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Cipla Financial Accounting

Essay by   •  December 7, 2011  •  Case Study  •  5,959 Words (24 Pages)  •  982 Views

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CERTIFICATE

This is to certify that the report presented contains our original work. It does not contain any material that has been taken from any source, except as acknowledged

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(LAKSHMI BALACHANDRAN)

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(LOVNEET TYAGI)

_________________________________

(PRABHA KUMARI)

_________________________________

(R. ANANDAPADMANABHAN)

_________________________________

(RAAJEEV TIRUPATI)

Date: ___________________________

Table of Contents

Executive Summary 4

Introduction 5

Dr. Reddy's Labs 5

CIPLA 5

Reason for Selection of these Two Firms 5

Pharmaceutical Industry in India 5

Study Period 6

Growth Analysis 6

DU PONT Analysis: 9

Ratio Analysis: 11

Current Ratio 11

Quick Ratio 12

Inventory Turnover Ratio 12

Debtor Turnover Ratio 13

Operating Cycle 13

Solvency Ratio 13

Interest Cover 15

Cash Flow Analysis 15

Stock Prospects 17

Statement of Accounting Policies 18

Dr. Reddy's Labs 18

CIPLA 19

Note On Director's Report & MDA 19

Dr. Reddy's 19

CIPLA 21

Conclusion 22

APPENDIX 1 Worksheets 23

Dr. Reddy's Labs 23

CIPLA 26

References: 28

1.Executive Summary

The project report analyses the relative performances of Cipla and Dr Reddy's over the period 2006-2007 to 2010-2011.They are the major players in Indian pharmaceuticals industry.

CIPLA is more consistent in terms of sales growth. The Profitability ratios of Cipla are constantly increasing; the main driver of profitability is Net sales. In comparison, Dr Reddy's's has fluctuating sales growth. Profitability ratio is also not consistent for them but they have a better asset and inventory turnover .The operating cycle of Cipla is on an average 1.7 times higher than that of Dr.Reddy's .So it can be inferred that Dr Reddy's is managing its inventory better than Cipla. Liquidity Ratios look solid for both the companies for all years which will help them to raise funds.

Cipla's D/E ratio is significantly lower which makes it more risk averse. The trend in Pharmaceuticals Company is to maintain very low debt to equity ratio since the demand is not very stable.

As Cipla has demonstrated a more consistent performance with a conscious management drive to keep the sales growing, the group recommends a BUY on it for institutional investors. With the high EPS and PE ratio of Dr Reddy's's, the group recommends a BUY for retail investors.

Also a comparison of segment wise net sales (that is India and outside India) reveals that the outside segment contributes more to the sale both for Cipla and Dr Reddy's's .Also the asset turnover is higher in both Cipla and Dr Reddy's's for outside geographical segments due to higher sales.

2.Introduction

Dr. Reddy's Labs

Founded in 1984 by Dr. K. Anji Reddy, it is India's second largest pharmaceutical company. Their products are marketed globally, but the focus areas are India, USA, Europe and Russia, with research emphasis on metabolic disorders and cardiovascular symptoms. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products - Dr. Reddy's offers a wide portfolio of products and services.

CIPLA

Established in 1935, Cipla is a leading pharmaceutical company indigenous to India. It has spear-headed the pharmaceutical sector for almost a generation now and has accomplished world standards. With 50 plants across the country contributing close to 1200 products to the industry, Cipla caters to a range of health related ailments and has a global presence with customer base in approximately 180 countries.

Reason for Selection of these Two Firms

The primary reason for choosing these two companies is driven by the fact that they are the leading pharmaceutical companies in India. Both the companies are established and well known and hence their financial performance is stable and mature. By analyzing their financial statements for the last 5 years, we can get an idea of the variation in the growths of the two firms in terms of their sales and profits.

Pharmaceutical Industry in India

The Indian pharmaceutical industry is the world's second-largest by volume. As the front-runner amongst India's science-based industries, the prospects look bright in terms of increased capability in drug technology. The market is expected to reach US$ 55 billion in 2020 from US$ 12.6 billion in 2009. With research expertise in the tool-kit, the industry is set to compete in global markets. International companies associated with this sector have stimulated, assisted and spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world.

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades. The leading 250 pharmaceutical companies control

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