Financial Analysis of Cipla, Dr. Reddy and Lupin

7/24/2019 Financial Analysis of Cipla, Dr. Reddy and Lupin

http://slidepdf.com/reader/full/financial-analysis-of-cipla-dr-reddy-and-lupin 1/14

Fundamentals of Finance and

Accounting

Assignment

Financial Analysis of 3 Companies from

Pharmaceutical Sector. The companies’names are -

CiplaDr. reddy

Sun pharmaceuticals

From-

ANK! S"T#$

%&'3A(PS))3#

!$S#A(# *N+#A+#A

%&'3A(PS,,,#

!AAT S$N#$/$

%&'3A'PS012#



S#(#A* AS#

%&'3A'PS34&#

PA!T# PTA

%&'3A)PS321#



+"/ KA!T#$K

%&'3A(PS41&#

Activity Ratios and Operating Cycles

InventoryTurnover

Ratio & No. of days of

Inventory

Trend Analysis Comparative AnalysisIndustryAnalysis(90 days

Cipla

Cipla5s in6entory turno6er 7asmerely same during %&''-')and then the decreased a 8it

during %&',.$t is important toha6e a high in6entory turno6er.Also no. of days of in6entory ismerely constant till %&') andincreased a 8it during %&',9

7hich is not good for thecompany 8ecause this 7ouldresult in a 8igger cycle 7hich

7ould a:ect the cash ;o7

<hen 7e compare 8oththe ratios of these three

companies9 especially theno. of days of in6entory

ratio9 +r. reddy isno7here near them. $t

has almost dou8le the no.

of days of in6entory7hich suggest the

company is =nding itdi>cult to sell their

products ?uic@ly. Theratios of sun pharma andcipla are almost the same

indicating their similarposition according to this

ratio.

No. of days ofin6entory isalmost the sameas industrya6erage.

!un "#arma

nli@e Cipla9 the ratio is 8othincreasing and decreasing in

di:erent years. <hencomparing the no. of days of in6entory9 7e see that it 7as

the greatest in %&3 and lo7estin %&'%.This ratio should 8e as

lo7 as possi8le so thatin6entory can easily 8e

con6erted into cash

No. of days ofin6entory isalmost the sameas industrya6erage.

$r. Reddy

i@e Cipla9 the in6entoryturno6er ratio is merely a

constant o6er these years. The

no. of days of in6entory is alsoconstant9 8ut it is 6ery high. This means the company is

=nding it di>cult to ?uic@ly selltheir their in6entory

No. of days ofin6entory is highas compared toindustry

a6erage. Thismeans cash ;o7is less and costof managing thein6entory ismore.

no. of daysof receiva%le

Trend Analysis Comparative AnalysisIndustry Analysis

(0

Cipla Cipla’s ratio hascontinuously decreasedo6er the years 7hich is

good sign for the company8ecause the company iscollecting money from its

customers in less time

So9 7hen 7e comparethe three companies9surely +r. !eddy is far8etter than the rest of the t7o companies dueto its less ratio 7hich ishelping it to increase

Cipla is close toindustry a6erage

8ut only in%&',.The cash ;o7

has impro6ed.



than the pre6ious year.

cash ;o7. Cipla and Sunpharm are more or less

similar.

!un "#arma

For Sun pharma9 the ratio Bumped 6ery high in %&'3

8ut su8se?uentlydecreased thereafter 7hichis again a good sign for the

company.

Sun pharma isclose to industry

a6erage 8ut only in%&',.The cash ;o7

has impro6ed

$r. Reddy

"6en for +r. !eddy theratio has decreased o6erthe years and from the

past t7o years9 the ratiohas 8een 6ery less 7hich is

a 6ery good sign for thecompany.

+r. !eddy is lessthan industry

a6erage from thepast % years 7hichis a 6ery good signsince the cash ;o7

is impro6ing

No. of daysof paya%les

Trend Analysis Comparative Analysis

Cipla

The no. of days of paya8le7ere a constant from

%&''-') 8ut it increasedthereafter 7hich is not agood sign since company

not 8e a8le to pay itssuppliers.

Sun pharma has impro6ed theratio after sudden increase in theyear %&'3."6en for +r reddy9 theratio has impro6ed signi=cantlyafter %&'%.They are a8le to pay

their suppliers 7ith more ease in%&', than the pre6ious years.(ut for the case of cipla9 theratio increase during %&',.

!un "#arma

The ratio is almost the

same in all the yearsecept %&'3 7here itincreased signi=cantly.

$r. Reddy

The ratio decreasedsigni=cantly from %&'' till%&'3 8ut 7as a constant

thereafter.

Total AssetTurnover


Cipla

Continuous decrease o6erthe years9 7hich indicatescompany5s e>ciency has

fallen to producti6ely use itsassets to generate re6enues

Cipla relati6ely has fared8etter compared to other t7o9

as it has 8een a8le togenerate more re6enues o6er

the years follo7ed 8y +r.!eddy and then 8y Sun

Pharma. Sun pharma5s lo76alue Din %&',E indicated thatthe company is ha6ing eithermanagement or production

pro8lems.

!un "#arma

Continuous decrease o6erthe years9 7hich indicatescompany5s e>ciency has

fallen to producti6ely use itsassets to generate re6enues

$r. Reddy

Continuous decrease o6er

the years9 7hich indicatescompany5s e>ciency hasfallen to producti6ely use itsassets to generate re6enues



'ied AssetTurnover


Cipla

Continuous $ncrease o6er theyears9 7hich indicates

amount of rupees recei6edfor e6ery =ed assets

in6ested has increase o6erthe years9 gi6ing a sta8le

performance.

Although the ratio remainedsta8le for cipla9 8ut +r. !eddy7hich maintained more than 3

al8eit d7indling9 can generatehigher rupees for e6ery =edassets in6ested than cipla and

sun pharma.

!un "#arma

#igh increase in the initial

year9 and then after the fall9pretty constant 7hichindicates not a sta8le

performance.

$r. Reddy

For the years %&'% - %&')9ratio remained constant andfell for the year %&', only 8y

a 6ery less margin.

)i*uidity Ratios

Cas# Ratio Trend Analysis Comparative Analysis

Cipla

%&'' - '39 $ncrease9 %&') -',+ecrease9 Current ia8ilities

has increased o6er the years98ut in the year %&'3 due to

signi=cant increase in currentin6estment Dappro. + foldsE.

+r. !eddy has fared 8etter thanthe other t7o 7hich implies itspotential to meets it lia8ilitiesusing the most li?uid cash ismuch 8etter and ?uic@er. Sun

Pharma 7ill ha6e to sell its =edassets to meets its o8ligation9

gi6en its poor li?uidity position9since it doesn’t ha6e enough cashe?ui6alents and negati6e ;o7 of

pro=ts.

!un "#arma

From %&'' - ',9 has dropped'&& from an initial 6alue of + to 0.0+. +ue to signi=cant

decrees in the currentin6estments and cash and

8an@s and simultaneousincrease in the total current

lia8ilities.

$r. Reddy

Constant increase from %&''- %&',9 Current in6estmenthas increased9 7ith currentlia8ility remaining same.

Current Ratio

, CurrentAsset-Current

)ia%ility

Trend Analysis ComparativeAnalysis

Industry Analysis, (. to /



Cipla

Sudden $ncrease 8y % fold from%&'' to %&'% and then constantly

fallen till %&',. %&''-%&'% Thedecrease in current lia8ilities hasmore than ousted the increase in

$n6entory and account recei6a8lesof %&'%9 8ecause of 7hich li?uidposition has gone up 8ut for thenet follo7ing years. From %&'3-

%&', there is a decrease in current

ratio9 8ecause of increase incurrent lia8ility 7hich has

dominated more than the increasein current assets 7hich indicatesthat its a8ility to meet short term

8orro7ing ha6e decreased.

+r !eddycompared tocipla and SunPharma has

fared 7ell9 sinceits current ratio

has 8een

continuouslyincreasing9 7ell7ithin the

industry a6erage7hereas in caseof sun pharmaits li?uidation

D7hich isdi:erent fromli?uidityE hasincreased andcipla 7hich has

fared 8etterthan sun

pharma 8ut notas good as +r.

!eddy.

$n %&'% the ratioo6ershoot to ) andthen su8se?uently

decreased and=nally came under

the industriala6erage.

!un "#arma

Current !atio has continuouslydecreased from its pea@ in %&''( to %&', (0.. $ts li?uidity

position has fallen due to increasein current lia8ilities o6er the years.

Current ratio hasne6er 8een close toindustry a6erage9

"ither 6ery much or6ery less.

$r. Reddy

#as 7itnessed consistent increasein current ratio from %&'' to %&',

7hich indicates increase inmeeting its short term lia8ilities.

Current Assets ha6e seen constantgro7th 6s current lia8ilities 7hichha6e remained more or less the

same.

$n all these years97ithin the industrial

a6erage.

', %&') %&'3 %&'% %&''

Current !atio

cipla +r reddy

Sun pharma

%&', %&') %&'3 %&'% %&''&

'

%

3

)

,

2

uic@ !atio

cipla +r reddy

Sun pharma

1uic2 Ratio, (Current

Asset3Inventories - Current)ia%ility

Trend Analysis ComparativeAnalysis

Industry Analysis ,(

Cipla

<itnessed an increasefrom %&''-'%9

Continuously decreasedfrom %&'3-',. This has8een mainly due to the

decrease in currentlia8ility form '' to '%and increased during

%&'3-',.

Sun pharma5s=gures sho7s a

8ad sign forin6estors and

creditors9 it thecompany faces asituation 7here ithas to sell all its

li?uid cash to pay

The ?uic@ ratio has 8eenmore than the a6erage

for %&'' - %&'). A ?uic@ratio that is greater than

industry a6erage maysuggest that the

company is in6estingtoo many resources inthe 7or@ing capital of



8ac@9 theo8ligations9

8ecause there isn5tany . ong termassets 7hich areused to generatere6enues 7ould

ha6e to 8e sold o:9if it happens sincethe company is not

a8le to generateenough pro=ts97hich it is. +r.

!eddy has faredgood and 7ell

prepared to face acrisis if it has to.

Cipla on the otherhand is in 8et7een

8oth9 since thefalling =gure

re6eals slight poorcapacity tomaintain its

o8ligation9 8y usingthe cash

e?ui6alents.

the 8usiness 7hich maymore pro=ta8ly 8e used

else7here.

!un"#arma

+rastic and Continuousdecrease from %&'' -

',. Su8stantial increasein current lia8ility ascompared to current

assets. The moreuncertain the 8usiness

en6ironment9 higher the?uic@ ratios as indicated

for the year %&''9 '%and '3.

%&'' - %&') - far a8o6ethe a6erage. %&', - Far8elo7 the a6erage. Forthe year %&',9 Acid test

ratio remained lo7erthan the industry

a6erage may suggestthat the company 7asta@ing too much ris@ 8y

not maintaining anappropriate 8u:er of

li?uid resources.$r. Reddy $ncrease in ratio for the

consecuti6e years.nli@e the other t7o

companies9 the increasein the ratio can 8e

eplained due to theincrease in current

assets 6s current lia8ility7hich has remained

fairly constant.

A8o6e the industry

a6erage for the years%&'3-%&',

!olvency and Coverage Ratios

InterestCoverageRatio


Cipla

Cipla5s ratio has constantlyfallen 8y leaps and 8ounds9

7hich indicates its credit7orthiness among creditors

ha6e fallen.

Sun Pharma is close to8an@ruptcy and cannot 8etrusted among its creditors

D7hich 8arely is a8le to pay itsamountE. +r. !eddy fairs 7ell as

compared to cipla and theindication is that it is a8le to pay

8ills 8etter than the other t7o7ithout sacri=cing its pro=ts.!un "#arma

Sun Pharma5s ratio has fallen8y leaps and 8ounds9 7hich

indicates its credit7orthiness among creditors

ha6e fallen and it5s close to8an@ruptcy since the ratio

has 8ecome negati6e.$r. Reddy +r. !eddy ratio has

constantly fallen 8y leapsand 8ounds9 7hich indicates



its credit 7orthiness amongcreditors ha6e fallen.

'ied C#argeCovera

ge

Ratio


Cipla

Cipla5s ratio has constantlyfallen 8y leaps and 8ounds9

7hich indicates its credit7orthiness among creditors

ha6e fallen. Sun Pharma is close to8an@ruptcy and cannot 8etrusted among its creditors

D7hich 8arely is a8le to pay itsamountE. +r. !eddy fairs 7ell as

compared to cipla and theindication is that it is a8le to pay

its =ed costs 8efore interest andtaes 7ell than the other t7o.

!un "#arma

Sun Pharma5s ratio has fallen8y leaps and 8ounds9 7hich

indicates its credit7orthiness among creditorsha6e fallen and it5s close to8an@ruptcy since the ratio

has 8ecome negati6e.

$r. Reddy

+r. !eddy ratio hasconstantly fallen 8y leaps

and 8ounds9 7hich indicatesits credit 7orthiness among

creditors ha6e fallen.

Cas# 4o5 tode%t ratio


Cipla

#as decreased o6er theyears. <as at is pea@ during

%&'%9 indicating companygenerated much more cash

to through operatingcompared to de8t

Cipla has fared relati6ely 7ell. $thad 8een a8le to use more cash

from operating acti6ities ascompared to de8t i.e. cipla5slineage to7ards de8t is lesscompared to the other t7o9

though it has sho7n a fall. Sun -Pharma9 on the other hand9 has

sho7n a continuous decline.Future creditors might not lend

to Pharma.

!un "#arma

#uge decrease in thepercentage indicating

distrust among creditors.Poor credit 7orthiness.

$r. Reddy

#as remained 8elo7 '&&G9indicating more cash from

de8t 7as used than

operating. Credit 7orthinessis not good

$e%t toe*uityRatio

Trend AnalysisComparative

AnalysisIndustry

Analysis 3

Cipla

nsta8le9 6arying. *oremoney is =nanced 6ia

creditors compared to thein6estors.

Although none of thecompanies ratio falle6en close to the

industrial a6erage9cipla in this respect9has performed 7ell9relati6ely9 and is a

more in6estor friendly.Sun pharma is highly

No7here closeto the

a6erage.

Possess !is@for creditor to

in6est.!un

"#arma#ighly nsta8le9

Su8stantial increase9indicates more de8t is

No7here closeto the

a6erage.



used to epand the8usiness than in6estors’

money

unli@ely to 8e trusted8y the creditors.

!is@ier forcreditor to

in6est.

$r. Reddy

#ighly nsta8le9 $ncrease8y leaps and 8ounds.#ighly poor managed.

Creditor ris@

No7here closeto the

a6erage.!is@iest forcreditor to

in6est.

$e%t toassetsRatio

Trend AnalysisComparative

Analysis

IndustryAnalysis 3

06

Cipla

Cipla is more trustedamong the creditors9 andits a8ility to pay lia8ilities

using assets o6er theyears has remained 3-) H

Cipla is more sta8le inthese terms. Thenum8er sho7s itsa8ility to pay the

o8ligations using all itsassets in the future is

much sta8le comparedto the other t7o. Sun-Pharma5s performancehas 8een constantly

declining and 7illcontinue to do so9 its

a8ility shooting 8eyondthe industry a6erage9gi6en poor interest to

co6erage ratio.

Al7ays lessthan thea6erage9

continuousincrease o6er

the years9

sta8le

!un"#arma

+7indling ratio9 hasincreased o6er the yearsindicating its capacity to

pay using assets hasdecreased from 4 H to %.,

H

Not sta8le98ut still less

than theindustrya6erage

$r. Reddy

#as fairly remainedconstant9 +e8t paying

capacity is roughly same9a8out %., H its assets

o7er thanindustry

a6erage9 Fairlyconstant

%&', %&') %&'3 %&'% %&''&

,

'&

',

%&

+e8t to asset ratio

cipla +r reddy

Sun pharma

%&', %&') %&'3 %&'% %&''&

,

'&',

%&

%,

3&

3,

)&

+e8t to e?uity !atio

cipla +r reddy

Sun pharma



%&', %&') %&'3 %&'% %&''-,&&

&,&&

'&&&

',&&

%&&&

%,&&

3&&&

3,&&

)&&&

Cash ;o7 to de8t ratio G

cipla +r reddy

Sun pharma

%&', %&') %&'3 %&'% %&''-%&

&

%&

)&

2&

4&

'&&

Fied charge co6erage ratio

cipla +r reddy

Sun pharma

"ro7ta%ility3Ratios

Operatingpro7t margin Trend Analysis Comparative Analysis

cipla

Iperating pro=t margin;uctuated during the years7ith net sales 8eing steady

and operating pro=tchanging.

Sun pharma had the highestoperating pro=t for %&''-%&'%9 then it decreased

eponentially .7hereas ciplaand +r. !eddy has a

relati6ely steadier operatingpro=t margin..

$r Reddy

Iperating pro=t marginincreased from %&'' to %&')and then sa7 a sudden drop

in the year %&', due todecrease in operating pro=t.

!un "#arma

$t sa7 a drastic pro=t marginchange from J)3G to a -4G

7hich may 8e due to asudden increase in factory

o6erheads and otherepenses.

Net pro7tmargin


cipla

Net pro=t margin ;uctuated

on a small range for %&''-%&', 7ith pea@ in %&'3 dueto signi=cant increase pro=t

after ta.

Sun pharma had the highestnet pro=t margin for %&''-

%&'%9 then it decreasedeponentially .7hereas cipla

and +r. !eddy has arelati6ely steadier net pro=t

margin.

$r Reddy

Net pro=t margin ;uctuatedon a small range for %&''

-%&', 7ith pea@ in %&') dueto signi=cant increase pro=t

after ta.

!un "#arma

net pro=t margin falldrastically from year %&'' to%&') i.e. from )) G to -11.1

G due a huge increase inepenses a8out %40, crores9indicating that company lostits 8argaining po7er o6er its

suppliers..



"re3ta pro7tmargin


cipla

Pre-ta pro=t margin;uctuated on a small rangefor %&'' -%&', 7ith pea@ in

%&'3 due to signi=cantincrease pro=t 8efore ta.

Sun pharma had the highestpre-ta pro=t margin for

%&''-%&'%9 then itdecreased eponentially.7hereas cipla and +r.!eddy has a relati6elysteadier pre-ta pro=t

margin.

$r Reddy

Pre-ta pro=t margin;uctuated on a small rangefor %&'' -%&', 7ith pea@ in

%&') due to signi=cantincrease pro=t 8efore ta.

!un "#arma

pre-ta pro=t margin falldrastically from year %&'' to%&') i.e. from )2 G to -11 G

due a huge increase inepenses a8out %40, crores9indicating that company lostits 8argaining po7er o6er its

suppliers..

Return onassets


cipla

return on assets ;uctuatedon a relati6e 8ig range for%&'' -%&', 7ith pea@ in

%&'3In a relati6e comparison +r.

!eddy is 8etter at

con6erting its in6estmentinto pro=t than cipla

7hereas Sun pharma is=nding it 6ery hard to

con6ert the money it has toin6est into net income

$r Reddyreturn on assets ;uctuatedon a relati6e 8ig range for

%&'' -%&', 7ith pea@ in%&')

!un "#arma

!eturn on assets falldrastically from year %&'' to

%&', i.e. from %3G to -3Gdue to increase in de8t o6er

the years.

Return on

Net8ort#-Return

on e*uity


cipla

return on e?uity ;uctuatedon a relati6e 8ig range for%&'' -%&', 7ith pea@ in

%&'3+r reddy and cipla has8een generating steadypro=t 7ith the money

shareholders ha6ein6ested 7hile Sun pharma

is ;uctuating drastically7ith a negati6e return at

present

$r Reddy

return on e?uity ;uctuatedon a relati6e 8ig range for%&'' -%&', 7ith pea@ in

%&')

!un "#arma

!eturn on e?uity 7as highfor %&'' -%&'% then it fall

drastically for net 3 years to-1G at the end.

Return On Trend Analysis Comparative Analysis



!ales

ciplareturn on sales ;uctuated ona relati6e 8ig range for %&''

-%&', 7ith pea@ in %&'3+r reddy has an increasing

!IS indicating thecompany is gro7ing moree>ciently9 Cipla is ha6ing

its ups and do7n 7hile Sunpharma has a decreasing!IS signalling looming

=nancial trou8les

$r Reddyreturn on sales ;uctuated ona relati6e 8ig range for %&''

-%&', 7ith pea@ in %&')

!un "#arma

return on sales 7as high for%&'' -%&'% then it falldrastically in %&') to

-11G 9presently at -'4G

ross "ro7tmargin

Trend analysis Comparative analysis

cipla

Net sales for the company isincreasing continuously o6er

the years .!a7 materialdecreased for %&'% 9leading

to increase in the percentage

of sales a6aila8le forepenses and pro=t and thenit increased in proportion

7ith net sales @eeping grosspro=t margin steady .

Sun Pharma made thehighest pro=t for %&'' to%&'% and then +r reddyincreased its pro=t o6er

Sun pharma for net threeyears i.e. from %&'3 to

%&',.

$r Reddy

Net sales sa7 a signi=cantincrement for years %&'' to

%&', Dalmost t7iceE9 ra7material consumed

increased from %&'' to %&'3then 8ecame steady for the

%&'3-%&',.ross pro=t

margin increased 8y ''Go6er these years.

!un "#arma

Net sales shot up for %&',from %&''9 ra7 materialsconsumed ha6e almost

tripled o6er these years. Thegross pro=t margin

decreased signi=cantly o6erthe years.

%&', %&') %&'3 %&'% %&''

-%&

-'&

&

'&

%&

3&

)&

,&

Iperting pro=t margin

cipla +r reddySun pharma

%&', %&') %&'3 %&'% %&''

-',&

-'&&

-,&

&

,&

'&&

Net pro=t margin

cipla +r reddySun pharma



%&', %&') %&'3 %&'% %&''

&

%&

)&

2&

4&

ross pro=t *argin

cipla +r reddy

Sun pharma

%&', %&') %&'3 %&'% %&''

-'&

-,

&

,

'&

',

%&

%,

3&

return on assets

cipla +r reddy

Sun pharma

%&', %&') %&'3 %&'% %&''

-2&

-)&

-%&

&

%&

)&

!eturn on net 7orth

cipla +r reddy

Sun pharma

%&', %&') %&'3 %&'% %&''

-',&

-'&&

-,&

&

,&

'&&

!eturn on sales

cipla +r reddy

Sun pharma



%&', %&') %&'3 %&'% %&''

-'%&

-'&&-4&

-2&

-)&

-%&

&

%&

)&

2&

Preta pro=t margin

cipla +r reddy

Sun pharma

%&', %&') %&'3 %&'% %&''&

'

%

3

)

,

Cash !atio

cipla +r reddy Sun pharma

H-H-H-H-H

Financial Analysis of Cipla, Dr. Reddy and Lupin

Documents

Transcript of Financial Analysis of Cipla, Dr. Reddy and Lupin