cf_Sun Pharmaceuticals

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2/1/2014

Divya Garg(221042), FMG-22A

CORPORATE

FINANCESUNPHARMACEUTICAL


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SUN PHARMACEUTICALS

Sun Pharmaceutical Industries Limitedis a multinational pharmaceutical company

headquartered in Mumbai, Maharashtra that manufactures and sells pharmaceutical formulations

and active pharmaceutical ingredients (APIs) primarily in India and the United States. The

company offers formulations in various therapeutic areas, such

as cardiolog, psychiatry, neurology, gastroenterology and diabetology.

Sun Pharmaceuticals was established by Mr. Dilip Shanghvi in 1983 in Kolkata with five

products to treat psychiatry ailments. Cardiology products were introduced in 1987 followed

by gastroenterology products in 1989. Today it is the largest chronic prescription company in

India and a market leader in psychiatry, neurology, cardiology, orthopedics, ophthalmology,

gastroenterology and nephrology. Some of the top brands of the company include pantocid,

susten, aztor, gemer, repace, glucored, strocit, clopilet and cardivas. Over 57% of Sun Pharma

sales are from markets outside India, primarily in the US. Manufacturing is across 23 locations,including the US, Canada, Brazil, Mexico and Israel.

Sun Pharma was listed on the stock exchange in 1994 in an issue oversubscribed 55 times. The

founding family continues to hold a majority stake in the company. Today Sun Pharma is the

third largest and the most profitable pharmaceutical company in India as well as the largest

pharmaceutical company by market capitalization on the Indian exchanges. The Indian

pharmaceutical industry has become the third largest producer in the world in terms of volumes

and is poised to grow into an industry of $20 billion in 2015 from the current turnover of $12

billion.In terms of value India still stands at number 14 in the world.

KEY PERFORMANCE INDICATORS


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VARIOUS SOURCES OF FINANCE

As at 31stMarch, 2013 As at 31stMarch, 2012

EQUITY AND LIABILITIES

Shareholders' Funds

(a) Share Capital(b) Reserves and Surplus

1,035.676,853.2 77,888.8

1,035.677,745.6 78,781.2

Non-current Liabilities

(a) Long-term Borrowings 46.4 77,935.2 40.3 78,821.5

FEATURES OF SOURCES OF FINANCE

Share CapitalThe term share capital' refers to the amount of capital raised (or to be raised) by a companythrough the issue of shares.

Features of share capitalThe main features of share capitals are

1. Share capital can be raised only by companies limited by shares and registered with sharecapital

2. Share capital can be raised by a company either at the time of its formation for starting itsoperations or later on for further expansion.


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3. Share capitals (except in the case of redeemable preference share), one raised, cannot bereturned by the company to the shareholders as long as it continues to exist, It can be

returned only at time of the winding up of the company.

Kinds or Types of Shares:

A company issue different types of shares in order to satisfy the requirements of differentclasses of investors and to collect more capital. A public company can issue only two types ofshares, viz., (1) Preference Shares. (2) Equity Shares.

1. PREFERENCE SHARESPreference shares are shares, which have preferential rights (i.e., first priority or preference over

other kinds of shares) in respect of payment of dividend during the existence of the company,

and also in respect of repayment or refund of share capital in the event of the winding up of the

company. In fact, it is because of their preferential rights in respect of the payment of dividend

and repayment of capital that these shares are 1 mown as preference shares.

2. EQUITY SHARESEquity shares are those, which are not preference shares. In other words, these are shares,which do not enjoy any preferential right either in respect of payment of dividend or in respectof the repayment of capital at the time of the winding up of the company. These shares areknows as equity shares, as they are the 'ownership shares' conferring the ownership of thecompany on the holders of these shares, i.e., the holders of these shares are the real owners ofthe company.

Retained Earnings

Retained or accumulated earnings are the profits a business elects to keep within the company

after paying dividends to shareholders. A company may elect to utilize retained earnings in a

number of ways, including adding capital to the company's existing business investments and

purchasing updated manufacturing equipment. When a business chooses to reinvest its retained

earnings, these funds appear as a credit balance in the retained earnings portion of the company's

balance sheet. A business can also choose to stockpile retained earnings to build up a large cash

reserve to help mitigate the effects of any risks, including downturns in consumer spending. The

business records these saved funds as a cash balance in the retained earnings portion of the

balance sheet. The business lists all retained earnings in the stockholder's equity portion of the

balance sheet.


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Long- Term Borrowings

Long-term debt has a number of characteristics that make it distinct from short-term debtfinancing. Some of these traits are advantageous for you as a borrower, while others pose

potential challenges. Taking on too much long-term debt is risky, but it does offer advantagesover paying cash for major purchases. Mortgages, equity loans, car loans, boat loans, majorappliance financing, student loans and personal loans are among common long-term consumerloans.

1. Principal: Long-term debt typically has a higher principal balance than other debtobligations. This is because people don't usually get long-term loans for smaller

purchases. Mortgages are usually the most expensive purchase people make. Loans of

$100,000 or more are common. Car loans of $5,000 to $10,000 are routine as well. The

idea of taking on this amount of debt can be scary, but it is often the only way to make

such large purchases.

2. Rates: Long-term debt usually comes with lower interest rates than short-term financing.This is because mortgages, car loans and boat loans are generally secured with the

property as collateral to reduce the lender's risk. While an unsecured personal loan or

credit card may have rates ranging from 10 to 25 percent, depending on your credit, home

loans in the 4 to 6 percent range are common as of July 2012. Car loans in the 4 to 10

percent range are also the norm for borrowers with decent credit.

3.

Collateral:Whereas personal loans, credit cards and store cards are usually availablewithout collateral, you typically can't make a major purchase without securing the debt

with collateral. This is because of the more significant risks to the lender of losses if you

bail on a $100,000 to $200,000 home loan, as opposed to a $5,000 to $10,000 personal

loan or credit card balance. By putting up your home, car or boat to get the long-term

debt, you do have risks of loss to repossession if you don't keep up with the payments.

4. Cash Flow:Taking on long-term debt has a more lasting impact on your monthly cashflow. Committing $500 to $1,500 per month to a mortgage, $200 to $400 to a car loan

and $300 to $600 on a student loan eats away at your monthly income pretty quickly.

These debt commitments are on top of other living expenses like utilities, groceries,

entertainment and household items. High monthly debt commitments reduce how much

money you can spend on vacations and entertainment, and they increase your potential

for debt problems. While credit cards also affect monthly cash flow, it is generally a

short-term commitment. Mortgages and car loans are more commonly considered in basic

family budgeting.


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Cost of Capital of each Component:-

Cost of Debt

Working Notes:

Interest Paid= Rs.4.2million

Total Bank Loan= Rs.46.4 million

Tax Paid= Rs.1464.8Profit before Tax= Rs.6630.3 crores

Tax Rate= 1464.8/6630.3= 0.2209

( )

*100)

Cost of Equity

Working Notes:

Growth in dividends=0%

Retained Earnings

Cost of Retained Earnings= Cost of Equity= 0.4%


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Overall Cost of Capital of the Business

Weighted average Cost of Capital (Rs.in million)

Sources of funds Amount Weights Cost of Capital

(C/C)

Cost of Capital

(Weights*C/C)

Bank Loan 46.4 0.00059 7.05% 4.19852E-05

Equity Shares 1035.6 0.01328 0.4% 5.31518E-05

Retained Earnings 76,853.2 0.98611 0.4% 0.003944467

Total 77,935.2 0.004039604

Thus, the overall Cost of Capital is 0.40%.

10% Additional Funds are raised through various sources

OriginalValue

Increase in equity by10%

Increase in debt by10%

EQUITY AND LIABILITIES

Shareholders' Funds

(a) Share Capital(b) Reserves and Surplus

1,035.676,853.2

8,829.12076,853.2

1035.676,853.20

77,888.8 85,682.32 77,888.80Non-current Liabilities

(a) Long-term Borrowings 46.4 46.4 7839.92

Total Liabilities 77,935.2 85,728.72 85,728.72

Adjusted WACC if equity is increased by 10%

(Rs. In million)

Sources of

funds

Amount Weights Cost of

Capital(C/C)

Cost of Capital

(Weights*C/C)

Bank Loan 7839.92 0.091450333 7.05% 0.006447248

Equity Shares 1035.6 0.012079966 0.4% 4.83199E-05

RetainedEarnings

76,853.2 0.896469701 0.4% 0.003585879

Total 85728.72 0.010081447



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Adjusted WACC if debt is increased by 10%

(Rs. In million)

Sources of funds Amount Weights Cost of Capital

(C/C)

Cost of Capital

(Weights*C/C)Bank Loan 46.4 0.10298 7.05% 0.007260728

Equity Shares 1035.6 0.89646 0.4% 0.003585879

Retained Earnings 76,853.2 0.00054 0.4% 2.16497E-06

Total 77,935.2 0.010848772


Share Market Price in BSE of last 5 year


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EXPECTED RETURN AND REGRESSION

ANALYSIS

The Y-intercept of the SML is equal to therisk-free interest rate.The slope of the SML is equal

to the marketrisk premium and reflects the risk return trade off at a given time:

Where:

E (Ri)is an expected return on security

E (RM)is an expected return on market portfolio Mis a non-diversifiable or systematic risk

RMis a market risk

Rfis a risk-free rate

Risk free rate =Rf= 8.2% as per RBI interest rate.

Expected return on market = RM= 19.14%

This expected market risk return is obtained by finding the average Nifty return in last 4 years.

DATE 1/4/2009 1/4/2010 1/4/2011 1/4/2012 1/4/2013

BSE 10385 17933 19451 17486 18450

ROI(Rm)

72.68% 8.46% -10.10% 5.51%

Share Price

DATE 01-04-2009 01-04-2010 01-04-2011 01-04-2012 01-04-2013

SHARE PRICE 150.71 242.33 248.43 367.75 567.75

DIVIDEND PAID 2.5 4.25 3.5 2.75 2.10

ROI (Ri) 60.94% 2.17% 47.06% 53.80%
http://en.wikipedia.org/wiki/Risk-free_interest_ratehttp://en.wikipedia.org/wiki/Risk_premiumhttp://en.wikipedia.org/wiki/Risk_premiumhttp://en.wikipedia.org/wiki/Risk-free_interest_rate


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SUMMARY OUTPUT

Regression Statistics

Multiple R 0.388520047

R Square 0.150947827

Adjusted R

Square -2

Standard Error 0.299002461

Observations 1

ANOVA

df SS MS F

Significance

F

Regression 4 0.031788644 0.007947161 0.355567848 #NUM!

Residual 2 0.178804943 0.089402472Total 6 0.210593588

Alpha 0.356118424Beta 0.281157809

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

-20.00% 0.00% 20.00% 40.00% 60.00% 80.00%

ROI(Ri)

ROI (Rm)

Series1

Linear (Series1)


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Hence, slope of regression line = = 0.2811

Ri =Rf+ (RM-Rf )

Thus, Colgate-Palmolive (India) Limited returns = Ri = 8.2 + 0.2811 (19.148.2) =11.27 %

Hence, finally returns of Sun Pharmaceutical (India) Limited = Ri= 11.27%

cf_Sun Pharmaceuticals

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