‘Caring for Life’

Financial Statement Analysis

PGDM Executive 2018-2019

Submitted To: Submitted By:

Dr. Ashish Varma Kabir Dash

Prashant Yadav
Sanchit Gupta
Sanil Yadav
Sarthak Dhanwantri
 Table of Contents

1. Acknowledgement

2. Executive Summary

3. Global Pharmaceutical Scenario

4. Introduction

5. Philosophy at CIPLA

6. Scope of the project

a. Financial Analysis
i. Ratio Analysis
ii. Horizontal Analysis
iii. Vertical Analysis
b. CIPLA ratio v/s Market ratios

7. CIPLA CSR

8. Media Citing’s

9. References
 Acknowledgement

We would like to express our gratitude to Prof. Dr. Ashish Varma for his
valuable guidance and constructive suggestions during the planning and
development of this project work. We would also like to take this
opportunity to thank him for making the course seem so simple and
more importantly for making learning a joy.

Kabir Dash(180301004) | Prashant Yadav(180301009) | Sanchit Gupta(180301012)

Sanil Yadav(180301014) | Sarthak Dhanwantri(180301015)
Executive Summary
Company
Cipla is a leading global pharmaceutical company, dedicated to high-quality, branded
and generic medicines, trusted by healthcare professionals and patients across
geographies. Over the last 8 decades it has strengthened the leadership in India’s
pharmaceutical industry and fortified our promise of ‘Caring for Life’.
The Registered office of CIPLA is located in Mumbai, Maharashtra.

Objective of Report
The purpose of financial statements is to provide information on the financial position
(Balance Sheet), profitability (Income Statement) and operating, investing, and
financing activities (Cash Flow Statement) of a company.
Financial statements are used by shareholders, executives, employees, investors,
potential lenders such as banks or vendors, and any other person or institution that
needs to analyse a company.

By putting together the Balance Sheet & Income Statement, we will derive the
information needed to understand the financial position, profitability, and operating,
investing, and financing activities of a company.

Summary
CIPLA is the leader in Pharmaceutical industry, as we compare the Financial
statements of the firm for 3 years, on a quick glance we can notice the company
revenue has increased with increased profits from FY16 to FY18, with a fluctuated in
FY17, This dip may be due to certain plant and manufacturing facilities closure.

In terms of Ratio analysis CIPLA has proven to be doing well on various levers such
as ROA 10.56% suggesting better use of assets, the steep decrease of 9% in COGS
and the faster realization of money (72 days) suggest the operational efficiency
achieved by the company, thereby resultant is increase in Profit margin 1468 Cr. In
FY18.
The Trade Receivable – Trade payable is at +5.43%, means the company is realising
money better rather than being under the credit buy situation.
CIPLA has acquired trademarks, patents etc which is reflected as 30% increase in
intangible assets.
Also In FY 18 it is observed that CIPLA has huge cash and cash equivalents has
increased 5X times, this may be for upcoming acquisitions or R&D.

Global pharmaceutical Industry structure and developments

Access to affordable and diverse healthcare solutions, affordable price point, and
technology-enabled treatment mechanisms are driving the spending growth across
the globe.

The global medicine spending is expected to reach nearly USD 1.5 trillion by 2022,
representing 5% CAGR over the next five years. Increased spending in Oncology,
Autoimmune and Diabetology treatments is expected to drive a large part of the
spending growth. These therapeutic areas are also a key component of the
Company’s growth story along with a global franchise of Respiratory and HIV drugs.

Generics pharmaceutical manufacturers are playing an increasingly important role

across the world in driving access and affordability of drugs. Over the years, generic
pharmaceutical players have helped economies and patients save billions of dollars in
healthcare spending and have facilitated the world population become healthier.

Pharmaceutical markets across the US, India and other geographies are experiencing
various new and proposed regulatory interventions requiring pharmaceutical
companies to innovate and reinvent their business, operational, marketing and product
development strategies. Companies across the globe are investing towards their
portfolio offerings and expanding their value chains with a focus on creating investing
in innovative technology platforms and deepening their presence in focused markets.

Measure taken by the Government of India to Aid Pharmaceuticals industries:

• The expansion of National List of Essential Medicines (NLEM) to cover

increasingly higher number of drugs under price control in the country
• Potential Regulatory intervention on mandating generic prescription by doctors
• Report on Pharma Index Pricing to guide the annual increases allowed for
medicines covered under NLEM.
• Stringent compliance requirements under Uniform code of Pharmaceutical
Marketing Practices (UCPMP)

The future of Indian pharma industry is bright. Over the years, the Indian
pharmaceutical industry has emerged as the most attractive investment
destinations.
The government of India has made several efforts to augment the growth of
pharma industry as mentioned above.

The privatization and globalization policy of the Indian government, introduced in

the mid-1990s provided incentives to research and development in the pharma
sector. In terms of volume, India's generic drugs account for 20% of global exports.
By 2020, India is expected to rank amongst the top 3 pharmaceutical markets in
the world in terms of incremental growth.
 Introduction - CIPLA

Established in 1935, 'The Chemical, Industrial & Pharmaceutical Laboratories' in

Mumbai, later changed to 'Cipla Limited' on 20 July 1984, is a global pharmaceutical
company focused on agile and sustainable growth, complex generics, and deepening
portfolio in our home market India, South Africa, North America, and key regulated
and emerging markets.
Their strengths in the respiratory, anti-retroviral, urology, cardiology and CNS
segments are well-known.

CIPLA has 44 manufacturing sites around the world and produce 50+ dosage forms
and 1,500+ products using cutting-edge technology platforms to cater to 80+ markets.

Cipla is ranked 3rd largest in pharma in India (IQVIA MAT Dec’18), 3rd largest in the
pharma private market in South Africa (IQVIA YTD Dec’18), and is among the most
dispensed generic players in the US.

The company’s paradigm-changing offer of a triple anti-retroviral therapy in HIV/AIDS

at less than a dollar a day in Africa in 2001 is widely acknowledged as having
contributed to bringing inclusiveness, accessibility and affordability to the centre of the
movement.
As of 12 February 2019, its market capitalisation is ₹43,684.75
crore (US$7.02 billion), making it India's 61st largest publicly traded company
by market value.
History at CIPLA

(Source: blog.cipla.com)
 Key Personnel

• India’s oldest pharma company-Founded in 1935 by Dr. Khawaja Abdul

Hamied, Indian nationalist and anti-imperialist scientist.
• Chairman: Dr Y.K. Hamied.
• Vice Chairman: Mr. M.K. Hamied
• Executive Vice Chairperson: Samina Vaziralli
• MD & GCEO: Umang Vohra.

Chairman’s Message

Dr. Y.K Hamied has addressed the speech with “Continuity & Change”, emphasizing
on the fact that the world is continuously changing and at a much faster rate than
before and pharma industry has gone through many diverse changes particularly in
India, which involves Joint Ventures, partnerships, mergers & acquisitions etc.

however he mentions that even with all these changes, the objective function at CIPLA
is still the same i.e. “Commitment to access to medicines at affordable prices” and
hence continued support to patient’s thereby saving lives.

In Addition to above he mentioned about that CIPLA received the world’s first WHO
approval for its product Q-TIB, a prophylaxis against TB in HIV/AIDS patients. Also,
The President's Emergency Plan for AIDS Relief, U.S (PEPFAR) has approved our
product lopinavir/ritonavir oral pellets for paediatric use in HIV/AIDS. For malaria, Cipla
has introduced its rectal artesunate suppository to be administered to children in
emergency situations.

The year of 2017 was the streamlining year, 2018 was the year of consolidation and
now for Year 2019 is the year to capitalize core foundations.

Healthcare and disease patterns around the world are changing towards lifestyle and
non-communicable are taking centre stage, to counter this CIPA has committed itself
to Anti-microbial Resistance(AMR), a major thrust to misuse and overuse of the
antibiotics.

The Next 20 year GOAL is defined by Immuno-therapy, Stem cell technology,

biological and vaccine products, diagnostics, telemedicine, digitization and Artificial
Intelligence.
 CIPLA - at a Glance

• Shareholding pattern shoes how the total no. of shares in the company is
divided between various owners (individuals & Institutions).

• India business delivered growth of 11% [on a like-to- like basis adjusted for GST
classification] with both prescription and generic businesses showcasing a
strong momentum from the second quarter post GST implementation.

• NSE Nifty can be used as a standard against which to compare the

performance of an equity fund.
• Operational Highlights
 Financial Statements for CIPLA

Standalone Balance Sheet (Assets)

Particulars FY 2018 FY 2017 FY 2016

Assets In Crores In Crores In Crores
Non-current assets
(a) Property, plant and
4,158.37 4,095.16 3702.28
equipment
(b) Capital work-in-progress 435.28 540.52 512.81
(c) Investment property 0.32 0.32 0.33
(d) Intangible assets 161.66 140.10 123.83
(e) Intangible assets under
27.32 15.25 37.91
development
Financial assets
(i) Investments 3,597.24 3,647.71 3716.26
(ii) Loans 233.13 215.75 219.37
(iii) other financial assets 40.86 57.08 40.04
(g) Advance tax (net) 283.42 192.24 172.03
(h) Deferred tax assets (net) 46.80 59.54 -
Other non-current assets 172.40 298.21 246.82
total non-current assets 9,156.80 9,261.88 8771.68
Current assets
(a) Inventories 3,037.98 2,653.50 2918.47
(b) Financial assets
(i) Investments 1,039.74 638.18 539.52
(ii) Trade receivables 2,336.32 1,938.79 1896.41
(iii) Cash and cash equivalents 217.45 44.60 39.76
(iv) Bank balances other than
10.08 13.86 13.25
cash and cash equivalents
(v) Loans 17.74 9.53 10.92
(vi) Other financial assets 470.71 423.42 25.73
(c) Other current assets 808.15 623.46 1023.31
Total Current assets 7,938.17 6,345.34 6467.37
Total assets 17,094.97 15,607.22 15239.05

(* As on March 31, 2018

Source: www.cipla.com)
 Standalone Balance Sheet (Equity & Liabilities)

Particulars FY 2018 FY 2017 FY 2016

Equity and liabilities In Crores In Crores In Crores

Equity
(a) Share capital 161.02 160.90 160.68
(b) Other equity 13,952.50 12,639.61 11825.20
Total Equity 14,113.52 12,800.51 11985.88
Share application money, pending
- 0.00 -
allotment
Non-current liabilities
(a) Financial liabilities
(i) Borrowings - 0.07 0.13
(ii) Other financial liabilities 50.11 45.06 42.12
(b) Provisions 124.45 125.61 132.00
Deferred Tax Liabilities - - 35.85
(c) Other non-current liabilities 75.19 80.14 88.60
total Non-current liabilities 249.75 250.88 298.70
Current liabilities
(a) Financial liabilities
(i) Borrowings 174.43 324.26 1131.68
(ii) Trade payables 1,580.02 1,298.21 990.84
(iii) Other current financial liabilities 273.07 440.75 484.02
(b) Other current liabilities 306.00 229.83 98.71
(c) Provisions 398.18 262.78 249.22
Total Current liabilities 2,731.70 2,555.83 2954.47
Total equity and liabilities 17,094.97 15,607.22 15239.05
 Standalone Income Statement

Particulars FY 2018 FY 2017 FY 2016

Revenue from operations In Crores In Crores In Crores
(a) Revenue from sale of products 11,004.44 10,637.08 11828.74
(b) Other operating income 440.37 337.50 288.98
(c) Other income 334.88 129.85 280.30
Total Revenue from operations 11,779.69 11,104.43 12398.02
Expenditure
(a) Cost of materials consumed 3,303.31 2,956.04 3633.34
(b) Purchases of stock-in-trade 1,064.23 1,128.99 1037.56
(c) Changes in inventories of finished goods work-in-progress
-212.05 56.27 228.35
and stock-in-trade
(d) Employee benefits expense 1,785.94 1,728.97 1778.56
(e) Finance costs 11.90 39.20 147.07
(f) Depreciation, impairment and amortization expense 529.61 499.97 442.69
(g) Other expenses 3,307.83 3,256.64 3386.48
(h) Impairment of investment - 251.41 -
Total Expenditure 9,790.77 9,917.49 10654.05
Profit before exceptional items and tax 1,988.92 1,186.94 1743.97
Exceptional items 77.52 - 0
Profit before tax 1,911.40 1,186.94 1743.97
Tax expense (net)
(a) Current tax 431.33 311.06 356.64
(b) Deferred tax charge/(credit) 11.55 -99.06 -74.97
Profit for the year 1,468.52 974.94 1462.30
Other comprehensive income
(a) Items that will not be reclassified to profit or loss
(I) Remeasurements of post-employment benefit obligation 2.71 10.60 -10.71
(ii) Income tax relating to these items -0.94 -3.67 3.71
(b) Items that will be reclassified to profit or loss - - -
(I) Gains/(losses) on cash flow hedge 0.72 - -
(ii) Income tax relating to these items -0.25 - -
Other comprehensive income for the year 2.24 6.93 -7.00
Total comprehensive income for the year 1,470.76 981.87 1455.30
(10) Earnings per equity share of face value of Rs 2 each
Basic (in H) 18.25 12.13 18.21
Diluted (in H) 18.22 12.11 18.16
 QUICK Graphic Glance

Revenue and Profit

Total Revenue from operations (in Crores)

12,500.00 12398.02

12,000.00
11,779.69

11,500.00

11,104.43
11,000.00

10,500.00

10,000.00
FY 2018 FY 2017 FY 2016

Profit for the year

1,600.00
1,468.52 1462.3
1,400.00

1,200.00

974.94
1,000.00

800.00

600.00

400.00

200.00

0.00
FY 2018 FY 2017 FY 2016
 Cipla Ratio Analysis

The Table below compares the Financial Ratios for CIPLA v/s Market Ratios.

Market
Particulars CIPLA Ratio 2018 CIPLA Ratio 2017 Ratio
Return on Equity 10.91% 7.87% 14.30%
Return on Asset 10.56% 6.81% 9.10%
Financial Leverage 0.35% 1.06% 1.74%
Earnings per Share
-Basic 18.25 -
-Diluted 18.22 -
Profit Margin 13.34% 9.17% 12.50%
Total Asset Turnover 0.67 0.06 0.62
Current Ratio 2.91 2.48 2.25
Quick Ratio 1.32 1.63
Receivables Turnover 5.15 3.9
- Avg. Receivables Days 71 Days 92 Days
Inventory Turnover 1.16 1.9
Times Interest Earned 20.41 20.6
Debt to Equity Ratio 0.21 0.1
P/E Ratio 26.95 N/A
Dividend Yield Ratio 0.37% N/A

CIPLA FY 2018-FY 2017 & MARKET RATIO

(ROE, ROA, FIN. LEVERAGE)

16.00% 14.30%
14.00%
12.00% 10.91%10.56%
10.00% 9.10%
7.87%
8.00% 6.81%
6.00%
4.00%
1.74%
2.00% 1.06%
0.35%
0.00%
CIPLA Ratio 2018 CIPLA Ratio 2017 Market Ratio

Return on Equity Return on Asset Financial Leverage

 • Earnings per Share

Equals Net profit after tax/number of share outstanding.

EPS means Earnings per share available to the equity shareholders of the company
for each share held after all other external stakeholders have been paid/accounted
for earnings per share serve as an indicator of a company’s profitability.

Earnings Per Share (Rs)

200.00 188.81

150.00

100.00

50.00
18.24
-2.06
0.00
Sun Pharmaceutical Industries Cipla Ltd. Abbott India Ltd.
Ltd.
-50.00

• Return on Asset
Equals net income/average total assets.
It defines percentage of earning company can get on its Assets.

ROA (%)
20.00 18.01

15.00

10.00 9.01

5.00

-1.44
0.00
Sun Pharmaceutical Industries Cipla Ltd. Abbott India Ltd.
Ltd.
-5.00
 • Return on Equity

Equals net annual income/shareholders’ equity

Return on Equity (ROE) is a measure of a company’s net income divided by
the value of its total shareholders’ equity, expressed as a percentage (e.g., 12%).

ROE (%)
30.00
26.06
25.00

20.00

15.00
10.96
10.00

5.00
-2.43
0.00
Sun Pharmaceutical Industries Cipla Ltd. Abbott India Ltd.
-5.00 Ltd.

• Total Asset Turnover

Equals Turnover/Total Assets.
The ratio indicates that how much revenue per rupee of assets is the
business able to generate. So, the higher it is, the better, because a higher
ratio may indicate more efficient use of assets.

Asset Turnover
1.60 1.48
1.40
1.20
1.00
0.80 0.70
0.60
0.40
0.23
0.20
0.00
Sun Pharmaceutical Industries Cipla Ltd. Abbott India Ltd.
Ltd.
 • Receivables Turnover (Avg. Receivables Days)
Equals Net credit sales/Average net receivables.
It shows how quickly a company collects its accounts receivables.

Receivable days
140.00 127.71
120.00

100.00

80.00 68.17
60.00

40.00
24.26
20.00

0.00
Sun Pharmaceutical Industries Cipla Ltd. Abbott India Ltd.
Ltd.

• Earning Before Interest, Taxes, Depreciation and amortization

it’s the net income of a company with certain expenses like amortization,
depreciation, taxes, and interest added back into the total.

Core EBITDA Growth(%)

120.00
98.88
100.00

80.00

60.00
46.60
41.00
40.00

20.00

0.00
Sun Pharmaceutical Industries Cipla Ltd. Abbott India Ltd.
Ltd.
 • Debt to Equity Ratio
Equals Total liability/Owners’ equity
The debt-to-equity ratio is a measure of the relationship between the capital
contributed by creditors and the capital contributed by shareholders.

Total Debt/Equity
0.40
0.35
0.35
0.30
0.25
0.20
0.15
0.10
0.05 0.01 0.00
0.00
Sun Pharmaceutical Industries Cipla Ltd. Abbott India Ltd.
Ltd.

• Quick Ratio
Equals Quick assets/Current liabilities.
It shows companies immediate ability to pay debts.

Quick Ratio
3.00
2.51
2.50

2.00 1.79

1.50

1.00

0.50 0.39

0.00
Sun Pharmaceutical Industries Cipla Ltd. Abbott India Ltd.
Ltd.
 • Current Ratio

Equals Current Assets/Current Liability

It is used to measure the liquidity status of the firm.

Current Ratio
4.00
3.39
3.50
2.91
3.00
2.50
2.00
1.50
1.00
0.56
0.50
0.00
Sun Pharmaceutical Industries Cipla Ltd. Abbott India Ltd.
Ltd.

• Financial Leverage
Financial leverage means use of debt to acquire additional assets. Financial
leverage is also known as trading on equity.

• Profit Margin

Equals Net income/Net sales.

It defines profit percentage of a company.

• Times Interest Earned

Equals Net income+ Interest Expense +Income tax expense/Int expense.
It shows how many times a company can pay its obligatory tax expense. This ratio
indicates a margin of protection for creditors.

• P/E Ratio
Equals Current market price/Earnings per share.
Usually higher the PE ratio, more premium is the stock and vice versa.

(*For values of above ratios, please refer to Table Cipla Ratio Analysis)
 Ratio observation

• Cipla’s ROE is lower as compared to its peers. However, it can be noted that
CIPLA’s debt financing is very low compared it market average. As one of
the market leaders is Pharma industry CIPLA needs to give better return in
terms of ROE.
• Cipla has used its assets more efficiently than the Pharma industry’s average
last year based on ROA.
• Financial leverage is lower than market leverage indicates CIPLA uses
relatively less borrowing model for financing its operations & profit generations
(ref. to balance sheet borrowings etc.)
• Profit margin is higher than M/R, the Operational Efficiency has Increased
(COGS has reduced over years).
• Total Asset Turnover ratio remains in line with the M/R, this indicates that the
company is generating best amount of revenue / sales for each dollar of assets.
• Company is sitting on a good healthy Current ratio in line with M/R, thereby If
needed CIPLA can pay its current liabilities.
• The Receivable Turnover is very impressive, it calculates to approx. 71 days
v/s 92 days (M/R), indicates company has faster realization of money from the
customers/traders etc.
• Compared to its industry peers Cipla receives its dues quickly.
• Times interest Ratio is as per Industry M/R, this says health of the company and
its ability to pay interest payment on its debts.
• Debt to equity ratio is higher than M/R, this ratio evaluates a company’s financial
leverage (total liabilities/shareholders equity)
• P/E Ratio is lower than the peers (example, Dr. Reddy 39.07), hence either this
is good news or the company’s stock is undervalued.
• Dividend Yield ratio is lower than other market player, plus the profit margin is
higher, we might say that the company is re-investing back into the operations
 Horizontal Analysis

Also known as trend analysis is a financial statement analysis technique that shows
changes in the amounts of corresponding financial statement items over a period of
time. It is a useful tool to evaluate the trend situations.

It is the comparison of historical financial information over a

series of reporting periods.

Horizontal analysis of Balance Sheet as on 31.03.2018

(table H.A.-1)

Balance sheet FY 2016 FY 2017 FY 2018*

Assets In Crores In Crores In Crores
Non-current assets
(a) Property, plant and equipment 100.00 110.61 112.32
(b) Capital work-in-progress 100.00 105.40 84.88
(c) Investment property 100.00 96.97 96.97
(d) Intangible assets 100.00 113.14 130.55
(e) Intangible assets under development 100.00 40.23 72.07
Financial assets
(I) Investments 100.00 98.16 96.80
(ii) Loans 100.00 98.35 106.27
(iii) other financial assets 100.00 142.56 102.05
(g) Advance tax (net) 100.00 111.75 164.75
(h) Deferred tax assets (net) 0.00 59.54
Other non-current assets 100.00 120.82 69.85
total non-current assets 100.00 105.59 104.39
Current assets
(a) Inventories 100.00 90.92 104.09
(b) Financial assets
(I) Investments 100.00 118.29 192.72
(ii) Trade receivables 100.00 102.23 123.20
(iii) Cash and cash equivalents 100.00 112.17 546.91
(iv) Bank balances other than cash and cash
100.00 104.60 76.08
equivalents
(v) Loans 100.00 87.27 162.45
(vi) Other financial assets 100.00 1645.63 1829.42
(c) Other current assets 100.00 60.93 78.97
Total Current assets 100.00 98.11 122.74
Total assets 100.00 102.42 112.18

(As on March 31, 2018

Source: www.cipla.com)
 Horizontal Analysis – Assets
2016 2017 2018
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• The company has acquired copyrights, patents and trademarks given the 30%
increase in intangible assets from FY 2016 to FY 2018.

• Manufacturing plant work has been completed over the 3 years with drop in
capital work in progress from 100% to 85%. There has also been a decrease
other non-current assets.

• There has been a 12% increase in Property, Plant and Equipment which
indicates that the company is expanding operationally by investing more in
PPE.

• There has been a substantial 92% increase in investments from FY 2016 to FY

2018 which points out to the fact that the company is either investing in their
own vendors or outside companies thereby increasing its asset valuation.

• Cash and cash equivalents like bank accounts, marketable securities,

commercial paper, treasury bills and short-term government bonds has
accelerated 5X, which gives the company a strong reserve for future
acquisitions. These cash equivalents can be readily converted into cash as their
maturity date is short term.

• CIPLA is also making investments in other companies as the loans given have
seen a 62% increase from FY 2016 to FY 2018.
 Horizontal analysis of Balance Sheet as on 31.03.2018
(table H.A.-2)

Balance Sheet FY 2016 FY 2017 FY 2018

Equity In Crores In Crores In Crores

(a) Share capital 100.00 100.14 100.21
(b) Other equity 100.00 106.89 117.99
Total Equity 100.00 106.80 117.75
Share application money, pending allotment
Non-current liabilities
(a) Financial liabilities
(i) Borrowings 100.00 53.85 0.00
(ii) Other financial liabilities 100.00 106.98 118.97
(b) Provisions 100.00 95.16 94.28
Deferred Tax Liabilities 100.00 0.00 0.00
(c) Other non-current liabilities 100.00 90.45 84.86
total Non-current liabilities 100.00 83.99 83.61
Current liabilities
(a) Financial liabilities
(i) Borrowings 100.00 28.65 15.41
(ii) Trade payables 100.00 131.02 159.46
(iii) Other current financial liabilities 100.00 91.06 56.42
(b) Other current liabilities 100.00 232.83 310.00
(c) Provisions 100.00 105.44 159.77
Total Current liabilities 100.00 86.51 92.46
Total equity and liabilities 100.00 102.42 112.18

(As on March 31, 2018

Source: www.cipla.com)
 Horizontal Analysis - Equity & Liabilities
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• CIPLA has an increase of 18% in FY 2018 in the form of retained earnings

which is good for the company as it means that the company is consistently
remaining profitable on a year on year basis.

• Another good sign from CIPLA’s balance sheet is that the financial liabilities
borrowings have been reduced to 0% from FY 2016 to FY 2018 which indicates
that the company has paid off all its long term borrowings.

• In FY 2017 there was an increase of 31% in trade payables and in the

subsequent FY 2018 it was 28%. This signifies that the company is purchasing
goods or services on credit from suppliers because the operations have been
expanded over the years.

• CIPLA’s balance sheet also has accounted for a 60% increase in the provision
of bad and doubtful debts from FY 2016 to FY 2018.
 Horizontal analysis of Income Statement as on 31.03.2018

Income Statement FY 2016 FY 2017 FY 2018

Revenue from operations In Crores In Crores In Crores

(a) Revenue from sale of products 100 90 93
(b) Other operating income 100 117 152
(c) Other income 100 46 119
Total Revenue from operations 100 90 95
Expenditure
(a) Cost of materials consumed 100 81 91
(b) Purchases of stock-in-trade 100 109 103
(c) Changes in inventories of finished goods
100 25 -93
work-in-progress and stock-in-trade
(d) Employee benefits expense 100 97 100
(e) Finance costs 100 27 8
(f) Depreciation, impairment and amortization
100 113 120
expense
(g) Other expenses 100 96 98
(h) Impairment of investment 0 251 0
Total Expenditure 100 93 92
Profit before exceptional items and tax 100 68 114
Exceptional items 0 0 78
Profit before tax 100 68 110
Tax expense (net)
(a) Current tax 100 87 121
(b) Deferred tax charge/(credit) 100 132 15
Profit for the year 100 67 100

(As on March 31, 2018

Source: www.cipla.com)
 Horizontal Analysis- Income Statement
2016 2017 2018
180
160
140
120
100
80
60
40
20
0
(b) Other operating (a) Cost of materials (f) Depreciation, (a) Current tax
income consumed impairment and
amortisation expense

• CIPLA has an increase in operating income from other sources or investments

by 52% from FY 2016 to FY 2018.

• Cost of raw materials consumed has decreased by 9% due to operational

efficiency and economies of scale.

• Depreciation and amortisation expenses have risen by 20% because of

investment in PPE and/or intangible assets as mentioned in the balance sheet
analysis.

• There is a drastic drop in the finance costs by 92% from FY 2016 as the
borrowings have been all paid off which is very good financial healthy sign for
a company.
 Vertical Analysis
Vertical analysis is a technique used to identify where a company has applied its
resources and in what proportions those resources are distributed among the various
balance sheet and income statement accounts.

The analysis determines the relative weight of each account and its share in
asset resources.

Vertical analysis of Balance Sheet as on 31.03.2018

(table V.A.-1)

Particulars 31st Particulars 31st

March March
2018 2018
Non-current assets Equity and liabilities
(a) Property, plant and equipment 24.33 Equity
(b) Capital work-in-progress 2.55 (a) Share capital 0.94
(c) Investment property 0.00 (b) Other equity 81.62
(d) Intangible assets 0.95 Total Equity 82.56
(e) Intangible assets under 0.16 Non-current liabilities
development
Financial assets (a) Financial liabilities
(I) Investments 21.04 (I) Borrowings 0.00
(ii) Loans 1.36 (ii) Other financial liabilities 0.29
(iii) other financial assets 0.24 (b) Provisions 0.73
(g) Advance tax (net) 1.66 Deferred Tax Liabilities 0.00
(h) Deferred tax assets (net) 0.27 (c) Other non-current liabilities 0.44
Other non-current assets 1.01 Total Non-current liabilities 1.46
Total non-current assets 53.56 Current liabilities
Current assets (a) Financial liabilities
(a) Inventories 17.77 (I) Borrowings 1.02
(b) Financial assets (ii) Trade payables 9.24
(I) Investments 6.08 (iii) Other current financial 1.60
liabilities
(ii) Trade receivables 13.67 (b) Other current liabilities 1.79
(iii) Cash and cash equivalents 1.27 (c) Provisions 2.33
(iv) Bank balances other than cash 0.06 Total Current liabilities 15.98
and cash equivalents
(v) Loans 0.10 Total equity and liabilities 100.00
(vi) Other financial assets 2.75
(c) Other current assets 4.73
Total Current assets 46.44
Total assets 100.00
 Key-Points

• Debt to equity ratio is 0.21 (=17.44/82.56), which is above the M/R (as
mentioned in ratio analysis).
• Under equity spent on Current assets majority of equity is on PPE 24.33% &
Financial Investments 21.04%.
• Company Trade Receivables are 13.67% and Trade Payables stand at 9.24%,
means the company is providing much credit to debtors/customers (can be
wholesalers, agencies etc.), whereas it is not enjoying much of a credit period
from its creditors.
 Vertical analysis of balance sheet over different periods
(table V.A.-2)

31st March, 31st March, 31st March, 31st March, 31st March, 31st March,
Particulars Particulars
2016 2017 2018 2016 2017 2018

Non-current assets Equity and liabilities

(a) Property, plant and equipment 24.29 26.24 24.33 Equity
(b) Capital work-in-progress 3.37 3.46 2.55 (a) Share capital 1.05 1.03 0.94
(c) Investment property 0.00 0.00 0.00 (b) Other equity 77.60 80.99 81.62
(d) Intangible assets 0.81 0.90 0.95 Total Equity 78.65 82.02 82.56
(e) Intangible assets under
development 0.25 0.10 0.16 Non-current liabilities
Financial assets (a) Financial liabilities
(i) Investments 24.39 23.37 21.04 (i) Borrowings 0.00 0.00 0.00
(ii) Loans 1.44 1.38 1.36 (ii) Other financial liabilities 0.28 0.29 0.29
(iii) other financial assets 0.26 0.37 0.24 (b) Provisions 0.87 0.80 0.73
(g) Advance tax (net) 1.13 1.23 1.66 Deferred Tax Liabilities 0.24 0.00 0.00
(h) Deferred tax assets (net) 0.00 0.38 0.27 (c) Other non-current liabilities 0.58 0.51 0.44
Other non-current assets 1.62 1.91 1.01 total Non-current liabilities 1.96 1.61 1.46
Total non-current assets 57.56 59.34 53.56 Current liabilities
Current assets (a) Financial liabilities
(a) Inventories 19.15 17.00 17.77 (i) Borrowings 7.43 2.08 1.02
(b) Financial assets (ii) Trade payables 6.50 8.32 9.24
(i) Investments 3.54 4.09 6.08 (iii) Other current financial liabilities 3.18 2.82 1.60
(ii) Trade receivables 12.44 12.42 13.67 (b) Other current liabilities 0.65 1.47 1.79
(iii) Cash and cash equivalents 0.26 0.29 1.27 (c) Provisions 1.64 1.68 2.33
(iv) Bank balances other than cash
and cash equivalents 0.09 0.09 0.06 Total Current liabilities 19.39 16.38 15.98
(v) Loans 0.07 0.06 0.10 Total equity and liabilities 100 100 100
(vi) Other financial assets 0.17 2.71 2.75
(c) Other current assets 6.72 3.99 4.73
Total Current assets 42.44 40.66 46.44
Total assets 100.00 100.00 100.00
 Key elements - vertical analysis assets (FY-16,FY-17,FY-18)
30.00
26.24
24.29 24.33 24.3923.37
25.00
21.04
19.15
20.00 17.0017.77
15.00 13.67
12.4412.42

10.00
6.08
5.00 3.54 4.09

0.00
(a) Property, plant and (i) Investments (non- (a) Inventories (i) Investments (current) (ii) Trade receivables
equipment current)

Series1 Series2 Series3

Key-Points

• There is a year on year decrease in non-current investments by 2.33% from

last year
• There is also decrease of 1.99% in PPE from previous year.
• Increase/upward trend in Investments in current assets, 1.99% FY-17 to FY-
18.
• Inventories have remained similar barring a few deviations over past 3 years
• Trade Receivables have jumped at 1.25% from FY17 to FY18.
• Overall the ration of CURRENT Assets : NON CURRENT Assets has moved
from 60/40 to 50/50 (from table V.A.-2)
 Key elements- Vertical analysis owner's equity & Liabilities
90.00 81.62
77.60 80.99
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
7.43 6.50 8.32 9.24
1.05 1.03 0.94 2.08 1.02
0.00
(a) Share capital (b) Other equity (i) Borrowings (current (ii) Trade payables
liabilities)
Series1 Series2 Series3

Key-Points

• There is an increasing trend in other equity.

• CIPLA has reduced its borrowings drastically from 7.43% FY16 to only 1.02%
FY18
• Trade payables are also seeing an upward trend.
• The Debt to Equity ratio has almost been similar in all 3 years (from table V.A.-
2)
 Vertical analysis of an income statement will show the top-line sales number as 100%,
and every other account will show as a percentage of the total sales number.

Vertical Analysis of Income Statement for FY18

Particulars FY 16 FY 17 FY18
(a) Revenue from sale of products 95.4% 95.8% 93.4%
(b) Other operating income 2.3% 3.0% 3.7%
(c) Other income 2.3% 1.2% 2.8%
Total Revenue from operations 100% 100% 100%
Expenditure
(a) Cost of materials consumed 29.3% 26.6% 28.0%
(b) Purchases of stock-in-trade 8.4% 10.2% 9.0%
(c) Changes in inventories of finished
goods work-in-progress and stock-in- 1.8% 0.5% -1.8%
trade
(d) Employee benefits expense 14.3% 15.6% 15.2%
(e) Finance costs 1.2% 0.4% 0.1%
(f) Depreciation, impairment and 3.6% 4.5% 4.5%
amortization expense
(g) Other expenses 27.3% 29.3% 28.1%
(h) Impairment of investment 0.0% 2.3% 0.0%
Total Expenditure 85.9% 89.3% 83.1%
Profit before exceptional items and
tax 14.1% 10.7% 16.9%
Exceptional items 0.0% 0.0% 0.7%
Profit before tax 14.1% 10.7% 16.2%
Tax expense (net) 0.0% 0.0% 0.0%
(a) Current tax 2.9% 2.8% 3.7%
(b) Deferred tax charge/(credit) -0.6% -0.9% 0.1%
Profit for the year 11.8% 8.8% 12.5%
 Key elements - Vertical Analysis of Income Statement FY 16, FY17, FY18
120.0%
95.4% 95.8% 93.4%
100.0% 85.9% 89.3% 83.1%
80.0%
60.0%
40.0% 29.3% 26.6% 28.0%
20.0% 11.8% 8.8% 12.5%

0.0%
Revenue from sale of products Cost of materials consumed Total Expenditure Profit for the year

Series1 Series2 Series3

Key-Points

• Revenue from Sales of product has reduced over the years to 93.4% in FY18,
but it is being compensated by increase in other operating revenue to 3.7% in
FY18 & other income up to 2.8%.
• COGS was lowest in FY 17 i.e. 26.6% but in FY 18 it has increased to 28% but
still less than FY16
• Employee cost has sharp increase in FY17 by 1.3%, but was optimized in FY18
to 15.2% (reduction by 0.4%)
• Depreciation, Impairment & Amortization expenses are on an
upward/Increasing Trend.
• Post calculations TOTAL Expenditure has reduced and lowest in FY18 to
83.1% which results in increase in Net Profit of the Year and highest in 3 years
to 12.5%
 We have taken ABBOT & Sun pharma for a Peer Study

Vertical analysis of Industry Peers – Balance Sheet

100% 94%
90%
Key elements - Vertical Analysis of balance sheet of Industry peers
83%
80%
80%
70%
70%
58%
60% 54%
50% 46%
41%
40% 36%
28% 27.2%
30% 24% 24%
20% 18% 20%
20% 16% 14%
13% 11%8% 9% 7% 9%
10% 6% 6% 6%
1%2% 3% 0.9% 0.1% 2%
0%
Total Total Non - Total Total Non - Total Equity PPE Inventory Trade Trade Bank Financial
Current Current Current Current Recievables Payables balance Assets (non
Assets Assets Liabilities Liabilities other than current
cash & assets)
Cash
Equivalants
(current
assets)
CIPLA FY 18 ABBOT FY 18 SUNPHARMA FY 18

Key-Points

• The bank balance of ABBOT is 41% compared to 0.09% and 0.1% of CIPLA
and Sun pharma.
• Current financial Asset in CIPLA is 27.2% as compared to 2% and 9% in
ABBOT & Sun pharma.
 Vertical analysis of Industry Peers – Income Statement

Key elements - Vertical Analysis of INCOME STATEMENT of Industry Peers

120.0%
96.6%
100.0% 93.4% 83.1% 95.26%
87.6%
81.8%
80.0%

60.0%

40.0%
28.0%
23.88% 15.2%
17.82%
20.0% 11.5% 12.5%11.7%
8.6%
-5.45%
0.0%
Revenue from Sales COGS Employee Benefit Total Expenditure Profit/loss of the Year
-20.0%

CIPLA FY 18 ABBOT FY 18 SUNPHARMA FY 18

Key-Points

• Revenue from sales is almost similar in all 3 firms ranging from 88% - 96%
• COGS is very low for ABBOT but it has “purchase in stock trade 49%) adding
to total expenditure of 81.8% which is similar in other firms.
• Because of high expenditure and lower revenue Sun pharma has incurred huge
losses.
 CSR at CIPLA

“Outcomes Change when mindsets change, be it disruptive business ideas,

dispelling myths to breathe freely or supporting primary healthcare projects around
the world”

-CIPLA
In the many life defining moments, nothing possibly changes our reality as the
diagnosis of a serious illness, It makes relentless physical, emotional and financial
demands , not only on patients, but also on their families and loved ones.

It was to support patients and families in their most difficult of times, beyond medicines
and treatment, that Cipla founded the Palliative Care & Training Centre in 1997 in
Warje, Pune. We have reached out over 14,000 patients, with free-of-cost care.
Cipla Foundation is proud to take forward this 22 year legacy.

www.ciplapalliativecare.org

http://blog.cipla.com
 Cipla - In News

Key-Points

• Financials: Strong YoY sales growth of 12% with EBITDA growing by 12%.
• R&D investments at ~INR 278cr / ~7% of sales
• Continued growth momentum: Strong growth across India (+22% YoY),
South Africa (+14% YoY adjusted for animal health) and API business (+48%
YoY)

(Source: www.cipla.com)
 Key-Points

• Higher risk is associated with greater probability of higher return and

lower risk with a greater probability of smaller return.
• The above graph highlights the Risk Return of CIPLA, along with its peers.
• The average Industrial return is lower than that of CIPLA.

(Source: The Economic Times)

 Key-Points

• In line with its peers, Cipla Ltd.’s shares have underperformed the benchmark
indices over the last one year.
• On the positive side, the management guided for a double-digit growth in the
India business in fiscal year 2019 (FY19). This business, which generates 39%
of Cipla’s revenues, grew 6% in FY18.

(Source: The Live Mint)

 Key-Points

• Cipla, which has clocked better returns than most of its larger pharma peers in
the past one year, has now outperformed the S&P BSE Sensex in the past one
month. It has gained almost 11.5 per cent since the March-end lows.
• After pegging earnings growth at over 30 per cent in 2017-18 (partly helped by
a low base of 2016-17), analysts expect Cipla’s earnings to increase by over
20 per cent each in 2018-19 and 2019-20.

(Source: Business Standard)

 References

(DATA)
• Thompson Reuters (IMT Library)
• Bloomberg Terminals (IMT Library)
• www.cipla.com
• Cipla Blog

(NEWS Clipping)
• Live Mint Newspaper
• Economic Times
• Business Standard

Thanks to Dr. Ashish Varma for helping & encouraging at every stage

&

A special thanks to Mr. Akhtar Hussain for helping us for the project.