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Novartis and IPCA Financial Analysis
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Novartis and IPCA Financial Analysis

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Novartis and IPCA Financial Analysis Novartis and IPCA Financial Analysis Presentation Transcript

  • Financial Analysis & NOVARTIS IPCA
  • Management Discussion & Analysis Overview of Indian Pharma Market
    • Front ranked among country's science based industries.
    • Worth US$ 6 billion in domestic sales and US$ 4 billion in exports.
    • In world pharmaceutical market, india has a share of about 1.8%
    • by value and about 8% by volume.
    • IPM is poised to grow to US$ 25 billion by 2010.
    • IPM has registered a healthy growth of 15.4% with multinational
    • companies growing at 11%.
    • The government’s continued focus on economic reforms and its
    • commitment to increase investment in healthcare are expected to
    • sustain growth momentum.
    • Indian companies are today focusing on global generic business,
    • increasing focus on R&D activities and alliances with multinational
    • companies.
    • Poor public healthcare funding and infrastructure, low per capita
    • consumption of medicines are a cause of concern.
    • Appreciation of the Rupee has significantly increased pricing
    • pressure on Indian Companies
    Management Discussion & Analysis Overview of Indian Pharma Market
  • Management Discussion & Analysis Novartis Performance Overview Rs / Crores
    • MRP based excise levy has lead to overall increase in drug prices
    • In OTC, implementation of excise duty on MRP continues to take a
    • toll on product profitability.
    Management Discussion & Analysis Novartis Performance Overview
  • Management Discussion & Analysis IPCA Performance Overview
  • Management Discussion & Analysis IPCA Performance Overview Verticals 2006 (Crs) 2005 (Crs) Formulations 501.29 447.59 API & Intermediates 247.76 228.68 Net Total Sales 749.05 676.27
  • Market Performance
  • Balance Sheet
  • Company Novartis Ipca (Rs. / Crores) 2006 2005 2006 2005             SOURCE OF FUNDS                 Shareholders Funds 338   284 370   326 Loan Funds 6   7 197   221 Provision for Deferred Taxation (net)     48   43 Total   344   291   615   590                   APPLICATION OF FUNDS                 Fixed Asset   10   22 374   323 Investments   7   48 4   3 Deferred Taxation   11   9     Current Assets: 449   329   358 361   Less : Current Liabilities 133   116   121 97   Net Current Assets   316   213 237   263 Pre-Operative Expenses (w/off)           0 Total   344   291   615   590
  • Novartis : Profit and Loss Account
  • IPCA : Profit and Loss Account
    • Basis of Accounting
    • Statements are per Accrual system of accounting for revenue
    • & Cost
    • Fixed Assets
    • Straightline Method of Depreciation
    • Recorded at Cost of Acquisition or construction less CENVAT/ Service Tax
    • VAT
    • Intangible Assets are recorded at cost of acquisition
    • Leasehold Land is amortized over leasehold period
    • Cost of borrowing for assets taking substantial time to be ready for use is capitalized for the period up to the time the asset is ready for use
    • Investments
    • Long Term Investments stated at cost
    • Provisions made for non-temporary diminution in value of investments
    • Investments in associates are accounted for using equity method
    Significant Accounting Policies IPCA
    • Foreign Exchange Transactions
    • Forex transactions recorded at exchange rates prevailing on transaction date
    • Loss / Gain on Forex accounted for in the P&L for the year except for Fixed
    • Assets outside India charged as carrying cost to Fixed Assets
    • Revenues of Foreign subsidiary translated at average rates prevailing during the year
    • Research & Development
    • R&D expense charged to P&L on the year it is incurred
    • Expenditure on Capital Assets depreciated over the useful life of the Asset
    • Inventories
    • Raw Materials computed on First In First Out Method
    • WIP valued at cost including all Overheads except Selling & Distribution
    • Finished Goods valued at cost or realizable value whichever is lower
    Significant Accounting Policies IPCA
    • Basis of Accounting
    • Statements are per Historical Cost Convention
    • Fixed Assets
    • Straightline Method of Depreciation
    • Trade Marks amortized over a period of 5 years
    • Leasehold Land is amortized over leasehold period
    • Cost of borrowing for assets taking substantial time to be ready for use is capitalized for the period up to the time the asset is ready for use
    • Investments
    • Long Term Investments stated at cost
    • Provisions made for non-temporary diminution in value of investments
    • Current Investments stated at lower of Cost and Fair Value
    Significant Accounting Policies Novartis
    • Foreign Exchange Transactions
    • Forex transactions recorded at exchange rates prevailing on transaction date
    • Loss / Gain on Forex accounted for in the P&L for the year
    • Forex Loss / Gains on Purchase of Fixed Assets outside India charged as carrying cost to the Fixed Assets.
    • Research & Development
    • R&D expense charged to P&L on the year it is incurred
    • Expenditure on Capital Assets depreciated over the useful life of the Asset
    • Inventories
    • Cost is determined on Moving Weighted Average Basis
    • Cost of WIP and Finished Goods includes Labor & Manufacturing Overheads
    • Inventories are valued at lower of Cost and Net Realizable Value.
    Significant Accounting Policies Novartis
  • Ratio Analysis
    • Leverage Ratios
    • Profitability Ratios
    • Liquidity Ratios
    • Turnover Ratios
    • Dividend Ratios
  • Leverage Ratios
    • This ratio shows the contributions of creditors and owners.
    • IPCA relies strongly on debt to finance its funding requirements
    1. Debt Equity Ratio (Rs. In Crores) Novartis Ipca Year 2006 2005 2006 2005 Long Term Debt 6 7 197 221 Shareholders Equity 338 284 371 326 Debt-Equity Ratio 0.02 0.02 0.53 0.68
  • Leverage Ratios
    • The debt ratio measures the extent to which borrowed funds support the firm’s assets.
    • Novartis doesn’t rely much on debt to fund asset acquisition
    2. Debt Ratio (Rs. In Crores) Novartis Ipca Year 2006 2005 2006 2005 Long Term Debt 6 7 197 221 Total Assets 344 291 615 590 Debt Ratio 0.02 0.02 0.32 0.37
    • * Net Profit ( Before Tax and Interest)
    • Impact of Borrowed Funds is almost 25 Paise on a Rupee of Net Profit earned.
    3. Interest Coverage Ratio Leverage Ratios (Rs. In Crores) Novartis Ipca Year 2006 2005 2006 2005 Net Profit * 146 102 60 83 Interest 3 2 14 11 Interest Coverage Ratio 48.67 51.00 4.29 7.55
    • Leverage ratios help in assessing the risk arising from the use of debt-capital
    • Novartis has outperformed IPCA as per Leverage Ratio analysis
    Summary of Leverage Ratios Leverage Ratios Leverage Ratios Novartis Ipca 2006 2005 2006 2005 Debt-Equity Ratio 0.02 0.02 0.53 0.68 Debt Ratio 0.02 0.02 0.32 0.37 Interest Coverage Ratio 48.67 51.00 4.29 7.55
    • Earning Per Share
    • Price Earning Ratio
    Profitability Ratios
  • 3. Return on Capital Employed 4. Net Profit Ratio Profitability Ratios
    • Profitability Ratios reflect the final result of Business Operations
    • Novartis has been managed better Returns on Assets
    • Debt Servicing Cost has impacted profitability of IPCA to a great extent
    Summary Profitability Ratios
    • Current Ratio
    • Quick Ratio
    Liquidity Ratios
    • Liquidity refers to the ability of a firm to meet its obligations in the short run
    • Acid-test ratio includes the current assets which are highly liquid and hence inventories are excluded.
    • Liquidity Position of Novartis is far better as compared to IPCA
    Liquidity Ratios Summary
    • This ratio measures how overall assets are efficiently employed so as to maximize sales
    • Novartis has been more efficient in its Asset Utilization towards sales generation
    1. Total Assets Turnover Turnover Ratios
    • This ratio measures the sale per rupee of investment in Fixed Assets
    • Since IPCA is into Formulations & Bulk Drugs the Fixed Capital Requirements are very high
    2. Fixed Assets Turnover Turnover Ratios
  • 3. Inventory Turnover Ratio 4. Debtors Turnover Ratio Turnover Ratios
  • Summary
    • Novartis has been more efficient in its Asset Utilization
    • IPCA needs to keep a check on its Debtors Ratio as its substantially high
    • Based on the nature of business, IPCA needs to maintain a higher level of inventory as compared to Novartis
    Turnover Ratios
    • Novartis Investors have enjoyed a better Dividend as compared to IPCA
    Turnover Ratios Company ( Rs / Crores) Novartis Ipca Year 2006 2005 2006 2005 Final Dividend 47.9 32 7.5 7.5 No of Shares (Crores) 3 3 2.5 2.5 Dividend per Share 15 10 3 3 Dividend per Share 15 10 3 3 Market Price per Share 595 503 368 371 Dividend Yield % 2.52% 1.99% 0.82% 0.81% Final Dividend 47.9 32.0 7.5 7.5 Net Profit 108 65 62 71 Dividend Payout % 44.43% 49.08% 12.19% 10.55%
  • Summary of All Ratios
  • Summary of Ratio Analysis
    • Novartis has greater leverage as compared to IPCA to raise Debts for its long term funding requirements
    • Novartis has been more Profitable in its business operations
    • Liquidity Position of IPCA is affected due to high level of inventories required to be maintained as per business requirement
    • IPCA has not been as efficient in its Asset Utilization due to High Fixed Asset requirements
    • Dividend pay-out has been good for Novartis
    • As an investor, we would prefer to invest in Novartis as compared to IPCA.
    Summary of Ratio Analysis
  • Thank You