firm

Profit maximization is a term which denotes the profit to be earned by an organization in a
given period of time. Profit maximization goal likes that investment and financing and dividend
policy decision of the firm.

The term profit can be used in two senses

As the owner oriented
As the operational concept
Profit as a owner oriented through profit maximization concept refers to the amount of net.
Profit which goes in the form of dividend to the shareholders. Profit as operational concept
means profitability which is an indicator of the economic efficiency of an enterprise.
Profit maximization implies that the enterprise should select the assets, projects, decision that
are profitable and reject non-profitable ones. It is in this sense the term profit maximization is
used in financial management.

Wealth Maximization
Prof.H.R.Solomen rejected it has inappropriate and suggested adoption of wealth
maximization objective which removes all the drawbacks of profit maximization. Wealth
Maximization is also called as value maximization. The wealth or net present worth of a course
of action is the difference between gross present worth and the amount of capital investment
required to achieve the benefit. Gross present worth represents the present value of expected
cash benefits. Wealth maximization means maximizing the present value of the course of action
i.e., M.P.V. M.P.V. means gross present value of course of benefit minus investment (cost of
value of asset).

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Significance of Wealth Maximization
The company although requires more from the economic welfare of the shareholders cannot
forget others who directly or indirectly work for the overall development of the company.
Wealth Maximization takes care of:-

1. Lenders and creditors

2. Workers and employees
3. Public or society
4. Management or employer

Earnings per share Maximization

The earning per share (EPS) is one of the important measure of economic performance of
corporate company. The flow of capital to the companies under the present imperfect capital
market conditions would be made on the evaluation of earning
per share. A higher earnings per share means better capital productivity. An earnings per share is
one of the most important ratios which measures the net profit earned per share. An earnings per
share is one of the major factor affecting the dividend policy of the firm and the market prices of
the company. The steady growth in earning per share, year after year indicates a good rate of
profitability. It is calculated by dividing net profit after taxes and preferences shares by no of
equity shares.

Evolution of Financial Management

Financial management has emerged as a distinct field of study, only in the early part of this
century, as a result of consolidation movement and formation of large enterprises. Its evolution
may be divided into three phases.

1. The Traditional phase,

2. The Transitional phase and
3. The Modern phase.

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1. The Traditional Phase:
This phase lasted for about four decades. Its finest expression was shown in the scholarly work
of Arthur S. Dewing, in his book titled the Financial Policy of Corporation in 1920s.(3) In this
phase the focus of financial management was on four selected aspects.
It treats the entire subject of finance from the outsiders point of view (investment banks,
lenders, other) rather than the financial decision-makers viewpoint in the firm.
It places much importance on corporation finance and too little on the financing problems
of non-corporate enterprises.
The sequence of treatment was on certain episodic events like formation, issuance of
capital, major expansion, merger, reorganization and liquidation during the life cycle of
an enterprise.
It placed heavy emphasis on long-term financing, institutions, instruments, procedures
used in capital markets and legal aspects of financial events. That is it lacks emphasis on
the problems of working capital management.
It was criticized throughout the period of its dominance, but the criticism is based on matters of
treatment and emphasis. Traditional phase was only outsiders looking
approach, due to its over emphasis on episodic events and lack of importance to day-to-day
problems.

2. The Transition Phase:

It began around the early 1940s and continued through the early 1950s. The nature of financial
management in this phase is almost similar to that of earlier phase but more emphasis was given
to the day-to-day (working capital) problems faced by the finance managers. Capital budgeting
techniques were developed in this phase only.

3. The Modern Phase:

It begun in the mid-1950s. It has showed commendable development with a combination of ideas
from economic and statistics that has lead financial management to be more analytical and
quantitative. The main issue of this phase was rational matching of funds to their uses, which
leads to the maximization of shareholders wealth. This phase witnessed significant
developments. The areas of advancements are: capital structure. The study says the costs of

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capital and capital structure are independent in nature. Dividend policy, suggests that there is the
effect of dividend policy on the value of the firm. This phase has also seen one of the first
applications of linear programming.

Capital Structure
Capital structure is that part of financial structure, which represents long term sources
.the term capital structure, is generally defined to include only long term debt and total stock
holders investment. It is the mix of long term sources of funds. Such as equity shares. Reserves
and surpluses, debenture, long term debt from outside sources and preference share capital. 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, while equity is classified as common stock, preferred stock or retained
earnings.

Capital structure= Long term debt +Preferred stock +Net worth (or)

Capital structure =Total assets Current liabilities

Every business enterprise, whether big, medium or small, needs capital to carry on its
operations smoothly and to achieve its targets. However, the actual capital should be neither
more or less than the amount which is needed and gainfully employed. It is called capital
structure of a business enterprise. Capital structure of a business enterprise is related to the long-
term financial requirements of the business enterprise. It is determined by the long-term debt and
equity capital used by the business enterprise. As a matter of fact, the capital structure of a
business enterprise should be ideal, i.e., according to the requirement of the business enterprise.

Definitions:
According to Gerestenberg:
capital structure of a company refers to the composition or make up of its capitalization
and it includes all long term capital resources viz., loans, reserves, shares and bonds.

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 Keownetal defined capital structure as, balancing the array of funds sources in a proper
manner, i.e. in relative magnitude or in proportions.

In the words of P. Chandra:

capital structure is essentially concerned with how the firm decides to divide its cash
flows into two broad components, a fixed component that is earmarked to meet the obligations
toward debt capital and a residual component that belongs to equity shareholders.

Capital structure vs. Financial structure

The word structure, originated from the field of engineering, means different parts of a
building. Similarly, financial structure consists of three elements namely assets, liabilities and
capital.
Financial structure refers to the way; the firms assets are financed. It is the entire left-
hand side (liabilities plus equity) of the balance sheet which represents all the long-term and
short term sources of capital.
Capital structure refers to the mix of long-term sources of funds, such as debentures,
long-term debt, preference share capital and equity share capital including reserves and surpluses
(i.e. retained earnings). It is only a part of f0inancial structure. If short-term liabilities are added
in capital structure, it becomes financial structure. Thus, capital structure refers to that part of the
financial structure which represents long-term sources.

Factors Determining Financial Structure

A firm requires capital to continuously run its business. Hence, the financial structure
decision is continuous one and has to be taken whenever a firm needs additional finances.
Number of factors should be considered whenever a financial structure decision has to be taken.
Some of the important factors are as under:

1. Trading on Equity or Leverage

2. Capital Gearing
3. Cost of Capital
4. Maximum Control

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5. Cash Flow Ability of the Company
6. Flexibility
7. Size of the Company

Optimum capital structure:

The concept of optimal capital structure has drawn a great deal of attention in accounting
and finance literature. Capital structure means the proportion of debt and equity in the total
capital of a firm. The objective of a firm is to maximize the value of its business.
Optimal capital structure may be defined as that relationship of debt and equity which
maximizes the value of companys share in the stock exchange.

Kulkarni and Satyaprasad defined optimum capital structure as the one in which the
marginal real cost of each available method of financing is the same. They included both the
explicit and implicit cost under the term real cost.

According to Prof Ezra Solomon:

Optimal capital structure is that mix of debt and equity which will maximize the market
value of a company.

Hence there should be a judicious combination of the various sources of long-term funds
which provides a lower overall cost of capital and so a higher total market value for the capital
structure. Optimal capital structure may thus be defined as, the mixing of the permanent sources
of funds used by the firm in a manner that will maximize the companys common stock price by
minimizing the firms composite cost of capital.

Features of Optimal Capital Structure

The relationship of debt and equity in an optimal capital structure is made in such a
manner that the market value per equity share becomes maximum.

Optimal capital structure maintains the financial stability of the firm.

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 Under optimal capital structure the finance manager determines the proportion of debt
and equity in such a manner that the financial risk remains low.
The advantage of the leverage offered by corporate taxes is taken into account in
achieving the optimal capital structure.
Borrowings help in increasing the value of company leading towards optimal capital
structure.
The cost of capital reaches at its minimum and market price of share becomes maximum
at optimal capital structure.

Objectives of Capital Structure

In devising a sound or balanced capital structure, the manager should bear in mind the
following objectives.

Economic Objectives
Minimum Costs:
Central costs of various sources of funds are not equal in all circumstances. One of the
major objectives of a business enterprise is to raise funds at the lowest possible cost in a given
set of circumstances in terms of interest, dividend and the relationship of earnings to the prices of
shares. The management should aim at keeping the cost of issue at a minimum to maximum the
returns to equity shareholders.
Minimum Risks:
Various risks are involved in business operations which have direct bearings on the
capital structure of the company such as business risk, management risks, tax risk, trade cycle
risks, purchasing power risks, interest rate risk etc. These risks should be minimized by making
suitable adjustments in the components of capital structure.
Maximum Return:
On of the objectives of balanced capital structure is to provide for the maximum return to
the real owners (equity shareholders) of the company. It may be achieved by minimizing the cost
of issue and the cost of financing.

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Preservation of Control of Equity Shareholders:
Generally equity shareholders have the control over the affairs of the company.
Preference shareholders and the debenture holders have limited voting rights in matters affecting
their interests. The capital structure should be designed as to preserve the control of equity
shareholders and to prevent the erosion of control from their hands. It requires proper balance
between voting right and non-voting right capital.
Proper Liquidity:
Liquidity is necessary for the solvency of the company. A proper balance between fixed
assets and the liquid assets should be maintained. Nature and size of the business decide the ideal
ratio of fixed and liquid assets.
Fuller Utilization:
There must be proper co-ordination between the quantum of capital and the financial
requirements of the business so that full utilization of available capital may be made at minimum
cost. Both the states of under capitalization and unwarranted to the health of industry. Fuller
utilization of capital is also not possible in case of watered capital. Full utilization of capital
requires a fair capitalization.

Other Objectives
Simplicity:
The capital structure should be as simple and conservative as possible. In the beginning a
company should raise only the ownership capital i.e., equity share capital that will enhance the
credit of the company. A preference issue may be made if, warranted by the circumstances.
Flexibility:
The management should design the capital structure in order to make necessary changes
in it whenever required. Management should enjoy the maximum freedom of action to manage
the income and capital of the firm.

Features of an appropriate capital structure:

The term capital structure is used to represent the proportionate relationship between the
various long-term kinds of capital arrangements equity, debentures, preference shares, long-
term debt, capital surplus, and retained earnings.

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 The term capital structure is part of financial structure, which includes both long-term
and short-term funds. Analysis of capital structure involves the use of capital gearing (also called
as capital leveraging or leveraging).

1. Flexibility:
The consideration of flexibility gives the finance manager the ability to alter the firms
capital structure with a minimum cost and delay, if warranted by the changed environment. It
should also be possible for the company to provide funds whenever needed to finance its
profitable activities. Firms should also repay the loans if they are not required
2. Profitability:
A sound capital structure should permit the maximum use of leverage at a minimum cost
so as to provide better profitability and thus maximizing earnings per share.in other words it
should generate maximum returns to the owners without adding additional cost.
3. Solvency:
Extensive debt threatens the solvency and credit rating of the company. The debt
financing should be only to the extent that it can be serviced fully and also be paid back (if
required).debt should be used till the point where debt does not add significant risk, otherwise
use if debt should be avoided.
4. Conservatism:
No company should exceed its debt capacity. As already explained that the interest is to
be paid on debt and the principal sum is also to be paid. These payments depend on future cash
flows. If future cash flows are not sufficient then the cash insolvency can the debt of a firm
depends upon its ability to generate future cash inflows .It should have enough cash to pay its
fixed charges and principle sum.

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 NEED FOR THE STUDY

A companys capital structure is arguably one of its most important choices. From a
technical perspective, the capital structure is defined as the careful balance between equity and
debt that a business uses to finance its assets, day-to-day operations, and future growth. By
design, the capital structure reflects all of the firms equity and debt obligations. It shows each
type of obligation as a slice of the stack. This stack is ranked by increasing risk, increasing cost,
and decreasing priority in a liquidation event (e.g., bankruptcy).

The present study was undertaken to evaluate the financial performance of WANBURY LTD
for the period of five years through Capital Structure, to know whether the company maintaining
optimal capital structure or not and to determine which capital mix gives more satisfaction to the
business as well as to shareholders. Need to evaluate the changes in capital structure and to know
the debt and equity proportions maintained by the company leads to maximizing the market
value and minimizing the cost of capital.

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 SCOPE OF THE STUDY
Here the project deals with the various proportions and changes in the capital structure of

the company and tries to suggest appropriate suggestions based on conclusions.

Here the scope is very limited; the data is gathered from the company financial reports,

internet (website), related magazines and other published sources.

Based on this information try to observe optimum utilization capital that has been

received by the company in the form of preference shares, equity shares and debentures.

The study concentrates on the methods and techniques follows the WANBURY for its
capital structure and its relative merits and demerits.

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 OBJECTIVES OF THE STUDY
To examine the capital structure policy and pattern of Wanbury Ltd.
To identify the share capital and debt of the company.
To give suggestions for improvement of the capital structure composition of Wanbury Ltd.
To study the effective of operation and financial leverage on the value of the firm.
To understand how well the sources of funds are being utilized in fixed assets.
To know the cost of the capital of the Wanbury Limited.
To maximize the use of funds and to be able to adopt more easily to changing conditions.

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 METHODOLOGY OF THE STUDY

Methodology is a systematic procedure of collecting information. The data is

Collected in two ways i.e.,

1. Primary data and

2. Secondary data

1. Primary Data: It has been collected from the employees, Managers, Staff and concerned
officer of the organization through interview method.
2. Secondary Data: It has been collected from the old records, annual reports information,
brochures, magazines, financial statements and books of a financial management.

Period of study: The present study Capital Structure a case study in the
WANBURY LIMITED was studied for past five years i.e., from 2012 to 2016.

Basis of Analysis: Following financial statements of the WANBURY LIMITED

Illindraparru; Tanuku were considered from the year 2012 to 2016 for analysis and
interpretation.

Balance Sheet

Profit & Loss A/c

Related accounts schedules given in annual report.

Statistical Instruments used:

1. Leverages
2. Ratios
3. Tables
4. Diagrams

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 LIMITATION OF THE STUDY

The more information gathered through secondary and primary source of data based on the
financial statement.

The reliability of the study depends upon the information furnished by the officials.
Due to time constraints, it is difficult to go in to details of the whole of the company.
The study is purely based on the company annual reports and accounting data.
EPS is one of the mostly widely used measures of the companys performance in
practice. As a result of this, in choosing between debt and equity in practice, sometimes
too much attention is paid on EPS, which however, has serious limitations as a financing-
decision criterion.

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 CHAPTER-II

PROFILE OF PHARMACEUTICALS INDUSTRY IN INDIA

Introduction of Pharmaceuticals Industry

A pharmaceuticals industry develops produces, and markets drugs or pharmaceuticals for
use as medications. Pharmaceuticals companies may deal in generic or brand medications and
medical devices. They are subject to a variety of laws and regulations that governing the
patenting, testing, safety, efficacy and marketing drugs.
The modern pharmaceutical industry traces its roots to two sources. The rst of these
were local apothecaries that expanded from their traditional role distributing botanical drugs such
as morphine and quinine to wholesale manufacture in the mid 1800s. Rational drug discovery
from plants started particularly with the isolation of morphine, analgesic and sleep-inducing
agent from opium, by the German apothecary assistant Friedrich Sertrner, who named the
compound after the Greek god of dreams, Morpheus. Multinational corporations including
Merck, Hoffman-La Roche, Burroughs-Wellcome (now part of Glaxo Smith Kline), Abbott
Laboratories, Eli Lilly and Upjohn (now part of Pzer) began as local apothecary shops in the
mid-1800s. By the late 1880s, German dye manufacturers had perfected the purication of
individual organic compounds from coal tar and other mineral.
Sources and had also established rudimentary methods in organic chemical synthesis. The
development of synthetic chemical methods allowed scientists to systematically vary the
structure of chemical substances, and growth in the emerging science of pharmacology expanded
their ability to evaluate the biological effects of these structural changes.
In 1937 over 100 people died after ingesting a solution of the antibacterial sulfanilamide
formulated in the toxic solvent diethylene glycol. Prior to the 20th century drugs were generally
produced by small scale manufacturers with little regulatory control over manufacturing or
claims of safety and efficacy. To the extent that such laws did exist, enforcement was lax. In the
United States, increased regulation of vaccines and other biological drugs was spurred by tetanus
outbreaks and deaths caused by the distribution of contaminated smallpox vaccine and diphtheria
antitoxin. The Biologics Control Act of 1902 required that federal government grant premarket
approval for every biological drug and for the process and facility producing such drugs. This

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was followed in 1906 by the Pure Food and Drugs Act, which forbade the interstate distribution
of adulterated or misbranded foods and drugs. A drug was considered misbranded if it contained
alcohol, morphine, opium, cocaine, or any of several other potentially dangerous or addictive
drugs, and if its label failed to indicate the quantity or proportion of such drugs. The
government's attempts to use the law to prosecute manufacturers for making unsupported claims
of efficacy were undercut by a Supreme Court ruling restricting the federal government's
enforcement powers to cases of incorrect specication of the drug's ingredients.
Drug development refers to activities undertaken after a compound is identied as a
potential drug in order to establish its suitability as a medication. Objectives of drug
development are to determine appropriate formulation and dosing, as well as to establish safety.
Research in these areas generally includes a combination of in vitro studies, in vivo studies, and
clinical trials. The cost of late stage development has meant it is usually done by the larger
pharmaceutical companies.
Often, large multinational corporations exhibit vertical integration, participating in a
broad range of drug discovery and development, manufacturing and quality control, marketing,
sales, and distribution. Smaller organizations, on the other hand, often focus on a specic aspect
such as discovering drug candidates or developing formulations. Often, collaborative agreements
between research organizations and large pharmaceutical companies are formed to explore the
potential of new drug substances. More recently, multi-nationals are increasingly relying on
contract research organizations to manage drug development.
In the United States, new pharmaceutical products must be approved by the Food and
Drug Administration (FDA) as being both safe and effective. This process generally involves
submission of an Investigational New Drug ling with sufficient pre-clinical data to support
proceeding with human trials. Following IND approval, three phases of progressively larger
human clinical trials may be conducted. Phase-I generally studies toxicity using healthy
volunteers. Phase II can include pharmacokinetics and dosing in patients and Phase III is a very
large study of efficacy in the intended patient population. Following the successful completion of
phase III testing, a New Drug Application is submitted to the FDA. The FDA review the data
and if the product is seen as having a positive benet-risk assessment, approval to market the
product in the US is granted.

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History
The origin of medicines
Medicines of ancient civilizations
The oldest records of medicinal preparations made from plants, animals, or minerals are
those of the early Chinese, Hindu, and Mediterranean civilizations. An herbal compendium, said
to have been written in the 28th century BC by the legendary emperor Shennong, described the
antifever capabilities of a substance known as chang shan (from the plant species Dichroa
febrifuga), which has since been shown to contain antimalarial alkaloids (alkaline organic
chemicals containing nitrogen). Workers at the school of alchemy that flourished in Alexandria,
Egypt, in the 2nd century BC prepared several relatively purified inorganic chemicals, including
lead carbonate, arsenic, and mercury. According to De materiamedica, written by the Greek
physician Pedanius Dioscorides in the 1st century AD, verdigris (basic cupric acetate) and cupric
sulfate were prescribed as medicinal agents. While attempts were made to use many of the
mineral preparations as drugs, most proved to be too toxic to be used in this manner.

Many plant-derived medications employed by the ancients are still in use today.
Egyptians treated constipation with senna pods and castor oil and indigestion with peppermint
and caraway. Various plants containing digitalis-like compounds (cardiac stimulants) were
employed to treat a number of ailments. Ancient Chinese physicians employed ma huang, a plant
containing ephedrine, for a variety of purposes. Today ephedrine is used in many pharmaceutical
preparations intended for the treatment of cold and allergy symptoms. The Greek
physician Galen (c.130c. 200 AD) included opium and squill among the drugs in his apothecary
shop (pharmacy). Today derivatives of opium alkaloids are widely employed for pain relief, and,
while squill was used for a time as a cardiac stimulant, it is better known as a rat poison.
Although many of the medicinal preparations used by Galen are obsolete, he made many
important conceptual contributions to modern medicine. For example, he was among the first
practitioners to insist on purity for drugs. He also recognized the importance of using the right
variety and age of botanical specimens to be used in making drugs.

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Pharmaceutical science in the 16th and 17th centuries
Pharmaceutical science improved markedly in the 16th and 17th centuries. In 1546 the
first pharmacopoeia, or collected list of drugs and medicinal chemicals with directions for
making pharmaceutical preparations, appeared in Nurnberg, Ger. Previous to this time, medical
preparations had varied in concentration and even in constituents. Other pharmacopoeias
followed in Basel (1561), Augsburg (1564), and London (1618). The London
Pharmacopoeia became mandatory for the whole of England and thus became the first example
of a national pharmacopoeia. Another important advance was initiated by Paracelsus, a 16th-
century Swiss physician-chemist. He admonished his contemporaries not to use chemistry as it
had widely been employed prior to his time in the speculative science of alchemy and the making
of gold. Instead, Paracelsus advocated the use of chemistry to study the preparation of medicines.

In London the Society of Apothecaries (pharmacists) was founded in 1617. This marked
the emergence of pharmacy as a distinct and separate entity. The separation of apothecaries from
grocers was authorized by King James I, who also mandated that only a member of the society
could keep an apothecarys shop and make or sell pharmaceutical preparations. In 1841
the Pharmaceutical Society of Great Britain was founded. This society oversaw the education
and training of pharmacists to assure a scientific basis for the profession. Today professional
societies around the world play a prominent role in supervising the education and practice of
their members.
In 1783 the English physician and botanist William Withering published his famous
monograph on the use of digitalis (an extract from the flowering purple foxglove, Digitalis
purpurea). His book, An Account of the Foxglove and Some of Its Medicinal Uses: with
Practical Remarks on Dropsy and Other Diseases, described in detail the use of digitalis
preparations and included suggestions as to how their toxicity might be reduced. Plants
containing digitalis-like compounds had been employed by ancient Egyptians thousands of years
earlier, but their use had been erratic. Withering believed that the primary action of digitalis was
on the kidney, thereby preventing dropsy (edema). Later, when it was discovered that water was
transported in the circulation with blood, it was found that the primary action of digitalis was to
improve cardiac performance, with the reduction in edema resulting from improved

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cardiovascular function. Nevertheless, the observations in Witherings monograph led to a more
rational and scientifically based use of digitalis and eventually other drugs.

The development of anti-infective agents

Discovery of antiseptics and vaccines
Prior to the development of anesthesia, many patients succumbed to the pain and stress of
surgery. Many other patients had their wounds become infected and died as a result of their
infection. In 1865 the British surgeon and medical scientist Joseph Lister initiated the era
of antiseptic surgery in England. While many of the innovations of the antiseptic era are
procedural (use of gloves and other sterile procedures), Lister also introduced the use
of phenol as an anti-infective agent.
In the prevention of infectious diseases, an even more important innovation took place
near the beginning of the 19th century with the introduction of smallpox vaccine. In the late
1790s the English surgeon Edward Jenner observed that milkmaids who had been infected with
the relatively benign cowpox virus were protected against the much more deadly smallpox. After
this observation he developed an immunization procedure based on the use of crude material
from the cowpox lesions. This success was followed in 1885 by the development of rabies
vaccine by the French chemist and microbiologist Louis Pasteur. Widespread vaccination
programs have dramatically reduced the incidence of many infectious diseases that once were
common. Indeed, vaccination programs have eliminated smallpox infections. The virus no longer
exists in the wild, and, unless it is reintroduced from caches of smallpox virus held in
laboratories in the States and Russia, smallpox will no longer occur in humans. A similar effort is
under way with widespread polio vaccinations; however, it remains unknown whether the
vaccines will eliminate polio as a human disease.

Improvement in drug administration

While it may seem obvious today, it was not always clearly understood that medications
must be delivered to the diseased tissue in order to be effective. Indeed, at times apothecaries
made pills that were designed to be swallowed, pass through the gastrointestinal tract, be
retrieved from the stool, and used again. While most drugs are effective and safe when taken
orally, some are not reliably absorbed into the body from the gastrointestinal tract and must be

23
delivered by other routes. In the middle of the 17th century, Richard Lower and Christopher
Wren, working at the University of Oxford, demonstrated that drugs could be injected into the
bloodstream of dogs using a hollow quill. In 1853 the French surgeon Charles Gabriel Pravaz
invented the hollow hypodermic needle, which was first used in the treatment of disease in the
same year by Scottish physician Alexander Wood. The hollow hypodermic needle had a
tremendous influence on drug administration. Because drugs could be injected directly into the
bloodstream, rapid and dependable drug action became more readily producible. Development of
the hollow hypodermic needle also led to an understanding that drugs could be administered by
multiple routes and was of great significance for the development of the modern science of
pharmaceutics, or dosage form development.

Drug development in the 19th and 20th centuries

New classes of pharmaceuticals
In the latter part of the 19th century a number of important new classes of
pharmaceuticals were developed. In 1869 chloral hydrate became the first synthetic sedative-
hypnotic (sleep-producing) drug. In 1879 it was discovered that organic nitrates such as
nitroglycerin could relax blood vessels, eventually leading to the use of these organic nitrates in
the treatment of heart problems. In 1875 several salts of salicylic acid were developed for their
antipyretic (fever-reducing) action. Salicylate-like preparations in the form of willow bark
extracts (which contain salicin) had been in use for at least 100 years prior to the identification
and synthesis of the purified compounds. In 1879 the artificial sweetener saccharin was
introduced. In 1886 acetanilide, the first analgesic-antipyretic drug (relieving pain and fever),
was introduced, but later, in 1887, it was replaced by the less toxicphenacetin. In
1899 aspirin (acetylsalicylic acid) became the most effective and popular anti-inflammatory,
analgesic-antipyretic drug for at least the next 60 years. Cocaine, derived from the coca leaf, was
the only known local anesthetic until about 1900, when the synthetic compound benzocaine was
introduced. Benzocaine was the first of many local anesthetics with similar chemical structures
and led to the synthesis and introduction of a variety of compounds with more efficacy and less
toxicity.

24
Transitions in drug discovery
In the late 19th and early 20th centuries, a number of social, cultural, and technical
changes of importance to pharmaceutical discovery, development, and manufacturing were
taking place. One of the most important changes occurred when universities began to encourage
their faculties to form a more coherent understanding of existing information. Some chemists
developed new and improved ways to separate chemicals from minerals, plants, and animals,
while others developed ways to synthesize novel compounds. Biologists did research to improve
understanding of the processes fundamental to life in species of microbes, plants, and animals.
Developments in science were happening at a greatly accelerated rate, and the way in which
pharmacists and physicians were educated changed. Prior to this transformation the primary
means of educating physicians and pharmacists had been through apprenticeships.
While apprenticeship teaching remained important to the education process (in the form
of clerkships, internships, and residencies), pharmacy and medical schools began to create
science departments and hire faculty to teach students the new information in basic biology and
chemistry. New faculties were expected to carry out research or scholarship of their own. With
the rapid advances in chemical separations and synthesis, single pharmacists did not have the
skills and resources to make the newer, chemically pure drugs. Instead, large chemical and
pharmaceutical companies began to appear and employed university-trained scientists equipped
with knowledge of the latest technologies and information in their fields.
As the 20th century progressed, the benefits of medical, chemical, and biological research began
to be appreciated by the general public and by politicians, prompting governments to develop
mechanisms to provide support for university research. In the United States, for instance,
the National Institutes of Health, the National, the Department of Agriculture, and many other
agencies undertook their own research or supported research and discovery at universities that
could then be used for pharmaceutical development. Nonprofit organizations were also
developed to support research, including the Australian Heart Foundation, the American Heart
Association, the Heart and Stroke Foundation of Canada, and H.E.A.R.T UK. The symbiotic
relationship between large public institutions carrying out fundamental research and private
companies making use of the new knowledge to develop and produce new pharmaceutical
products has contributed greatly to the advancement of medicine.

25
Establishing the fight against infectious disease
Early efforts in the development of anti-infective drugs
For much of history, infectious diseases were the leading cause of death in most of the
world. The widespread use of vaccines and implementation of public health measures, such as
building reliable sewer systems and chlorinating water to assure safe supplies for drinking, were
of great benefit in decreasing the impact of infectious diseases in the industrialized world.
However, even with these measures, pharmaceutical treatments for infectious diseases were
needed. The first of these was Arsphenamine, which was developed in 1910 by the German
medical scientist Paul for the treatment of syphilis. Arsphenamine was the 606th chemical
studied by Ehrlich in his quest for an antisyphilitic drug.
Its efficacy was first demonstrated in mice with syphilis and then in humans.
Arsphenamine was marketed with the trade name of Salvarsan and was used to treat syphilis
until the 1940s, when it was replaced by penicillin. Ehrlich referred to his invention as
chemotherapy, which is the use of a specific chemical to combat a specific infectious organism.
Arsphenamine was important not only because it was the first synthetic compound to kill a
specific invading microorganism but also because of the approach Ehrlich used to find it. In
essence, he synthesized a large number of compounds and screened each one to find a chemical
that would be effective. Screening for efficacy
became one of the most important means used by the pharmaceutical industry to develop new
drugs.
The next great advance in the development of drugs for treatment of infections came in
the 1930s, when it was shown that certain azo dyes, which contained sulfonamide groups, were
effective in treating streptococcal infections in mice. One of the dyes, known as Prontosil, was
later found to be metabolized in the patient to sulfanilamide, which was the active antibacterial
molecule. In 1933 Prontosil was given to the first patient, an infant with a
systemic staphylococcal infection. The infant underwent a dramatic cure. In subsequent years
many derivatives of sulfonamides, or sulfa drugs, were synthesized and tested for antibacterial
and other activities.

26
Table 2.1 Publicly traded pharmaceuticals

Top 10 Publicly Listed pharmaceutical companies in India by Market

Capitalization as of July 2015.
Rank Company Market Capitalization 2015 (INR crores)

1 Sun Pharmaceutical 2,17,636

2 Lupin Ltd 84,193
3 Dr. Reddy's Laboratories 63,779
4 Cipla 52,081
5 Aurobindo Pharma 42,454
6 Cadila Healthcare 38,677
7 Glenmark Pharmaceuticals 29,047
8 GlaxoSmithKline 28,587
Pharmaceuticals Ltd
9 Divis Laboratories 24,847
10 Torrent Pharmaceuticals 22,320

Milestones of Wanbury ltd:

1990: Incorporated as Pearl Distributors Pvt Ltd.

1991: Pearl Distributors Pvt went public and was renamed as Pearl Organics.

1992: Pearl Organics established its first plant in Tarapur for manufacturing API.

1995: Pearl Organics acquired plant of Brij Chemicals Pvt at Patalganga (Maharashtra).

1996: Pearl Organics entered into a strategic alliance with Wyckoff Chemicals (US) to market its
API in US.

2002: Pearl Organics got US FDA approval for Patalganga plant.

2004: Wander merged with Pearl Organics Limited and Pearl Organics renamed as Wanbury set
up its R & D center in Navi Mumbai for API. Wanbury started using SAP as a business
transaction system.

27
2005: Wanbury acquired Doctors Organics and Chemicals, having a US FDA approved facility
for manufacturing multiproduct API.

2006: Wanbury achieved 100 crore turnover. Pharmaceutical Products of India (PPIL) merged
with Wanbury pursuant to BIFR order. Wanbury acquired Cantabria Pharma S.L. with presence
in ethical branded formulations in the Spanish market. Wanbury crossed 1000 employees mark.
Wanbury became the world largest producer of Metformin with production of 4500 MT.

2007: Doctors Organics Chemicals merged with Wanbury. Wanbury entered into a strategic
association with Bravo Healthcare Wanbury incorporated Ningxia Wanbury Fine Chemicals Co
to source raw materials from China. Wanbury approved as preferred Vendor by Pfizer (US) for
Contract Research and Manufacturing Services (CRAMS). Cpink was awarded Best Brand
Launch by ORGIMS as it did sales of Rs. 11 crores in launch year. Wanbury is the fastest
growing company among top 100 companies in India as per ORGIMS.

2008: Wanbury opened an office in Zurich, Switzerland for its CRAMS business. Wanbury
incorporated Wanbury Global FZE in Middle East for expanding its global business.Wanbury
achieved consolidated turnover of Rs. 630 crore for 18 months period ended 30th September
2008. Rabiplus was awarded Best Brand Launch by ORGIMS as it did sales of Rs.13.8 crores
in launch Year. Wanbury is the fastest growing company among top 100 companies in India as
per ORGIMS.

Achievements/ Recognition

Wanbury ranks 47th as per ORGIMS (Jan2009)

Cpink awarded Brand Launch by ORG IMS (0607)
Rabiplus awarded Brand Launch by ORG IMS (0708)
Worlds largest producer of Metformin
Fastest growing company amongst top 100 companies in the domestic market as per ORG
IMS.

28
 CHAPTER- III

PROFILE OF WANBURY LTD

Introduction

Wanbury Ltd is the fastest growing pharma company with a Compounded Annual Growth
Rate (CAGR) of 68% over the last 6 years. The company has strong presence in domestic
formulations, Active Pharmaceutical Ingredient (API) and Contract Research and manufacturing
Services (CRAMS) .The Company also has its presence in Europe in formulations.

Wanbury was incorporated as Pearl Distributors Pvt Ltd in 1990.It went public and was
renamed as Pearl Organics Ltd in 1991.The Company has established its first plant in the year
1992 in Tarapur for manufacturing APIs. In 1995, Pearl Organics acquired plant of Brij
Chemicals Pvt Ltd at Patalganga. In 1996 the company has entered into a strategic alliance with
Wyckoff Chemicals to manufacture its API in US.

In 2007, Pharmaceutical Products India Ltd was amalgamated with the company pursuant
to the BIFR order. In the same year, Doctors Organics and Chemicals Ltd also came into the fold
of Wanbury as this also merged with Wanbury. The company has entered into a strategic
association with Bravo Healthcare Ltd and also incorporated Ningxia Wanbury Fine Chemicals
Co Ltd to source raw materials from China. The company has opened its office in Zurich,
Switzerland for its CRAMS business and incorporated Wanbury Global FZE in Middle East for
carrying out its trading activities in the year 2008.

29
Company History Wanbury
The Company was incorporated on 11th August 1988, as a Private Limited
Company under the name of `Pearl Distributors Private Limited'. The name of the Company was
changed to Pearl Organics Private Limited on 17th January, 1991. The Company was converted
into a Public Limited Company on 6th August, 1991
The main object of the Company is to undertake the manufacture and sale of
pharmaceuticals, medicines, drugs and organic chemicals. Substantial portions of the production
of these products are intended for exports. The Company has set up a full-fledged export
marketing division consisting of experienced professionals. The Company has already secured
orders worth Rs1.07 crores from West European Countries. The Company is in the process of
negotiating further orders with foreign buyers for export of its products. The main objects of the
Company are fully set out in Memorandum of Association of the Company. The Company has
no subsidiary.
The Company has been principally promoted by Mr.K. Chandran along with his
associates Mr.K.Chandran has a rich experience of over 12 years in marketing of pharmaceutical
formulation in local & international markets. During his 12 years tenure he has worked in
various capacities including as business manager in one of the largest pharmaceutical company.
He was also head of export division of an export oriented pharmaceutical Company.

Vision Mission and Values

Mission

We, at Wanbury, want to build a company that people are proud of and committed to;
where all employees have an opportunity to contribute, learn, grow, and advance on
merits.
We will continue to build a business model which is sustainable, growth-oriented and
profitable.
We will worship exceptional and superior performance, concentrating on high-quality
training and development.
We will continuously challenge status-quo/maintenance and simultaneously encourage
and recognize stretch and growth.

30
 We will work hard not only to satisfy but delight our customers, thereby surpassing their
expectations.
We will strive to make Wanbury one of the preferred employers.

Vision

To keep improving the quality of life by offering value added novel products that are
technologically innovative, cost-effective and of superior quality, surpassing expectations
of customers across the globe.
To have a $1 billion market cap.
To be the fastest growing pharma company in India.

Values

Respect for people

Valuing diversity.
Developing trust and openness.
Focusing on listening and feedback.
Treating people with respect and digni
Innovation
New ideas
Unconventional thinking
Risk taking
Right to make mistakes
Sense of Urgency
Focusing on priorities and value-adding tasks
Speed of action
Fighting bureaucracy
Delivering
Result focus
Taking on challenging goals
Meeting commitments and delivering quality results

31
 Adhering to set objectives and standards
Measuring performance at regular periods
Leadership
Motivating and energizing others
Leading by example
Acting in accordance with company vision & values
Maintain high personal work standards
Teamwork
Cooperating and collaborating with colleagues
Encouraging and supporting colleagues to achieve goals
Focusing on both team and individual goals
Creating partnerships and using skills of others to excel in performance
Customer Focus
Understanding the changing needs and expectations of customers.
Delighting both internal and external customers.
Adjusting service based on customer feedback thereby surpassing customers expectations
Take personal responsibility for serving customers.

Board of Directors

Mr. K. Chandran

Whole time Director & Vice Chairman

Has extensive experience of over 28 years in the pharmaceutical industry.

32
 Mr. N. K. Puri

Non-Executive Independent Director

Former Deputy Managing Director of the State Bank of India and a former Managing
Director of the State Bank of Bikaner and Jaipur.

Mr. S K Bhattacharyya

Non-Executive Independent Director

(Ex) Managing Director and Chief Credit & Risk Officer of State Bank Of India and has got
38 years of experience spanning International and Corporate Banking across geographies, Retail
Banking, Credit & Risk Management, Liability Management, Human Resource Management as
Chief Executive Officer (CEO) of three banks including the State Bank of India (SBI), State
Bank of Bikaner & Jaipur (SBBJ) and the SBI (International) Mauritius; participating in
providing leadership to the Indian Financial System and being in the forefront of various
initiatives undertaken by the SBI Group.

33
 Ms. Anita Belani

Non-Executive Independent Director

Ms. Anita Belani has completed her B.A., Honors in Economics in 1984 from Miranda
House Delhi University. She has also done M.B.A. in 1987 from XLRI, India. She is having
distinction of being chosen as one of the 6 Women Super Achievers in 2008 by Asia Pacific
HRM Congress. She also won the first prize in the National Young Personnel Executives
competition organized by the National Institute of Personnel Management in 1991 for her
research on the HR Function in the 21st Century. Ms. Anita Belani is also on the Board of
Directors of Eternis Fine Chemicals Ltd. as Independent Board Director w.e.f. April 2015.

Corporate Social Responsibility

At Wanbury, the corporate philosophy to support social causes is followed to the word.
Wanbury has taken up various initiatives like

National Eclampsia Registry -The FOGSI ICOG initiative

Wanbury supported a noble cause National Eclampsia Registry project initiated by
FOGSI & ICOG. Eclampsia is hypertension during pregnancy, which leads to convulsions and
may lead to the death of the mother as well as the child. The National Eclampsia Registry, the
FOGSI-ICOG outfit, is the outcome of this need. Eclampsia and PET are identified as major
contributors to maternal death. Around 10% of women develop PIH or pre-eclampsia (figures are
much higher in India but we do not know). The later is particularly serious and can be fatal. The
causes of pre-eclampsia are unknown but it can be identified and culmination into eclampsia, a
seriously debilitating consequence can be prevented. Wanbury provided the platform to more
than 20,000 Gynaec doctors all over India to discuss issues related to Eclampsia.

34
 Mankhurds Children Home
Mankhurds children home is an orphanage, which consists of around 500 girls and boys who
are physically and mentally challenged. Wanbury supports the orphanage by regularly providing
medicines to the children.

Telemedicine
Telemedicine is the use of electronic communications and information technologies to
provide clinical services when participants are at different locations. This term is often used to
encompass a broader application of technologies to distance education, consumer outreach, and
other applications wherein electronic communications and information technologies are used to
support healthcare services. Videoconferencing, transmission of still images, e-health including
patient portals, remote monitoring of vital signs, continuing medical education and nursing call
centers are all considered part of telemedicine Wanbury initiated telemedicine with a motto to
improve patient care, enhance medical training, standardize clinical practice, stabilize costs and
unite clinicians worldwide

SWOT ANALYSIS

Strengths
Wanbury is the largest producer of metformin API.
Wanbury is leading producer of Tramadol API to the United States.
Wanbury ranks among the 50 domestic pharma companies in India.
Wanbury is the brand of choice for pharma gynecologist and orthopedic.

Weaknesses
High investments in research and development.
High laon rates are possible.

Opportunities
New products and services
Growing demand

35
 Income level is at a constant increase
Growing economy
Growth rates and profitability
New markets

Threats
Price changes
Cash flow
Financial capacity
Technological Problems

Formulation R&D
Wanburys R&D is recognized by Department of Scientific & Industrial Research
(DSIR) and Government of India. Its Formulation team of dedicated scientists and research
doctors are into
Pharma Research: Development of ANDAs and finished dosages for regulated
markets
NDDS: Development of novel platforms for speciality generics and IPR
New drug combinations
Development of innovative products

Area of Focus
Widening DMF pipeline for regulated markets (27 DMFs).
New product introductions for emerging markets
Coverage of versatile therapeutic areas
Development of formulations
Development of platforms for Novel Drug Delivery for Specialty Generics
Creation of facilities for clinical studies and carrying out bio-equivalence studies
New Product Development :
1. Development of Solid, semi-solid and liquid dosage forms
2. SR/ER/MR dosage forms

36
 3. Platform technologies (taste masking, modified release tablets, etc).
4. Value added generics
5. Other dosage forms like oral liquids, Dry Syrups, semi-solids, etc

Innovation
We take great pride in our ability to provide innovative solutions. Over the past few
years, we have launched 25 innovative products (including extensions) that were launched for
the first time in India. Our pipeline is strong and we are poised to launch 50 more innovative
products over the next couple of years.

Table 3.1 Main Products of Wanbury Ltd

Products Innovation

Cpink 50mg tablet(First to Ferrous ascorbate is known as the worlds reference iron due to its
launch in India) high bio-availability, which is much higher than other conventional
irons. It also has reduced gastro-intestinal side-effects which
otherwise are very common. Ferrous ascorbate containing 50 mg
elemental iron was a novel concept as most other irons had 100 mg.
Wanbury has also got a patent for the same.
Rabiplus capsule (First to Wanbury was the first to launch rabeprazole in pellet form with
launch in India) optimally stabilized tri-layer enteric coating. The pellet form offers
much higher bio-availability, faster action and reduced inter-subject
variability as compared to the tablet form. All other proton pump
inhibitors (PPI) in the market were essentially in tablet form with
single layer enteric coating.
Cdense tablets, gems(First to This contains calcium orotate which is a mineral transporter. Wanbury
launch in India) was first to launch it in Indian market. The amount of elemental
calcium absorbed from this salt is highest (95%) amongst all the
available calciums. It directly deposits calcium within the osteoblast
which is unlike traditional calciums.
Adtrol-Plus soft gelatin Most other anti-osteoporotic formulations contain only calcium and

37
capsule (First to launch in vit D3. Because of methylcobalamin, pyridoxine, folic acid; Adtrol
India) Plus treats hyperhomocysteinemia which is an independent causal
factor for osteoporosis. Wanbury was first to launch this concept in
the Indian market. Other companies have followed this combination
after it became highly successful for Wanbury.
Folinine softule(First to Wanbury was first to launch this combination in Indian market. Till
launch in India) then, either plain folic acid or folic acid with sub-optimal dose of
methylcobalamin (500 or 750 microgram) brands were present. They
were recommended only during first trimester of pregnancy. Wanbury
launched the concept of hyperhomocysteinemia being an independent
causal factor for pregnancy complication and proposed usage of this
formulation for all 9 months which was a unique and highly
successful concept
Productiv - M (First to launch Wanbury was the first to launch a combi-pack containing 25 tablets of
in India) Clomifene (25 mg) and 30 tablets of antioxidants, Multivitamins,
Amino acids & Minerals combination. In the Indian market, only
Clomifene tablets were available and multivitamins, mineral tablets
were available separately. Wanbury was the first to launch the above
combi-pack with a novel concept of synergy between different
ingredients for better management of male infertility.
Productiv - F (First to launch Wanbury was the first to launch the novel formula of Productiv-F
in India) which contained novel ingredients like chasteberry standardized
extract, green tea standardized extract with proven role in treatment of
female infertility. In fact, the entire formula was the first of its kind in
being evidence-based as high pregnancy rate has been observed with
it in clinical studies. Otherwise, in Indian market, multivitamin
mineral formulations are available but with no evidence documenting
its success.
Cheer capsule(First to launch Indian market is flooded with water-soluble as well as fat-soluble
in India) multivitamin and multi-mineral preparations which are often
prescribed after surgery to overcome post surgical convalescence.

38
 Also such formulations are prescribed to diabetic and CVD patients
and to patients recovering from fever and infection. With Cheer
capsule, Wanbury introduced a new concept of essential amino acids
combined with water-soluble multivitamins and minerals. The reason
for the same was that essential amino acids are building blocks for
new cell formation which is required in above mentioned indications.
Also the product was free from fat-soluble vitamins which have a risk
of hypervitaminosis as these formulations are given empirically
Cheer syrup (First to launch Indian market is flooded with water-soluble as well as fat-soluble
in India) multivitamin preparations which are often prescribed after surgery to
overcome post surgical convalescence. Also such formulations are
prescribed to diabetic and CVD patients and to patients recovering
from fever and infection. With Cheer syrup, Wanbury introduced a
new concept of essential amino acids combined with water-soluble
multivitamins. The reason for the same was that essential amino acids
are building blocks for new cell formation which is required in above
mentioned indications. Also the product was free from fat-soluble
vitamins which have a risk of hypervitaminosis as these formulations
are given empirically.

Brand Name Molecule Therapeutic Area

Cpink 100 Ferrous Ascorbate+ Folic acid Hematanic Products
Cpink M Ferrous Ascorbate+ Folic Hematanic Products
acid+Methylcobalamine
Clavcure 625 Clavulinic Acid + Amoxycillin Antibiotics
Solutabs
Clavcure DS Clavulinic Acid + Amoxycillin Dry Antibiotics
syrup
Clavcure Inj Clavulinic Acid + Amoxycillin Antibiotics
Injections
Rabiplus Rabeprazole Antiulcerants & Proton Pump

39
 inhibitors
Rabiplus- D Rabeprazole+ Domparadone Antiulcerants & Proton Pump
inhibitors
Rabiplus- XT Rabeprazole+ Itopride Antiulcerants&
ProtonPumpinhibitors
Cdense Calciam Orotate Calciumpreparations
Coriminic QR Phenylephrine+ Cold preparations
Chlorophenirammine
Coriminic P Phenylephrine+ Cold & fever preparations
Chlorophenirammine+ Paracetamol
Coriminic XT Ambroxol+ Guaiphenesin+ Cough & cold preparations
Terbutaline
Nock 3 Aceclofenace+ Paracetamol+ Pain Management
Serratiopeptidase
Nock 2 Nimesulide+ Paracetamol Pain Management
Zevanuron Pregabalin+ Methylcobalamine Neuropathic pain management
Zeva Multivitamins+ Multiminerals Multivitamins and
multimineralstherapy
Nurture Protein Powder Protein suppliments
Senasof Ca Salt of puriffied senna extract Laxative
Clamist Clemastin Fumerate Antiallergent
Crich VT 100 Natural Micronised Progesterone Natural micronized
progesterone
Glopink Multimicronutrients+ DHA Multimicronutrients and DHA
therapy

Corporate Governance
We are committed to achieve and maintain highest standard of Corporate Governance on
a sustained basis. We are obligated to manage the business with diligence, transparency,
responsibility and accountability across all facets of the operations leading to focused and

40
efficient growth. We practice good governance as a pre-requisite to our stakeholders' value
creation while maintaining business ethics and complying with all statutory and regulatory
requirements
Corporate Governance in our company is about commitment to values, to ethical business
conduct and towards transparency in communication with the existing and the potential
stakeholders
Familiarisation Programme for Independent Directors.
Model letter for appointment of Independent Directors.
WL- Nomination & remuneration policy.
WL-Policy for Related Party Transactions.
WL-Policy on determining Material Subsidiaries.
WL-Whistle Blower Policy.
Policy on Determination of Materiality of Events.
Policy on Preservation of Documents.
Archival Policy Wanbury.

Manufacturing Facilities
Tanuku Plant
Another US FDA Approved plant is located at Tanuku in Andhra Pradesh. It is located 415
kms from Hyderabad. It is spread over an area of 18 acres.
Tanuku Plant:
K. Illindalaparru 534217,
Iragavaram Manadal,
W.G.Dist., (AP)
Patalganga Plant

US FDA approved plant is located at Kaire Village, Taluka: Khalapur, District: Raigad,
Maharashtra State. It is situated in Maharashtra Industrial Development Corporation (MIDC); a
Govt. notified industrial park for chemical manufacturing. The site is located 80 kilometers south
of Mumbai International Airport and is easily accessible by road

41
patalganga Plant:
A-15, MIDC Industrial Area,
Patalganga, DistRaigad-410 220,
Maharashtra (India).
Tarapur Plant
The plant is located at Tarapur, about 150 Kms. from Mumbai
Tarapur Plant
N-24/25, MIDC, Tarapur
Dist-Thane.401506.

42
 CHAPTER-IV
THEORETICAL FRAMEWORK OF CAPITAL STRUCTURE

Introduction to Capital Structure

The investment project of a company can be financed either by increasing the owners
claims. The owner's claims increase when the firms raise funds by issuing common shares or by
retaining the earnings the creditors claims increasing by borrowings. The various means of
financing represent the financial structure of an enterprise. The financial structure of an
enterprise is shown on the left hand side of the balance sheet. Traditionally short term
borrowings are excluded from the list of methods of financing the firms capital structure of the
enterprise capital structure refers to the mix term debt, preference share capital and the equity
share capital including reserves and surpluses. It is being reused that a company should plan its
capital structure to maximize the use of funds and to be able to adapt more easily to the changing
conditions. The term capital structure is issued to represent the proportionate relationship bet
debt and equity. Equity includes share capital, share premium and reserves and surplus.
The financing or capital decision is a significant managerial decision. It influences the
share holders risk and returns consequently the market value of the shares may be effected by the
capital structure decision, the co will have to plan its C.S. Initially the time of its promotion
subsequently, when even funds to be raised to finance investments a capital structure decision is
involved.

The decision will involve an analysis of the existing capital structure and the factors,
which will govern the decisions at present. The company policies to retain or distribute earning
affect the owner claim, shareholders equity position is strengthened by retention of earnings thus,
and the dividend decision has a bearing on the capital structure of the company while making the
capital structure decision, the dividend policy of the company should be considered. The new
financing decision of the company may affect its debt equity mix. The debts equity mix has
implication.

43
Fundamental Patterns of Capital Structure

Broadly speaking, there maybe three fundamental patterns of Capital Structure in a new
concern.

Issuing only equity shares

Issuing equity and preference shares and
Issuing equity and preference share and bonds / debentures and arranging long term
loan from financial institution.

For the shareholders earning and risk, which in term will affect the cost of capital
and the market value of the firm.

Maximum possible use of leverage

Capital Structure should be flexible
To avoid undue financial / business risk with the increase of debt
The use of debt should be within the capacity of the firm
It should involve maximum possible risk of less of control
It must avoid undue restrictions in agreement of debt.

Approaches to Capital Structure

Operation and financial leverage approach for analyzing the impact of debt on Earning
per share.
Cost of capital and valuation approach for determining the impact of debt on the
shareholders value.
Cash flow approach for analyzing the firm ability for service debt.

44
 Capital Structure Process
Diagram No: 4.1
CAPITAL BUDGETING

NEED TO RAISE FUNDS 1. INTERNAL FUNDS

2. DEBT
3. EXTERNAL EQUITY

CAPITAL
STRUCTURE DECISION

EXISTING CAPITAL DESIRED DEBT EQUITY MIX RETENTION POLICY

STRUCTURE

EFFECTS ON EPS EFFECTS ON EPS

EFFECTS ON COST OF CAPITAL

OPTIMUM CAPITAL
STRUCTURE
VALUE OF FIRM

The process of capital structure decision is shown in the above figure Fundamental Patterns:

45
Factors Determining Capital Structure

The Capital Structure of a concern depends upon a large number of factors. They are:

Financing leverage a trading on Equity:

The use of long term is interest bearing debt and preference share capital leverage or
trading on equity. The use of long term debt increases magnifies the EPS if the firm yields a
return moa higher than the cost of debt. However, leverage can operate adversely also if the rate
of interest on long term debt is more than the expected rate of earning of the firm there for it
needs cautions to plan the Capital Structure of the firm.

Growth and stability of Sales:

The Capital Structure of a firm is highly influences by the growth and stability of it's a
sale. If the sales of firm are expected to remain fairly stable, it can raise a higher level of debt
stability of sales ensures that the firm will not have any difficulty in meeting it fixes
commitments of in payments of debt. On the other hand, if the sales of a firm an highly
fluctuated or declining, it should not employ, as far as possible, debt financing in its company.

Cost of capital:
Cost of capital refers to the minimum return expected by it suppliers, the capital structure
provides for the minimum cost of capital. The main sources of finance for a firm are equity and
debt capital. Usually debt is factor determining Capital Structure.

Nature of business:
Nature of business be taken into account while designing the financial plan and determining
the capital structure. A manufacturing company may have a differing Capital Structure from
merchandising, financing, and extractive or public utility concerns.

Period of Finance:
Normally funds which are required for a short time say for 5 to 10 years should be
through borrowing because these can easily be repaid as soon as company's financial position
improves.

46
 Need of investors:
An ideal capital structure is that which suits the needs of different types of investors
having varying financial status and varying psychologies security with different denominations
should be issued to suit the financial status different persons in order to secure subscription from
people in different sarata of society rich,. Middle and lower classes.

Market conditions:
Conditions of capital market have an important bearing on the capital structure of the
company because investor is very often influenced by the general mood or sentiment of the
capital market although his own mood or sentiments guide him to invest to his funds.

Policy of term financing institution:

Financial institutions offers credit to the industry on strictly restrictive terms and adopt
harsh policy of lending the management will give more weight age to maneuverability principle
and abstain from borrowing from the institutions and will arrange capital from other sources.
Cheaper sources of finance when compared to equity capital because of tax advantages due to
deductibility of interest and legal obligation to pay fixed rate of interest while formulation of
capital structure on effort must be a made to minimize the overall cost of capital.

Cash flow ability to service debt:

A firm, which should be able to generate larger and stable cash inflows can employ more
debt I its capital structured as compared to the come which has unstable and lesser ability to
generate cash flows.

Control:
Whenever a firm requires additional funds the market of the funds want to raise the funds
without any less of control over the firm. Hence from the point of view of control debt financing
it's recommended.

Flexibility:
Capital Structure should be flexible a firm should arrange its capital structure in such a
manner that is can substitute is form of financing by another. Redeemable preference shares and
debentures may be preferred on account of flexibility.

47
 Assets structure:
The liquidity and the composition of asset should also keep in mind while selection the
capital structure. It fixed assets constitute a major position of the total assets of the company it
may be perusable for the company to raise more of long term debts.

Purpose of financing:
If funds are required for productive purpose debt financing is suitable as interest can be
paid preference. The profits generated from the investments. If the funds are required for
unproductive purpose, we should prefer equity capital.

Corporate tax rates:

High rate of corporate taxes on profits compel the companies to prefer the debt financing,
because interest is allowed to be deducted while competing taxable profit. On the other hand,
dividend on shares is not allowable expense for that purpose.

Legal requirements:
The government had also issued certain guide line for the issue of shares and debentures.
The legal restrictions are very significant as these lay down a frame work with in which capital
structure decisions has to be made.

Importance of Capital Structure

Ownership rights:
The issuance of new securities involves the question of extending the ownership rights to
the new security holders. Creditors exercise no ownership control during routine periods of
operation.
Repayment requirements:
Debt matures and must be repaid according to the conditions in the bond in debentures or
other agreement, preferred stock ordinarily has no maturity date, although it usually has a call
feature that allows its retirement.
Claim on assets:
The bond holders have the first claim on assets in the even of liquidation, the preferred
share holders the next claim, and the common shareholders the residual claim. If the firm does
not want to give new investors a priority claim on assets common stock is desirable.

48
 Claim on profit:
Interest must be paid on bonds regardless the level of profits. Although bond holders
have no right to share in profits, they have legally enforceable right to the payment of the
stipulated interest. The preferred share holders have the first right to share in the profits but only
up to a specified limit.

Internal Factors That Effect Capital Structure

Internal factors are those considerations within the firm that have a bearing on the kinds
and amounts of securities in the capital structure, such as the following:

1. Matching fluctuating needs against short-term sources

A firm may have a busy season just before Christmas and may need extra money during
October, November, and December to conduct it business.

2. Degree of risk
A firm's Capital Structure must be developed with an eye towards risk because it has a
direct link with the value. Equity securities need not be repaid and dividends needs not be
declared. Thus, equity securities reduce risk, debt securities increase risk.
3. Increasing owner's profit
If the firm can borrow at 11 % and earn 16% with the money, all profits above the 11
percent interest will be distributed to the owners. The ability to increase the owner's return
without increasing their investment is an argument for debt financing.
4. Surrendering operational control
In some cases, a firm is unable to sell bonds without agreeing to allow the bond holders
to exercise certain operational controls, such as selecting a member of the board of directors if
interest payments are not made on time.
5. Future flexibility
The flexibility of a Capital Structure refers to ability of the firm to raise additionally
capital funds when needed to finance profitable and variable investment opportunities. A firm is
expected to maintain a balance mixture of debt and equity securities.

49
External Factors That Effect Capital Structure
External factors are those considerations outside the firm that have a bearing on the
composition of debt and equity securities such as the following:

1. General level of business activity:

If the overall level of business activity is rising, most firms need money to expand their
operations. The need for additional long-term funds brings a firm to the money market for either
debt or equity funds.
2. Level of interest rates:
Interest rates on bonds fluctuate in the market in response to supply and demand factors.
If interest rates become excessive, firms delay debt financing, switch to short term financing
until long term debt can be offered at lower rates or switch to equity securities.
3. Level of stock prices:
When firms issue new common stock, they hope to receive as much money as possible
from each share. When stock prices are depressed the firm does not offer common stock.

4. Availability of funds in the market:

Money and capital market in the United States are a constantly changing, complex
phenomenon. At times money is plentiful and any reasonably priced debt or equity offering can
be sold. The availability of funds affect the firm's ability to offer debt and equity securities.
5. Tax policy of interest and dividends:

At present, interest is paid on debt prior to the calculation of the corporate income tax.
Dividends are declared after tax calculation.

Leverages
Meaning:
A general dictionary meaning of the Leverage refers to an increased means of
accomplishing some purpose. In financial management the term leverage is used t o describe
the firm ability to use fixed cost assets or funds to increase the return to its owners, i.e. equity
shareholders. James home has defined leverage as the employment of an asset or sources funds,
which the firm has to pay a fixed cost or fixed return. It must however be noted that higher are

50
the risk as well as return to the owners. It should also be remembered that leverage could have
negative or reversible effect also. If may be favorable or unfavorable.

Types of leverages:
Operating leverage
Financial leverage

In addition to those two kinds of leverage, one could always complete Composite
Leverage to determine the combined effect of the leverages.

Operating leverage:
Operating Leverage occurs where a firm has a fixed operating cost regard mess of
volume, sales. The fixed cost is treated as fulcrum of Leverage.
The change in sales is related to changes in revenue. Any increase in sales fixed cost
remaining same, will magnify the operating Leverage.
When fixed cost remaining same, percentage changes in operating revenue will be more
than the percentage change in sales.
The occurrence is known as operating leverages. The degree of operating Leverage
depends upon the fixed elements in the cost structure.
Formula:
Operating Leverage = contribution / Earnings before interest and taxes

Financial leverage:
The use of the fixed charge sources of funds such as debit and preference capital along
with the owners equity in the capital structure is described as financial leverage. It is used to
magnify the shareholders earnings.
Formula:
Financial Leverage = Earnings before interest and taxes / Earnings before tax
Successful financial leverage would always result in high profitability. Financial leverage
employed by a company is indented to earn more on the fixed charges of funds then their cost.

51
Measures of financial leverage involve:
Tabulation of Capital gearing
Tabulation of interest coverage ratio
EPS-EBIT Analysis.

Composite leverage:
Both financial leverage and operating leverage magnify the revenue of the firm.
Operating leverage effects the income, which is result of product on the other hand the financial
leverage is the result of financial decisions. The composite leverage focuses attention on the
entire income of the concern. The risk factor should be properly assessed leverage. The high
financial leverage may be offset against low operating leverage or vice-versa

The degree of composite leverage can be calculated as follows:

Formula: Composite Leverage = Operating leverage Financial Leverage

Data Required For Computing Leverages Are:

Earnings before interest and taxes
Earnings before taxes
Contribution (sales-variable cost)

Measures of Financial Leverage Capital Gearing:

The term refers to the relation-ship between equity capital and long-term debt. In simple
words capital gearing means the ration between the various types of securities in the capital
structure of companies set to be in high gear when it has a proportionality higher/large issue of
debentures and preferences shares for raising the long term resources, where as low gear stands
for a proportionately large issue of equity shares.
Capital gearing has a direct bearing on the divisible profits of company and hence a
proper hearing is very important is case of low geared company the fixed cost of capital by way
of fixed dividends on preference shares and interest on debentures is low and the equity
shareholders may get a higher rate of dividend. Where as in high geared company the fixed cost
of capital is higher leaving lesser divisible profits for the equity shareholders.

52
Capital Gearing and Trade Cycle:
The effect of capital gearing during various phases of trade cycles is discussed below:
During inflation of boom period:
A company should follow the policy of high gear during inflation or boom period as the
profit of the company are higher and it can easily pay fixed costs of debentures and preference
shown further, during boom period, the rate of earnings of company is usually higher than the
fixed rate of interest/ dividend prevailing on debentures and preference shares. By adopting the
policy of higher gear a company can increase its earnings per share and there by a higher rate of
dividend.
During Deflation or Depression Period:
During depression the rate of earnings of a company is lower than the rate of interest/
dividend on fixed interest bearing securities and hence it can not meet the fixed costs without
lowering the divisible profits and rate of dividend. It is therefore, better for a company to remain
in low gear and not to resort to fixed interest bearing securities as source of finance during such
period.

Capital Structure Theories

1. Net Income (NI) approach:

This approach has been suggested by Durand. According to this approach, Capital
Structure decision is relevant to the valuation of the firm. In other words, a change in the capital
structure causes a corresponding change in the overall cost as well as the total value of the firm.
According to this approach, higher debt content in the Capital Structure will result in decline in
the overall or weighted average cost of the capital. This will cause increase in the value of the
firm and consequently increase in the value of equity shares of the company. Reverse will
happen in a converse situation.

Net Income approach is based on the following assumptions:

i. There are no corporate taxes.

ii. The cost of debt is less than cost of equity or equity ;capitalization rate.
iii. The debt content does not charge the risk perception of the investors.

53
The value of the firm on the basis of Net Income approach can be ascertained as follows:
V=E+D

Where,
V = Value of firm
E = Market value of Equity
D = Market value of debt

Market value of equity can be ascertained as follows:

E = NI / Ke
Where,

E = Market value of equity

NI = Earnings available for equity shareholders
Ke = Equity capitalization rate

The value of the firm according to NI approach will get increased in case the amount of
equity is decreased by issue of debentures, bonds, etc., to equity shareholders.

Decrease in value. Similarly the value of the firm according to NI approach will get
decreased in case the amount of debt is decreased by issuing additional equity shares.

2. Net Operating Income (NOI) approach:

This approach has also been suggested by Durand. This is just opposite of net income approach.
According to the approach, the market value of the firm is ascertained by capitalizing the net
operating income at the overall cost of capital (K), which is considered to be constant. The
market value of equity is ascertained by deducting the market.
Value of the debt from the market value of the firm assumption:
The Net Operating Income (NOI) approach is based on the following assumptions.
The overall cost of capital (K) remains constant for all degrees of debt equity mix or

54
 leverage.
The market capitalizes the value of the firm as a whole and, therefore, the split between
debt and equity is not relevant.
The use of debt having low cost increases the risk of equity shareholders, this results in
increase in equity capitalization rate.
There are no corporate taxes.

Value of the firm: According the NOI approach, the value of a firm can be determined by the
following equation:

EBIT
V
K
Where,

V = Value of firm
K = Overall cost of capital
EBIT = Earnings before interest and tax

Value of equity:

The value of equity (E) is a residual value, which is determined by deducting the total
value of debt (D) from the total value of the firm (V). Thus, the value of equity (S) can be
determined by the following equation:

E=VD

Where,
E = Value of equity
V = Value of firm
D = Value of debt

55
Optimum capital structure
According to Net Operating Income (NOI) approach, the total value of the firm remains
constant irrespective of the debt equity mix or the degree of leverage.
The Market price of equity shares will, therefore, also not change on account of change in
debt equity mix. Hence, there is nothing like optimum Capital Structure. Any Capital
Structure will be optimum according to this approach.

In those cases where corporate taxes are presumed, theoretically there will be optimum
Capital Structure when there is 100% debt content. This is because with every increase in debt
content K declines and the value of the firm goes up,. However, due to legal and other
provisions, there has to be a minimum equity. This means that optimum capital structure will be
at a level where there can be maximum possible debt content in the Capital Structure.

3. The Traditional Approach:

This approach is also known as extra Solomon's approach. The traditional approach also
known as intermediate approach is a compromise between the two extremes of net income
approach and net operating income approach. According to this theory, the value of the firm can
be increased initially or the cost of capital can be decreased by using more debt as the debt is a
cheaper source of funds than equity. Thus, optimum capital structure can be reached by a proper
debt equity mix. Beyond a particular point, the cost of equity increase because increased debt
increases the financial risk of the equity shareholders. The advantage of cheaper debt at this
point Capital Structure is offset by increased cost of equity. After this there comes a stage, when
the increased cost of equity cannot be offset by the advantage of low-cost debt. Thus, overall
cost of capital, according to this theory decreases up to a certain point, remains more (or) less
unchanged for moderate increase in debt thereafter and increases or rises beyond a certain point.
Even the cost of debt may increase at this state due to increased financial sick.

4. The Modigliani Miller Hypothesis:

The Modigliani miller Hypothesis is identical with the net operating income approach.
Modigliani and miller (m-m) argue that, in the absence of taxes, a firm's market value and the
cost of capital remain invariant to the capital structure changes. In their 1958 articles, they

56
provide analytically sound and logically consistent, behavioral justification in favor of their
hypothesis, and reject any other Capital Structure theory as incorrect.

Assumptions:

Securities are traded in the perfect capital market situation.

Firms can be grouped into homogenous risk clause.
The expected NOI is a random variable, with constant mean probability
distribution and a finite variance.
Firms distribute all net earnings to the shareholders, which means a 100 percent
payment.
In the original formulation of their hypothesis, m-m asume that no corporate
income taxes exist.

V = (E + D) = X / KO = NOI / KO

Where,

V = The market value of the firm

E = The market value of the firm's common shares

D = The market value of debt

X = The expected net operating income (EBIT) on the assets of the firm

KO = The capitalization rate appropriate to the risk clause of the firm.

Arbitrage process:
The arbitrage process is a operational justifications of mm hypothesis. The term arbitrage
refers to an act of buying an asset or security in one market having lower prices and selling
another market at higher price.
The consequence of the act is that the market price of the securities of the firm exactly
similar in all respects expect in their Capital Structure cannot for long remain different in
different markets.

57
Miller's Hypothesis with Corporate and Personal Taxes:
Investors are required to pay personal taxes on the income earned by them. Therefore,
from investor's point of view, taxes will include both corporate and personal taxes. A firm
should thus aim at minimizing the total taxes while deciding about borrowing. How to personal
income taxes change investor's return and value? It depends on the corporate tax rate and the
difference in the personal income tax rates of investors

Corporate tax rate intrest rate X

PVINTS =
1 personal tax rate
cost of debt (1 personal tax rate)

T KdDX(1 Tp)
PVINTS = = TD
Kd(1 Tp)

The M M Hypothesis under corporate taxes:

M M's hypothesis that the value of the firm is independent of it's debt policy is based on
the critical assumption that the corporate income taxes do not exist. This is not a realistic
assumption. In reality, corporate income taxes exist and interest paid to debt holders is treated as
deductible expenses. Dividends paid to shareholders, on the other hand, are not tax deductible.
Thus unlike dividends, the return to debt holders is not subject to the taxation at the corporate
level. In their 1963 article, M M show that the value of the firm will increase with debt due to
the deductibility of interest charges for tax computation and the value of the levered firm will be
higher than the un-levered firm. Under the assumption of the permanent debt, we can determine
the present value of the interest tax shield as follows:

PV of interest tax shield = Tax rate X interest / cost of debt

T (Kd D)
PVINTS = = TD
Kd

58
Miller's model has certain limitations:

1. It implies that tax exempt persons / institutions will invest only in debt securities and high
tax bracket investors in equities.
2. The personal tax rate on equity income is not zero.
3. Investors in high tax brackets can be induced to invest in debt securities indirectly.

59
 CHAPTER - V
DATA ANALYSIS AND INTERPRETATION

TABULATION OF CAPITALIZATION OF THE WANBURY LTD:

Capitalization refers to the total amounts of securities by a company. It is

computed as below: (Rs. in crores)

Table No : 5.1

2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

PARTICULARS
Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs)

Equity share capital 173,793,000 173,793,000 199,693,000 199,693,000 199,693000

Preference share capital - - - - -

Secured loans 2,607,854,000 3,102,031,000 2,793,454,000 2,704,802,000 2,309,233,000

Unsecured loans 1,751,000 1,297,000 - - -

Total Capitalization 2,783,398,000 3,277,121,000 2,993,147,000 2,904,495,000 2,508,926,000

Source: Anuual Reports Of Wanbury Ltd,Illindraparru

60
 Diagram No : 5.1 Capitalization Of The Wanbury Ltd:

3.5E+09
3E+09
2.5E+09
2E+09 Equity share capital
1.5E+09 Preference share capital
1E+09 Secured loans
500000000 Unsecured loans
0

Source: Anuual Reports Of Wanbury Ltd,Illindraparru

INTERPRETATION
The Table No 5.1 showed the total capitalization. In total capitalization consists of equity share capital, preference share
capital, secured loans, and unsecured loans. Equity share capital is constant in 2012 and 2013 during the study period Rs.173,793,000
and for 2013 to 2016 the amount Rs.199,693,000 and there is no preference share capital. The secured loans shows a fluctuating trend
the highest value of secured loans shows during the year 2012-2013 is Rs. 3,102,031,000 and the lowest value shows during the year
2015-2016 is Rs 2,309,233,000 and the unsecured loans are very low in 2011-2013 and there is no unsecured loans in between the
years 2013-2016.Overall total capitalization shows a fluctuating trend the highest value of total capitalization shows during the 2012-
2013 is Rs 3,277,121,000and the lowest value shows during the year 2015-2016 is Rs. 2,508,926,000.The average value of total
capitalization is Rs.2,893,417,400.

61
 TABULATION OF CAPITAL STRUCTURE OF THE WANBURY LTD:
Capital Structure refers to the proportionate amount that makes up capitalization is computed as below:

Table No : 5.2 (Rs. in crores)

2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
PARTICULARS

Amount(Rs) % Amount(Rs) % Amount(Rs) % Amount(Rs) % Amount(Rs) %

Equity share 173,793,000 4.33 173,793,000 4.09 199,693,000 6.2 199,693,000 6.5 199,693,000 7.3
capital

Preference share - - - - - - - - - -
capital
Reserves &surplus 1,230,319,000 30.66 968,432,000 22.81 186,123,400 5.8 188,216,500 6.1 195,251,400 7.2

Secured loans 2,607,854,000 64.97 3,102,031,000 73.07 2,793,454,000 88 2,704,802,000 87.4 2,309,233,000 85.5

Unsecured loans 1,751,000 0.04 1,297,000 0.03 - - -

Total Capital 4,013,717,000 100 4,245,553,000 100 3,179,270,400 100 3,092,711,500 100 2,704,177,400 100
structure

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

62
 Diagram No : 5.2 Capital Structure of the Wanbury Ltd
3.5E+09

3E+09

2.5E+09

2E+09 Equity share capital

Preference share capital
1.5E+09
Reserves &surplus
1E+09
Secured loans
500000000
Unsecured loans
0

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

INTERPRETATION
The Table No 5.2 showed the total capital structure. In total capital structure consists of equity share capital, preference share
capital, reserve and surplus, secured loans, unsecured loans. Equity share capital fluctuating trend during the study period the highest
value of equity share capital shows during the year 2015-2016 is 7.3% and the lowest value of equity share capital shows during the
year 2012-2013 is 4.09% and there is no preference share capital. The reserve and surplus shows fluctuating trend the highest value of
reserve and surplus during the year 2011 to 2012 is 30.66% and the lowest value of reserve and surplus during the year 2013-2014 is
5.8%. The secured loans shows a fluctuating trend the highest value of secured loans shows during the year 2013-2014 is 88% and the
lowest value shows during the year 2011-2012 is 64.97% and the unsecured loans are very low in 2011-2013 and there is no
unsecured loans in between the years 2013-2016.Overall total financial structure shows constant during the study period 100%.

63
 TABULATION OF FINANCIAL STRUCTURE OF THE WANBURY LTD:
Table No : 5.3 (Rs. in crores)

2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

PARTICULARS
Amount(Rs) % Amount(Rs) % Amount(Rs) % Amount(Rs) % Amount(Rs) %
Equity share 173,793,000 4.33 173,793,000 4.09 199,693,000 6.2 199,693,000 6.5 199,693,000 7.3
capital

Preference share - - - - - - - - -
capital

Reserves & 1,230,319,000 30.66 968,432,000 22.81 186,123,400 5.8 188,216,500 6.1 195,251,400 7.2
surplus

Secured loans 2,607,854,000 64.97 3,102,031,000 73.07 2,793,454,000 88 2,704,802,000 87.4 2,309,233,000 85.5

Unsecured loans 1,751,000 0.04 1,297,000 0.03 - - -

Differed tax - - - - -
liability

Total finance 4,013,717,000 100 4,245,553,000 100 3,179,270,400 100 3,092,711,500 100 2,704,177,400 100
structure

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

64
 Diagram No : 5.3 Financial Structure of The Wanbury Ltd

Chart Title
3.5E+09
3E+09
2.5E+09 Equity share capital

2E+09 Preference share capital

Reserves & surplus
1.5E+09
Secured loans
1E+09
Unsecured loans
500000000
Deffered tax liability
0
2011- 2012- 2013- 2014- 2015-
2012 2013 2014 2015 2016

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

INTERPRETATION
The Table No 5.3 showed financial structure of firms short term debt such as current liabilities. In financial structure consists
of equity share capital, preference share capital, reserve and surplus, secured loans, unsecured loans, differed tax liabilities. Equity
share capital fluctuating trend during the study period the highest value of equity share capital shows during the year 2015-2016 is
7.3% and the lowest value of equity share capital shows during the year 2012-2013 is 4.09% and there is no preference share capital.
The reserve and surplus shows fluctuating trend the highest value of reserve and surplus during the year 2011 to 2012 is 30.66% and
the lowest value of reserve and surplus during the year 2013-2014 is 5.8%. The secured loans shows a fluctuating trend the highest
value of secured loans shows during the year 2013-2014 is 88% and the lowest value shows during the year 2011-2012 is 64.97% and
the unsecured loans are very low in 2011-2013 and there is no unsecured loans in between the years 2013-2016. There were no
differed tax liabilities.
65
 TABULATION OF LEVERAGES IN THE WANBURY LTD

Table No : 5.4 (Rs. in crores)

2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

PARTICULARS
Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs)

Earnings Before Tax 161,368,000 253,316,000 2,671,527,000 44,824,000 70,349,000

Earnings Before Interest & Tax 561,321,000 509,406,000 3,108,497,000 256,629,000 298,715,000

Contribution 1,837,597,000 2,077,236,000 3,647,440,000 1,363,532,000 2,422,719,000

Financial Leverage 3.47 2.01 1.16 5.72 4.24

Operating Leverage 3.27 4.07 1.17 5.31 8.11

Combined Leverage 11.3 8.18 1.35 30.39 34.38

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

66
 Diagram No : 5.4 Leverages In the Wanbury Ltd
40
35
30
25
20 Financial Leverage
15 Operating Leverage
10
Combined Leverage
5
0

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

INTERPRETATION

Contribution = Sales Variable cost

Financial Leverage = EBIT / EBT
Operating Leverage = Contribution / EBIT
Combined leverage = Financial Leverage X Operating Leverage
The Table No.5.4 showed leverages. Leverages consist of earning before tax, earnings before interest and taxes, financial
leverages, operating leverages, combined leverage. Earnings before tax is fluctuating trend the highest value shows during the year

67
2013-2014 is Rs.2,671,527,000 and the lowest value shows during the year 2014-2015 is Rs.44,824,000.Earnings before interest and
tax fluctuating trend the highest value shows during the year 2013-2014 Rs.3,108,497,000 and the lowest value shows during the year
2014-2015 Rs.256,629,000.Financial leverage fluctuating trend the highest value shows during the year 2014-2015 is 5.75% and the
lowest value shows during the year 2013-2014 1.16%.operating leverage fluctuating trend the highest value shows during the year
2015-2016 is 8.11% and the lowest value shows during year 2013-2014 is 1.17%.combind leverage fluctuating trend the highest value
shows during the year 2015-2016 is 34.38% and the lowest value shows during the year 2013-2014 is 1.35% the average value of
combined leverage is 17.%.

68
 TABULATION OF CAPITAL GEARING IN THE WANBURY LTD:

Table No : 5.5 (Rs. in crores)

2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

PARTICULARS Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs)

Equity share capital 173,793,000 173,793,000 199,693,000 199,693,000 199,693,000

Preference share capital - - - - -

Secured loans 2,607,854,000 3,102,031,000 2,793,454,000 2,704,802,000 2,309,233,000

Unsecured loans 1,751,000 1,297,000 - - -

Total Capitalization
2,783,398,000 3,277,121,000 2,993,147,000 2,904,495,000 2,508,926,000

Debt-Equity Ratio 3.7:1 4.9:1 3.4:1 3.4:1 3.1:1

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

69
 Diagram No 5.5

Debt-Equity Ratio
6

3
Debt-Equity Ratio
2

0
2011- 2012- 2013- 2014- 2015-
2012 2013 2014 2015 2016

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

INTERPRETATION

The Table No 5.5 showed the Capital Gearing. In capital gearing consists of equity share
capital, preference share capital, secured loans, unsecured loans, debt equity ratio. Equity share
capital fluctuating trend during the study period the highest value of equity share capital shows
during the year 2015-2016 is 7.3% and the lowest value of equity share capital shows during the
year 2012-2013 is 4.09% and there is no preference share capital. The reserve and surplus shows
fluctuating trend the highest value of reserve and surplus during the year 2011 to 2012 is 30.66%
and the lowest value of reserve and surplus during the year 2013-2014 is 5.8%. The secured
loans shows a fluctuating trend the highest value of secured loans shows during the year 2013-
2014 is 88% and the lowest value shows during the year 2011-2012 is 64.97% and the unsecured
loans are very low in 2011-2013 and there is no unsecured loans in between the years 2013-
2016. Total capitalization shows fluctuating trend the highest value shows during the year 2013-
2014 is Rs.3,277,121,000 and the lowest value shows during the year 2015-2016 is
Rs.2,508,926,000.

70
 If the Debt Equity ratio exceeds the industries standard then the company will be
considered risky and there is a possible failure of the company.
In the past five years the total debt is always stays above the equity value, so the firm
needs to pay more interests to debt holders it is not a good sign for the organization

71
 EBIT EPS ANALYSIS
Table No : 5.6 (Rs in crores)
EBIT
Debt-
Years EPS Equity ratio
Amount(Rs)

2011-2012 561,321,000 4.1 3.7:1

2012-2013 509,406,000 3.5 4.9:1
2013-2014 310,849,700 4.5 3.4:1
2014-2015 256,629,000 1.6 3.4:1
2015-2016 298,715,000 3.5 3.1:1
Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

Diagram No 5.6: Earnings Before Interest and Tax

EBIT
600000000

500000000

400000000

300000000
EBIT
200000000

100000000

0
2011- 2012- 2013- 2014- 2015-
2012 2013 2014 2015 2016

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

72
 EPS
5
4.5
4
3.5
3
2.5
EPS
2
1.5
1
0.5
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

INTERPRETATION
The Table No.5.6 showed EPS EBIT analysis. In EBIT is fluctuating trend the highest value of
EBIT shows during the year 2013-14 is Rs.3,108,497,000, and the lowest value shows during the
year 2014-2015 is Rs.256,629,000

The EPS is fluctuating trend the highest value shows during the year 2013 -2014 is 4.5,
and the lowest value shows during the year 2014-2015 is 1.6.

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 CASHFLOW ABILITY TO SERVICE DEBT

Table No : 5.7 (Rs in crores)

2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
PARTICULARS
Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs)

EBIT 561,321,000 509,406,000 310,849,700 256,629,000 298,715,000

Fixed interest charges 399,953,000 256,090,000 436,970,000 211,803,000 228,366,000

Interest Coverage Ratio 1.4% 1.98% 0.7% 1.21% 1.3%

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

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 Diagram No 5.7: Interest Coverage Ratio
Interest Coverage Ratio
2.5

1.5

1
Interest Coverage Ratio
0.5

Source: Anuual Reports Of Wanbury Ltd,Illindraparru

INTERPRETATION
Interest coverage ratio = EBIT / Fixed interest charge

The Table No.5.7 showed cash flow ability. In cash flow shows EBIT, Fixed interest charges, interest coverage ratio. The
EBIT is fluctuating trend the highest value of EBIT shows during the year 2013-14 is Rs.310,849,700, and the lowest value shows
during the year 2014-2015 is Rs.256,629,000.The fixed interest is fluctuating trend the highest value shows during the year 2013-2014
is Rs.436,970,000, and the lowest value shows during the year 2014-2015 is Rs.211,803,000.
The interest coverage ratio fluctuating trend the highest value of interest coverage ratio shows during the year 2012-2013 is
1.98%, and the lowest value during the year 2013-2014 is 0.7%. We observe that interest coverage ratio is moderate in all the years.
The higher the interest coverage ratio is better for the both the firm and the lenders. The lower the interest coverage ratio
indicates low profitability of the firm in relation.

75
 TABULATION OF COST OF CAPITAL IN THE WANBURY LTD:

Table No : 5.8 (Rs in crores)

2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
PARTICULARS
Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs)
Dividend for the year 15925088 21233450 15835044 21292500 5133200
Dividend per share(Rs) 1.50 2.00 0.8 1.5 1.00
Market price of share 20.6 21.65 14.75 22 20
Equity Share Capital 173,793,000 173,793,000 199,693,000 199,693,000 199,693,000

Preference share capital - - - - -

Debt Capital 2,607,854,000 3,102,031,000 2,793,454,000 2,704,802,000 2,309,233,000

Interest changes 399,953,000 256,090,000 436,970,000 211,803,000 228,366,000

Cost of equity (%) 7.2 9.2 5.4 6.8 5

Cost of preference (%) - - - - -

Cost of Debt (%) 15.3 8.2 15.6 7.8 9.8

Weighted average cost of 11.25 4.7 10.5 7.3 7.4

capital
Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

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 Diagram No 5.8: Cost of Capital of Wanbury Ltd
25

20

15 Market price of share

Cost of equity (%)
10
Cost of Debt (%)
5

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

INTERPRETATION
The Table No. 5.8 showed cost of capital. In cost of capital consists equity share capital, debt capital, cost of equity, cost of
debt, weighted average cost of capital and there is no preference share capital. Equity share capital is constant in 2012 and 2013 during
the study period Rs.173,793,000 and for 2013 to 2016 the amount Rs.199,693,000 the debt capital is fluctuating trend the highest
value of debt capital shows during the year 2012-2013 is Rs.310,203,100, and the lowest value shows during the year 2015-2016 is
Rs.2,309,233,000. The cost of equity shows fluctuating trend the highest value of cost of equity shows during the year 2012-2013 is
9.2, and the lowest value shows during the year 2015-2016 is 5. the cost of debt is fluctuating trend the highest value shows during the
year 2013-2014 is 15.6, and the lowest value shows during the year 2014-2015 is 7.8 .the weighted average cost of capital is
fluctuating trend the highest value shows during the year 2011-2012 is 11.25, and the lowest value shows during the year 2012-2013 is
4.7.

77
 TABULATION OF VALUE OF THE WANBURY LTD:

Table No : 5.9 (Rs. in crores)

2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

PARTICULARS
Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs)

EBIT 561,321,000 509,406,000 310,849,700 256,629,000 298,715,000

(-) Interest 399,953,000 256,090,000 436,970,000 211,803,000 228,366,000

Net Income 161,368,000 253,316,000 2,671,527,000 44,824,000 70,349,000

Total Market value of the Equity 2,241,222,222 2,753,434,782 4,947,272,222 659,176,470 1,406,980,000

Total Debt 2,607,854,000 3,102,031,000 2,793,454,000 2,704,802,000 2,309,233,000

Value of the firm

Total Value of the Firm 4,849,076,222 5,855,465,782 5,226,617,622 3,363,978,470 3,716,213,000

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

78
 Diagram no 5.9: value of the Wanbury Ltd:

Total Value of the Firm

7E+09

6E+09

5E+09

4E+09

3E+09
Total Value of the Firm
2E+09

1E+09

Source: Anuual Reports Of Wanbury Ltd,Illindraparru.

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INTERPRETATION

The above table explains the Valuation of Wanbury Ltd EBIT is increasing year by year. Increasing in EBIT is a good sign to
company as it yields profits to the organization.
Net Income = EBIT interest.

The Table No.5.9 showed the value of the firm. In value of the firm shows total market value of the equity, total debt value of
the firm. Total market value of the equity is shows fluctuating trend the highest value shows during the year 2013-2014 is Rs.4,
947,272,222, and the lowest value shows during the year 2014-2015 is Rs.659,176,470. Total debt value of the firm is shows
fluctuating trend the highest value shows during the year 2012-2013 is Rs.3,102,031,000, and the lowest value shows during the year
2015-2016 is Rs.2,309,233,000. Total value of the firm is shows fluctuating trend the highest value shows during the year 2012-2013
is Rs.5,855,465,782, and the lowest value shows during the year 2014-2015 is Rs.3,363,978,470.The average value of the firm is
Rs.4,602,270,219.

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 CHAPTER - VI
SUMMARY

The WANBURY LTD; ILLINDALAPARRU is a pharmaceutical industrial based firm and

industry which is located it vendors and customers not only limited to Andhra Pradesh but also
having throughout the country. This has been running under professional management and also
producing wide range of products. The present study was undertaken to evaluate the financial
performance of WANBURY LTD for the period of five years through Capital Structure, the
details regarding the financial performance of the company are the liquidity current to meet the
contingencies the debt also creating problem of payment of high interest. The firm has been
maintained high ratio inventory turnover which is always desirable. The firm is unable to set
more percentage of grow profit on sales due to high cost production. Which is affected net
earnings of the company on every year. The firm has not been obtained more net profit due to
high burden of interest and taxes charges.

81
 FINDINGS

WANBURY LTD did not fulfill the authorized share capital which is mentioned in
memorandum of association and Preference share, Debenture not existent in the industry.
The debt capital of the company is in fluctuating trend during the study period from
2011-2012 to 2015-2016.Lower debt capital will reduce the interest and financial
charges.
EBIT (Earnings before Interest and Tax) of WANBURY LTD is fluctuating in all the
years and maximum at 2013-2014.
The amount of reserves and surplus is maintained by the WANBURY LTD has been

constantly decreasing from 2012-2016

Maximum of the profit are being eroded in the form of interest payment as indicated by
the coverage ratio. It was maximum in the year 2012 2013 as 1.98 due to high amount
of debt capital.
The degree of financial leverage is moderate and the degree of operating leverage has
been growing constantly however combined leverage is very high in the year 2014-2016
this shows that overall risk is higher in the same year.
WANBURY LTD incurred more cost on its debt in 2012 and 2014, on equity in 2013
and the overall cost of capital is very high in the year 2012 and 2014.
The overall efficiency of WANBURY LTD has been increasing from 2012-2014 and
declined in the year 2015 and increased in 2016.

82
 SUGGESTIONS
The company should utilize the debt funds more efficiently to maximize shareholders
return and it try to fulfill the limit of authorized share capital.
It is suggested that the company needs to bring down the debt capital because the debt
capital has increased in the last year it may lead to lower earnings per share.
The company should maintain same level of consistency in EBIT, so that the Investments
in the firm are attractive as the investors would like to invest only where the return is
higher.
The reserves and surpluses are gradually increased. It is better to maintain same level of
consistency in coming years, which will increase the proprietors funds.
The net sales are increasing slowly, hence measured need to be taken to improve the sales
turnover.
WANBURY LTD needs to minimize the degree of combined leverage, otherwise which
will be effect the firm in future period of time.
WANBURY LTD should reduce the overall cost of capital by identifying different
sources of funds which are available at low cost in order to improve the overall
performance of the firm.
The overall efficiency of firm starts declining from 2015 so it needs to utilize the total
funds of a firm in an efficient way in order to increasing EBIT and reducing cost of
capital. The company can invest in marketable securities to improve its cash position.

83
 CONCLUSION

From the above discussion it can be concluded that WANBURY limited running with
low debt fund. It is not managing its inventories well because the availability of raw material can
be a deciding factor for a lot of internal factors such as production strategies, production
technologies and many more other factors. Therefore, they may increase it to get benefits of low
cost capital. It has found that WANBURY LTD largely employing shareholders funds
According to this project I came to know that from the analysis of capital structure analysis it is
clear the WANBURY LTD have been doing a satisfactory job. But the firm has certain areas to
ponder upon like capital employment. So the firm should focus on getting of profits in the
coming years by taking care internal as well as external factors. And with regard to resources, the
firm is take utilization of the borrowed fund in a right place.

84
 BIBLIOGRAPHY

Financial Management I.M.PANDEY

Financial Management KHAN & JAIN

Financial Management KULAKARNI

Financial Management PRASANNA CHANDRA

Financial Management R.M.SRIVASTAVA

ANNUAL REPORTS OF THE COMPANY

NEWS PAPERS

MAGAZINES &

JOURNALS

www.wanbury.com

www.google.com

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