Du Pont Analysis (2)

7/31/2019 Du Pont Analysis (2)

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Group 1

Kevin jacob

Gayatri murlidharanNamrata rani

Nidhi garg

Debashish paul


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Objectives

Examine the performance of mobile mfg. firms on thebasis Du pont analysis

Use of financial ratios in evaluating the businessmodel followed

Evaluating which type of model is more suitable for

mobile mfg. industry


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Scope There are mainly two types of strategy followed in

mobile mfg. industry cost leadership anddifferentiation strategy.

A firm could do well following either of the strategy asper theory .

Our study focuses on finding out which model is moresuitable for the mobile mfg. industry as a whole.


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Financial Year 2010-11 for Pharma FY11/CY10 was a strong year for domestic pharma

companies on back of strong growth in both domesticand exports sales.

Further, the efforts of global innovators to entrench inthe domestic market intensified with many strategictie-ups and small acquisitions of Indian companies.

Now with Abbott taking over Piramals domesticdivision and Daiichi Sankyo having acquired Ranbaxy,2 of the top 3 players in the Indian market are MNCs.


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Another problem which continued to hamper thepharma sector was the stringency of the US FDA whileinspecting manufacturing plants.

Ranbaxy and Sun Pharma are yet to come to aresolution with respect to their plants with the USFDA.

Aurobindo Pharma was new in the list to receive thewarning letter for one of its biggest manufacturingunit.


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It was the chronic therapy segment, which once again stolethe thunder of the acute therapy segment.

While the former recorded a robust 18% YoY growth, the

latter grew by 14% YoY. On an average, they were able to clock topline growth in

the range of 10% to 15%.

On the margin front, performance was not good. Most of

the companies saw increase in costs on the raw materialcosts and employee costs.

The intensifying competition led to higher attrition andthe industry is facing huge increase in the employee costs.


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Methodology The sample size for the study would consist of 10 firms

Five following cost leadership and five followingdifferentiation strategy.

Calculation of financial ratio and analysis of the same .

Application of modified Du pont model to find out thecomparative analysis.


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Litreature review The du pont model of retail industry: strategic

management journal 2008.

An analytical study of indian companies ( research

paper) Modified du pont analysis : five ways to improve your

return on equity( by thomas leisz)

Business analysis and valuation : using financial

analysis( by palepu and healy). Really modified du pont analysis: five ways to

improve return on equity:Thomas J. Liesz ,Mesa StateCollege


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Devine, Kevin and Seaton, Lloyd. An examination ofquarterly financial ratio stability: implications forfinancial decision making, Journal of Applied BusinessResearch, Winter, 1995, pp. 81-98.

FinancialAnalysis Full Text Available By: Prendergast,Paul. Financial Management (14719185), May2006,p48-49, 2p


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Key learnings from literature

review: To avoid mistaken assumptions, a more in-depth

knowledge of ROE is needed.

In the 1920s the DuPont corporation created a methodof analysis that fills this need by breaking down ROEinto a more complex equation.


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Until 1970s, maximizing ROA was a common corporategoal.

Thereafter, focus shifted from ROA to ROE. In addition to profitability and efficiency, the way in

which a firm financed its activities, i.e. its use ofleverage became a third area of attention for

financial managers. The new ratio of interest was called the equity

multiplier, which is (total assets / equity).


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ROA=Net income /Total Assets

ROE=ROA x (total assets / equity)

ROE= (net income / sales) x (sales / total assets) x(total assets / equity)


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The three-step equation breaks up ROE into three veryimportant components:ROE = (Net profit margin)* (Asset Turnover) * (Equitymultiplier)


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These components include:Operating efficiency - as measured by profit margin.

Asset use efficiency - as measured by total assetturnover.

Financial leverage - as measured by the equitymultiplier.


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The Three-Step DuPont

Calculation Taking the ROE equation: ROE = net income /

shareholder's equity and multiplying the equation by(sales / sales), we get:ROE = (net income / sales) * (sales / shareholder'sequity)


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This equation for ROE, breaks it into three widely usedand studied components:ROE = (Net profit margin)* (Asset Turnover) *(Equity multiplier)


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We now have ROE broken into two components, thefirst is net profit margin, and the second is the equityturnover ratio.

Now by multiplying in (assets / assets), we end up withthe three-step DuPont identity:ROE = (net income / sales) * (sales / assets) * (assets/ shareholder's equity)


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BIOCON BIOPHARMACEUTICALS

LTD.Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011

Operating

efficiency -4.55652 -0.02071 0.641525 1.20227 0.979585

Assets

turnover ratio 0.013193 0.094662 0.131801 0.159159 0.22666Financial

leverage 6.603788 4.927841 5.315341 5.347727 6.998864

ROE -0.39697 -0.00966 0.449432 1.023295 1.553977


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Sales growth

2008 2009 2010 2011

6.13913 0.501827 0.214923 0.863818

Assets growth

2008 2009 2010 2011

-0.00505 0.078635 0.006093 0.308755


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2006 - Inaugurates Biocon Biopharmaceuticals, India's largest multi-product Biologics facility at Biocon Park.

2007- ; Divests enzymes division for USD 115 million to Novozymes;

Biocon and Abraxis BioScience. 2008 - Biocon acquires a 70% stake in German pharmaceutical

company, AxiCorp GmbH for a consideration of30 Million.


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Analysis: In 2006, Biocon grew revenues by a healthy 22% last quarter, but

operating profit grew by just 8% owing to a sharp drop in margins.

A reasons for the drop was an adverse impact of Rs 3 crore due to

foreign exchange movement. Margins fell partly because of a 50% increase in R&D spend to Rs 6

crore

Also, Margins fell on account of lower statin prices.

The company gets a majority of its revenues from statin bulks, which

accounted for 42% of the sales in 2005-06. Higher depreciation charges on its new research and manufacturing

facility.


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FY 2006-07 vs FY 2007-08 Operating margins (excluding AxiCorp) maintained

at 31% level.

MTM Losses provided at Rs. 147 crores.

PAT impacted by MTM, declines to Rs. 93 crores.

R&D revenue expenditure increases by 27% to Rs. 60crores.

Board recommends dividend of 60% at Rs. 3/- pershare, on the enlarged share capital (post Sep 08bonus issue).


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FY 2008 R&D Revenue Expenditure increased 24% to Rs. 471

million from Rs. 379 million.

As at March 31, 2008, BBPL had accumulated losses ofRs 325,611. Biocons share in the accumulated losses ofBBPL aggregates Rs 166.062.

Approval of BIOMAb-EGFR for new indications and

commencement of sales to global markets is expectedto help improve profitability in fiscal 2010.


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FY 2009 Unpredictable Rupee depreciation adversely impacted

consolidated FY09 earnings, wherein losses of Rs. 147crores on account of MTM were provided.

Sales revenue from Research Services grew 28% to Rs.225 crores from Rs. 176 crores, in FY 09.

Syngene and Clinigenes EBITDA grew 21% to Rs. 70

crores, but MTM severely impacted profit earningsresulting in a loss of Rs. 18 crores for the year.

Also burdened with the impact of added depreciationof Rs. 16 crores.


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FY 2010-11 During the year Biocon Biopharmaceuticals Private

Limited (BBPL) became a wholly owned subsidiary ofthe Company.

For the year under review, BBPL earned revenues of `491 million as against ` 381 million in the previous year.The net profits for the year

Stood at ` 192 million as against ` 26 million in theprevious year.


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Contd For the year ended March 31, 2011 consolidated

revenues grew by 17% driven by a strong growth inbiopharmaceutical segment, EBITDA

It grew by 24% and Profit after tax (PAT) grew by 25%to ` 3,675 million as compared to ` 2,932 million in theprevious financial year.

The highlight of this past year was the strategicpartnership with Pfizer for taking our biosimilarinsulin global.


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CIPLASales growth

Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011

0.178535 0.174221 0.23605 0.069595 0.123453

Assets

growth

Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011

0.316858 0.223414 0.941216 0.075057 0.356961


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DU-PONT ANALYSIS-CiplaCipla Ltd. Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

Currency:

Rs. Million

(Non-

Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

Operating

efficiency 0.258212 0.251042 0.224891 0.204561 0.266471 0.217157

Assets

turnover 2.271075 2.032522 1.950795 1.971243 1.961229 1.623736

Financial

leverage 22.78923 11.57668 14.16306 17.32465 18.03114 24.46756

ROE 13.36402 5.906986 6.21356 6.985977 9.423278 8.627413


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FY 2007-08 The Companys turnover at Rs. 4429 crore crossed the

USD 1 billion mark for the first time.

Inspite of a sluggish start in the first quarter, theoverall turnover (including other income) of theCompany grew by 18 per cent.

The prices of many APIs and input materials have

risen significantly due to restriction in production by Chinese chemical manufacturers,

rise in price of petroleum-based products,

frequent shortages and generalinflationary conditions.


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FY 2008-09 The Companys turnover recorded a 22 per cent growth

and crossed the Rs.5000 crore milestone.

While exports grew by 30 per cent, the domestic salesgrew by 15 per cent.

Notably, technical fees fetched Rs.218 crore, ascompared to Rs.150 crore marking a significant 42 per

cent growth over the previous year. Over the last three years, the Company has invested

about Rs.1900 crore in fixed assets.


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Contd The construction work at the Companys Rs.750 crore

Special Economic Zone (SEZ) project forpharmaceutical formulations, at Indore, Madhya

Pradesh, was in full swing.

Ciplas Rs.310 crore project in Sikkim for themanufacture of formulations.

This year saw a significant growth in assets.


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FY 2009-10 Sales growth was comparitively less in this financial

year.

It sold its much-publicised emergency contraceptivebrand I-pill to Piramal Healthcare for a princely Rs 95crore - over three times the actual sales of the product.

The Company is investing about Rs.250 crore in a new

R&D and administration facility at Vikhroli, Mumbai.


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Contd Cipla is setting up API facilities at Bengaluru for anti-

cancer products.

The Company is upgrading its API facilities atPatalganga to scale-up production.

The total investment for these two projects isestimated to be about Rs.200 crore.


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FY 2010-11 Shares in drugmaker Cipla fell nearly 4% on Monday

morning, after it reported a larger-than-expected19.4% decline in third-quarter net profit late on Friday.

It acquired significant minority stake in two biotechcompanies one each in Goa and Shanghai for $65million (approximately Rs 300 cr) to consolidate itspresence in the growing biotech sector.


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FY 2011-12 Cipla's net sales growth of 13% was modest, given the low base a

year ago. Operating profit margins rose by 167 bps on the back of changes

in product mix,

but higher tax outgo (due to expiry of tax holidays) has squeezedthe bottom line.

Growth in exports, accounting for half of its revenues, was aletdown.

Despite the rupee's fall, export revenue grew only 10.7%,

compared with 9.5% and 8.4% in the preceding quarters. The exports growth has been erratic over the past few quarters

due to its strategy to focus less on the low-margin anti-AIDSformulations.


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RanbaxyRanbaxy Laboratories Ltd. Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10

Currency: Rs. Million (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

Net Profit Margin NI/SALES 0.06908 0.195916 0.1596 0.091669 0.1707 0.248002

Total asset Turnover SALES/ASSETS 1.825161 1.686914 1.616722 1.664771 1.78463 1.919067

Return onAsssets NI/Assets 0.126082 0.330493 0.258029 0.152609 0.304636 0.475933

ROE 1.218236 3.784104 3.128176 1.732908 3.778745 6.388989


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Analysis Net Profit margin decreased in 2008-09.

NPM was highest in 2010-11.

Total asset turnover was lowest in 2007-08 andhighestin 2010-11.

Return on Assets was lowest in year 2005-06 and thenin 2008. maximum ROA was in 2010


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Ranbaxy Labs an underperformer in 2008 due to theUSFDA import ban on the 30 products from its two units atPaonta Sahib and Dewas .

In 2008,Ranbaxy Labs net profit seen down 76% at Rs50 cr.

In 2010,with the Daiichi Sankyo takeover, a lot of licenseddrugs helped the co. domestically.

In 2010,The US FDA gave the green signal for Ranbaxy tolaunch the generic version of Aricept, a drug to treat

Alzheimer's disease.

In 2011,Ranbaxy jumps after final nod from USFDA tolaunch Lipitor


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Sun Pharma Net Profit margin has shown fluctuating trend .

NPM was highest in 2010.It fell in alternate years.

Total asset turnover was highest in 2008 and 2009.Itfell sharply in 2010

Return on Assets became zero in 2007 and then rosesharply in 2008. Since then , it has shown fluctuating

effect, decreasing in 2009 and 2011.


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In 2007,Sun Pharmas net sales growth 25%, Net profitup 17%.

In 2007,Sun Pharma gets approval to market genericTrileptal tabets

In 2008,Sun Pharma reports Net sales up 76%, Netprofit up 135%

In 2008,Novartis drops Exelon patent suit against SunPharma.

In 2009, Sun Pharma get tentative USFDA nod fordrug


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In 2010,Sun Pharma achieves 35% sales growth

Sun Pharma gets US FDA nod for generichypertension drug


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Dr Reddys Lab Net Profit margin increased sharply in 2007 and then

dropped and remained constant.dbt)

Total asset turnover increased sharply in 2007 andthen dropped and remained constant.dbt)

Return on Assets increased sharply in 2007 and thendropped and remained constant.dbt


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In 2006, Dr Reddy's received exclusive USFDAapproval for Ondansetron HCL tablets which gave50% market share to DRL

Dr Reddys & Torrent Pharma sign agreement

In 2007,SYGNIS, Dr. Reddys sign supplycollaboration for Ax200

Dr Reddys develop respiratory drug

Dr Reddy's launches Ebernet TM-Eberconazole


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Pfizer Net Profit margin increased in 2007and fell sharply in

2009.

Total asset turnover has been constant,lowest being in2009.

Return on Assets increased in 2007and fell sharply in2009.


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Pfizers Q3 net profit was at Rs 30.8 crore versus Rs 28crore during the same quarter previous year. Its netsales were at Rs 175.7 crore versus Rs 178.5 crore during

the corresponding quarters. Operating profitmargin stood at 19% vs 19.5%, YoY.

In 2009, Pfizer acquired Wyeth in $60bn.

In 2011, Ranbaxy, Pfizer in pact with ITC to boostrural sales


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Piramal Healthcare Net Profit margin was constant throughout,rising

sharply in 2010.

NPM was highest in 2010-11.

Total asset turnover was lowest in 2007-08 andhighestin 2008

Return on Assets constant throughout, rising sharply

in 2010. ROA was highest in 2010-11


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In 2010, Abbott acquired Piramal in a $3.7-billion deal.


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GSK Net Profit margin rose sharply in 2007-08 and fell in

2008.

Total asset turnover was lowest in 2007-08 and highestin 2010-11.

Return on Assets was lowest in year 2005-06 and thenhighest in 2006.


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GSK Pharma launched 5 patented products over CY08-10.

In 2008, GSK Pharma signed licensing agreement withAstellas

The new initiatives were: 1) Developing channels forhospitals to leverage GSK scale, optimise marketing spendsand develop expertise. 2) Develop channels and reach fortapping rural opportunity, expanding matured products

through contract field force. 3) Investing in chronictherapeutic segments like diabetes, CVS, biological.Strengthen dermatology and critical care franchises.


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In 2008,GSK Pharma gained from vaccines,priority products and launched 2 new innovativevaccines

In 2009,GSK entered into a revenue sharingagreement with Dr Reddy's products in emergingmkts


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Comparative Analysis for 2010-11Piramal has the best Net Profit Margin in the industry

for the year 2010.

Pfizer has the best Total asset turnover.

Piramal has the best ROI.

Du Pont Analysis (2)

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