DETERMINANTS OF DIVIDEND POLICIES IN PHARMACEUTICAL INDUSTRY Introduction of the study: The profits of a company when made available for

the distribution among its shareholders are called dividend. The dividend may be as a fixed annual percentage of paid up capital as in the case of preference shares or it may vary according to the prosperity of the company as in the case of ordinary shares. The decision for distributing or paying a dividend is taken in the meeting of Board of Directors and in confirmed generally by the annual general meeting of the shareholders. The dividend can be declared only out of divisible profits, remained after setting of all the expenses, transferring the reasonable amount of profit to reserve fund and providing for depreciation and taxation for the year. It means if in any year, there are not profits; no dividend shall be distributed that year. The shareholders cannot insist upon the company to declare the dividend. It is solely the discretion of the directors. Aunt hinted that the dividend was an income of the owners of the corporation which they received in the capacity of the owner. Distribution of dividend involves reduction of current assets (cash) but not always. Stock dividend or bonus shares are an exception to it. Dividend definition Dividend refers to the corporate net profits distributed among shareholders. Dividends can be both preference dividends and equity dividends. Preference dividends are fixed dividends paid as a percentage every year to the preference shareholders if net earnings are positive. After the payment of preference dividends, the remaining net profits are paid or retained or both depending upon the decision taken by the management.

Dividend Policy What happens to the value of the firm as dividend is increased, holding everything else (capital budgets, borrowing) constant. Thus, it is a trade-off between retained earnings on one hand, and distributing cash or securities on the other.

Companies Act and Payment of Dividend In fact, the declaration and payment of dividend is an internal matter of the company and is governed by its Articles. The power regarding appropriation of profits is given to the Board of directors; however, they are governed by the provisions of Act. The directors are to follow table.And the provisions of Articles at the provisions of the Companies Act 1950 in the regard. The following are the rules regarding declaration and payment of dividend:(1)Dividend on Paid up Capital. A company may, if so authorized by its Articles, pay

dividend on the paid up value of shares under section 93 of the companies Act.

(2)Provisions of Articles of Association. Rules 85 to 94 of Table A provide thata. A company may declare dividend its general meeting provided it does not exceed the

amount recommenced by the board of directors.

b. The board of directors may from the time pay to t members such interim dividends, as

appears to it to be justified by the profits of the company. c. Notice of any dividend should be given to those who are entitled to receive it. d. The directors my transfer an amount they think p[roper to the reserve fund which may be utilised for any contingencies.
e. When a dividend has been declared, it becomes a liability of the company to the

shareholders from the date of its declaration but no interest can be claimed on it.

(3) Dividends only of Profits.

a. Dividends can only be declared or paid out of (i) the current profits of the company,

(ii) the past accumulated profits and (iii) moneys provided by the government for the payment of dividends in pursuance of a guarantee given by that government. No
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dividend can be paid out of capital. (Sec. 205 (i)). Director who is responsible for payment of dividend out of capital shall be personally liable to take good such amount to the company.
b. Companies are not entitled to pay any dividend unless present or arrears of

depreciation have been provided for out of the profits and an amount of 10 % or reports has been transferred to reserve. However, central government may allow any company to declare or pay dividends out of profits before providing for any depreciation. c. Capital Profits may also be utilised for the declarations of dividend provided
(i) There is nothing in the Article prohibiting the distribution of dividend out

of capital profits;
(ii) They have been rallied in cash and (iii) They remain as profits after revaluation of all assets and liabilities. d.

Dividend cannot be paid out of accumulated profits unless current losses are made good.

(4)Payment of dividend only in Cash [Sec. 205 (iii)]. Dividends are to be paid in cash only

except in the following circumstancesa. By capitalizing the profits by issue of fully paid bonus shares, if Articles so permit,

provided all legal formalities have been satisfied in respect of issue of bonus shares.
b. By paying up any unpaid amount on partly paid up shares.

(5)Payment of Dividend to Specified Persons (Sec. 206). Dividend shall be paid only to those

whose names appear on the Register of members on the date of declaration of dividend or to the holders of dividend warrant, if issued by the company.
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(6)Payment of Dividend within 42 days (Sec. 207) Dividend must be paid within 42 days of

its declarations except in the following circumstance:1. by operation of law of insolvency; 2. in compliance of the directions of the shareholders;
3. where right to receive dividend is pending decision; 4. Where it is not due to the default of the company. 5.

If company lawfully adjusts the amount against any debt due from the shareholder.

(7)Payment of Interim dividend. The directors of a company can pay interim dividend subject

to the provisions of Articles. Interim dividend can be paid at any time between the two annual general meetings taking into full year depreciation on fixed assets.

(8)Transfer of Unpaid dividend to a Special Bank Account (Sec. 205 A) According to

section 205 A, newly inserted by the Companies (Amendment) Act 1974, where a company has declared a dividend but has not posted the dividend warrant in respect therefor within 42 days to the shareholders entitled to it, such unpaid dividends shall be transferred to a special account to be opened by the company in that behalf in any Scheduled Bank to be called Unpaid Dividend Account of ......Co. Ltd/Co. (Pvt) Ltd.' If the unpaid dividend are not so transferred, the company shall pay an interest at 12 % p.a. Any unpaid amount of dividend declared before the commencement of this Amendment Act shall also be transferred to such special account within 6 months from the date of commencement of the Act.

(9)Transfer Unclaimed Dividend to Central Government. Any amount transferred to the

unpaid dividend account remains unpaid or unclaimed for 3 years from the date of such transfer shall be transfered to the 'General Revenue Account' by the company along with a
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statement giving full particulars in respect of the sums so transferred and the last known addresses of the persons entitled to receive it and such other particulars as may be prescribed. The company is entitled so a receipt for such transfer from the Reserve Bank of India.

If a company fails to comply the above said provisions (given in para 8 and 9 above), the company and every officer of the company who is in default shall be punishable with a fine which may extend to Rs. 500 for every day during which default continues. Stability of Dividend There may be three types of dividend policy Strict or Conservative dividend Policy which envisages the retention of profits on the cost of dividend pay-out.It helps in strengthening the financial position of the company; (2) Lenient Dividend Policy which views the payment of dividend at the maximum rate possible taking in view the current earing of the company. Under such policy company retains the minimum possible earnings; (3) Stable Dividend Policy suggests a mid-way of the above two views. Under this policy, stable or almost stable rate of dividend is maintained. Company maintains reserves in the years of prosperity and uses them in paying dividend in lean year. If company follows stable dividend policy, the market price of tis shares shall be higher. There are reasons why investors prefer stable dividend policy. Main reasons are:1. Confidence among Shareholders. A regular and stable dividend payment may serve to resolve uncertainty in the minds of shareholders. The company resorts not to cut the dividend rate even if its profits are lower. It maintains the rate of dividends by appropriating the funds from its reserves. Stable dividend presents a bright future of the company and thus gains the confidence of the shareholders an the goodwill of the company increases in the eyes of the general investors. 2. Income Conscious Investors. The second factor favoring stable dividend policy is that some investors are income conscious and favor a stable rate of dividend. They too, never favour an unstable rte of dividend. A Stable dividend policy may also satisfy such investors.

3. Stability in Market Price of Shares. Other things beings equal, the market price very with the rate of dividend the company declares on its equity shares. The value of shares of a company having a stable dividend policy fluctuates not widely even if the earnings of the company turn down. Thus, this policy buffers the market price of the stock. 4. Encouragement to Institutional Investors. A stable dividend policy attracts investments from institutional investors such institutional investors generally prepare a list of securities, mainly incorporating the securities of the companies having stable dividend policy in which they invest their surpluses or their long term funds such as pensions or provident funds etc. In this way, stability and regularity of dividends not only affects the market price of shares but also increases the general credit of the company that pays the company in the long run.

Basic Issues Involved in Dividend Policy There are certain basic questions which are involved in determining the sound dividend policy. 1. Cost of Capital. Cost of capital is one of the considerations for taking a decision whether to distribute dividend or not. As decision making tool, the Board calculates the ratio of rupee profits that the business expects to earn (Ra) to the rupee, profits that the shareholders can expect to earn outside (Rc) i.e., Rs./Rc. If the ratio is less than one, it is a signal to distribute dividend and if it is more than one, the distribution of dividend will be discontinued. 2. Realization of Objectives. The main objectives of the firm i.e., maximization of wealth for shareholders including their current rate of dividend-should also be aimed at in formulating the dividend policy. 3. Shareholders' Group. Dividend policy affects the shareholders group. It means a company with low pay-out an heavy reinvestment attracts shareholders interested in capital gains rather than n current income whereas a company with high dividend pay-out attracts those who are interested in current income.
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4. Release of Corporate earnings. Dividend distribution is taking as a mens of distributing unused funds. Dividend policy affects the shareholders wealth by varying its dividend pay = out ratio. In Dividend policy, the financial manager decides whether to release Corporate earnings or not. These are certain basic issues Involved in formulating a Dividend policy. Dividend policy to a large extent affects the financial structure, the flow of funds, liquidity, stock prices and in the last shareholders' satisfaction. That is why management exercises a high degree of judgment establishing a sound dividend pattern.

Factors Affecting Dividend Policy A number of considerations affect the dividend policy of company. The major factors are 1. Stability of Earnings. The nature of business has an important bearing on the dividend policy. Industrial units having stability of earnings may formulate a more consistent dividend policy than those having an uneven flow of incomes because they can predict easily their savings and earnings. Usually, enterprises dealing in necessities suffer less from oscillating earnings than those dealing in luxuries or fancy goods. 2. Age of corporation. Age of the corporation counts much in deciding the dividend policy. A newly established company may require much of its earnings for expansion and plant improvement and may adopt a rigid dividend policy while, on the other hand, an older company can formulate a clear cut and more consistent policy regarding dividend. 3. Liquidity of Funds. Availability of cash and sound financial position is also an important factor in dividend decisions. A dividend represents a cash outflow, the greater the funds and the liquidity of the firm the better the ability to pay dividend. The liquidity of a firm depends very
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much on the investment and financial decisions of the firm which in turn determines the rate of expansion and the manner of financing. If cash position is weak, stock dividend will be distributed and if cash position is good, company can distribute the cash dividend. 4. Extent of share Distribution. Nature of ownership also affects the dividend decisions. A closely held company is likely to get the assent of the shareholders for the suspension of dividend or for following a conservative dividend policy. On the other hand, a company having a good number of shareholders widely distributed and forming low or medium income group, would face a great difficulty in securing such assent because they will emphasise to distribute higher dividend. 5. Needs for Additional Capital. Companies retain a part of their profits for strengthening their financial position. The income may be conserved for meeting the increased requirements of working capital or of future expansion. Small companies usually find difficulties in raising finance for their needs of increased working capital for expansion programmes. They having no other alternative, use their ploughed back profits. Thus, such Companies distribute dividend at low rates and retain a big part of profits. 6. Trade Cycles. Business cycles also exercise influence upon dividend Policy. Dividend policy is adjusted according to the business oscillations. During the boom, prudent management creates food reserves for contingencies which follow the inflationary period. Higher rates of dividend can be used as a tool for marketing the securities in an otherwise depressed market. The financial solvency can be proved and maintained by the companies in dull years if the adequate reserves have been built up. 7. Government Policies. The earnings capacity of the enterprise is widely affected by the change in fiscal, industrial, labour, control and other government policies. Sometimes government restricts the distribution of dividend beyond a certain percentage in a particular industry or in all spheres of business activity as was done in emergency. The dividend policy has to be modified or formulated accordingly in those enterprises. 8. Taxation Policy. High taxation reduces the earnings of he companies and consequently the rate of dividend is lowered down. Sometimes government levies dividend-tax of distribution of
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dividend beyond a certain limit. It also affects the capital formation. N India, dividends beyond 10 % of paid-up capital are subject to dividend tax at 7.5 %. 9. Legal Requirements. In deciding on the dividend, the directors take the legal requirements too into consideration. In order to protect the interests of creditors an outsiders, the companies Act 1956 prescribes certain guidelines in respect of the distribution and payment of dividend. Moreover, a company is required to provide for depreciation on its fixed and tangible assets before declaring dividend on shares. It proposes that Dividend should not be distributed out of capita, in any case. Likewise, contractual obligation should also be fulfilled, for example, payment of dividend on preference shares in priority over ordinary dividend. 10. Past dividend Rates. While formulating the Dividend Policy, the directors must keep in mind the dividend paid in past years. The current rate should be around the average past rat. If it has been abnormally increased the shares will be subjected to speculation. In a new concern, the company should consider the dividend policy of the rival organisation. 11. Ability to Borrow. Well established and large firms have better access to the capital market than the new Companies and may borrow funds from the external sources if there arises any need. Such Companies may have a better dividend pay-out ratio. Whereas smaller firms have to depend on their internal sources and therefore they will have to built up good reserves by reducing the dividend payout ratio for meeting any obligation requiring heavy funds. 12. Policy of Control. Policy of control is another determining factor is so far as dividends are concerned. If the directors want to have control on company, they would not like to add new shareholders and therefore, declare a dividend at low rate. Because by adding new shareholders they fear dilution of control and diversion of policies and programmes of the existing management. So they prefer to meet the needs through retained earing. If the directors do not bother about the control of affairs they will follow a liberal dividend policy. Thus control is an influencing factor in framing the dividend policy. 13. Repayments of Loan. A company having loan indebtedness are vowed to a high rate of retention earnings, unless one other arrangements are made for the redemption of debt on maturity. It will naturally lower down the rate of dividend. Sometimes, the lenders (mostly
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institutional lenders) put restrictions on the dividend distribution still such time their loan is outstanding. Formal loan contracts generally provide a certain standard of liquidity and solvency to be maintained. Management is bound to hour such restrictions and to limit the rate of dividend payout. 14. Time for Payment of Dividend. When should the dividend be paid is another consideration. Payment of dividend means outflow of cash. It is, therefore, desirable to distribute dividend at a time when is least needed by the company because there are peak times as well as lean periods of expenditure. Wise management should plan the payment of dividend in such a manner that there is no cash outflow at a time when the undertaking is already in need of urgent finances. 15. Regularity and stability in Dividend Payment. Dividends should be paid regularly because each investor is interested in the regular payment of dividend. The management should, inspite of regular payment of dividend, consider that the rate of dividend should be all the most constant. For this purpose sometimes companies maintain dividend equalization Fund. Determinants of Dividend Policy The main determinants of dividend policy of a firm can be classified into: 1. Dividend payout ratio 2. Stability of dividends 3. Legal, contractual and internal constraints and restrictions 4. Owner's considerations 5. Capital market considerations and 6. Inflation.

Dividend Payout Ratio: The percentage of earnings paid to shareholders in dividends. Calculated as:

Or equivalently
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Interest Coverage Ratio: A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period:

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Dividend Yield: A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows:

PE Ratio: A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as:

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects

1. Dividend payout ratio: Dividend payout ratio refers to the percentage share of the net earnings distributed to the shareholders as dividends. Dividend policy involves the decision to pay out earnings or to retain them for reinvestment in the firm. The retained earnings constitute a source of finance. The optimum dividend policy should strike a balance between current dividends and future growth which maximizes the price of the firm's shares. The dividend payout ratio of a firm should be determined with reference to two basic objectives maximizing the wealth of the firms owners and providing sufficient funds to finance growth. These objectives are interrelated.

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2. Stability of dividends: Dividend stability refers to the payment of a certain minimum amount of dividend regularly. The stability of dividends can take any of the following three forms: a. constant dividend per share b. constant dividend payout ratio or c. constant dividend per share plus extra dividend 3. Legal, contractual and internal constraints and restrictions: Legal stipulations do not require a dividend declaration but they specify the conditions under which dividends must be paid. Such conditions pertain to capital impairment, net profits and insolvency. Important contractual restrictions may be accepted by the company regarding payment of dividends when the company obtains external funds. These restrictions may cause the firm to restrict the payment of cash dividends until a certain level of earnings has been achieved or limit the amount of dividends paid to a certain amount or percentage of earnings. Internal constraints are unique to a firm and include liquid assets, growth prospects, and financial requirements, availability of funds, earnings stability and control. 4. Owner's considerations: The dividend policy is also likely to be affected by the owner's considerations of the tax status of the shareholders, their opportunities of investment and the dilution of ownership. 5. Capital market considerations; The extent to which the firm has access to the capital markets, also affects the dividend policy. In case the firm has easy access to the capital market, it can follow a liberal dividend policy. If the firm has only limited access to capital markets, it is likely to adopt a low dividend payout ratio. Such companies rely on retained earnings as a major source of financing for future growth. 6. Inflation: With rising prices due to inflation, the funds generated from depreciation may not be sufficient to replace obsolete equipments and machinery. So, they may have to rely upon retained earnings as a source of fund to replace those assets. Thus, inflation affects dividend payout ratio in the negative side.

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Other factors include: 1. Company policy 2. Stability in earnings 3. Liquidity of the companies 4. Past dividend rates 5. Projects under consideration 6. Market expectation 7. Taxation 8. Legal restriction 9. Independent opportunities 10. Restriction of FIs 11. Nature of business 12. Cost of capital 13. Phase of Trade Cycle 14. Accumulated reserves 15. Companys growth needs 16. Bonus issues

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INDIAN PHARMACEUTICAL INDUSTRY

The pharmaceutical industry in India is among the most highly organized sectors. This industry plays an important role in promoting and sustaining development in the field of global medicine. Due to the presence of low cost manufacturing facilities, educated and skilled manpower and cheap labor force among others, the industry is set to scale new heights in the fields of production, development, manufacturing and research. In 2008, the domestic pharma market in India was expected to be US$ 10.76 billion and this is likely to increase at a compound annual growth rate of 9.9 per cent until 2010 and subsequently at 9.5 per cent till the year 2015. Industry Trends

The pharma industry generally grows at about 1.5-1.6 times the Gross Domestic Product growth Globally, India ranks third in terms of manufacturing pharma products by volume The Indian pharmaceutical industry is expected to grow at a rate of 9.9 % till 2010 and after that 9.5 % till 2015 In 2007-08, India exported drugs worth US$7.2 billion in to the US and Europe followed by Central and Eastern Europe, Africa and Latin America The Indian vaccine market which was worth US$665 million in 2007-08 is growing at a rate of more than 20% The retail pharmaceutical market in India is expected to cross US$ 12-13 billion by 2012 The Indian drug and pharmaceuticals segment received foreign direct investment to the tune of US$ 1.43 billion from April 2000 to December 2008

Challenges Every industry has its own sets of advantages and disadvantages under which they have to work; the pharmaceutical industry is no exception to this. Some of the challenges the industry faces are:

Regulatory obstacles Lack of proper infrastructure Lack of qualified professionals

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Expensive research equipments Lack of academic collaboration Underdeveloped molecular discovery program Divide between the industry and study curriculum

Government Initiatives The government of India has undertaken several including policy initiatives and tax breaks for the growth of the pharmaceutical business in India. Some of the measures adopted are:

Pharmaceutical units are eligible for weighted tax reduction at 150% for the research and development expenditure obtained. Two new schemes namely, New Millennium Indian Technology Leadership Initiative and the Drugs and Pharmaceuticals Research Program have been launched by the Government. The Government is contemplating the creation of SRV or special purpose vehicles with an insurance cover to be used for funding new drug research The Department of Pharmaceuticals is mulling the creation of drug research facilities which can be used by private companies for research work on rent

Pharma Export In the recent years, despite the slowdown witnessed in the global economy, exports from the pharmaceutical industry in India have shown good buoyancy in growth. Export has become an important driving force for growth in this industry with more than 50 % revenue coming from the overseas markets. For the financial year 2008-09 the export of drugs is estimated to be $8.25 billion as per the Pharmaceutical Export Council of India, which is an organization, set up by the Government of India. A survey undertaken by FICCI, the oldest industry chamber in India has predicted 16% growth in the export of India's pharmaceutical growth during 2009-2010.

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Key players in Indian Pharmaceutical Industry There are several national and international pharmaceutical companies that operate in India. Most of the country's requirements for pharmaceutical products are met by these companies. Some of them are briefly described below:

Ranbaxy Laboratories
Ranbaxy Laboratories is the biggest pharmaceutical manufacturing company in India. The company is ranked at the 8th position among the global generic pharmaceutical companies and has presence in 48 countries including world class manufacturing facilities in 10 countries and serves to customers from over 125 countries. Ranbaxy Laboratories 2009-2010 Q3 Net Profit Results showed a profit of Rs 116.6 crore as compared to Rs 394.5 crore deficit, recorded during the corresponding period last fiscal.

Dr. Reddy's Laboratories Dr. Reddy's Laboratories manufactures and markets a wide range of pharmaceuticals both in India and abroad. The company has 60 active pharmaceutical ingredients to manufacture drugs, critical care products, diagnostic kits and biotechnology products. The company has 6 FDA plants that produce active pharma ingredients and 7 FDA inspected and ISO 9001 and ISO 14001 certified plants. Dr. Reddy's Q1 FY10 result shows the revenues of the company at ` 18,189 million which is up by 21%. During this quarter the company introduced 24 new generic products, applied for 22 new generic product registrations and filed 4 DMFs.

Cipla Cipla is an Indian pharmaceutical company renowned for the manufacture of low cost anti AIDS drugs. The company's product range comprises of anthelmintics, oncology, anti-bacterials, cardiovascular drugs, antibiotics, nutritional supplements, anti-ulcerants, anti-asthmatics and corticosteroids. Cipla also offers other services like quality control, engineering, project appraisal, plant supply, consulting, commissioning and know-how
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transfer, support. For the financial year 2008-09 the company registered an increase of 22% in sales and other income over the previous year.

Nicholas Piramal
Nicholas Piramal is the second largest pharmaceutical healthcare company in India. The brands manufactured by the company include Gardenal, Ismo, Stemetil, Rejoint, Supradyn, Phensedyl and Haemaccel. Nicholas Piramal has entered into join ventures and alliances with several international corporations like Cheissi, Italy; IVAX Corp; UK, F. Hoffmann-La Roche Ltd., Allergan Inc., USA etc.

Glaxo Smithkline (GSK) Glaxo Smithkline is a United Kingdom based pharma company; it is the world's second largest pharmaceutical company. The company's portfolio of pharma products consist of central nervous system, respiratory, oncology, vaccines, anti-infectives and gastrointestinal/metabolic products among others. On November 2009, the FDA had announced that the H1N1 vaccine manufactured by GSK would join the list of the four vaccines approved.

Zydus Cadila Zydus Cadila also known as Cadila Healthcare is an Indian pharmaceutical company located in Gujarat. The company's 1QFY2010 results show the net sales at Rs880.3cr which is higher than the estimated Rs773cr. The net profit was Rs124.8cr which was increase of 39%; the increase was on account of higher sales and improvement in the OPM.

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India's Domestic Pharmaceutical Market (12 Months Ended January 2009)

Company Total Pharma Market Cipla Ranbaxy Glaxo Smithkline Piramal Healthcare Zydus Cadila Source: ORG IMS Size ($ Billion) 6.9 0.36 0.34 0.29 0.27 0.24 Market Share (%) 100.0 5.3 5.0 4.3 3.9 3.6 Growth Rate (%) 9.9 13.4 11.5 -1.2 11.7 6.8

Future Scenario With several companies slated to make investments in India, the future scenario of the pharmaceutical industry in looks pretty promising. The country's pharmaceutical industry has tremendous potential of growth considering all the projects that are in the pipeline. Some of the future initiatives are:

According to a study by FICCI-Ernst & Young India will open a probable US$ 8 billion market for MNCs selling expensive drugs by 2015 The study also says that the domestic pharma market is likely to reach US$ 20 billion by 2015 The Minister of Commerce estimates that US$ 6.31 billion will be invested in the domestic pharmaceutical sector Public spending on healthcare is likely to raise from 7 per cent of GDP in 2007 to 13 per cent of GDP by 2015 Dr Reddy's Laboratories has tied up with GlaxoSmithKline to develop and market generics and formulations in upcoming markets overseas Lupin, a Mumbai based pharmaceutical company is looking to tap opportunities of about US$ 200 million in the US oral contraceptives market Due to the low cost of R&D, the Indian pharmaceutical off-shoring industry is designated to turn out to be a US$ 2.5 billion opportunity by 2012

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India's pharmaceutical industry has been growing at record levels in recent years but now has unprecedented opportunities to expand in a number of fields. The domestic industry's longestablished position as a world leader in the production of high-quality generic medicines is set to reap significant new benefits as the patents on a number of blockbuster drugs are scheduled to expire over the next few years. In addition, more and more governments worldwide are seeking to curb their soaring prescription drug costs through greater use of generics. These opportunities are presenting themselves not only in India's traditional wealthy client markets such as the U.S. and European Union nations but also in emerging economies with vast populations such as Africa, South America, Asia, and Eastern and Central Europe. In addition, India's long-established position as a preferred manufacturing location for multinational drug manufacturers is quickly spreading into other areas of outsourcing activities. Soaring costs of R&D and administration are persuading drug manufacturers to move more and more of their discovery research and clinical trials activities to the subcontinent or to establish administrative centers there, capitalizing on India's high levels of scientific expertise as well as low wages. Both multinational and local drug manufacturers could eventually benefit from the market potential of India's population of over one billion. A large market will likely open up as the result of a projected boom in health insurance, an area in which the country is currently woefully underdeveloped. New government initiatives seek to enable the majority of the population to access the life-saving drugs they need, while even greater opportunities may be presented by the rise of the new Indian consumer. This group-urban, middle class and wealthy-live fast-paced, Western-style lives and, as a result, they are beginning to suffer from Western, lifestyle-related illnesses, for which they want, and can afford, innovative drug treatments. This untapped domestic market is also highly attractive to the pharmaceutical MNCs, which recently have returned to India in large numbers (many had left when the regime allowing process patents only was introduced in the early 1970s). Now, MNCs and domestic companies are starting to work together, utilizing each other's strengths for their mutual benefit. For the foreign firms, this includes not only the Indian companies' research and manufacturing capabilities and their much lower operational cost levels, but also comprehensive marketing and distribution networks operating throughout India's vast territories.
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There are, however, a number of uncertainties, particularly the effects of India's new product patent system, which was introduced on January 1, 2005. Previously, only process patents were granted, a situation that led to India's current role as a world leader in the production of high quality, affordable generics. The new regime may spell the end for the domestic sector's smaller players, while for others it could represent unprecedented opportunities. Nevertheless, the domestic industry is still spending far too little on R&D, which must change quickly if it is even to begin to address these new opportunities and challenges. On the international front, the industry still has some catching up to do in terms of quality assurance while, on the local market, pricing remains a problem. There is a need for regulatory reform in India to encourage leading global players to continue and accelerate the outsourcing of their R&D activities-beginning with discovery research-to the subcontinent. This is particularly urgent in the face of the strong competition from China, where the government has been particularly proactive in encouraging foreign investments in pharmaceuticals and biotechnology. In India, the industry is now awaiting developments following the January draft publication of the government's National Pharmaceuticals Policy for 2006. The document contains proposals for far-reaching initiatives aimed at boosting the domestic industry's global competitiveness, as well as improving the population's access to medicines. Indian government ministers have also promised MNCs concrete action soon on speeding the patent approval process and other crucial issues, such as the definition of patentability and compulsory licensing. Action is required soon, if India wants to be a significant player in the global pharmaceutical arena. India currently represents just U.S. $6 billion of the $550 billion global pharmaceutical industry but its share is increasing at 10 percent a year, compared to 7 percent annual growth for the world market overall.1 Also, while the Indian sector represents just 8 percent of the global industry total by volume, putting it in fourth place worldwide, it accounts for 13 percent by value,2 and its drug exports have been growing 30 percent annually. The organized sector of India's pharmaceutical industry consists of 250 to 300 companies, which account for 70 percent of products on the market, with the top 10 firms representing 30 percent. However, the total sector is estimated at nearly 20,000 businesses, some of which are extremely small. Approximately 75 percent of India's demand for medicines is met by local manufacturing. According to the German Chemicals Association, in 2005, India's top 10 pharmaceutical
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companies were Ranbaxy, Cipla, Dr. Reddy's Laboratories, Lupin, Nicolas Piramal, Aurobindo Pharma, Cadila Pharmaceuticals, Sun Pharma, Wockhardt Ltd. and Aventis Pharma.5 Indianowned firms currently account for 70 percent of the domestic market, up from less than 20 percent in 1970. In 2005, nine of the top 10 companies in India were domestically owned, compared with just four in 1994. India's potential to further boost its already-leading role in global generics production, as well as an offshore location of choice for multinational drug manufacturers seeking to curb the increasing costs of their manufacturing, R&D and other support services, presents an opportunity worth an estimated $48 billion in 2007. Over-the-Counter Medicines The Indian market for over-the-counter medicines (OTCs) is worth about $940 million and is growing 20 percent a year, or double the rate for prescription medicines. The government is keen to widen the availability of OTCs to outlets other than pharmacies, and the Organisation of Pharmaceutical Producers of India (OPPI) has called for them to be sold in post offices. Developing an innovative new drug, from discovery to worldwide marketing, now involves investments of around $1 billion, and the global industry's profitability is under constant attack as costs continue to rise and prices come under pressure. Pharmaceutical production costs are almost 50 percent lower in India than in Western nations, while overall R&D costs are about one-eighth and clinical trial expenses around one-tenth of Western levels. India's longestablished manufacturing base also offers a large, well-educated, English-speaking workforce, with 700,000 scientists and engineers graduating every year, including 122,000 chemists and chemical engineers, with 1,500 PhDs. The industry provides the highest intellectual capital per dollar worldwide, says OPPI.

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Company Profile
About Dr. Reddy's Established in 1984, Dr. Reddy's Laboratories Ltd. (NYSE: RDY) is an integrated global pharmaceutical company, committed to providing affordable and innovative medicines for healthier lives. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products Dr. Reddys offers a portfolio of products and services including Active Pharmaceutical Ingredients (APIs), Custom Pharmaceutical Services (CPS), generics, biosimilars, differentiated formulations and News Chemical Entities (NCEs). Providing Affordable Medicines Our Global Generics business helps reduce drug costs for individuals and governments by bringing generic drugs to market as early as possible, and making them available to as many patients as possible. We market both generic small-molecule drugs and generic biopharmaceuticals. In markets with guidelines for approval, our Biologics business offers more affordable and equally effective generic biopharmaceuticals or biosimilars. We supply pharmaceutical ingredients to other generic companies through the API arm of our PSAI business, which contributes to our goal of providing affordable medicine. We will continue to promote affordability in significant ways and work to expand our product offering of generics, focusing on increasing access to products with significant barriers to entry. We will continue to look for new opportunities to take generics to more patients, in collaboration with other companies. Developing Innovative Medicines Despite the great advances of medical science, there are still many unmet medical needs. Our Proprietary Products businesses address some of these unmet medical needs, by developing and bringing to market new drugs. Through innovation in science and technology, combined with a deep understanding of underlying disease pathways, we develop and commercialize new formulations of approved
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products. We also develop new chemical entities with improved and well-characterized safety and efficacy profiles. We focus our research on the therapeutic areas of pain, anti-bacterials and metabolic disorders. Our Custom Pharmaceutical Services arm of our PSAI business helps innovator companies get their proprietary medicines to patients faster, by providing a range of technology platforms and services. The healthcare needs of people worldwide cannot be met by one company alone. Collectively however we can bring new drugs to the market in a fast and efficient manner and provide the building blocks of affordable medicines. Through our PSAI business, which comprises the Active Pharmaceutical Ingredients (API) and Custom Pharmaceutical Services (CPS) businesses, we offer IP advantaged, speedy product development and cost-effective manufacturing services to our customers generic companies and innovators. This allows us to help make good medicines available to more people around the world. The core strengths of our PSAI business are the state-of-the-art infrastructure, resources and skills we are able to offer to our customers:

Large and diverse product portfolio Eight FDA-inspected plants and three technology centers World class chemistry expertise Robust, large-scale manufacturing capabilities Intellectual Property (IP) driven product development for freedom to operate Total, seamless supply chain management

Sustainability: At Dr. Reddys, sustainability is a multi-dimensional aspiration, which has its roots in the very purpose of our existence providing affordable medicines to people around the

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world and meeting unmet medical needs through innovation. Our business, by its very nature, serves a social good, so we have a far deeper reason than profits alone to drive our performance. For us, building a sustainable organization is not a trend we blindly follow; it is intrinsic to how we have operated for decades. To us, a commitment to sustainability means a commitment to fulfilling our obligations to all of our stakeholders -- our customers & partners, employees, shareholders and society. Thus, while optimizing profitability may be one measurement of our performance, we also judge our success by our performance with regard to the communities in which we live and work, the environment and our employees. We understand that it is only by increasing value to all of these stakeholders that we can build an ever flourishing and lasting organization. While sustainability thinking was always woven into the fabric of our organization, we formally declared our intent to institutionalize it in 2004, when we first began to publicly report on our sustainability practices. We annually publish our Sustainability Report with direction from the guidelines recommended by Global Report Initiative G3, covering social, ethical, economic, safety and environmental aspects of our business. Product and services: Active Pharma Ingredients (API): Dr. Reddy's offers an unparalleled portfolio to our customers comprising of innovators and generic formulators worldwide. With a strong product portfolio of products, including niches like oncology and hormones, and our first in, last out approach, it is little wonder that we are today among the leading generic API players globally. Our goal is to enable customers to be the first-to-launch a generic product as well as provide value-added services that help them remain competitive and profitable for the entire life cycle of the product. We have built the capabilities to consistently deliver on this promise in scale and across the largest product range. Our expertise in organic synthesis and process development complemented by a controlled supply chain enables us to provide our customers with high quality Bulk Actives at competitive prices. We are aggressively building our product portfolio to cater to generic players in the emerging markets and generic and patent challenge formulators in regulated markets.

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Our API business is supported by our technologically advanced Product Development infrastructure, which identifies new products and is engaged every step of the way, from the conceptual stage to delivery of drugs to the market place. The Product Delivery Teams, the Centres of Excellence and IP teams help create value through Intellectual Property and proactive patenting; early development work on certain promising molecules; breakthrough product delivery; and by delivering cost leadership in API. A highly skilled global team focuses on timely delivery of products, product development, technology leadership, cost competitiveness, the highest levels of customer service, and full compliance with regulatory and quality requirements. PRODUCT DEVELOPMENT Regulatory: Dr. Reddy's is committed to the manufacture of premium quality products in compliance with all regulatory requirements and customer expectations. We operate in accordance with cGMP requirements and the USFDA and ICH guidelines & regulations. All our manufacturing facilities are successfully inspected for several products by the USFDA and various other Agencies. We are aided by a Best-in-Class Regulatory Affairs Team and we support our customers with DMFs for their dosage form approvals / ANDA filings. We have filed several DMFs in US, Canada (PMFs), Europe, Turkey, Korea, CIS and many more in other parts of the world. Some of our products have also received the Certificate of Suitability (COS) from European Pharmacopoeia Our Customer support on Technical and Regulatory queries with constant focus on responsiveness, reliability, customization, and confidentiality set us apart from others. Continuous adaptation to the latest developments in global regulatory procedures and active partnership with Pharmacopoeia bodies give us cutting edge in this area. Intellectual Property: Competent and well equipped Intellectual Property Management Cell of Dr. Reddys facilitates the creation of intellectual wealth by navigating the Research and Development work and honoring others intellectual property. A team of well qualified IP experts comprising specialists from diverse fields of science are involved in evaluating techno-legal and
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techno-commercial aspects of the products, strategic product development, competitive IP generation and patenting, leveraging the intellectual property across the globe. This is a continuous process aimed at providing generic medicines at affordable prices to the mankind. IPM cell in Dr Reddy's also facilitates P-IV challenges leading to early generic launch of the products in the US market. Differentiated Formulations Our emerging Differentiated Formulations portfolio consists of developing novel formulations of currently marketed drugs or combinations thereof to enhance patient comfort. We develop synergistic combinations as well as technologies that enhance the drugs safety and/or efficacy profile by modifying its pharmacokinetics. Our most advanced Differentiated Formulations efforts are in dermatology, where we have launched several effective and innovative products through our wholly owned subsidiary Promius Pharma. Promius Pharma: Our wholly-owned subsidiary, headquartered at Bridgewater, New Jersey (US) develops and markets differentiated formulations for important dermatological indications. Our portfolio includes in-licensed and co-developed dermatological products and an internal pipeline of topical products under development that will provide better answers to the skin care needs of today and tomorrow. Promius Pharma has entered into successful partnerships with companies such as Ceragenix, Foamix, Sinclair and Antares for in-licensing of products.

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RESEARCH METHODOLOGY Need for the study: The Dividend policy is used by a company to decide how much it will pay out to shareholders in dividends. A wrong dividend policy may put the company into financial troubles and the capital structure of the company may get unbalanced. The finance manager has to formulate the dividend policy in such a way, which coincides with the ultimate object of maximizing the wealth of shareholders and the value of the firm. The present study Determinants of Dividend policies in Pharmaceutical Industry in India analyzes the current dividend policies in the pharma industry and the determinants of the same. Objectives of the study: To study the determinants of dividends policy in general. To investigate the consistence of the dividend policy determinants. To analyze the influence of firms characteristics like profitability, growth, risk, cash flows, agency cost and on dividend payment pattern. i.e. to identify various determinants of dividend payout. Scope of the study: The study on the determinants of dividend policy in the pharmaceutical industry focuses on the dividend policies of the pharma companies like Dr. Reddys, Cipla etc. The study is confined to the following determinants: 1. Dividend payout ratio 2. Profitability 3. Operating activities 4. Taxation 5. Turn over
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6. Capital market activities 7. Liquidity

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Data collection: Nature of Data The study is based on secondary data. Source of data Secondary data have been collected from the respective unit though manuals and annual reports of the company. The sources of the data are budgeted fixed and actual attained by the concern under the period of the study Limitations of the study: The time period being just 8 weeks, it formed an important limiting factor. The study takes into consideration the financial data of past 4 years only. Further, the study is based completely on the secondary data only. The study is limited to 4 pharma companies and not all the players in the industry are taken into account.

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DATA INTERPRETATION AND ANALYSIS DIVIDEND PAYOUT RATIO Dividend payout ratio is calculated to find the extent to which earnings per share have been used for paying dividend and to know what portion of earnings has been retained in the business. It is an important ratio because ploughing back of profits enables a company to grow and pay more dividends in future. Formula: Dividend Payout Ratio = Dividend per Equity Share / Earnings per Share Year Dividend Payout Ratio 2011 34.2 2010 26.19 20009 21.94 2008 15.52 2007 6.25

Interpretation: The dividend payout ratio of the company shows the earnings used by the companies to pay the dividends. The ratio has increased from 6.25 in 2007 to 34.2 in 2011 which is almost 6times. This shows the companys dividend is more compared to its earnings.

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EARNINGS PER SHARE RATIO: Earnings per share ratio (EPS Ratio) is a small variation of return on equity capital ratio and is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares. The formula of earnings per share is: Earnings per share (EPS) Ratio = (Net profit after tax Preference dividend) / No. of equity shares (common shares) Year Earnings Per Share 2011 52.78 2010 50.11 20009 33.29 2008 28.26 2007 70.09

Interpretation: The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. From the graph, it can be seen that the EPS of the company was 70.09 in 2007 and fell to 28.26 in 2008. It increased to 52.78 in 2011 which shows the earning power of the company has increased but not to that in the year 2007.
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CAPITAL GEARING RATIO Capital gearing ratio is mainly used to analyze the capital structure of a company. The term capital structure refers to the relationship between the various long-term form of financing such as debentures, preference and equity share capital including reserves and surpluses. Leverage of capital structure ratios are calculated to test the long-term financial position of a firm. Capital Gearing Ratio = Equity Share Capital / Fixed Interest Bearing Funds Year capital structure ratio 2011 17.0780 1 2010 6.67298 6 20009 7.60451 3 2008 5.4978 2007 3.929252

Interpretation: The capital gearing ratio is just 3.9 in the year 2007. It increased to 7.6 in 2009 and decreased to 6.67 in 2010. It increased greatly to 17.07 in 2011 again. The capital gearing ratio It reveals the suitability of company's capitalization.

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DIVIDEND PER SHARE: Dividend per share (DPS) is a simple and intuitive number. It is the amount of the dividend that shareholders have (or will) receive for each share they own. DPS = dividends paid number of shares in issue

Year Dividend Per Share

2011 11.25

2010 11.25

20009 6.25

2008 3.75

2007 3.75

Interpretation: From the graph, it is clear that the dividend per share in the year 2007 is 3.75 and it increased to 11.25 in 2010 and continued the same in 2011. The graph shows a increase in the amount of dividend received by the shareholders for their shares.

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DIVIDEND YIELD RATIO Dividend yield ratio is the relationship between dividends per share and the market value of the shares. Share holders are real owners of a company and they are interested in real sense in the earnings distributed and paid to them as dividend. Therefore, dividend yield ratio is calculated to evaluate the relationship between dividends per share paid and the market value of the shares. Formula: Dividend Yield Ratio = Dividend per Share / Market Value per Share Year Dividend yield ratio 2011 0.17675 7 2010 0.19918 6 20009 0.12307 6 2008 0.08674 9 2007 0.077925

Interpretation: The dividend yield ratio is 0.07 in 2007, it increased in the further years and reached to a maximum of 0.19 in 2010 which shows that the dividend paid to the shareholders is higher than

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the market price compared to the previous years. The ratio again decreased slightly in 2011 to 0.17. P/E RATIO: The price-to-earnings ratio (P/E) is a valuation method used to compare a companys current share price to its per-share earnings. Market Value per Share Earnings per Share (EPS) Year PE ratio 2011 1.2 2010 1.1 20009 1.5 2008 1.5 2007 0.6

Interpretation: The Price earnings ratio is 0.6 in 2007 and increased to 1.5 in 2008. It decreased to 1.1 in 2010 and slightly increased to 1.2 in 2011. This shows that that the investors are not much attracted to invest in the company.
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DEBT TO EQUITY RATIO: Debt to Equity Ratio (D/E) is a financial ratio used to measure the relationship between the capital contributed by creditors and the capital contributed by shareholders. The ratio is also known as Risk, Gearing or Leverage. Formula: D/E = Total Debt (liabilities)/ Total Equity Year Debt equity ratio 2011 0.24 2010 0.10 20009 0.12 2008 0.10 2007 0.08

Interpretation: The ideal debt-equity ratio is just 0.08 in 2007 and slightly increased to 0.12 in 2009. It again decreased to 0.10 in 2010 and increased greatly to 0.24 in 2011. However, the debt equity ratio of this company is not much favourable.

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EQUITY DIVIDEND: The equity dividend rate (we will refer to it in abbreviated terms as EDR) is a return measure that states the before-tax equity cash flow as a percentage of the equity investment. It is also referred to as cash-on-cash return. This measure is often used in the case of real estate investments because the financing of property acquisitions involves in most cases the use of both equity and debt (borrowed funds). The formula for calculating the EDR is: EDR = BTECF / Equity investment Where, BTECF = Before-Tax Equity Cash Flow Equity Investment = Total Investment Cost - Loan Amount Year Equity Dividend 2011 190.4 2010 190 20009 105.3 2008 63.06 2007 62.97

Interpretation: Equity dividend rate refers to the cash on cash return. It shows the before tax equity cash flows as a percentage of investment. It is seen from the graph that, the EDR is 62.97 in 2007 and

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increased to 105.3 in 2009. It further increased to 190 in 2010. This shows that the cash on cash return increased which is favourable. OPERATING PROFIT MARGIN (%): The operating profit margin is a type of profitability ratio known as a margin ratio. The information with which to calculate the operating profit margin comes from a company's income statement. Operating Profit Margin = Operating Income/Sales Revenue = _______% Operating income is often called earnings before income and taxes or EBIT. EBIT is the income that is left, on the income statement, after all operating costs and overhead, such as selling costs and administration expenses, along with cost of goods sold, are subtracted out. Operating Profit Margin = EBIT/Sales Revenue = ________%

Year 2011 Operating Profit Margin 23.5 (%)

2010 24.76

2009 18.95

2008 17.42

2007 35.08

Interpretation:

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Operating profit margin is decreasing in 2008 and it was increased next two years finally it was decreased in present year the ratio was highest in the year 2007 is 35.08% it reveals that company operating efficiency is highest in the year.

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NET PROFIT MARGIN (%): Net profit margin is one of the profitability ratios and an important tool for financial analysis. It is the final output; any business is looking out for. Net profit ratio is a ratio of net profits after taxes to the net sales of a firm. All the efforts and decision making in the business is to achieve a higher net profit margin with increase in net profits.

Net profit margin shows the margin left for the equity and preference shareholders i.e. the owners. Unlike the gross profit which measures the operating efficiency of the business, net profit margin measures the overall efficiency of the business. An adequate margin of net profits will be generated only when most of all the activities are being done efficiently. The activities may be production, administration, selling, financing, pricing or tax management.

Net Profit Margin or Ratio=

Year Net Profit Margin (%)

2011 16.84

2010 18.48

2009 13.2

2008 13.57

21007 29.01

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Interpretation: Net profit margin ratio is highest in the year 2007 it was decreased in next two years again it was slightly increased in 2010 finally it was decreased to 16.84% in 2011 it indicates company efficiency is also decreased.

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FINDINGS 1. The Dividend payout ratio has increased from 6.25 in 2007 to 34.2 in 2011 which is almost 6times which shows the companys dividend is more compared to its earnings. 2. The EPS of the company was 70.09 in 2007 and fell to 28.26 in 2008. It increased to 52.78 in 2011 which shows the earning power of the company has increased but not to that in the year 2007. 3. The capital gearing ratio is just 3.9 in the year 2007. It increased to 7.6 in 2009 and decreased to 6.67 in 2010. It increased greatly to 17.07 in 2011 again. 4. The dividend per share in the year 2007 is 3.75 and it increased to 11.25 in 2010 and continued the same in 2011. There was an increase in the amount of dividend received by the shareholders for their shares.
5. The dividend yield ratio is 0.07 in 2007; it increased in the further years and reached to a

maximum of 0.19 in 2010 which shows that the dividend paid to the shareholders is higher than the market price compared to the previous years. The ratio again decreased slightly in 2011 to 0.17. 6. The Price earnings ratio is 0.6 in 2007 and increased to 1.5 in 2008. It decreased to 1.1 in 2010 and slightly increased to 1.2 in 2011. This shows that that the investors are not much attracted to invest in the company. 7. The ideal debt-equity ratio is just 0.08 in 2007 and slightly increased to 0.12 in 2009. It again decreased to 0.10 in 2010 and increased greatly to 0.24 in 2011. However, the debt equity ratio of this company is not much favourable. 8. The Equity Dividend Rate is 62.97 in 2007 and increased to 105.3 in 2009. It further increased to 190 in 2010. This shows that the cash on cash return increased which is favourable.

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SUGGESTIONS
1. The dividend payout ratio is not very high. However it is good and the investors receive a

considerable portion of earnings per share in the form of dividends.

2. The earning power of the company decreased around 2008 and it began to increase after

that. In 2011, the earning power of the company is better. 3. It is found that the capital gearing ratio increased greatly in the current year showing the suitability of the companys capitalization.
4. The dividend given to the shareholders almost doubled these two years compared to the

previous years and is higher than the market price compared to the previous years. 5. The P/E ratio increased a lot in the recent years though it decreased slightly in the last two years. The company should see that the investors are attracted to invest in it. 6. The debt equity ratio of the company is too low which is not favourable. The company should therefore increase the debt while reducing the other sources of capital. 7. The cash on cash return increased by 80% in these two years which is favourable.

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CONCLUSION The study on the determinants of dividend policies in Pharmaceutical industry at Dr. Reddys Laboratories was undertaken with an objective of getting an insight into the dividend policies of the industry in general and the payment of the dividends. The study attempts to investigate the consistence of the dividend policy determinants. Further, the study focuses on analyzing the influence of firms characteristics like profitability, growth, risk, cash flows, agency cost and on dividend payment pattern. i.e. to identify various determinants of dividend payout. The study is done using the Balance sheet, Profit and Loss account and other financial information of Dr. Reddys. The entire study is based on the secondary data only. The analytical tools used for the study are ratio analysis. The study is done at Hyderabad for a period of 60days. The study had few limitations which were taken care of. The financial information obtained was analyzed using the appropriate techniques and it was found that the dividend payout ratio of the company has increased a lot which is almost 6 times of that in 2007. The company also showed a high capital gearing ratio and dividend per share. Further, it was found that the price earnings ratio is low. The company is paying out good amount of the dividends to the shareholders which are increased in the recent years. It is also higher compared to the market. So, the company is suggested to maintain the same in the future in order to attract the investors. The company should also improve its debt equity ratio which is currently unfavourable. The company is enjoying the high cash on return which increased by 80% in 2011. This should be continued in the future.

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BIBLIOGRAPHY
1. I.M. Pandey, Financial Management Ninth Edition, Vikas Publishing House Pvt Ltd, 10th

edition, 2009
2. Prasanna chandhra, Financial Management, Tata McGraw-Hill Education, 7th edition,

2008. 3. Dr.R.K. Mittal ,Management Accounting and Financial Management,V.K(india) Enterprises-2010. WEBILIOGRAPHY
1. www.morevalue.com/i-reader/ftp/Ch17.PDF 2. www.freemba.in/articles.php?stcode=10&substcode=30 3. www.wikipedia.org

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Annexure Balance Sheet of Dr Reddys Laboratories(in Rs. Cr)

Mar '11 Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets 84.6 84.60 0.00 0.00 5,935.60 0.00 6,020.20 0.70 1,444.10 1,444.80 7,465.00 Mar '11 3,025.00 1,334.00 1,691.00 570.40 2,462.00 1,063.20 1,770.50 66.2 2,899.90 1,663.80 0 4,563.70 0 1,565.20 256.9 1,822.10 2,741.60 0 7,465.00

Mar '10 84.4 84.40 0.00 0.00 5,830.20 0.00 5,914.60 0.80 562.40 563.20 6,477.80 Mar '10 2,425.70 1,110.10 1,315.60 745.40 2,652.70 897.4 1,060.50 47.9 2,005.80 1,321.40 320.1 3,647.30 0 1,543.80 339.4 1,883.20 1,764.10 0 6,477.80

Mar '09 84.2 84.20 0.00 0.00 5,174.90 0.00 5,259.10 2.60 637.70 640.30 5,899.40 Mar '09 2,157.30 946.5 1,210.80 411.20 1,865.10 735.1 1,419.70 84.3 2,239.10 1,331.20 300.1 3,870.40 0 1,163.30 294.8 1,458.10 2,412.30 0 5,899.40

Mar '08 84.09 84.09 0.00 0.00 4,727.72 0.00 4,811.81 3.40 458.91 462.31 5,274.12 Mar '08 1,750.21 762.8 987.41 245.71 2,080.71 640.93 897.71 67.19 1,605.83 1,272.02 470.15 3,348.00 0 786.36 601.38 1,387.74 1,960.26 0 5,274.09

Mar '07 83.96 83.96 0.00 0.00 4,289.40 0.00 4,373.36 1.92 327.98 329.90 4,703.26 Mar '07 1,291.19 609.15 682.04 280.61 966.99 487.58 1,055.70 148.6 1,691.88 1,028.56 1,308.11 4,028.55 0 731.96 522.97 1,254.93 2,773.62 0 4,703.26

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Profit & Loss account of Dr Reddys Laboratories (in Rs. Cr).

Mar '11 Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) 5,285.80 97.30 5,188.50 117.00 79.00 5,384.50 1,749.50 144.6 702.70 129.50 1,256.70 65.00 0.00 4,048.00 Mar '11 1,219.50 1,336.50 9.9 1,326.60 247.9 26.80 1,051.90 -0.4 1,051.50 158.5 893.4 2,298.50 0 190.4 115.2 1,692.53 52.78 Mar '10 4,469.60 74.00 4,395.60 254.00 117.30 4,766.90 1,599.40 104.1 516.40 117.30 1,036.60 50.60 0.00 3,424.40 Mar '10 1,088.50 1,342.50 16 1,326.50 222.4 19.30 1,084.80 -0.1 1,084.70 238.7 846.1 1,825.00 0 190 31.6 1,688.45 50.11 Mar '09 4,080.40 80.90 3,999.50 212.20 64.10 4,275.80 1,534.00 90 412.50 105.9 1,117.90 45.30 0.00 3,305.60 Mar '09 758 970.20 27.4 942.80 193.6 19.70 729.50 -0.1 729.40 168.6 560.9 1,771.60 0 105.3 17.8 1,684.69 33.29 Mar '08 3,428.40 84.51 3,343.89 197.29 93.87 3,635.05 1,347.33 77.12 366.28 130.35 896.54 37.44 0.00 2,855.06 Mar '08 582.7 779.99 14.69 765.3 161.99 20.71 582.60 -0.06 582.54 108.88 475.22 1,507.73 0 63.06 10.72 1,681.73 28.26 Mar '07 3,872.92 89.66 3,783.26 233.95 23.23 4,040.44 1,144.82 57.83 299.04 155.63 777.06 44.76 0 2,479.14 Mar '07 1,327.35 1,561.30 51.96 1,509.34 133.5 18.16 1,357.68 -0.02 1,357.66 188.99 1,176.86 1,334.32 0 62.97 10.7 1,679.12 70.09

Cash Flow of Dr Reddys Laboratories (in Rs. Cr).

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Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents

Mar '11 1,051.90 246.30 -613.00 61.00 -305.7 371.90 66.20

Mar '10 1,084.80 1,253.20 -1,111.10 -152.20 -10.1 378.10 368.00

Mar '09 729.50 481.30 -743.60 105.60 -156.7 541.10 384.4

Mar '08 584.10 555.87 -1,515.93 46.15 -913.91 1,451.25 537.34

Mar '07 1365.85 893.79 -397.32 316.59 805.77 650.94 1456.71

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