Financial Management Assignment

Company Analysis-Sun Pharmaceutical Inds Ltd & Lupin Ltd

Submitted by:
Sandesh Shetty
Dhaval Somaiya
Sumedh Deshpande

MSc Finance
Batch 2016-18
Contents
Executive Summary ............................................................................................................................. 1
1 Industry Overview ............................................................................................................................. 2
2 Company Snapshot .......................................................................................................................... 8
3 Ratio Analysis .................................................................................................................................. 16
4 DuPont Analysis .............................................................................................................................. 26
5 Fund Flow Analysis......................................................................................................................... 29
6 Cash Flow Analysis ........................................................................................................................ 34
7 Cost of Capital ................................................................................................................................. 37
8 Operating Cycle............................................................................................................................... 42
9 Conclusion ....................................................................................................................................... 44
10 Annexure ........................................................................................................................................ 45
Executive Summary

This project is aimed towards the brief overview of pharmaceutical sector in India and a
detailed analysis and study of the two of the largest firms of Indian pharmaceutical sector:
Sun Pharmaceutical Industries and Lupin Laboratories. The report includes industry
overview and firms detailed analysis using tools, such as ratio analysis, cost of capital
analysis, cash flow analysis, sensitivity to market and stock price movement analysis, funds
flow analysis, Du Pont analysis, GPRV analysis and operating cycle analysis.

Indian pharmaceutical sector accounts for about 2.4 percent of global pharmaceutical
industry in terms of value and 10 percent in terms of volume. India accounts for 20 percent
of global exports in generics. India exported pharmaceutical products worth USD 16.89
billion, with number expected to reach USD 40 billion by 2020.The Countrys pharmaceutical
industry is expected to grow at 12.89 percent CAGR over 2015-2020 to reach USD 55
billion. Apart from excellent performance by industry stalwarts factors, such as cost
efficiency, increase in drug penetration and affordability and a large diversified portfolio, are
boosting the growth. Most importantly Government Support has been pivotal for growth and
success of this sector with measures like 'Pharma Vision 2020' aimed at making India a
global leader in end-to-end drug manufacture, reduced approval time for new facilities to
boost investments and in this sector, 100 percent FDI is allowed under automatic route will
help Indias pharmaceutical sector to excel in global arena.

Lupin Industries, from a global leader in anti-tuberculosis (TB) and other infectious diseases
to one of the fastest growing prescription companies in the US. The current financial health
of the company is the culmination of prudent business decisions in the past. Over the last 10
years, revenues, EBITDA and PAT have grown at a CAGR of 24%, 29% and 29%,
respectively. Considering more recent numbers, in FY11-16, the revenue, EBITDA and PAT
have grown at a CAGR of ~20%, ~26% and ~21% to Rs.14208.5 crore, Rs. 3733.4 crore
and Rs. 2270.7 crore, respectively. Similarly, during the same period, the R&D expense as a
percentage of sales has gone up from 8.2% to 11.3%. Therefore, Lupin is found to be
following the strategy of an aggressive expansion using large capex expenditure to fuel
growth and gear up to be a major global player.

Established in 1983, Sun Pharma is the largest Indian pharmaceutical company both in
terms of market capitalization and turnover (FY16). It owns the largest product basket
among Indian players with as many as 572 product (ANDA) filings. For Sun Pharma, sales
grew at a CAGR of 38% to Rs. 28563 crore; EBIDTA grew at a CAGR of ~35% to Rs.
8724.3 crore; Adjusted PAT grew at a CAGR of 22.3% to Rs. 4967.5 crore. Indian
formulations, which form 26% of the turnover, have grown at a CAGR of 24.2% in FY11-16.
Currently, Sun Pharma is found to be struggling with operations on standalone basis but
continues to grow due to strong performance of its subsidiaries and it is found to be trying to
turnaround the standalone operations and emerge as a stronger leader in world market.

1
1 Industry Overview

Pharmaceutical Sector in India

The India Advantage

Cost Efficiency Economic Drivers

->Low Cost Production and R&D Boosts efficiency of Indian ->Economic prosperity to improve drug affordablity
Pharma Companies
->Increasing penetration of health insurance
->India's Cost of production is 60 percent lower than that of US
->With increasing penetration of chemists,especially in rural
and almost half of that of europe
India, OTC drugs will be readily available
->Due to lower cost of treatment,India is emerging as a leading
destination for medical tourisim
Advantage India
Diversified Portfolio
Policy Support
->Accounts for percent of the global pharmaceutical
production.Current Market size is USD 36.7billion ->Government unvield 'Pharma Vision 2020' aimed at making
India a global leader in end-to-end drug manufacture
->Over 60,000 generic brands across 60 therapeutic categories.
Manufactures more than 500 diffrent APIs ->Reduced approval time for new facilities to boost investments
->35.7 percent of all drug master filings from India is registered in ->In this sector,100 percent FDI is allowed under automatic route
USA in 2015

Prospects of Indian pharmaceutical sector

2
Structure of Pharma sector in India

Pharmaceuticals

Active
Pharmaceutical
Ingridients/Bulk Formulations
druga

Branded Generics Chronic Acute

Revenue of Pharmaceutical sector

The Indian pharmaceuticals market increased at a CAGR of 17.46 per cent in 2015
from USD6 billion in 2005 and is expected to expand at a CAGR of 15.92 per cent
USD55 billion by 2020
By 2020, India is likely to be
among the top three
pharmaceutical markets by
incremental growth and sixth
largest market globally in
absolute size
Indias cost of production is
significantly lower than that of
the US and almost half of that
of Europe. It gives a
competitive edge to India over
others.
Increase in the size of middle class households coupled with the improvement in
medical infrastructure and increase in the penetration of health insurance in the
country will also influence in the growth of pharmaceuticals sector.
The Indian pharmaceuticals market witnessed growth at a CAGR of 17.90 per cent,
during 2005-16, with the market increasing from USD6 billion in 2005 to USD 36.7
billion in 2016

3
 Drug sales more than double by 2015 (compared to 2008) in all segments

The share of generic drugs is expected to continue increasing; it could represent

about 85 per cent of the prescription drug market by 2016
Domestic generic drug market is expected to reach USD27.9 billion in 2020
Due to their competence in generic drugs, growth in this market offers a great
opportunity for Indian firms
Generic drug market is expected to grow in the next few years, with many drugs
going off-patent in the US and other countries
Domestic generic drug market has reached USD26.1 billion in 2016

PORTERS FIVE FORCE MODEL

Pharmaceutical Industry Analysis

Number of Total Fixed Working Productive Invested Outstanding

Year factories employees capital capital capital capital loans Rent
Rs.
Numbers Numbers Rs. million Rs. million Rs. million Rs. million Rs. million million
2013-
14 4,961 617,977 831,603.50 699,487.20 1,531,090.70 1,258,570.40 286,148.70 9,959.90

4
Trends in profitability ratio

40%
30%
20% PAT margin
10% EBIT margin
0% EBDITA margin

2008-09

2010-11
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08

2009-10

2011-12
2012-13
2013-14
2014-15
All profit margin ratios are showing cyclic trend over the period of time. Drug Price Control
Order, 2013 (DPCO) continues to have an adverse impact on the operating profits of the
Pharmaceutical business, to mitigate the risk cost containment measure undertaken resulted
in an increase in the operating profit.

Trends in Return on Total Asset (ROTA)

ROTA
25%
20%
15%
10%
5% ROTA
0%
2008-09
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08

2009-10
2010-11
2011-12
2012-13
2013-14
2014-15

Returns on total assets have shown less volatility over the period of time. Steady return
implies a more financially stable business.

Trends in DSO, DIV and RM days

100

50 RM Days

0 DIV
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15

DSO

Raw material (RM) days are showing upward trend which could result in an increase in
operating cost affecting margins and returns. Finished goods inventory is kept for small
duration which indicates robust sales. Upward trend in days sale outstanding (DSO) shows
sale is done on credit which could affect liquidity.

5
Trends in leverage

10
8
6
4 D/E
2
0 Interest Cover

1998-99
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98

1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Industry has low exposure to debt; also lower debt to equity ratio usually implies a more
financially stable business. Looking at interest cover number industry is making more than
enough money to pay its interest obligations with some extra earnings left over to make the
principle payments.

Trends in cash flow

200000
Cash flow from operating
100000 activities
Cash inflow from investing
0
activities

-100000 Cash flow from financing

activities
-200000

Negative trend in cash flow from investing activity implies investment in business expansion
which helped in improving cash flow from operations. Cash flow from financing activities has
shown cyclic trend over the period of time.

Trends in import export

1,500,000.00
1,000,000.00 Import
500,000.00 (Rs. million )
0.00
Export
(Rs. Million)

Industry is net exporter plus exports are showing upward trends implies high growth
prospectus for the industry. Export driven growth strategy would help industry to insulate
itself from an impact of regulatory intervention by the Indian government.

6
Index PE and Liquidity

Number of companies in the

Year Index Index PE Liquidity
2015-16 115 34.03 0.74

Conclusion:

Pharmaceutical sector in India has a huge untapped potential, although currently it is one of
the fastest growing industries in India. Currently the market size of Indian Pharmaceutical
industry is USD 36.7billion and is expected to grow to USD 55billion by 2020.With extensive
government support allowing 100% FDI under automatic route and significant measures like
National Health Policy Draft 2015 to increase expenditure in health care sector, Patent Act
2015 amendment of Patent act 2002. New Drug Pricing Control Order issued by Directorate
of Food and Drugs this will reduce the prices of drugs by 80 per cent the future of Indian
pharmaceutical sector is bright and is gearing up to become a world leader in this sector.
Leading Indian pharma companies are raising funds aggressively to fund acquisition in
domestic as well as international market to increase their product portfolios. The Major
players in the sector are growing at a good steady rate of 10%-25% which is quite higher
than their international peers. Hence, the government encouragement and support and
excellent performance by market players have set a stage to make India a dominant player
in global arena.

7
2 Company Snapshot

Sun Pharma
Established in 1983, Sun Pharma is the largest Indian pharmaceutical company both in
terms of market capitalisation and turnover (FY16). The company manufactures and markets
a large basket of pharmaceutical formulations in India, the US and several other markets
across the world. However, the US and Indian formulations are by far the core strengths and
growth drivers for the company. The US business has been built mostly on acquisitions and
generic focus. It owns the largest product basket among Indian players with as many as 572
product (ANDA) filings.

In Indian formulations, the company is a leader in niche therapy areas of psychiatry,

gastroenterology, neurology, cardiology, nephrology, orthopaedics & ophthalmology. The
company completed the $3.2 billion acquisition of Ranbaxy Laboratories after almost a year
of navigating the regulatory gauntlet to create the worlds fifth-biggest generic
pharmaceutical company by revenue. The company is planning a capex of US$250 million
for Tildrakizumab, the IL-23 monoclonal anti-body in-licensed from MSD (US) over a period
of 4-5 years to be utilized for its psoriasis trials.

8
A snapshot of galloping performance in the last five years

Sales grew at a CAGR of 38% to 28563 crore; EBIDTA grew at a CAGR of ~35% to 8724.3
crore; Adjusted PAT grew at a CAGR of 22.3% to 4967.5 crore. Indian formulations, which
form 26% of the turnover, have grown at a CAGR of 24.2% in FY11-16. With a market share
of 8.9%, the company is ranked one (standalone) in domestic formulations. The acute,
chronic and sub-chronic segments were at 41%, 45% and 14% of revenues, respectively. It
is a leader in at least seven therapeutic categories. Five of them are chronic therapies.
Indian formulation growth was unaffected despite NLEM 2011 implementation vagaries and
channel disturbances due to trade margin issues with wholesalers/distributors. Revenues
coming under the price control list are just ~9.7% of Indian formulations sales.

Stock Performance of Sun Pharma

Sun Pharma V/s Nifty Pharma V/s BSE Sensex

500.00%

400.00%

300.00% Sun Pharma

200.00% Nifty Pharma

BSE Sensex
100.00%

0.00%
Axis Title

Sun Pharmas stock has given 206% return over the last 5 years. It has outperformed Nifty
Pharma Index and BSE sensex by 64% and 146% respectively. Nifty Pharma has given
142% return over last five years and 60% return over last five years. Hence Lupin has
outperformed the market as well as the pharma industry.

9
 SWOT Analysis

Strenghts
1. Strong growth in emerging
market business
2. Introduction of Pantoprazole &
Eloxatin in US market has very Weakness
limited competition 1. Stiff competition from many
3. They have strong marketing & Indian and other global brands
sales force of over 12,000 means limited market share
employees growth
4. They have successfully 2. Limited presence in emerging
acquired Taro pharma which has markets and European countries
further consolidated their position
in Indian markets
5. Strong brand presence in India
and US marketsz

Opportunity
1. They can leverage their Threats
acquisitions to further increase the
1. There is growing competition in
growth
generics market
2. They can increase their
2. Stringent patent regulations
presence in contract
manufacturing 3. High price sensitivity of
consumers
3. Increasing healthcare
awareness in India

Future Prospect:

Sun Pharmas outlook on the organic as well as inorganic front has been aggressive in past
few years. Taros robust Q4 Numbers and gGleevecs exclusivity is an indicator of a bright
future for the firm yet there are many challenges in front of the management of the firm. The
management too projects a revenue growth of 8-10% owing to the residual traction from
gGleevec (four months exclusivity), Japanese traction from H2 and likely product launches in
H2FY17 from Halol (assuming USFDA resolution).There is an expectation of some genuine
pricing pressure in the US base business. The proposed buy-back may be perceived
negatively given the companys knack of deploying cash for successful acquisitions in the
past. On the Tildrakizumab front, the progress is encouraging. In the near term Halol, US
base business headwinds likely to weigh. Hence, if the firm is able to successfully mitigate
these risks it may continue to be a market leader for years to come.

10
LUPIN
From a global leader in anti-tuberculosis (TB) and other infectious diseases to one of the
fastest growing prescription companies in the US, Lupin has come a long way to emerge as
a leading Indian generic exporter. Established in 1968, the company adapted well as per the
changed industry dynamics like other peers such as Sun, Dr Reddys, Ranbaxy and Cipla.
During this journey, it changed focus in therapies - from acute to chronic and also
geographies, from domestic driven to export oriented. It received USFDA approvals for two
facilities-Ankaleshwar and Mandideep way back in 1989. Besides this, the company has
been fairly active on the global M&A front. It has acquired companies in Japan (significant
acquisitions), Australia, Philippines and South Africa. Similarly, the company also acquired
small ticket but lucrative brands in the US (Suprax, Antara, Locoid lotion, Inspira Chamber
and Alinia). Its latest acquisition, however, has been a complex injectable technology based
company (Nanomi) in the Netherlands. Infrastructure - 11 manufacturing facilities including
two in Japan seven formulations (three USFDA approved) and four APIs (two USFDA
approved).

Lupin is the fifth largest generics player in the US in terms of prescriptions. It owns a healthy
product pipeline (including Gavis) in the US (336 ANDAs filed, 149 pending approvals and
187 approvals), which includes some limited competition products and 45 FTFs
opportunities. It is planning to launch more than 150 (100 owns and 50 from GAVIS)
products in the US market in the next four or five years. Acquisition of Gavis will also
strengthen its position in dermatology, controlled substance products and other high value
niche generics segments besides its maiden foray into US institutional business. Lupin is
one of the few generic companies that has a presence in the branded business. Currently, it
is marketing four branded products in the US market, including two that were in-licensed in
the last 12 months.

Fig: Geographical revenue distribution Fig: Annual Sales Trend of Lupin in US

11
 Fig: Annual Sales Trend of Lupin in India Fig: R&D Trend of Lupin

Lupins sales trend in US and India has been increasing at a steady rate over past 6-7 years.
Lupins strength is its inclination towards constant innovation strategy, its R&D trend over
last couple years has been really strong.

Fig: Profitability Trend of Lupin

The current financial health of the company is the culmination of prudent business decisions
in the past. Over the last 10 years, revenues, EBITDA and PAT have grown at a CAGR of
24%, 29% and 29% respectively. Considering more recent numbers, in FY11-16, the
revenue, EBITDA and PAT have grown at a CAGR of ~20%, ~26% and ~21% to 14208.5
crore, 3733.4 crore and 2270.7 crore, respectively. Similarly, during the same period, the
R&D expenses as a percentage of sales has gone up from 8.2% to 11.3%.

12
Stock Performance of Lupin

500.00% Lupin V/s Nifty Pharma V/s BSE Sensex

450.00%
Lupin
400.00%
Nifty Pharma
350.00%
BSE Sensex
300.00%

250.00%

200.00%

150.00%

100.00%

50.00%

0.00%
18-Nov-10 26-Jul-11 01-Apr-12 07-Dec-12 14-Aug-13 21-Apr-14 27-Dec-14 03-Sep-1510-May-16 15-Jan-17

Lupins stock has given 216% return over the last 5 years. It has outperformed Nifty Pharma
Index and BSE sensex by 74% and 155% respectively. Nifty Pharma has given 142% return
over last five years and 60% return over last five years. Hence, Lupin has outperformed the
market as well as the pharma industry.

13
 SWOT Analysis

Strenghts
1. World wide leader in
Cephalosporin and Anti TB drugs Weakness
2. Considerable presence in
1. High dependence on global
market for drugs against Asthma,
formulation business with 84%
Pediatrics, Diabetes, and CNS
revenue coming from US market
boosts the sales
3. Forecasting done on
3. In the US and Japanese market
technological level is less
it is the largest generic player
4. Acquisition of Irom pharma 4. It operates in low growth
helped to increase its product list segments such CNS, respiratory
and in turn sales diseases
5. Wide global footprint as it is
present in over 70 countries

Opportunities
1. They can leverage their Threats
acquisitions to further increase the 1. Unsuccessful assimilation of
growth questions
2. They can increase their 2.Rigid opposition both from locals
presence in contract and global company
manufacturing 3. Soaring cost of discovering
3. Increasing healthcare novel products
awareness in India

Future Prospect:

From a long term perspective, Lupin is well poised to grow at a healthy rate given the strong
US pipeline, vast experience and good understanding of the US market, continued traction in
Indian branded formulations with higher chronic focus and improvement in the Japanese
market, which is perhaps the only geography where there is a scope for improvement. On
the R&D front, the composition spend is tilting towards NDDS, NCEs, biosimilars from the
current ANDA/NDA albeit gradually to prepare for the scenario beyond 2020. With a strong
product pipeline in both the generic and branded space high sales growth is expected.
Robust US growth mainly due to Gavis consolidation, gGlumetza exclusivity and price hike
in gFortamet is expected. Besides incremental R&D and capex, the pricing is likely to put
pressure on the margins. However, the management believes in countering the same by
new launches and cost controls. With one of the strongest pending pipelines in the US (149
pending approvals) at its disposal, the company
is well poised to address the pricing issue. Hence, it seems Lupin has a good foresight and
is ready to embrace the upcoming challenges and is well poised to increase its market share
further.

14
Segment Reporting

Sun Pharmaceutical Industries

Limited
100%

80%

60%
Outside India
40% India

20%

0%
2016 2015 2014 2013 2012

Sun Pharma ( in Crores)

2016 2015 2014 2013 2012
India 7594.76 6979.73 3941.16 3202.09 3050.61
Outside India 20397.39 20538.47 12258.35 8206.62 50622.4

Lupin Ltd
100%

80%
Others
60%
Japan
40%
USA
20% India
0%
2016 2015 2014 2013 2012

Lupin ( in Millions)
2016 2015 2014 2013 2012
India 39139 33848.9 28641 26044.3 21506.8
USA 60117.1 54747.3 48299.9 38198.3 24637.2
Japan 13697.5 13269 12997.9 13151.1 8680.1
Others 29131.1 25834.9 22926.9 19019.3 16005

US is a major market for both the companies, Sun Pharma (47% of turnover) and Lupin
(43% of turnover). From the above graph, it can be seen that while Sun Pharma has
decreased its presence in India, Lupin has maintained a steady market share.

15
3 Ratio Analysis

Profitability Ratios

1) EBITDA Margin:

2012 2013 2014 2015 2016

EBITDA Margin of Sun Pharma 45.84% 41.61% 31.32% 29.85% 29.20%
EBITDA Margin of Lupin 20.60% 23.83% 27.64% 30.22% 27.74%

50.00%
40.00%
30.00% EBITDA Margin of Sun
Pharma
20.00%
EBITDA Margin of Lupin
10.00%
0.00%
2012 2013 2014 2015 2016

EBITDA Margin of Sun Pharma is greater than Lupin; thus, we can conclude that Sun
Pharma has good pricing power and commands higher price for its products and can take
any cost pressure, which may arise due to competition.

2) EBIT Margin

2012 2013 2014 2015 2016

EBIT Margin of Sun Pharma 42.21% 38.63% 28.78% 25.49% 25.62%
EBIT Margin of Lupin 17.39% 20.39% 25.32% 26.82% 24.48%

60.00%

40.00%
EBIT Margin of Sun Pharma
20.00%
EBIT Margin of Lupin
0.00%
2012 2013 2014 2015 2016

16
 3) PBT Margin

2012 2013 2014 2015 2016

PBT Margin of Sun Pharma 41.85% 38.24% 28.50% 23.38% 23.93%
PBT Margin of Lupin 16.89% 19.96% 25.09% 26.74% 24.16%

50.00%

40.00%

30.00%
PBT Margin of Sun Pharma
20.00%
PBT Margin of Lupin
10.00%

0.00%
2012 2013 2014 2015 2016

4) PAT Margin

2012 2013 2014 2015 2016

PAT Margin of Sun Pharma 33.13% 26.40% 19.54% 16.57% 16.68%
PAT Margin of Lupin 12.25% 13.63% 16.27% 18.82% 15.98%

35.00%
30.00%
25.00%
20.00%
PAT Margin of Sun Pharma
15.00%
PAT Margin of Lupin
10.00%
5.00%
0.00%
2012 2013 2014 2015 2016

17
Cost Ratio

1) RM Cost as a % of Sales

2012 2013 2014 2015 2016

RM Cost as a % of Sales for Sun Pharma 19.31% 17.74% 16.71% 24.12% 22.44%
RM Cost as a % of Sales for Lupin 36.69% 36.70% 33.48% 31.95% 29.93%

40.00%

30.00%
RM Cost as a % of Sales for
20.00% sun pharma
RM Cost as a % of Sales for
10.00% Lupin

0.00%
2012 2013 2014 2015 2016

The RM cost for Sun Pharma is lower compared to Lupin. This ensures higher profit margin
for Sun Pharma.

2) Employee Cost as a % of sales

2012 2013 2014 2015 2016

Employee Cost as a % of sales for Sun
13.99% 13.13% 12.47% 16.12% 16.61%
Pharma
Employee Cost as a % of sales for
13.66% 13.10% 12.84% 13.43% 14.64%
Lupin

20.00%

15.00%
Employee Cost as a % of sales
10.00% for Sun Pharma
2) Employee Cost as a % of
5.00% sales for Lupin

0.00%
2012 2013 2014 2015 2016

Employee cost as a % of sales is identical for both the companies which is in line with the
industrial average

18
Activity Ratio

1) Turnover of Investment

2012 2013 2014 2015 2016

Turnover of Investment of Sun Pharma 0.64 0.74 0.77 0.82 0.71
Turnover of Investment of Lupin 1.2893 1.5606 1.5079 1.3665 0.7848

1.5
Turnover of Investment of Sun
1 Pharma
Turnover of Investment of
0.5
Lupin
0
2012 2013 2014 2015 2016

Lupin has higher Turnover of Investment indicating that it is operationally more efficient than
Sun Pharma

2) Fixed Asset Turnover Ratio (FATOR)

2012 2013 2014 2015 2016

Fixed Asset Turnover Ratio of Sun Pharma 2.45 2.23 2.76 2.49 2.12
Fixed Asset Turnover Ratio of Lupin 2.6337 3.439 3.7599 3.8743 1.6449

5
4
3 Fixed Asset Turnover Ratio of
Sun Pharma
2
Fixed Asset Turnover Ratio of
1 Lupin

0
2012 2013 2014 2015 2016

Sun Pharma has a higher FATOR compared to Lupin indicating that it has more effectively
utilised its investments in fixed assets to generate revenue

19
 3) Current Asset Turnover Ratio (CATOR)

2012 2013 2014 2015 2016

Current Asset Turnover Ratio of Sun
0.78 0.98 0.86 0.95 0.92
Pharma
Current Asset Turnover Ratio of Lupin 0.2019 0.2555 0.301 0.3068 0.2322

1.2
1
0.8 Current Asset Turnover Ratio
0.6 of Sun Pharma
0.4 Current Asset Turnover Ratio
0.2 of Lupin
0
2012 2013 2014 2015 2016

Current Ratio of Sun Pharma is higher compared to Lupin indicating that Sun Pharma is
capable of generating more revenue per rupee invested in Current assets

4) Debtors Turnover Ratio

2012 2013 2014 2015 2016

Debtors Turnover Ratio of Sun Pharma 3.91 4.75 7.4 5.42 4.2
Debtors Turnover Ratio of Lupin 4.1142 4.4368 4.6131 4.8422 3.1457

6
Debtors Turnover Ratio of Sun
4 Pharma

2 Debtors Turnover Ratio of

Lupin
0
2012 2013 2014 2015 2016

Debtors turnover ratio is high for Sun Pharma, indicating that the firm is conservative in
lending credit to its customers.

20
 5) Days Sales Outstanding (DSO)

2012 2013 2014 2015 2016

Days Sales Outstanding of Sun Pharma 286 295 256 411 526
Days Sales Outstanding of Lupin 729 607 490 403 731

800
700
600
500 Days Sales Outstanding of
400 Sun Pharma
300 Days Sales Outstanding of
200 Lupin
100
0
2012 2013 2014 2015 2016

DSO for Lupin is higher than indicating that it takes more time to collect receivables hence it
should improve on its credit policies

6) Inventory Turnover Ratio

2012 2013 2014 2015 2016

Inventory Turnover ratio of Sun Pharma 4.6 3.24 3.23 3.69 3.13
Inventory Turnover ratio of Lupin 7.39 8.93 9.03 8.21 6.96

10
9
8
7
6 Inventory Turnover ratio of
5 Sun Pharma
4 Inventory Turnover ratio of
3 Lupin
2
1
0
2012 2013 2014 2015 2016

Lupin has higher inventory turnover ratio indicating that it sells its inventory faster compared
to Sun Pharma

21
 7) Days of Inventory

2012 2013 2014 2015 2016

Days of Inventory of Sun Pharma 79 113 113 99 117
Days of Inventory of Lupin 49 41 40 44 52

140
120
100
Days of Inventory of Sun
80
Pharma
60
Days of Inventory of Lupin
40
20
0
2012 2013 2014 2015 2016

DIV is higher for Sun Pharma indicating that it would take more number of days to sell its
entire inventory

Liquidity Ratio

1) Current Ratio

2012 2013 2014 2015 2016

Current Ratio of Sun
3.9 4 3.1 1.5 1.8
pharma
Current Ratio of Lupin 1.3931 1.7104 2.32 1.37 1.29

3 Current Ratio of Sun

pharma
2 Current Ratio of Lupin
1

0
2012 2013 2014 2015 2016

Sun Pharma has higher current ratio compared to Lupin, indicating that Sun Pharma is in a
better position to meet its short term debt obligation

22
 2) Quick Ratio

2012 2013 2014 2015 2016

Quick Ratio of Sun Pharma 3.1 3.1 2.6 1.2 1.5
Quick Ratio of Lupin 0.8314 1.0623 1.5101 0.93 0.87

3.5
3
2.5
2
Quick Ratio of Sun Pharma
1.5
Quick Ratio of Lupin
1
0.5
0
2012 2013 2014 2015 2016

Sun Phrama has higher Quick ratio than Lupin; thus, it has more liquid assets to meet its
short term obligations.

3) Acid test ratio

2012 2013 2014 2015 2016

Acid test Ratio of Sun Pharma 1.3 1.4 1.3 0.6 0.8
Acid test Ratio of Lupin 0.13 0.14 0.30 0.08 0.11

1.5

1 Acid test Ratio of Sun

Pharma
0.5 Acid test Ratio of Lupin

0
2012 2013 2014 2015 2016

The Acid test ratio of Sun Pharma is higher than Lupin, which indicates that it has more
liquid assets to service its short term debt obligations.

23
Leverage Ratio

1) Debt to Equity Ratio

2012 2013 2014 2015 2016

Debt to Equity Ratio of Sun pharma 0.01 0.01 0.33 0.24 0.26
Debt to Equity Ratio of Lupin 0.37 0.19 0.08 0.05 0.65

0.7
0.6
0.5
Debt to Equity Ratio of sun
0.4
pharma
0.3
Debt to Equity Ratio of Lupin
0.2
0.1
0
2012 2013 2014 2015 2016

The debt to equity ratio of both the companies is low, which indicates its less dependence on
debt. Sun Phrama has lower debt to equity ratio, which indicates it is dependent on internal
sources rather than debt.

2) Interest Coverage ratio

2012 2013 2014 2015 2016

Interest coverage ratio of Sun pharma 120.02 101.13 104.71 12.059 15.186
Interest coverage ratio of Lupin 34.721 47.999 107.25 349.1 77.939

400
300 Interest coverage ratio of Sun
200 pharma
100 Interest coverage ratio of
Lupin
0
2012 2013 2014 2015 2016

The Interest coverage ratio of Sun Pharma is higher than Lupin. Thus, Sun Pharma is in a
better position to service its debt obligations.

24
 3) Security Coverage Ratio

2012 2013 2014 2015 2016

Security Coverage ratio of Sun pharma 0.05 0.02 0.01 0.12 0.23
Security Coverage ratio of Lupin 0.16 0.09 0.05 0.03 0.62

0.70
0.60
0.50
Security Coverage ratio of
0.40
Sun pharma
0.30
Security Coverage ratio of
0.20 Lupin
0.10
0.00
2012 2013 2014 2015 2016

The security coverage ratio of Sun Pharma is lower than Lupin. Thus, Sun Pharma is in a
better position to borrow additional funds

25
4 DuPont Analysis
Sun Pharma
DuPont Analysis of SUN Pharmaceutical Industries Limited
Financial Statement Data ( in Crores) 2016 2015 2014 2013 2012
Sales 28,269.71 27,392.01 16,080.36 11,299.86 8,019.49
EBIT 7242.17 6981.89 4627.28 4364.58 3384.67
Interest Expense (Non-0perating) 476.89 578.99 44.19 43.16 28.20
Tax Expense 934.90 914.69 702.17 845.55 313.2
Net Income (Income for Primary EPS) 4715.91 4539.38 3141.47 2983.06 2656.69
Assets 54,219.55 48,798.50 29,370.82 20,582.68 16,474.0
Equity 31,404.2 25,623.2 18,525.0 14,989.7 12,235.8

Three-Step DuPont Model:

Net Profit Margin (Net Income Sales) 16.68% 16.57% 19.54% 26.40% 33.13%
Asset Turnover (Sales Average Assets) 54.88% 70.08% 64.38% 60.99% 97.36%
Equity Multiplier (Average Assets Average Equity) 180.65% 177.06% 149.05% 136.11% 134.64%
Return on Equity (Sun) 16.5% 20.6% 18.7% 21.9% 43.4%

Five-Step DuPont Model:

Pre-Interest Pretax Margin (EBIT Sales) 25.62% 25.49% 28.78% 38.63% 42.21%
Asset Turnover (Sales Average Assets) 54.88% 70.08% 64.38% 60.99% 97.36%
Interest Burden [(EBIT - Interest Expense) EBIT] 93.42% 91.71% 99.05% 99.01% 99.17%
Tax Efficiency [1 - (Tax Expense (EBIT - Interest Expense))] 86.18% 85.71% 84.68% 80.43% 90.67%
Equity Multiplier (Average Assets Average Equity) 180.65% 177.06% 149.05% 136.11% 134.64%
Return on Equity (Sun) 20.4% 24.9% 23.2% 25.5% 49.7%

Three-Step DuPont Model

200.00%
Net Profit Margin (Net Income
150.00% Sales)
100.00% Asset Turnover (Sales
50.00% Average Assets)

0.00% Equity Multiplier (Average

Assets Average Equity)
2016 2015 2014 2013 2012

Five-Step DuPont Model

200.00%
Pre-Interest Pretax Margin
150.00% (EBIT Sales)
100.00%
50.00% Asset Turnover (Sales
0.00% Average Assets)
2016 2015 2014 2013 2012

26
Lupin
DuPont Analysis of Lupin Ltd
Financial Statement Data (Rs million) 2016 2015 2014 2013 2012
Sales 1,42,084.7 1,27,700.1 1,12,865.7 96,413.0 70,829.1
EBIT 34,776.5 34,246.4 28,583.0 19,655.5 12,315.4
Interest Expense (Non-0perating) 446.2 98.1 266.5 409.5 354.7
Tax Expense 11,535.8 9,704.0 9,621.5 5,841.6 3,085.6
Net Income (Income for Primary EPS) 22,706.9 24,032.4 18,363.7 13,141.6 8,676.5
Assets 2,24,377.5 1,31,377.4 1,02,060.3 89,138.6 79,340.2
Equity 1,09,843.7 88,740.6 69,315.7 52,041.8 40,128.9

Three-Step DuPont Model:

Net Profit Margin (Net Income Sales) 15.98% 18.82% 16.27% 13.63% 12.25%
Asset Turnover (Sales Average Assets) 79.88% 109.41% 118.06% 114.45% 178.55%
Equity Multiplier (Average Assets Average Equity) 179.15% 147.69% 157.55% 182.79% 197.71%
Return on Equity (Lupin) 22.9% 30.4% 30.3% 28.5% 43.2%

Five-Step DuPont Model:

Pre-Interest Pretax Margin (EBIT Sales) 24.48% 26.82% 25.32% 20.39% 17.39%
Asset Turnover (Sales Average Assets) 79.88% 109.41% 118.06% 114.45% 178.55%
Interest Burden [(EBIT - Interest Expense) EBIT] 98.72% 99.71% 99.07% 97.92% 97.12%
Tax Efficiency [1 - (Tax Expense (EBIT - Interest Expense))] 66.40% 71.58% 66.02% 69.65% 74.20%
Equity Multiplier (Average Assets Average Equity) 179.15% 147.69% 157.55% 182.79% 197.71%
Return on Equity (Lupin) 23.0% 30.9% 30.8% 29.1% 44.2%

Three-Step DuPont Model

250.00%
Net Profit Margin (Net Income
200.00%
Sales)
150.00%
Asset Turnover (Sales
100.00%
Average Assets)
50.00%
Equity Multiplier (Average
0.00%
Assets Average Equity)
2016 2015 2014 2013 2012

27
 Five-Step DuPont Model
250.00%
Pre-Interest Pretax Margin
200.00% (EBIT Sales)
Asset Turnover (Sales
150.00% Average Assets)
Interest Burden [(EBIT -
100.00% Interest Expense) EBIT]
Tax Efficiency [1 - (Tax Expense
50.00% (EBIT - Interest Expense))]
Equity Multiplier (Average
0.00% Assets Average Equity)
2016 2015 2014 2013 2012

Both the companies have similar EBIT margin, i.e. around 25%, which is higher when
compared with industry average of 19%.

Asset Turnover ratio of Lupin (79%) is higher than Sun Phrama (54%), which indicates better
utilisation of assets by Lupin compared to Sun Pharma.

Interest Burden for Lupin is higher than Sun Pharma, thus Interest outgo as a percentage of
EBIT is higher for Sun Pharma.

Tax burden is higher for Sun Pharma when compared to Lupin. Hence, Tax outgo is more
for Lupin compared to Sun

Equity Multiplier for both the companies is identical, indicating that both the companies are
similar in terms of leverage

28
5 Fund Flow Analysis
Sun Pharmaceutical Industries Limited
Fund Flow Analysis-Sun Pharma 2015-16
( in Crores)
Short term Source Short term Uses
Trade payables 203.04 Short term borrowings 1,006.55
Current investments 1,402.15 other current liabilities 1,160.35
Short term provisions 935.29
other current assets 2,532.78 Inventories 755.64
trade recievables 1,689.76
Cash and cash equivalents 2,991.21
short term loans and advances 447.14
Decrease in NWC 4847.97
Total 8,985.9 Total 8,985.94
Long term sources Long term Uses
Share Capital 33.54 Share Suspense account 33.48
Reserves and Surplus 5,780.97 Share application money pending allotment 14.23
Minority interest 1,234.06 Deferred Tax Liabilities(Net) 13.70
Long term Borrowings 1,748.31 Long term provisions 452.64
other Long Term Liabilities 37.37 Tangible assets 580.74
Capital Work in progress 328.31 Intangible Assets 2,064.52
Non current Investment 5.55 Intangible assets under Development 23.53
Goodwill on consolidation (Net) 480.15
Deferred Tax assets(Net) 360.57
Long Term assets and Advances 255.53
other Non current assets 41.05
Decrease in NWC 4847.97
Total 2,93,47,120.11 Total 9,168.11

Fund Flow Analysis-Sun Pharma 2014-15

( in Crores)
Short term Source Short term Uses
Short term borrowings 3787.58 Current investments 118.97
Trade payables 1958.28 Inventories 2544.98
other current liabilities 2019.18 trade recievables 2905.71
Short term provisions 2392.18 Cash and cash equivalents 3407.89
short term loans and advances 948.70
other current assets 303.04
Decrease in NWC 72.07
Total 10229.29 Total 10229.29
Long term sources Long term Uses
Share Suspense account 33.48 Deferred Tax Liabilities(Net) 200.36
Reserves and Surplus 7064.76 Long term provisions 69.28
Share application money pending allotment 14.90 Tangible assets 3477.00
Minority interest 930.01 Intangible Assets 521.85
Long term Borrowings 1319.75 Capital Work in progress 690.23
other Long Term Liabilities 177.20 Intangible assets under Development 506.84
Non current Investment 188.69 Goodwill on consolidation (Net) 1866.34
Deferred Tax assets(Net) 640.26
Long Term assets and Advances 1629.32
other Non current assets 55.24
Decrease in NWC 72.07
Total 9728.79 Total 9728.79

29
 Fund Flow Analysis-Sun Pharma 2013-14
( in Crores)
Short term Source Short term Uses
Short term borrowings 2,357.39 Current investments 693.24
Trade payables 270.27 Inventories 545.25
other current liabilities 41.76 Cash and cash equivalents 3,531.44
Short term provisions 478.92 short term loans and advances 164.95
trade recievables 211.81 other current assets 2,460.36
Decrease in NWC 4035.1
Total 7,395.25 Total 7,395.24
Long term sources Long term Uses
Share Capital 103.56 Long term Borrowings 66.59
Reserves and Surplus 3,431.66 Tangible assets 337.74
Minority interest 286.10 Intangible Assets 130.39
Deferred Tax Liabilities(Net) 70.32 Capital Work in progress 278.93
other Long Term Liabilities 0.20 Goodwill on consolidation (Net) 701.67
Long term provisions 1,814.56 Deferred Tax assets(Net) 269.10
Non current Investment 318.79 Long Term assets and Advances 213.42
other Non current assets 7.75 Decrease in NWC 4,035.1
Total 6,032.94 Total 6,032.9

Fund Flow Analysis-Sun Pharma 2012-13

( in Crores)
Short term Source Short term Uses
Trade payables 65.27 Short term borrowings 26.62
Short term provisions 329.12 other current liabilities 145.01
Current investments 318.69 Inventories 490.78
other current assets 24.37 trade recievables 333.49
Cash and cash equivalents 691.52
short term loans and advances 36.93
Decrease in NWC 986.9
Total 1,724.35 Total 1,724.35
Long term sources Long term Uses
Reserves and Surplus 2,753.95 Long term Borrowings 40.16
Minority interest 473.63 Tangible assets 546.93
Deferred Tax Liabilities(Net) 50.15 Intangible Assets 1,038.06
other Long Term Liabilities 0.01 Capital Work in progress 217.96
Long term provisions 648.33 Goodwill on consolidation (Net) 111.14
other Non current assets 9.55 Non current Investment 517.39
Deferred Tax assets(Net) 234.08
Long Term assets and Advances 243.01
Decrease in NWC 986.90
Total 3,935.62 Total 3,935.6

30
Lupin Ltd
Fund Flow Analysis-Lupin 2015-16
( in Crores)
Short term Source Short term Uses
Short term borrowings 13,762.60 other current liabilities 555.4
Trade payables 2,357.90 Inventories 6,751.8
Short term provisions 1,015.00 trade recievables 18,932.4
Current investments 16538.7 Cash and cash equivalents 3,565.6
short term loans and advances 3,951.2
other current assets 2,804.5
Decrease in NWC 2886.7
Total 36560.9 Total 36560.9
Long term sources Long term Uses
Share Capital 2.20 Tangible assets 6,353.5
Reserves and Surplus 21,100.90 Intangible Assets 25,824.7
Minority interest 79.80 Capital Work in progress 4,615.3
Long term Borrowings 52,720.70 Intangible assets under Development 16,625.2
Deferred Tax Liabilities(Net) 20.50 Goodwill on consolidation (Net) 13,162.8
other Long Term Liabilities 2,216.20 Non current Investment 30.1
Long term provisions 279.70 Long Term assets and Advances 6,960.9
Deferred Tax assets(Net) 36
other Non current assets 3.2
Decrease in NWC 2886.7
Total 76,459.20 Total 76,459.2

Fund Flow Analysis-Lupin 2014-15

( in Crores)
Short term Source Short term Uses
Trade payables 3,619.3Current investments 14794.8
other current liabilities 5,421.2Inventories 3741.1
Short term provisions 2,288.6trade recievables 1924.7
Cash and cash equivalents 3161.5short term loans and advances 403.7
other current assets 383.8Short term borrowings 332.3
Decrease in NWC 6322.2
Total 21,196.6 Total 21196.6
Long term sources Long term Uses
Share Capital 2.20 Minority interest 428.4
Reserves and Surplus 19,422.70 Long term Borrowings 491.3
Long term provisions 295.40 Deferred Tax Liabilities(Net) 462.5
Intangible Assets 9.60 other Long Term Liabilities 17.8
Long Term assets and Advances 987.90 Tangible assets 233.1
Capital Work in progress 2,354.3
Intangible assets under Development 364.2
Goodwill on consolidation (Net) 9,902.4
Non current Investment 4.5
Deferred Tax assets(Net) 133.9
other Non current assets 3.2
Decrease in NWC 6322.2
Total 20,717.80 Total 20,717.8

31
 Fund Flow Analysis-Lupin 2013-14
( in Crores)
Short term Source Short term Uses
Trade payables 512.50 Short term borrowings 3,244.40
short term loans and advances 379.8 other current liabilities 936.10
other current assets 13.6 Short term provisions 105.70
Current investments 1,764.1
Inventories 1,805.2
trade recievables 2,771.1
Cash and cash equivalents 3,626.2
Decrease in NWC 13,346.90
Total 14,252.80 Total 14,252.80
Long term sources Long term Uses
Share Capital 1.70 Long term Borrowings 961.00
Reserves and Surplus 17,272.20 other Long Term Liabilities 42.60
Minority interest 74.90
Deferred Tax Liabilities(Net) 149.80 Tangible assets 1,904.40
Long term provisions 200.40 Intangible Assets 144.40
Intangible assets under Development 411.50 Capital Work in progress 345.70
Long Term assets and Advances 143.70 Goodwill on consolidation (Net) 1,505.50
Deferred Tax assets(Net) 3.70
Decrease in NWC 13346.9
Total 18,254.20 Total 18,254.2

Fund Flow Analysis-Lupin 2012-13

( in Crores)
Short term Source Short term Uses
Trade payables 1,450.50 Short term borrowings 3,210.90
other current liabilities 40.80 Inventories 2,162.6
Short term provisions 942.70 trade recievables 4,551.8
Cash and cash equivalents 324.1
short term loans and advances 305.0
other current assets 1,116.1
Decrease in NWC 9236.5
Total 11,670.50 Total 11670.5
Long term sources Long term Uses
Share Capital 1.80 Minority interest 128.40
Reserves and Surplus 11,911.10 Long term Borrowings 1,859.00
Deferred Tax Liabilities(Net) 426.70 other Long Term Liabilities 231.60
Long term provisions 454.70
Intangible Assets 1,085.0 Tangible assets 3,556.9
Capital Work in progress 1,909.5 Intangible assets under Development 579.3
Non current Investment 7.4 Goodwill on consolidation (Net) 33.2
Long Term assets and Advances 65.3 Deferred Tax assets(Net) 236.6
Decrease in NWC 9236.5
Total 15,861.50 Total 15,861.5

32
 Net Working Capital Trend
16000
14000
12000
10000 NWC-Sun Pharmaceutical Inds
8000 Ltd

6000 NWC-Lupin Ltd

4000
2000
0
2012-13 2013-14 2014-15 2015-16

Both the companies have positive net working capital, Sun Pharma (55% of Short term uses)
and Lupin (7% of Short Term uses). Thus, Sun Pharma is in a better position in
management of net working capital when compared with Lupin.

33
6 Cash Flow Analysis
LUPIN

Lupin(in Rs. Crores)

2012 2013 2014 2015 2016
CFI -7412.6 -5218.6 -8585.4 -10545.1 -69434.3
CFO 5591.2 12509.6 20039.3 27330.5 -3689.7
CFF 1097.9 -6628.2 -8571.1 -1968.9 58126
Total cash flow -723.5 662.8 2882.8 14816.5 -14998

Cash and Cash Equivalents 2446.5 3109.3 6066.2 21084.3 8015.1

Cash flow analysis

80000
60000
40000 CFI
20000 CFO
Cash Flow

0 CFF
-20000 2012 2013 2014 2015 2016
Total cash flow
-40000 Lupin Cash and Cash Equivalents
-60000
-80000

The CFI of Lupin has been negative and it has been increasing at a rapid rate and the CFI
outflow has grown to approx. 10 times in past five years and has almost went up by 7 times
in just last 2 years. This increasing large negative CFI indicates that Lupin is in an
aggressive expansion phase currently and is doing large capex for organic as well as
inorganic growth.

The CFO trend shows increasing positive CFO from 2012 to 2015, which indicates that it
had high profitability from business in those years and is showing a healthy growth.
However, in 2016, the CFO is negative, which indicates loss from the current operations that
may be due to Lupins policy of aggressive expansion (seen from CFI numbers) and few new
acquisitions/geographies in which the firm has started operations are not profitable as they
are in nascent stage.

The CFF trend for 2013-2015 shows large negative amounts of CFF that means the
company was giving back the money to shareholders in good amounts. However, in 2016,
the CFF is large positive number, which indicates the firm has borrowed money via equity
route (as it is a debt free firm as of 2016) that is seemingly due to it being in an aggressive
expansion phase (CFI and CFO trend of last year re-affirm this interpretation).

34
Hence, for 2016, negative CFI and CFO and positive CFF suggest that the company doesnt
generate enough cash flow to fund day-to-day activities. New means, such as debt and new
share issues route, may be taken to finance current and long term capital expansion.

SUN PHARMA

Sun Pharma ((in Rs. Crores)

2012 2013 2014 2015 2016
CFI -7736.9 4605.4 5181.4 21528.1 36301.9
CFO 13391.8 1064.8 -24050.6 1485.9 -12444.5
CFF -4202.1 -5089.9 17421 -26740.9 -24251.2
Total cash flow 1452.8 580.3 -1448.2 -3726.9 -393.8
Cash and Cash
Equivalents 1687.2 763.2 2218.1 1932 1543.4

40000

30000

20000
CFI

10000 CFO
CFF
0 Total cash flow
2012 2013 2014 2015 2016
Cash and Cash Equivalents
-10000 Sun Pharma

-20000

-30000

Post 2012, Sun Pharma has reported positive net CFI, which indicates that the assets
constructed by the firm and investments made by firm are generating good profitability and is
giving good returns even post the wear and tear expenditure of the assets. The high amount
of CFI suggests that the subsidiaries/minority holdings of Sun Pharma are performing well
and giving back to the firm. The evidence of which can be seen from annual report,
indicating that the parent firm is making losses( as per standalone balance sheet of 2016,
but the consolidated balance sheet shows high profitability)

CFO trend for Sun Pharma has been varying from positive to negative and vice-versa over
the years, which is an indicator that there have been frequent capex for expansions and the
new business/geographies may not have generated positive return instantaneously. For
2016, the CFO is negative indicating lack of cash for day-to-day activities.

Except for 2014, in past five years, The CFF trend for 2012-2016 shows large negative
amounts of CFF that means the company was giving back the money to shareholders via
dividends and is paying out high amounts to service the debt.

35
In 2016, Sun pharma had a positive CFI, negative CFO and negative CFF, which indicates a
decline in the parent firms situation as its operations are running into losses due to high
capex, they are paying large amounts for debt servicing and are dependent upon
performance of the subsidiary firms.

36
7 Cost of Capital

Sun Pharma
WACC
CAPM
Rf 6.80%
Rm 15.80%
ERP 9.00%
BETA
International 0.91
Calculated (Levered) 0.34
Calculated (Unlevered) 0.42
Reuters 0.28
Bloomberg 0.42
ET 1.01
Prowess 0.5
NSE 0.63
CAPM 9.86%
Credit Rating by Sun Pharma of CRISIL AAA
Corporate Bond rating for AAA Rated Bond 9.30%
Cost Of Debt 9.30%
Tax Rate 35%
Weightage of Debt 20.63%
Weightage of Equity 79.37%
WACC 9.07%

Calculation of Growth rate for Sun Pharmaceutical Industries

Dividend Yield Ration 0.13%
G For Sun Pharmaceutical Industries 9.73%

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.116344896
R Square 0.013536135
Adjusted R Square -0.003471863
Standard Error 0.126826956
Observations 60

ANOVA
df SS MS F Significance F
Regression 1 0.012801611 0.012801611 0.795868812 0.376017743
Residual 58 0.932934458 0.016085077
Total 59 0.945736069

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -8.1152E-05 0.016673769 -0.004867044 0.996133378 -0.033457328 0.033295024 -0.033457328 0.033295024
% change in BSE 0.340867382 0.382089147 0.892114798 0.376017743 -0.423967144 1.105701908 -0.423967144 1.105701908

37
 1

0.8

0.6

% change in Price Sun

0.4
Linear (% change in Price Sun)

0.2

y = 0.3409x - 8E-05

0
-0.15 -0.1 -0.05 0 0.05 0.1 0.15

-0.2

GPRV Analysis

38
 Lupin Laboratories
WACC
CAPM
Rf 6.80%
Rm 15.80%
ERP 9.00%
BETA
Industry(International) 0.91
Calculated 0.48
Calculated (Unlevered) 0.38
Reuters 0.02
Bloomberg 0.59
ET 0.9
Prowess 0.39
NSE 0.75
CAPM 10.06%
Cost Of Debt 0.00%
Weightage of Debt 0.00%
Weightage of Equity 100.00%
WACC 10.06%

Calculation of Growth rate for Lupin Laboratories

Dividend Yield Ration 0.49%
G for Sun Pharma 6.67%

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.025094085
R Square 0.000629713
Adjusted R Square -0.016600809
Standard Error 0.075741581
Observations 60

ANOVA
df SS MS F Significance F
Regression 1 0.000209659 0.000209659 0.036546372 0.849059225
Residual 58 0.332733656 0.005736787
Total 59 0.332943314

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -0.016672895 0.009957644 -1.674381521 0.099440393 -0.036605285 0.003259495 -0.036605285 0.003259495
% change in BSE 0.043622408 0.228185215 0.191171055 0.849059225 -0.413139926 0.500384742 -0.413139926 0.500384742

39
 0.2

0.15

0.1
Axis Title

0.05
% change in Price Lupin
y = 0.0436x - 0.0167
0
-0.15 -0.1 -0.05 0 0.05 0.1 0.15 Linear (% change in Price
-0.05 Lupin)

-0.1

-0.15
Axis Title

GPRV Analysis

40
Economic Value Added (EVA)
Sun Pharmaceutical Lupin
(All Figures in Rs Crores) Industries Limited Limited
NOPAT 5069.519 2434.355
EBIT 7242.17 3477.65
Tax on EBIT 2172.651 1043.295
Weighted Average Cost of capital(WACC) 9.07% 10.06%
Asset Employed 30864 12658
EVA 2270.1542 1160.9602

Since the EVA of both the companies is positive, both the companies are producing value
from the funds invested into it.

41
8 Operating Cycle
DIO = Days Inventory Outstanding

DSO = Days Sales Outstanding

DPO = Days Payable Outstanding

SUN Pharmaceutical Inds Ltd

2016 2015 2014 2013 2012
COGS ( Crs) 21027.54 20410.12 11453.08 6935.28 4634.82
COGS/day 57.61 55.92 31.38 19.00 12.70
Inventory ( Crs) 6423.63 5667.99 3123.01 2577.76 2086.98
DIO 112 101 100 136 164
Annual Sales ( Crs) 28269.71 27392.01 16080.36 11299.86 8019.49
Revenues per day 77.45 75.05 44.06 30.96 21.97
A/c Receivables ( Crs) 6795.89 5106.13 2200.42 2412.23 2078.74
DSO 88 68 50 78 95
A/C Payables ( Crs) 3489.58 3286.54 1328.26 1057.99 992.72
DPO 61 59 42 56 78
Operating Cycle (Days) 139 111 107 158 181

Lupin Ltd
2016 2015 2014 2013 2012
COGS ( Crs) 10730.82 9345.37 8428.27 76757.5 5851.37
COGS/day 29.40 25.60 23.09 210.29 16.03
Inventory ( Crs) 3178.74 2503.56 2129.45 19489.3 1732.67
DIO 108 98 92 93 108
Annual Sales ( Crs) 14,208.47 12,770.01 11,286.57 9,641.30 7,082.91
Revenues per day 38.93 34.99 30.92 26.41 19.41
A/c Receivables ( Crs) 4,549.81 2,656.57 2,464.10 2,186.99 1,731.81
DSO 116.88 75.93 79.69 83 89.24
A/C Payables ( Crs) 2191.85 1956.06 1594.13 1542.88 1397.83
DPO 75 76 69 7 87
Operating Cycle (Days) 150 97 103 168 110

Operating Cycle
200
180
160
140
120
100 Sun Pharma
80 Lupin
60
40
20
0
2016 2015 2014 2013 2012

42
Operating cycle is analysed from the perspective of how well the company is managing its
critical operational capital assets. It includes 3 parts-receivables, Inventories and payables.

The operating cycle for both the companies is identical. For the current year, Sun Pharma
has slightly performed better than Lupin. On closer observation, it is found that while DIO
and DPO for both the companies are similar, Sun Pharma has operationally performed
better in the DSO front indicating good control over its receivables. Both the companies have
DSO comparable with industry average, i.e. 98 days.

43
9 Conclusion
The Pharmaceutical Industry in India has come a long way from producing basic bulk drugs
to more and more complex generic drugs. The industry is investing heavily in research for
new drug discoveries and many firms are in an advanced stage of drug development. The
expiration of several blockbuster drugs provides immense opportunity for Indian drug
manufacturers.

The report focuses on two stalwarts of Indian Pharmaceutical industry: Sun Pharma and
Lupin. Both the companies have shown exponential growth in last two decades. Both
companies are in growth phase and have opted inorganic route to reach the next level of
growth. While Lupin has acquired Gavis to increase its topline and gain a stronger foothold
in US generics market, Sun Pharma has acquired Ranbaxy. Ranbaxy has several regulatory
roadblocks to overcome to generate profits. This acquisition gives Sun Pharma an entry into
various emerging countries, OTC drugs and several speciality drugs. Post integration the
companies will be in better position to take the benefits of synergies and will add to their
topline and bottomline.

The financial analysis of both the companies reflects the sound financial practices followed
by both the firms. The management of both the companies are bullish about the growth
prospects. The successful integration of acquired companies, encouraging government
policies, and entry into new markets coupled with expiry of several blockbuster drugs
provides great opportunities will enable these companies to play a major role in Global
pharmaceutical Industry.

44
10 Annexure
ANNEXURE 1

Balance sheet of Sun Pharmaceuticals Industries Limited

Balance Sheet(All Figures in Crs.)

2016 2015 2014 2013 2012
Equities and Liabilities
Shareholder's Funds
Share Capital 240.66 207.12 207.12 103.56 103.56
Share Suspense account 0.00 33.48 0.00 0.00 0.00
Reserves and Surplus 31,163.56 25,382.59 18,317.83 14,886.17 12,132.22
31,404.22 25,623.19 18,524.95 14,989.73 12,235.78
Share application money pending allotment 0.67 14.90 0.00 0.00 0.00
Minority interest 4,085.25 2,851.19 1,921.18 1,635.08 1,161.45
Noncurrent Liabilities 5,481.75 4,162.41 2,935.10 1,116.61 458.28
Long term Borrowings 3,116.73 1,368.42 48.67 115.26 155.42
Deferred Tax Liabilities(Net) 61.61 75.31 275.67 205.35 155.20
other Long Term Liabilities 223.71 186.34 9.14 8.94 8.93
Long term provisions 2,079.70 2,532.34 2,601.62 787.06 138.73
Current liabilities 16,737.24 19,433.35 5,989.59 2,841.25 2,618.49
Short term borrowings 5,221.37 6,227.92 2,440.34 82.95 109.57
Trade payables 3,489.58 3,286.54 1,328.26 1,057.99 992.72
total outstanding dues of microfinance
enterprises and small enterprises 11.14 10.96 0.00 0.00 0.00
total outstanding dues of creditors other
than micro enterprises and small enterprises 3,478.44 3,275.58 0.00 0.00 0.00
other current liabilities 1,119.24 2,279.59 260.41 218.65 363.66
Short term provisions 3,417.47 4,352.76 1,960.58 1,481.66 1,152.54
Total 57,709.13 52,085.04 29,370.82 20,582.67 16,474.00

Assets
Noncurrent assets 23,354.98 19,882.75 10,684.36 9,079.65 6,180.63
Fixed Assets 13,360.60 11,020.12 5,824.20 5,077.14 3,274.19
Tangible assets 7,555.92 6,975.18 3498.18 3,160.44 2,613.51
Intangible Assets 4,070.85 2,006.33 1484.48 1,354.09 316.03
Capital Work in progress 1,203.46 1,531.77 841.54 562.61 344.65
Intangible assets under Development 530.37 506.84 0.00 0.00 0.00

Goodwill on consolidation (Net) 4,181.11 3,700.96 1834.62 1,132.95 1,021.81

Non current Investment 593.32 598.87 787.56 1,106.35 588.96
Deferred Tax assets(Net) 2,187.52 1,826.95 1186.69 917.59 683.51
Long Term assets and Advances 2,936.03 2,680.50 1051.18 837.76 594.75
other Non current assets 96.40 55.35 0.11 7.86 17.41
Current assets 30,864.57 28,915.75 18,686.46 11,503.03 10,293.37
Current investments 715.28 2,117.43 1,998.46 1,305.22 1,623.91
Inventories 6,423.63 5,667.99 3,123.01 2,577.76 2,086.98
trade recievables 6,795.89 5,106.13 2,200.42 2,412.23 2,078.74
Cash and cash equivalents 13,989.25 10,998.04 7,590.15 4,058.71 3,367.19
short term loans and advances 2,640.39 2,193.25 1,244.55 1,079.60 1,042.67
other current assets 300.13 2,832.91 2,529.87 69.51 93.88
Total 54,219.55 48,798.50 29,370.82 20,582.68 16,474.00

45
ANNEXURE 2

Profit and Loss for Sun Pharmaceutical industries Limited

Profit & Loss(All Figures in Crs.)

2016 2015 2014 2013 2012
Revenue from Operations 28,517.70 27,665.14 16,275.48 11,469.68 8,126.94
Less: Excise Duty 247.99 273.13 195.12 169.82 107.45
28,269.71 27,392.01 16,080.36 11,299.86 8,019.49
Other Income 616.97 547.66 552.23 388.09 471.51
Total Revenue 28,886.68 27,939.67 16,632.59 11,687.95 8,491.00
Expenses
Cost of Material consumed 4,388.13 4,158.69 2,243.39 1,949.98 1,851.60
Purchase of stock in Trade 2,542.92 2,465.99 612.47 351.84 237.20
Changes in inventories of finished Goods, work in
Progress and stock in Trade (447.86) 114.49 (76.54) (228.48) (448.87)
Employees Benefit Expenses 4,797.13 4,502.64 2,074.44 1,534.53 1,187.73
Finance Costs 476.89 578.99 44.19 43.16 28.20
Depreciation and Amortisation expense 1,013.52 1,194.72 409.23 336.17 291.16
Other Expenses 8,665.50 8,283.50 4,224.91 2,795.75 1,987.51
Total Expenes 21,436.23 21,299.02 9,532.09 6,782.95 5,134.53
Profit Before Exceptional item and Tax 7,450.45 6,640.65 7,100.50 4,905.00 3,356.47
Exceptional; Item 685.17 237.75 2,517.41 583.58 0.00
Prtofit Before tax 6,765.28 6,402.90 4,583.09 4,321.42 3,356.47
Tax Expense
Current Tax(Net) 1,195.46 1,647.93 807.96 813.13 405.15
Deferred tax credit (Net) (260.56) (733.24) (105.79) 32.42 (91.96)
934.90 914.69 702.17 845.55 313.19
Profit after Tax before share in loss of
associates(Net) and Minority Interest 5,830.38 5,488.21 3,880.92 3,475.87 3,043.28
Share in loss of associates(Net) 1.87 12.56 1.92 6.53 1.11
Profit after tax before adjustment for minority
interest 5,828.51 5,475.65 3,879.00 3,469.34 3,042.17
Share of Prtofit attributable to Minority Interest 1,112.60 936.27 737.53 486.28 385.48
Profit for the Year attributable to shareholders of
Company 4,715.91 4,539.38 3,141.47 2,983.06 2,656.69
EPS(Face value Rs.1)
Basic(in Rs.) 19.60 18.90 15.20 14.40 25.70
Diluted(in Rs.) 19.60 18.90 15.20 14.40 25.70

46
ANNEXURE 3

Balance sheet for Lupin Limited

Balance Sheet(All Figures in millions)

2016 2015 2014 2013 2012
Equities and Liabilities
Shareholder's Funds
Share Capital 901.20 899.00 896.80 895.10 893.30
Share Suspense account 0.00 0.00 0.00 0.00 0.00
Reserves and Surplus 1,08,942.50 87,841.60 68,418.90 51,146.70 39,235.60
1,09,843.70 88,740.60 69,315.70 52,041.80 40,128.90
Share application money pending allotment 0.00 0.00 0.00
Minority interest 320.80 241.00 669.40 594.50 722.90
Noncurrent Liabilities 60,340.60 5,103.50 5,779.70 6,433.10 7,642.30
Long term Borrowings 53,739.00 1,018.30 1,509.60 2,470.60 4,329.60
Deferred Tax Liabilities(Net) 2,044.60 2,024.10 2,486.60 2,336.80 1,910.10
other Long Term Liabilities 2,657.00 440.80 458.60 501.20 732.80
Long term provisions 1,900.00 1,620.30 1,324.90 1,124.50 669.80
Current liabilities 75,790.90 56,852.90 26,295.50 30,069.20 30,846.10
Short term borrowings 17,454.10 3,691.50 4,023.80 7,268.20 10,479.10
Trade payables 21,918.50 19,560.60 15,941.30 15,428.80 13,978.30
total outstanding dues of microfinance enterprises
and small enterprises 241.80 304.60 0.00 0.00 0.00
total outstanding dues of creditors other than micro
enterprises and small enterprises 21,676.70 19,256.00 0.00 0.00 0.00
other current liabilities 7,742.20 8,297.60 2,876.40 3,812.50 3,771.70
Short term provisions 6,757.60 5,742.60 3,454.00 3,559.70 2,617.00
Total 2,46,296.00 1,50,938.00 1,02,060.30 89,138.60 79,340.20

Assets
Noncurrent assets 1,26,587.20 53,053.90 41,055.80 37,707.30 36,368.50
Fixed Assets 86,379.20 32,960.50 30,018.50 28,035.50 26,893.80
Tangible assets 32,624.90 26,271.40 26038.3 24,133.90 20,577.00
Intangible Assets 26,754.10 929.40 939 794.60 1,879.60
Capital Work in progress 9,812.20 5,196.90 2842.6 2,496.90 4,406.40
Intangible assets under Development 17,188.00 562.80 198.60 610.10 30.80

Goodwill on consolidation (Net) 29,643.90 16,481.10 6578.7 5,073.20 5,040.00

Non current Investment 55.20 25.10 20.6 20.60 28.00
Deferred Tax assets(Net) 806.00 842.00 708.1 704.40 467.80
Long Term assets and Advances 9,702.90 2,742.00 3729.9 3,873.60 3,938.90
other Non current assets 0.00 3.20 0 0.00 0.00
Current assets 97,790.30 78,323.50 61,004.50 51,431.30 42,971.70
Current investments 20.20 16,558.90 1,764.10 0.00 0.00
Inventories 31,787.40 25,035.60 21,294.50 19,489.30 17,326.70
trade recievables 45,498.10 26,565.70 24,641.00 21,869.90 17,318.10
Cash and cash equivalents 8,379.10 4,813.50 7,975.00 4,348.80 4,024.70
short term loans and advances 7,371.80 3,420.60 3,016.90 3,396.70 3,091.70
other current assets 4,733.70 1,929.20 2,313.00 2,326.60 1,210.50
Total 2,24,377.50 1,31,377.40 1,02,060.30 89,138.60 79,340.20

47
ANNEXURE 4

Profit and Loss for Lupin Limited

Profit & Loss(All Figures in millions)

2016 2015 2014 2013 2012
Revenue from Operations 1,43,124.40 1,28,635.20 1,13,670.50 97,032.00 71,249.30
Less: Excise Duty 1,039.70 935.10 804.80 619.00 420.20
1,42,084.70 1,27,700.10 1,12,865.70 96,413.00 70,829.10
Other Income 1,877.00 2,397.50 1,164.80 278.50 143.50
Total Revenue 1,43,961.70 1,30,097.60 1,14,030.50 96,691.50 70,972.60
Expenses
Cost of Material consumed 27,656.10 25,194.20 24,213.60 22,247.80 18,138.60
Purchase of stock in Trade 20,198.20 17,833.10 15,964.30 15,159.20 11,069.50
Changes in inventories of finished Goods, work in Progress and stock in Trade (4,760.20) (1,456.90) (2,004.10) (1,922.00) (3,169.10)
Employees Benefit Expenses 21,076.90 17,473.40 14,646.50 12,666.20 9,695.30
Finance Costs 446.20 98.10 266.50 409.50 354.70
Depreciation and Amortisation expense 4,635.00 4,347.00 2,609.70 3,321.90 2,275.20
Other Expenses 40,379.20 32,460.40 30,017.50 25,562.90 20,647.70
Total Expenes 1,09,631.40 95,949.30 85,714.00 77,445.50 59,011.90
Profit Before Exceptional item and Tax 34,330.30 34,148.30 28,316.50 19,246.00 11,960.70
Exceptional; Item
Prtofit Before tax 34,330.30 34,148.30 28,316.50 19,246.00 11,960.70
Tax Expense
Current Tax(Net) 11,419.10 10,041.60 9,536.00 5,829.00 2,756.20
Deferred tax credit (Net) 116.70 (337.60) 85.50 12.60 329.40
11,535.80 9,704.00 9,621.50 5,841.60 3,085.60
Profit after Tax before share in loss of associates(Net) and Minority Interest 22,794.50 24,444.30 18,695.00 13,404.40 8,875.10
Share in loss of associates(Net)
Profit after tax before adjustment for minority interest 22,794.50 24,444.30 18,695.00 13,404.40 8,875.10
Share of Prtofit attributable to Minority Interest 87.60 411.90 331.30 262.80 198.60
Profit for the Year attributable to shareholders of Company 22,706.90 24,032.40 18,363.70 13,141.60 8,676.50
EPS(Face value Rs.1)
Basic(in Rs.) 50.45 53.54 40.99 29.39 19.43
Diluted(in Rs.) 50.15 53.20 40.79 29.26 19.36

48