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Financial Reporting Analysis

          Comparing Financial Performance of
                   Cipla & Lupin


Project team...
Financial Reporting Analysis                                                                                              ...
Financial Reporting Analysis                                                             Group 10




Executive Summary

T...
Financial Reporting Analysis                                                            Group 10


Industry Overview

The ...
Financial Reporting Analysis                                                              Group 10


Firms identified for ...
Financial Reporting Analysis                                                                     Group 10


Revenues

Sale...
Financial Reporting Analysis                                                               Group 10


Both Lupin and Cipla...
Financial Reporting Analysis                                                                Group 10


-   There has been ...
Financial Reporting Analysis                                                               Group 10



Inference
There is ...
Financial Reporting Analysis                                                                 Group 10


Liquidity
Inventor...
Financial Reporting Analysis                                                             Group 10


    1) Forward and cur...
Financial Reporting Analysis                                                                    Group 10


Debt > 6 months...
Financial Reporting Analysis                                                                  Group 10


-   P/E ratio for...
Financial Reporting Analysis                                                                  Group 10


(Lupin)
Net Cash ...
Financial Reporting Analysis                                                                Group 10


The cash that has c...
Financial Reporting Analysis                                                                   Group 10


Conclusion


 Pa...
Financial Reporting Analysis                       Group 10


Appendix

Cipla data calculation sheet



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Financial Statement Analysis - Cipla Vs Lupin

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Financial Statement Analysis - Cipla Vs Lupin

  1. 1. Financial Reporting Analysis Comparing Financial Performance of Cipla & Lupin Project team: Group 10 Nitin Gupta 1014031 Piyush Deogirikar 1014035 Priti Raj 1014038 Yogesh Kumar Singh 1014070 Ramamurthy Prakash 1014071 Date of submission: 17th May, 2010
  2. 2. Financial Reporting Analysis Group 10 Table of Contents Executive Summary ................................................................................................................................. 3 Industry Overview ................................................................................................................................... 4 Firms identified for the study .................................................................................................................. 5 Cipla .................................................................................................................................................... 5 Lupin ................................................................................................................................................... 5 Period of Study ........................................................................................................................................ 5 Data Sources ........................................................................................................................................... 5 Revenues................................................................................................................................................. 6 Sales growth ........................................................................................................................................ 6 Profitability ............................................................................................................................................. 7 Net Profit............................................................................................................................................. 7 DuPont Analysis ................................................................................................................................... 8 Cost Structure...................................................................................................................................... 9 Liquidity ................................................................................................................................................ 10 Inventory Turnover ............................................................................................................................ 10 Current ratio...................................................................................................................................... 10 Quick ratio ......................................................................................................................................... 11 Overall debt level .............................................................................................................................. 11 Capital market performance .................................................................................................................. 12 P/E ratio analysis ............................................................................................................................... 12 Stock Valuation.................................................................................................................................. 13 Dividend Yield.................................................................................................................................... 13 Cash Flow .............................................................................................................................................. 13 Accounting Methods ............................................................................................................................. 15 Analysis of Director’s Reports ................................................................................................................ 15 Conclusion............................................................................................................................................. 16 Appendix ............................................................................................................................................... 17 Comparing Financial Performance of Cipla & Lupin Page | 2
  3. 3. Financial Reporting Analysis Group 10 Executive Summary The pharmaceutical industry is one of the sunrise sectors in India. It has been growing at approximately 10% every year. Indian companies hold just around 7% share in the global pharmaceutical market but they are expected to become major players soon with the help of their innovatively-engineered generic drugs and active pharmaceutical ingredients (API). There are 74 U.S. FDA-approved manufacturing facilities in India, more than in any other country outside the U.S. Indian pharma companies are also believed to be filing upto 20% of all Abbreviated New Drug Applications (ANDA) to the FDA. London research company Global Insight estimates that India’s share of the global generics market will have risen 33% in the next five years. At this juncture, we wanted to take a closer look at some of the promising companies in the Indian pharma sector and identify possible investment opportunities within these companies. With that aim this report attempts to study the financial reports of Cipla & Lupin and highlight the following aspects that are crucial for the investment decision - 1. Revenues 2. Profitability 3. Liquidity 4. Capital market performance 5. Cash flow The findings have been interesting. We now know that though these two companies have posted healthy growth numbers for past so many years, they have reached a consolidation phase due to which the growth rate has slowed down a bit in the recent years. Quality of earnings has been good with minimum dependence on “other income”. On a long term both the companies can be good investment opportunities. If one wants to get into a slightly a defensive pharma play with good returns, Cipla seems to be the better bet, since it did well during recession too. For a high return of investment, Lupin could be the right option. Comparing Financial Performance of Cipla & Lupin Page | 3
  4. 4. Financial Reporting Analysis Group 10 Industry Overview The Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. 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 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price control. Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs and pharmaceutical products has been done away with. Manufacturers are free to produce any drug duly approved by the Drug Control Authority. Technologically strong and totally self- reliant, the pharmaceutical industry in India has low costs of production, low R&D costs, innovative scientific manpower, strength of national laboratories and an increasing balance of trade. The Pharmaceutical Industry, with its rich scientific talents and research capabilities, supported by Intellectual Property Protection regime is well set to take on the international market. Comparing Financial Performance of Cipla & Lupin Page | 4
  5. 5. Financial Reporting Analysis Group 10 Firms identified for the study Cipla Cipla is one of the oldest pharmaceutical companies of India, founded and public-listed way back in pre-independence era in 1935. Since the time of inception, it has been steadily on the rise and is one of the wide ranging pharmaceutical products companies in India. Its products are distributed in more than 180 countries worldwide. Outside India Cipla is best-known for manufacturing low-cost anti-AIDS drugs for HIV-positive patients in developing countries. Recently, Cipla sold the manufacturing rights of its high-end emergency contraceptive pill, I-pill, to its pharma field counterpart Nicholas Piramal (Piramal Healthcare) for Rs. 95 million. Lupin Lupin Pharmaceuticals offers a perfect contrast to Cipla. Lupin is a relatively newly founded Indian pharmaceutical company which has risen the ranks briskly and has become one of the top top six pharmaceutical companies in India. The Company today has significant market share in key markets in the Cardiovascular (prils and statins), Diabetology, Asthma, Pediatrics, CNS, GI, Anti-Infectives and NSAIDs therapy segments, not to mention global leadership positions in the Anti-TB and Cephalosporins segments. Lupin has the unique distinction of being the fastest growing top 10 Generics players in the two largest pharmaceutical markets of the world – The U.S (ranked 9th by prescriptions & growing at 92 %) and Japan (ranked 7th and growing at 23%). The company is also the fastest growing, top 5 pharmaceutical players in India (ORG IMS - March 2009) and the fastest growing Generic player in South Africa (ranked 6th and growing at over 30 % annually - IMS March 2009). Period of Study We have studied and compared the financial performance of both companies for a period of 5 years, between 2004-05 and 2008-09. Data Sources  Annual reports, 2004-05 till 2008-09  Company web sites - http://www.cipla.com/ http://www.lupinworld.com/  Wikipedia - http://wikipedia.org  ICRA report on Indian pharmaceutical Industry - http://www.icra.in/files/PDF/SpecialComments/2010-February-%20Pharma.pdf Comparing Financial Performance of Cipla & Lupin Page | 5
  6. 6. Financial Reporting Analysis Group 10 Revenues Sales growth Net Sales 2009 2008 2007 2006 2005 Cipla 4960.60 3997.90 3438.24 2897.41 2181.26 Lupin 2898.56 2543.69 1970.93 1606.10 1161.13 * sales data in Rs crore Sales Growth(%) 2009 2008 2007 2006 2005 Cipla 24.08 16.28 18.67 32.83 18.40 Lupin 13.95 29.06 22.72 38.32 23.10 Sales 6000.00 5000.00 4000.00 (Rs Crore) 3000.00 Cipla 2000.00 Lupin 1000.00 0.00 2005 2006 2007 2008 2009 - Both the companies have shown healthy growth rate when compared to industry’s growth rate. - Sales growth shows a declining trend for both the companies. There is no specific reference for this in the annual report. But this can be attributed to the fact that sales growth for the whole pharmaceutical sector is showing the same consolidation trend in the past years. - Both companies have been expanding operations in India as well as abroad. For both the companies around 50% sales come from the domestic market and 50% from exports. - Both have been regularly launching new products in the domestic as well as the outside market. Inference Comparing Financial Performance of Cipla & Lupin Page | 6
  7. 7. Financial Reporting Analysis Group 10 Both Lupin and Cipla have shown consistent increase in sales over the 5 year period and there is nothing much to choose between the two. Sales growth trend is declining, which probably can be attributed to the general trend in the industry. Profitability Net Profit Net Profit 2009 2008 2007 2006 2005 Lupin 416.97 443.38 302.06 182.72 84.36 Cipla 776.81 701.43 668.03 607.64 409.62 * profit data in Rs crore Net profit 900.00 800.00 700.00 600.00 Rs (crore) 500.00 Cipla 400.00 300.00 Lupin 200.00 100.00 0.00 2005 2006 2007 2008 2009 - In the case of Cipla, there has been a healthy increase in profit from 409.62 in 2005 to 776.81 in 2009. - The profit has steadily increased for Lupin as well from 2005 to 2009. There has been up to 5 times increase in profits. - In India, and globally too, the pharmaceutical sector had had a good growth in recent years. This has accounted for the growth of the two premier pharmaceutical companies of India. Also, as argued by the director of Lupin in its annual report, the income of people in India has increased, and also many people have moved from the lower income bracket into moderate and high income brackets, which have made more people resort to quality healthcare and medicines. Hence we see a consistent growth in the net profits of the two companies. - Both the companies have shown very good quality of earnings. “Other Income” factor is very low most of the times for both the companies (less than 10%). This shows that both the companies have extracted income / profit from their normal operations. Comparing Financial Performance of Cipla & Lupin Page | 7
  8. 8. Financial Reporting Analysis Group 10 - There has been a decline in profit between 2008 and 2009 for Lupin. A study of Lupin’s annual report for the year 2008-09 gives us a vital clue – The Schedule 12 (Schedule forming part of the Profit and Loss Statement, page 116) from the report indicates that in the year 2008, Lupin sold patent applications garnering income of 112.7 crore rupees. This amounted to a surge in income in the year which can be attributed to “other income”. Hence when we move on to view the report for the year 2009, we find a decline in the net profit. Hence this decline is not attributable to any slack performance by Lupin in this period. Inference Both Cipla and Lupin have shown strong growth in the net profit growth over the 5 year period. This can definitely be attributed to high general growth in the industry and quality healthcare spending as seen in India. Quality of earnings has been good as well for both of them. DuPont Analysis Lupin Ratio 2008-09 2007-08 2006-07 2005-06 2004-05 Profit Margin = Net Profit/Net Sales 14.39% 17.43% 15.33% 11.38% 7.27% Asset Turnover = Net Sales/ATA 0.92 0.97 0.92 0.96 0.93 - Profit margin of Lupin has increased in the first 2 years and is relatively constant in the last 3 years (after accounting for the proceeds for from the patent sale). - Asset Turnover is between 92% and 97 which is good. - The data suggests that the company derives its revenues chiefly by resorting to the economies of scale, i.e. mass production of medicines. - Lupin primarily produces general purpose medicines for respiratory, gastrointestinal, dermatological, diabetic, allergic, cardiac, gynaecological, and other such general ailments on a massive scale. Also, the director’s statement in the financial report suggests that the firm’s prime source of income is from the manufacturing of generics; a cost player making unpatented medicines. Hence, volume (and not margin) is Lupin’s relative strength. - There is an increase in net sales as well as assets for Lupin. Lupin’s assets have increased due to increase in fixed assets and investing (as well as acquisition) activities. Cipla Ratio 2008-9 2007-8 2006-7 2005-6 2004-5 Profit Margin = Net Profit/Net Sales 15.66% 17.54% 19.43% 20.97% 18.78% Asset Turnover = Net Sales/ATA 0.79 0.79 0.87 0.95 0.90 - Cipla’s net profit margin is also around 15%, but shows a declining trend during these years. This can be attributed to high competition, appreciating rupee and rise in the cost of raw materials. - Cipla’s asset turnover is hovering around 0.9 – 0.8 and has remained relatively constant. - Data indicates that Cipla too, like Lupin is a mass market company. - In case of Cipla as well, assets have increased due to increase in fixed assets and investing activities. Comparing Financial Performance of Cipla & Lupin Page | 8
  9. 9. Financial Reporting Analysis Group 10 Inference There is again not much to choose between the two companies. Both Lupin and Cipla are mass market companies and hence have low profit margins. Both show a slight declining trend in the last years. As indicated by director’s report of both the companies, this can be due to increased raw material cost, economic slowdown during 2007-08 and appreciating rupee (both the companies have high %age of exports). Since the two companies have a low profit margin, should they scale up their operations they run the risk of diminishing their profits and hence their risk profile is moderate. Both of these companies can look forward to increasing their profit margins with passing economic slowdown. Cost Structure Cost structure details of Lupin and Cipla for the periods 2008-09 and 2007-08 is given below. These 2 years are also typical of expenditure details for the previous three years. Expenses Cipla Lupin Expenditure 2009 2008 2009 2008 Material Cost 2347.4 2042.71 1241.8 1096.2 Employee Cost 271.33 214.01 334.5 241.8 Manufacturing & Other Expenses 1386.5 1105.03 815.4 754.9 Interest - Fixed period 32.53 10.7 41.5 34.4 Total Operating Expenses 4425.46 3499.85 2499.58 2183.47 Operating Expenses/Net Sales 85.49% 83.98% 82.51% 82.28% Depreciation/Net Sales 3.06% 3.27% 2.29% 2.21% - Operating expenses of both Lupin and Cipla are more than 80% of their total sales. Hence both of them have high operating expenses. - The variable costs, i.e material cost, employee cost & manufacturing costs make up for more than 90% of the total operating expenses for both Lupin and Cipla. - Both of them are having very low depreciation as compared to the net sales. - R&D expenses for Lupin is around 7.2 % of net sales and for Cipla it is around 5% of net sales. Inference Both the companies incur a major part of their expenses from material purchases, employee cost and manufacturing. Their fixed costs are quite low compared to the variable cost. Hence there is no preponderance of fixed costs. Comparing Financial Performance of Cipla & Lupin Page | 9
  10. 10. Financial Reporting Analysis Group 10 Liquidity Inventory Turnover Inventory Turn over 2009 2008 2007 2006 2005 Cipla 3.49 3.32 2.95 2.81 2.76 Lupin 3.66 4.18 4.84 5.08 4.61 Cipla Lupin 7000 4000 6000 5000 3000 4000 2000 3000 Inventories Inventories 2000 1000 1000 Net Sales Net Sales 0 0 - The inventory turnover is around 3.5 times for both firms. This is a good sign in terms of liquidity. - There is no inventory pile up, which means greater cash is available for operating needs and lesser money to be spent on storage costs. On the other hand, Cipla’s inventory turnover is marginally increasing year on year to accommodate for increasing sales. Inference The increase in inventories at both Cipla and Lupin are inline with the increase in sales. Current ratio Current Ratio 2009 2008 2007 2006 2005 Cipla 3.15 3.00 3.01 2.52 2.25 Lupin 1.97 3.16 3.50 3.62 2.43 - As a rule of thumb, current ratio is expected to be atleast 2:1. Cipla’s current ratio is 3.1:1, which is a healthy indicator of Cipla’s liquidity scenario. - Lupin’s current ratio is at 1.97:1 which is very close to the normal. It is interesting to note that Lupin’s liabilities drastically increased from Rs. 546 million during 2008 to Rs 914 million in 2009. This change is attributed to the following transactions – Comparing Financial Performance of Cipla & Lupin Page | 10
  11. 11. Financial Reporting Analysis Group 10 1) Forward and currency option contracts worth Rs. 2959 million. 2) Increased outstanding dues from creditors upto Rs. 1000 million Quick ratio Quick Ratio 2009 2008 2007 2006 2005 Cipla 2.15 2.10 1.97 1.47 1.29 Lupin 1.19 2.02 2.54 2.79 1.53 - The quick ratio for both the companies is good (>1). - The quick ratio is going down for Lupin, which is not a favorable trend. - On the other hand, Cipla’s quick ratio has been increasing which is good. Debtor Turnover 2009 2008 2007 2006 2005 Cipla 3.07 3.30 3.61 3.96 4.02 Lupin 4.32 4.58 4.76 5.50 5.15 - Debtor turn over ratio is very healthy for both the companies. There is a decreasing trend in debtor turnover. - However this is not a matter of concern since incremental sales growth usually come in the from credit sales. Overall debt level - Cipla seems to be under leveraged. It has apparently a conservative debt / liability position. This is may be attributed to the fact that Cipla is older & bigger than Lupin, and hence more conservative. - Lupin is sufficiently leveraged. - Both the companies have sufficiently expanded their equity base. - Both the companies also seem to maintain sufficient interest cover. Based on the Debt equity ratio and interest cover, we can conclude that Lupin and Cipla maintain a good solvency position. (In contrast other pharma majors have been struggling at the same time to pay off huge debts. See below reference). Cipla Comparing Financial Performance of Cipla & Lupin Page | 11
  12. 12. Financial Reporting Analysis Group 10 Debt > 6 months 2009 2008 2007 2006 2005 Good debts 464.46 282.42 248.30 115.12 79.92 Doubtful debts 45.06 10.86 0.31 6.43 0.18 Lupin Debt > 6 months 2009 2008 2007 2006 2005 Good debts 25.70 6.50 5.67 2.75 10.40 Doubtful debts 5.35 3.00 1.70 1.70 1.55 - The doubtful debt position (debts greater than 6 months) for both the companies is significantly low. This is an encouraging sign for both the companies. Inference Both Cipla and Lupin are doing good in terms of liquidity. Cipla is a little under leveraged as compared to Lupin. This is may be attributed to the fact that Cipla is older & bigger than Lupin, and hence more conservative. There is no concern for any of the company in terms of bad debts. Capital market performance P/E ratio analysis Price-Earnings Ratio 2009 2008 2007 2006 2005 Lupin 13.53 9.18 16.34 22.74 26.69 Cipla 22.03 24.39 27.50 32.69 18.73 Stock Movements 7000 6000 5000 4000 3000 2000 1000 0 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-09 Lupin Cipla NSE Nifty Comparing Financial Performance of Cipla & Lupin Page | 12
  13. 13. Financial Reporting Analysis Group 10 - P/E ratio for Cipla is higher than that of Lupin. Cipla’s P/E ratio has been consistent over the period of study but Lupin shows some variance. This might convey that the market has more confidence in Cipla’s future earnings growth. - In the year 2006-2007, Lupin issued bonus share 1:1 and Cipla issued bonus share 3:2, because of that the P/E ratio declined for both. - Lupin seems to have a lower PE (which shows a little less confidence from market on Lupin) and hence have much more potential for growth. - The movement of both the stocks is fairly similar Stock Valuation Price to book ratio of both the companies are in the range of 3-6 for the last 3 years , on comparing with the industry average of 2.47, this appears to be a little overvalued. Dividend Yield Lupin 2009 2008 2007 2006 2005 Face Value 10.00 10.00 10.00 10.00 10.00 Divident/Year 125% 100% 50% 65% 65% Cipla 2009 2008 2007 2006 2005 Face Value 2.00 2.00 2.00 2.00 2.00 Divident/Year 100% 100% 100% 100% 175% Both the companies have been investor friendly and paid regular dividend to the shareholders. Inference Based on the analysis of various ratios – both the companies look promising from long term equity investors perspective. Both have given bonus issue to shareholders and have paid regular dividends. However, in the latest financial year, Lupin outperformed Cipla in terms of returns on investment. Cash Flow 2008-09 2007-08 2006-07 2005-06 2004-05 Cash generated from operating 413.82 260 161.22 113.67 97.22 activities (Lupin) Cash generated from operating 373.27 380.2 334.42 277.16 200 activities (Cipla) Net Profit (Lupin) 416.97 443.38 302.06 182.72 84.36 Net Profit (Cipla) 776.81 701.43 668.03 607.64 409.62 Net Cash used in Investing Activities -492.23 -498.53 -151.11 -76.7 -128.56 Comparing Financial Performance of Cipla & Lupin Page | 13
  14. 14. Financial Reporting Analysis Group 10 (Lupin) Net Cash used in Investing Activities -578.47 -687.25 -485.97 -389.23 -62.77 (Cipla) Net Cash Generated from Financing -124.54 100.83 -113.13 401.05 34.08 Activities (Lupin) Net Cash Generated from Financing 178.92 254.84 238.56 145.35 -124.6 Activities (Cipla) Cash and equivalents at end of year 12.13 215.08 352.78 455.8 17.78 (Lupin) Cash and equivalents at end of year 53 79.28 131.49 44.48 15.38 (Cipla) - Cash for both the companies is majorly coming from operating activities and from financing activities. - In Lupin’s case following is the case in the point about the financing activities: 2006-07: Money raised from issue of FCCBs (446 crores) In most of the other cases, the cash from investing activities is coming from proceeds from borrowing and cash is going out for repayment for borrowings. - As can be seen that for both the companies, cash that is being generated from operating activities is steadily increasing every year. It is majorly following the trend of net profit. But out of the two companies Lupin’s net profit is more closely following net profit trends. Cipla’s net profit seem to be heavily depending both on operating activities and financing activities which can be a little cause of concern. - Outflow of cash is primarily due to investing activities. In Lupin’s case the outflow in investing activities have increased in the last 2 years. The reason is not only the addition of fixed assets, but also the various acquisitions that Lupin made, an account of which is being provided here: 2007-08: Kyowa, Japan 2008-09: Hormosa Pharma, Germany, Pharma Dynamics, South Africa Generic Health, Australia, Multicare Pharma, Philipines - In Cipla’s case, the outflow in investing activities is primarily due to the purchase of fixed assets / capital work in progress. - In terms of net cash equivalents, over the period of 5 years both the companies are mostly at the same position. - The dividend payout for Lupin is ranging from 15-25% of the net operating cash flows for the 5 years which seems to acceptable trend. For Cipla, the dividend payout is around 35- 45% of the net operating cash flows for the 5 years which seems to a little on the higher side. Inference Comparing Financial Performance of Cipla & Lupin Page | 14
  15. 15. Financial Reporting Analysis Group 10 The cash that has come from operating and financing activities over the years has been used for expansion by both the companies (expanding fixed assets or acquisition). Lupin has also made acquisitions. At the end of 2008-09, both the companies are looking short on cash equivalents and hence might need to raise more cash through some investing activities for expansion. Accounting Methods Cipla Lupin Basis of Accounting The financial statements are The financial statements are prepared under the historical cost prepared under the historical convention and in accordance cost convention and in with generally accepted accordance with generally accounting principles in India accepted accounting principles in India Fixed Assets Fixed Assets are stated at cost of Fixed Assets are stated at net of acquisition or construction or modvat / centvat, less other amounts substituted for accumulated depreciation / historical costs accumulated impairment losses Depreciation Depreciation on fixed assets is Depreciation on fixed assets is provided on the Straight Line provided on the Straight Line Method Method Inventories Cost of inventories is computed Cost of inventories is computed on weighted average basis on weighted average basis Research and Revenue expenditure on Research Revenue expenditure on Development and development is charged Research and development is against profit of the year in which charged against profit of the year it is incurred. Capital expenditure in which it is incurred. Capital on Research and Development is expenditure on Research and shown as addition to Fixed Development is shown as Assets. addition to Fixed Assets. For the period of study, both the companies have maintained same accounting standards and policies. No adverse findings were reported in any auditor’s reports. Analysis of Director’s Reports An analysis of director’s statements reveals the following: - There is more focus on overall earnings and net profit. - There is specific mention about economic 2007-2008 slowdown by both companies - There is a heavy dependence on macroeconomic factors. It is acknowledged by both companies. - Otherwise, there is not much to differentiate between Cipla & Lupin as far as their presentation approach is concerned. Comparing Financial Performance of Cipla & Lupin Page | 15
  16. 16. Financial Reporting Analysis Group 10 Conclusion Parameter Cipla Lupin Sales growth Shown strong increase in sales Shown strong increase in sales but but growth rate has come down growth rate has come down Profitability Shown consistent increase in Shown consistent increase in profit profit but growth rate and profit but growth rate has come down margins has come down Liquidity Good liquidity. Little under Shown consistent liquidity leveraged. Capital market Shown consistent performance, Shown consistent performance, but performance but didn’t outperform the didn’t outperform the indices. indices. Consistent P/E despite Fluctuating P/E, but on the upward down turns in the market swing Cash flow Cash inflow is basically from Cash inflow is basically from operating and financing operating and financing activities. activities. Outflow on investing Outflow on investing and activities. Short on cash now. acquisition activities. Short on cash now. The period of study coincided with boom time (2004 – 2007) and period of recession (2007 – 2008). The recession is passing off starting early 2009. Both the companies have shown consistent growth in sales and net profit. Quality of earnings has been good with minimum dependence on “other income”. Both have shown good dividend history and have rewarded shareholders with bonus issue in the study period. Lupin is spending around 7% of its sales as R&D expenditure as compared to 5% of Cipla. On a long term both the companies can be looked at as good investment opportunities. But due to lesser PE of Lupin and its projected aggressive growth strategy, it seems that it might give better returns in future. On contrary, Cipla offers a steady & risk-free investment opportunity Comparing Financial Performance of Cipla & Lupin Page | 16
  17. 17. Financial Reporting Analysis Group 10 Appendix Cipla data calculation sheet cipla_financial_state ment_analysis_worksheet_2004_09.xls Lupin data calculation sheet lupin_financial_state ment_analysis1_worksheet_2004_09.xls Comparing Financial Performance of Cipla & Lupin Page | 17

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