Equity research final

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  • 1. Equity ResearchFMT-1(Assignment) GROUP M2
  • 2. Pharmaceutical Industry• Involved in developing, producing, and marketing drugs or pharmaceuticals licensed for use as medications.• Industry worth 839 billion US$ with a growth of 4.5% on a year on year basis.• The periods for comparison is one year for all the four companies.
  • 3. Companies Analyzed Company Revenue Number of Employees (Established in) (Net income) 2012 estimate 2012 estimate Dr. Reddy’s US$2.1 bn 14923 Laboratory(DRL) (US$300 mn) (1984) Sun Pharma US$ 1.46 bn 11200 (1983) (US$540.9 mn) Ranbaxy US$ 1.82 bn 10435 (1961) (US$ 333.04 mn)GlaxoSmithKline(GSK) ₤27.387 bn 97389 (2000) (£5.458 bn) Biocon US$283.01 mn 5585 (1978) (US$46.41 mn)
  • 4. KEY RATIOS DR REDDYS GLAXOSMITHKL KEY RATIOS LABORATORY SUN PHARMA RANBAXY INE BIOCON Mar-12 Mar-11 Mar-12 Mar-11 Dec-11 Dec-10 Dec-11 Dec-10 Mar-12 Mar-11 Debt-Equity Ratio 0.25 0.18 0.01 0.01 1.23 0.82 0 0 0.08 0.1Long Term Debt-Equity 0.03 0.04 Ratio 0.08 0.04 0 0 0.62 0.61 0 0 Current Ratio 2.45 2.31 3.5 3.9 1.09 2.04 2.41 2.89 1.59 1.75 Quick Ratio 2.11 1.63 2.67 3.06 0.88 1.6 2.12 2.55 1.44 1.6 Fixed Assets 2.08 1.96 2.9 2.6 2.56 2.05 8.11 7.09 1.38 1.49 Inventory 5.67 5.45 5.81 5.32 4.84 4.12 7.82 8.06 5.22 6.16 Debtors 3.65 3.77 5.91 5.77 3.05 3.97 36.15 42.78 3.72 3.99 2,791. 1,357. 180.06 518.2Interest Cover Ratio 19.2 107.25 0 0 2.19 24.71 09 08 PBIDTM (%) 24.03 24.53 51.5 48.04 20.95 27.94 39.36 39.86 24.92 38.01 PBITM (%) 19.59 19.88 49.64 46.01 17.34 23.87 38.51 39.04 19.07 32.38 PBDTM (%) 23.01 24.34 51.5 48.04 13.01 26.98 39.35 39.83 24.82 37.95 APATM (%) 13.46 16.73 47.25 43.79 9.21 17.95 24.7 26.16 15.92 28.7 ROCE (%) 16.63 15.1 27.03 23.28 0 15.6 47.71 45.47 13.59 26.3 RONW (%) 14.33 14.97 26.07 22.32 0 21.15 30.69 30.55 12.64 26.16 Price Earning (P/E) 34.1 32.14 31.76 34.54 0 22.21 44.29 38.87 19.89 15.28Price to Book Value ( 2.27 3.53 P/BV) 4.44 4.61 7.27 6.85 8.89 4.92 8.54 10.28 Price/Cash EPS 14.28 12.73 (P/CEPS) 25.37 24.97 30.52 32.93 -6.16 18.49 41.98 37.57
  • 5. Working Capital Ratios Glaxosmithkli Dr. Reddys Sun Pharma Ranbaxy ne Biocon Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- 11 10 11 10 11 10 11 10 11 10RM Holding Period 134.48 104.48 157.93 142.46 134.51 137.88 73.53 66.98 48.61 54.39FG ConversionPeriod 22.23 18.28 21.49 19 40.24 35.02 47.59 50.76 11.38 7.87Debtor ConversionPeriod 98 101.69 101.98 120.4 90.22 96.25 8.53 10.66 108.76 110.76No. of days inworking capital 190.22 144.48 392.36 187.91 226.11 123.55 280.85 278.86 229.8 192.28
  • 6. Dr. Reddy’s Laboratory(Analysis)• Current Ratio at 1.44 ,lower than 2:1.Liquidity good before 2010.• Debtor collection period increased from 95 to 99 days which should be bought down.• Low gearing company, Interest coverage ratio drastically reduced which may affect raising funds.• Return on Capital Employed high and increasing.
  • 7. Sun Pharma• Current ratio improved over last year, liquidity position good.• Inventory turnover increased but not a problem as liquidity position is good.• Healthy increase in the profitability ratios of the company.• Cash rich company and hence no debt, Debt equity ratio is zero.
  • 8. Ranbaxy• Current Ratio worsened compared to previous year. It is at 1.00 well below the ideal 2:1,Company’s liquidity position has worsened.• Debtor collection period increased from 91 days to 119 days. Debtors taking more days now to repay the debt worsening the liquidity of the company.• Company in losses in the current year though it made profits till last year. This is due to the enormous increase in the “Miscellaneous Expenses” of the company.
  • 9. GlaxoSmithKline• Current Ratio at 2.67.Decreased when compared to last year it was above the thumb rule of 2.0.• Return on Capital Employed improved from last year and is at a healthy 47.71%.
  • 10. Biocon• Current Ratio fell from 1.75 to 1.59 and it is still below 2:1 ratio. Debtors now taking more days to return the debt, increased from 90 to 97 days.• Debt Equity ratio fell from 0.1 to 0.08 so a low gearing company.• Return on Capital Employed and Return on Equity have reduced significantly when compared with last year.
  • 11. Risk and Return Analysis Required Average Risk Market Risk Rate of AlphaCompany Beta Return Free Return (Variance) Return (ἀ) on Stock Return DRL 0.21 0.020% 8% -0.035% 5.22 6.26% 0.028 Sun -0.035%Pharma 0.21 0.048% 8% 3.12 6.25% 0.055Ranbaxy -0.035% 0.54 -0.09% 8% 7.77 3.62% 0.074 -0.035% GSK 0.036 0.075% 8% 3.15 7.70% 0.076 Biocon -0.035% 8.32 0.52 -0.09% 8% 3.76% 0.078
  • 12. Portfolio Risk and ReturnPortfolio Return -0.00942Portfolio Risk(for sunpharma,Dr.reddy and GlaxoSmithKline) 0.157759Portfolio Beta 0.30819Risk free return 8Market Return -0.03568Required Return 1.520462
  • 13. Co-variances Return on Return on Return on Return on Return On Glaxo Smith SunPharma Dr.Reddy Ranbaxy Biocon Kline Return on 4.515793642 SunPharma Return on 0.880738595 5.219180547 Dr.Reddy 3.15534052Return on Glaxo 0.326325511 0.620647204 3 Return on 0.61146284 1.046097722 1.221240798 7.767644091 Ranbaxy 2 Return On 0.59669728 0.917574653 1.378536454 2.382855991 8.314926192 Biocon 1
  • 14. Characteristic Line of Ranbaxy Return On Ranbaxy y = 0.544x - 0.074 20 R² = 0.118 15 10 5Axis Title 0 Return On Ranbaxy -15 -10 -5 0 5 10 15 20 Linear (Return On Ranbaxy) -5 -10 -15 -20 Axis Title
  • 15. Characteristic Line of Biocon Return On Biocon 25 y = 0.526x - 0.078 20 R² = 0.104 15 10 5Axis Title 0 Return On Biocon -15 -10 -5 0 5 10 15 20 Linear (Return On Biocon) -5 -10 -15 -20 -25 Axis Title
  • 16. Characteristic Line of GlaxoSmithKline Return on Glaxosmithkline y = 0.036x + 0.076 12 R² = 0.001 10 8 6 4Axis Title 2 Return on Glaxosmithkline 0 Linear (Return on Glaxosmithkline) -15 -10 -5 0 5 10 15 20 -2 -4 -6 -8 -10 Axis Title
  • 17. Characteristics of SunPharma Return on SunPharma 10 y = 0.217x + 0.055 R² = 0.032 5 0Axis Title -15 -10 -5 0 5 10 15 20 Return on SunPharma Linear (Return on SunPharma) -5 -10 -15 Axis Title
  • 18. Characteristic Line of DRL Return on Dr Reddy 30 y = 0.216x + 0.028 R² = 0.027 25 20 15 10Axis Title 5 Return on Dr Reddy Linear (Return on Dr Reddy) 0 -15 -10 -5 0 5 10 15 20 -5 -10 -15 -20 Axis Title