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NORTH SOUTH UNIVERSITY

Fin440
Section: 2

Submited to
Adnan Habib
Senior Lecturer, Department of Accounting & Finance
School of Business & Economics (SBE)
North South University, Dhaka

Submitted by

Name ID

Saifur Rahman 1330391030

Sagar Dash 1420305030


Mustaq Ahmed 1421733030
Junayet Kaiyum 142052803
Letter of Transmittal

03thAugust, 2016

To,

Mr. Adnan Habib


Senior Lecturer, Department of Accounting & Finance
North South University,
Bashundhara, Dhaka.

Subject: Submission of group project on “Square Pharmaceuticals Ltd”, “Beximco


Pharmaceuticals Ltd”.

Dear Sir,

We are pleased to inform you that we have completed our group project on “Square
Pharmaceuticals Ltd” and “Beximco Pharmaceuticals Ltd”. As a partial fulfillment of the
course corporate finance (Fin440). We have tried the best of our ability to complete the project
properly and to produce a meaningful paper within our limit. Notwithstanding all the difficulties
faced while doing our project, we found the whole time and endeavor worth spending. Above all,
this project has helped us to gain valuable information and knowledge about implementing
formation and evaluation of an organization.

In spite of the various difficulties faced in preparing the report, we have given our utmost care to
be as thorough as possible. Now, it is our performed pleasure to put forward our effort for your
prudent perusal.

Faithfully Yours,

Saifur Rahman 1330391030


Sagar Dash 1420305030
Mustaq Ahmed 1421733030
Junayet Kaiyum 142052803
Acknowledgement

This project has been an eye-opener for us and we are really thankful to those who have
helped us regarding our work. We express our sincere gratitude to our Course Instructor Mr.
Adnan Habib, Senior Lecturer, Finance and Accounting School of Business, North South
University, Dhaka for guiding us in completing this study. We have been fortunate to have the
support the preparing this report. He had given us the right to choose this company and we had put
our efforts on writing about the Motivation. We convey our profound gratitude to Internet (Which
is helpful) for this unbelievable support for this project. All the group members are sincerely for
completing this project. We supported us with a whole lot of information to fulfill of our project.
We also thank our friends and family for helping us as much as possible by supporting us and
providing necessary information for this presentation. We hope that our unwanted errors will be
taken with forgiveness.

Thank You.
Introduction:

Beximco Pharmaceuticals Ltd. is the leading pharmaceutical company of Bangladesh. Founded in1976,
Beximco Pharmaceuticals Ltd. has been producing world class pharmaceutical products following current
Good Manufacturing Practice (CGMP) as required by the World Health Organization (WHO) in order to
improve health, happiness and quality of life. Beximco Pharmaceuticals Ltd. has products of different
therapeutic classes, each of which occupies a prominent position in the market and the heart of our
customers and shareholders. Beximco Pharmaceuticals Ltd. is always committed to improve the lives of
people through the development and commercialization of high quality and cost-effective medicines.

Square Pharmaceuticals was founded in 1958 by Samson H. Choudhury along with three of his friends
as a private firm. It went public in 1991 and is currently listed on the Dhaka Stock Exchange. Square
Pharmaceuticals Ltd., the flagship company, is market leader with highest market share in the
pharmaceutical industry of Bangladesh since 1985 and it has been continuously in the 1st position among
all national and multinational companies since 1985. Square Pharmaceuticals Ltd. is now on its way to
becoming a high performance global player.
Part 1:
Step1:
Made an income statement and balance sheet in a excel file for each company and the value of the balance
gathered from the annual statement of each company.
Step2
Calculated the ratio NWC (net working capital), debt equity ratio, retention ratio, interest expenses
Step3
Found the forecasted sales growth rate of each company in two separate excel file.
Step4
Found the pro forma income statement and balance sheet 2016, 2017, 2018 according to sales growth rate.
Step5
Calculated additional retain earning for proforma. We make constant retention ratio and payout ratio.
Description is given below.
Square pharma

For square pharma growth rate for 3 forecasted year are 18.63%,22%&18.03% . This percentage also
change forecasted years sales. In proforma income statement except interest expense other major
components are changed. From this income statement we prepared a balance sheet where EFN for 2016 is
72,946,826, 2017 1,315422,204 & 2018 is 168,8773620. While these EFN for 2016 & 2017 we take then
EFN’s whole amount a short term loan & other from capital financing. But in 2018 EFN is 1688773620. If
we take the whole amount as the whole amount as short term debt then impact is much higher & EFN
increases more. So, we finance these EFN short of from short term loan and from share capital.

Beximco pharma

Square pharma growth rate for 2016-2018 are continuously 7.89%, 8.63%, 7.94%. According to these
growth rate we increase or change all 3 forecasted years sales, expenses, assests & accounts payables. Then
we found out the comprehensive for the perspective year. After these, in balance sheet we used these
information. We have some tax for the 3 forecasted year & there was no change in interest expense
according to growth rate in income statement. While finding retained earnings for a specific year. We
subtract previous year retained earnings from these years’ total retained earnings. We have EFN for
Beximco pharma in 2016-2018 are 607,855,820, 1,447,378,102, and 180,156,939. In 2016 & 2018 we
increase shareholder capital and take short term loan to make EFN 0 and in 2018 we increase share capital
to make EFN 0 . If we take short term loan then it will cost a lot. So, we decided to increase share capital
in 2018.
Square pharma / Beximco both (part-2)

Step 1

From the first day of the year and last day of the year’s closing price we found out the annual rate
of return for the both company.

Step 2

From the index we find out the annual rate of index for each of the year. It is the market return.
Because of negative value we find out 2009 and 2010 index, and then take the average value for
market return for the both company.

Step 3

We find out beta coefficient using slope formula in excel. It is the risk of these companies.

Step 4

To find out the CAPM it is required T-Bill rate as risk free rate. It is 6% for the both company for
the year 2015. Instead of using latest year market return we use average return. Because latest
years market return is negative.

Step 5

For cost of equity we use required rate of return and it is 7.62% for square pharma and 6.79% for
beximco pharma. And cost of debts 9.07% for beximco pharma and 20.46% square pharma. We
take total interest bearing debt as total debt for both of the company. For calculating WACC we
use tax shield along with these. Beximco pharma’s WACC is 7.25% and Square pharma’s WACC
is 7.72% the important reason that increase the WACC of square is the cost of debt. It is 20.46%
much high then Beximco is 9.07% that’s why these differences exist.
Square pharma / Beximco both (part-3)

For calculate FCF for both of the company first we calculate change in NWC. Then we find out the capital
expenditure for the both company using formula subtracting previous years non-current asset. Then we
calculate after tax income using tax shield. Tax rate is 27.5%. then we find out OCF using formula EBIT(1-
T)+depreciation. After this FCF was calculated. For enterprise value in 2018 first we calculated market
capitalization. Then we add market capitalization with interest bearing debt & then substracted cash from
this.

Value of the firm is the discounted value of all 3 forecasted year plus present value of enterprise value.
Using of the both company separately.
Yes there can be synergy between Becimco Pharma and Square Pharma. Here Square should be
the marged firm because its value is higher than Beximco pharma. On combine value of both firm is lower
than synergy value.

Square of synergy and their impect:

Marketing gains:

Square spent more money in their marketing and distributing activity according to pro pharma. Square has
effecting marketing strategy. So, through synergy beximco will gain markketing advantage.

Stratigic benefits:

Synergy will give benefit to Beximco pharma. Because its value is desreasing more then Square. But net
income also higher then square. Thats why Square will get advantage.So, both company will enjoy stretigic
benefits.

Market or monopoly power:

Square has more share outstanding and their share value is higher then Beximco. So synergy will give some
asvantage to beximco regarding monopoly.

Cost Reduction:

Economy of scale:

Cost is much higher for Beximco because its size, effency, and share. In this case Square has an adventage.
They have company saving cost gained. So, beximco will be benefited in economy of scale.

Tecnology transfar:

If there will be synergy then both company has benefit from tecnology transfar. Square can reduce some
tecnology which is also available in Beximco. On they can use the existing tecnology of square rather then
purchase new one.

Company resources:
Synergy will give great adventage to both company. Because they can use complementary goods. It will
reduce cost and give economic benefits. They don’t have to add or purchase new itemes that any of the
company has exist.

Sueplus fund:

Under synergy both company can reduce cost use surplus fund. If one company has surp;use then other can
use these insteade of taking lone or increase share capital.

Elimination of ineffecient management:

After synergy they can keep active effecient management of both company. And eliminate others.

Reduce Capital management:

Duplicate facilities:

Both company have some duplicate facilities or assets. They can reduce cost by eleminating these duplicate
capitals.

Redundant facilities:

It is something like unnecessary capital. Both company can eliminate capital that is unnecessary after
synergy. Saving Cost gained. So, Beximco will be benefited in economy of scale.

Tecnology Transfar:

If there will be synergy then both company has benefit from tecnology transfar. Square can reduce some
tecnology which is also available in bexomco. Or they can use the existing tecnology of Square rather then
purchase new one.

Complementary resources:

Synergy will give great advantage to both company. Because they can use complementary goods. It will
reduce cost and give Economic benefit. They don’t have to add or purchase new items that any of the
company has exist.

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