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FINANCIAL ANALYSIS OF RANBAXY LAB LTD

Submitted to: Mr. Anil K. Bhola (GM FINANCE) Ranbaxy laboratories ltd Mohali

Submitted By: Ms. Prachi Tuli Chitkara Institute of Engineering and technology Chitkara University

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ACKNOWLEDGEMENT
I,PRACHI TULI would like to thank CHITKARA INSTITUTE OF ENGINEERING AND TECHNOLOGY for giving me an opportunity to undertake project. I am also grateful to the M anagement of Ranbaxy group for allowing me to undergo a project in their company, providing all sorts of facilities, which was a good learning experience. I owe my sincere thanks to Mr. Anil K. Bhola (GM-Finance) for allowing me to work in Finance Department as a trainee in Ranbaxy Labs Ltd. I shall remain indebted to him for his able guidance and whole hearted co operation and concern. I wish to thank him for his consistent moral support and the assistance he regularly provided me. I am extremely grateful to Mr. Vinod Sharma , Mr. Desraj Sharma, Mr.Kuldeep Thakur, Mr. Rajan Arora, Mr. P.K.Sood and all the members of Accounts and Finance Department for their solicited and selfless help. My summer training has added to my practical knowledge and built my confidence. Thanks again to all the family members of Ranbaxy Labs Ltd with the active support of whom I was able to complete my project work successfully.

PRACHI TULI CIET CHITKARA UNIVERSITY

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PREFACE
Management is a vital function concerned with all the aspects of an enterprise and hence a course in business administration has become a sort of prerequisite for a successful career in today’s dynamic business environment Theories on management aim at establishing the best way of doing things undyingly, the situational needs determine their mode of application. Effective Management is always a situational management. So a student undergoing a postgraduate program in management needs to be exposed to realities in the field, which puts to test the classroom learning.

My Project “FINANCIAL ANALUSIS OF RANBAXY LABS LTD” aims to study the financial condition of the company compare it with its key competitor in the Indian market Dr Reddy’s. To this context various methods and techniques like ratio analysis DuPont analysis, trend percentage, common size statements and statistical tools have been used to draw an exact picture of company. By adopting various calculation and analysis efforts have been made to draw inferences about the company.

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TABLE OF CONTENTS PAGE No INDUSTRY PROFILE COMPANY PROFILE THEORTICAL FRAMEWORK BACKGROUND OF THE PROJECT
Objectives of the study Financial analysis tools used in the project Statistical tools used in the project Limitations

5-12 13-33 34-36 37-46
39 39-43 44-45 46

FINANCIAL ANALYSIS
Analysis of Balance Sheet items Analysis of Operating Activities Analysis of Investing Activities Analysis of Solvency Condition Analysis of Working Capital Situation Analysis of Financial Structure Du-Point Analysis

47-99
48-61 62-74 75-78 79-80 81-87 88-91 92-99

CONCLUSION
Major Findings Interpretation Recommendations

100-103
101 102 103

REFRENCES APPENDIX I (ABBREVIATIONS) APPENDIX II (LIST OF CHARTS & TABLES)
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104 105 106-108
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INDIAN PHARMACEUTICAL INDUSTRY HISTORY The Indian pharmaceutical industry dates back to the fifties, when the import and marketing of the various medical formulations first started. At the onset, Multi national companies were the only route for the manufacture of formulations and the Indian Pharmaceutical industry was still in the nascent stage. Later, to protect the interest of Domestic Industry, the
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government imposed restriction on the import and marketing of various medical formulations. This led to setting up of facilities in India. The leading 250 pharmaceutical companies control over 70 percent of the market with market leader is having share of around 7% over 60% of India’s bulk drug production is exported and the balance is sold locally to the formulators. With more than 85% percent of formulation production in the country is sold in the domestic market. India is one of the top manufacturers of bulk drugs in the world and is among the top 20 pharmaceuticals exporters in the world. The industry manufactures almost the entire range of therapeutic products and is capable of producing raw materials for manufacturing a wide range of bulk drugs from the basic stage. The government has taken measures to give impetus to domestic production of drugs and Formulation, creating an environment conductive for canalizing new investments into the pharmaceutical sector. However the industry and experts feel that time has come for government to announce new policy initiatives, particularly relating to the research and development and pricing regime ,in order to propel the industry into a new growth orbit as well as the challenges of WTO led trading system and TRIPS driven product patent environment. The Indian Pharmaceutical Industry comprises both MNCS as well as Domestic companies. While at one time, MNCs dominated the market; their market share has declined steadily from 75% in 1971 to about 35%. In order to boost the Domestic industry the Government Introduced prices patents in the Indian Patent Act of 1970. Domestic Pharma companies were quick to take advantage of this and developed expertise in process development and manufacturing of Pharmaceuticals. As a result Domestic Companies had a robust pipeline of products; large therapeutic width and depth were able to provide masses with low priced quality pharmaceuticals. INDIAN PHARMACEUTICAL INDUSTRY TODAY The days when the Indian pharmaceutical industry was synonymous with cheap generic drug production are gone. While generics continue to play a major part in the industry’s success, many companies have started down the long road of drug discovery and branded product development. India is the world’s fourth largest producer of pharmaceuticals by volume, accounting for around 8% of global production. In value terms, production accounts for around 1.5% of the world total. The Indian pharmaceutical industry directly employs around 500,000 people and is highly fragmented. While there are around 270 large R&D based pharmaceutical companies in India, including multinationals, government-owned and private companies, there are also around 5,600 smaller licensed generics manufacturers, although in reality only around 3,000 companies are

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involved in pharmaceutical production. Most small firms do not have their own production facilities, but operate using the spare capacity of other drug manufacturers. The advent of pharmaceutical product patent recognition in January 2005 changed the ground rules for Indian companies. In the run up to the new post-patent era and since, the Indian industry has been evolving. R&D departments are moving away from reverse-engineering in favor of developing novel drug delivery systems and discovery research Current and future markets Geographically, the key markets for the Indian industry are India, the US, Europe, Russia and the former CIS countries, Africa and Latin America, particularly Brazil. Some companies have also begun to gain generic approvals in Australia. Indian companies are gearing up to expand their wings in to other prominent markets like Japan, Korea and other developed Asian countries. India remains an important market for the vast majority of Indian companies. The indigenous industry supplies around 70% of the country’s pharmaceuticals. The proportion of revenue derived from India depends largely on the strategy of the individual company and its penetration into overseas markets. For example, while Zydus Cadila aims to grow rapidly in key generic markets in the US, Europe and Latin America, India remains its most important market, accounting for 63% of revenue in fiscal 2007/08. India is also Cipla’s key market, generating almost half of the company’s revenue in 2007/08, although this percentage has been declining in recent years as the company has increasingly targeted overseas markets. Other companies, such as Dr. Reddy’s, are less reliant on the Indian market; in 2007/08, India contributed 15.7% of the company’s global revenue. STRATEGIES Indian companies have adopted different strategies in order to penetrate regulated generics markets. Some have entered these markets through partnerships with established generic companies; others have set up their own sales and marketing organizations, either organically or through acquisitions. A number have gone one stage further and acquired manufacturing bases in their target markets. Ranbaxy acquired Ohm Laboratories in the US in 1995, providing the company with an entry into the US market. Jubilant Organosys acquired US generic company Cadista Pharmaceuticals (formerly Trigen Laboratories) in 2005. Aurobindo Pharma acquired an FDA-compliant formulations manufacturing plant in Dayton, New Jersey in 2006. Dr. Reddy’s has MHRA-approved manufacturing facilities in the UK. Wockhardt has manufacturing facilities in various developed European countries like UK, Ireland and France. Indian pharmaceutical companies are no strangers to competition. The Indian market is highly competitive with more than 300 organized players and branded promotional costs associated with every product, yet the industry is able to offer low-priced products and remain profitable in

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India. However, whether the Indian industry will be able to maintain the pace of expansion across the world is questionable in the current economic climate. INTERNATIONAL TARGETS OF INDIAN PHARMACEUTICAL COMPANIES Outside India, the US and EU generics markets are currently the major targets for companies following a generic strategy – but for how long? The attractive opportunities offered by the loss of patent protection on several major products in the coming period has to be offset against price reduction pressures driven by the ongoing economic downturn and aggressive competition for the business that is on offer

Major players
Dr. Reddy's Laboratories Founded in 1984 with $160,000, Dr. Reddy’s was the first Asia-Pacific pharmaceutical outside of Japan and the sixth Indian company to be listed on the New York Stock Exchange. It earned $446 million in fiscal year 2005, deriving 66% of this income from the foreign market. In order

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to strengthen its global position, Dr. Reddy acquired UK-based BMS Laboratories and subsidiary Meridian Healthcare. Although 58% of Dr. Reddy’s revenues come from generic drugs, the company was committed to WTO-compliance long before the 2005 bill took effect, and most of these products were already off patent. Dr. Reddy has long been a research-oriented firm, preceding many of its peers in setting up a New Drug Development Research (NDDR) in 1993 and out-licensing its first compound just four years later. Dr. Reddy’s has since out licensed two more molecules and currently has three others in clinical trials. Although Dr. Reddy’s is publicly-traded, the Reddy family (including founder/chairman K. Anji Reddy, son-in-law/CEO GV Prasad and son/COO Satish Reddy) holds a hefty 26% share in the company. Nicholas Piramal Now a company grossing $350 million per year, Nicholas Piramal started its existence with the 1988 acquisition of Nicholas Laboratories and grew through a series of mergers, acquisitions and alliances. The company has formed a name for itself in the field of custom manufacturing. It cites its 1700-person global sales force as another core strength; with its acquisition of Rhodia’s inhalation anesthetics business, Nicholas Piramal gained a sales and marketing network spanning 90 countries34. Nicholas Piramal is well-poised for the challenge of surviving in the aftermath of product patent protection. The company has respected intellectual property rights since its inception and refused to "support generic companies seeking first-to-file or early-to-market strategies." Instead, it decided to make its own intellectual property and opened a research facility last November in Mumbai with hopes of launching its first drug in 2010 at a cost of $100,000.24, Cipla Cipla burst into the international consciousness in 2000 with Triomune, an AIDS treatment costing between $300 and $800 per year that infringed upon patents held by several companies who were selling the cocktail for $12,000 per year. Long before this news, Cipla had been building a strong global presence, and it now distributes its 800-odd products in over 140 countries. Privately-held Cipla holds a prominent spot in its home country as well; it is the leader in domestic sales, having just unseated GlaxoSmithKline for the first time in 28 years. Revenue in 2004 totaled $552 million (using Rs 43.472 = $1) about 75% of which was derived in India. Cipla did not report having a research program. Biocon

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Originally an extension to an Irish chemicals company seeking to break into the Indian market, Biocon is now the leading biotech in India, bringing in Rs 646.36 crore (almost $150 million) in revenue for fiscal year 2004. It initially made its money by producing enzymes, but Biocon recently decided to become a research-oriented company with the goal of bringing a proprietary new drug to market. The company went public in March 2004, and "its shares were oversubscribed by 33 times on opening day." Eight months later it launched Insugen, a bio-insulin that is its first branded product. Biocon also has two wholly-owned subsidiaries, Syngene and Clinigene, that perform custom research and clinical trials. Serum Institute of India The Serum Institute of India can make the enviable claim that 2 out of every 3 children in the world are immunized with one of their vaccines. It is the world’s largest producer of measles and DTP vaccines, and its portfolio includes other vaccines, antisera, plasma products and anticancer compounds. The Serum Institute earned Rs 565 crore ($130 million) in revenue in fiscal year 2005, selling mainly to UN agencies and to the Indian government. The Serum Institute is part of the Poonawalla Group, whose holdings include a horse stud farm and manufacturers of industrial equipment and components.

SWOT Analysis
Strengths • Cost Competitiveness • Well Developed Industry with Strong Manufacturing Base • Access to pool of highly trained scientists, both in India and abroad. • Strong marketing and distribution network

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• Rich Biodiversity • Competencies in Chemistry and process development. Weaknesses • Low investments in innovative R&D and lack of resources to compete with MNCs for New Drug Discovery Research and to commercialize molecules on a worldwide basis. • Lack of strong linkages between industry and academia. • Low medical expenditure and healthcare spend in the country • Production of spurious and low quality drugs tarnishes the image of industry at home and abroad. • Shortage of medicines containing psychotropic substances. Opportunities • Significant export potential. • Licensing deals with MNCs for NCEs and NDDS. • Marketing alliances to sell MNC products in domestic market. • Contract manufacturing arrangements with MNCs • Potential for developing India as a centre for international clinical trials • Niche player in global pharmaceutical R&D. • Supply of generic drugs to developed markets. Threats • Product patent regime poses serious challenge to domestic industry unless it invests in research and development • R&D efforts of Indian pharmaceutical companies hampered by lack of enabling regulatory requirement. For instance, restrictions on animal testing outdated patent office. • Drug Price Control Order puts unrealistic ceilings on product prices and profitability and prevents pharmaceutical companies from generating investible surplus. • Lowering of tariff protection • The new MRP based excise duty regime threatens the existence of many small scale Pharma units, especially in the states of Andhra Pradesh and Maharashtra which were involved in contract manufacturing for the larger, established players.

FUTURE PROSPECTS Due to economic prosperity, a lot more customers are entering organized healthcare, antibiotics and acute therapies are normally the first line of defense, say analysts.

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While India’s metros and class I cities drive the growth tier II cities and rural market add to the growth momentum. Rising disposable income, improving health infrastructure such as the government’s incentives to set up 100-bed hospitals in non-metro towns, and the general increase in health awareness due to deep penetration of the electronic media are the corner stones of sales expansion. Even though export and overseas trade remains key for most of the domestic companies, many of them derive nearly 40% of their sales from the desi market. As far as MNCs in India are concerned most of the sales are generated in urban or semi-urban areas. However, multinationals like GSK, Sanofi-Aventis, MSD India (Merck) etc., have started tapping the rural sector too, of late, realizing their growing potential.

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Ranbaxy Laboratories Limited, India's largest pharmaceutical company, is an integrated, research based, international pharmaceutical company, producing a wide range of quality, affordable generic medicines, trusted by healthcare professionals and patients across geographies. Ranked 8th amongst the global generic pharmaceutical companies, Ranbaxy today has a presence in 23 of the top 25 pharmaceutical markets of the world. The Company has a global footprint in 49 countries, world-class manufacturing facilities in 11 countries and serves customers in over 125 countries.

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The United States, which alone accounts for nearly half of all pharmaceutical sales in the world, is the company's largest international market. The company is also a leading generics producer in the United Kingdom and Germany and elsewhere in Europe. Ranbaxy's other major markets include Brazil, Russia, and China, as well as India. Incorporation Ranbaxy Laboratories had its origins in the early 1960s when Ranjit Singh and Gurbux Singh, two employees of a Japanese pharmaceutical company operating in India, formed their own pharmaceutical preparations company in Amritsar, in Punjab state. The two merged their names to form the name for their company, Ranbaxy. Ranbaxy linked up with a European pharmaceutical company, and began production in 1962. Ranbaxy's good fortune came in 1970, when the Indian government passed legislation that effectively ended patent protection in the pharmaceutical industry. Indian pharmaceutical manufacturers were now able to produce low-cost, generic versions of popular, yet expensive drugs, revolutionizing the drug industry in India and in much of the world. The company quickly took advantage of India's large, highly trained, yet inexpensive workforce, building up a strong staff of chemists and chemical engineers.

Key Dates: 1962: Ranjit Singh and Gurbax Singh incorporate Ranbaxy to market pharmaceuticals in Amritsar, India, and borrow funding from moneylender Bhai Mohan Singh. 1966: Bhai Mohan Singh takes over Ranbaxy in lieu of repayment of the loan. 1967: Son Dr. Parvinder Singh joins the company, which begins producing generic drugs. 1969: Calmpose, a Valium generic, is launched, becoming the company's first success. 1973: Ranbaxy goes public and builds a new API chemical facility in Mohali. 1977: The Company begins production in Lagos, Nigeria through a joint venture. 1983: The company opens a dosage plant in Dewas. 1987: The Company builds a state-of-the-art API facility in Toansa in preparation for entry into the U.S. market. 1988: The Toansa facility receives FDA approval. 1992: The Company launches a joint marketing agreement with Eli Lilly. 1993: A joint venture is launched in China; a new research-driven NCE and NDDS strategy is launched.
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1994: The Company opens a new research and development facility in Gurgaon, India. 1995: The Company acquires Ohm Laboratories in the United States and builds a new FDAapproved production facility. 1998: Ranbaxy begins marketing its own branded drugs in the United States; the company launches clinical trials on the first in-house developed molecule. 2000: Ranbaxy acquires Basics, Bayer's generics business in Germany; the company enters Brazil. 2003: Ranbaxy successfully completes the first NCE phase I clinical trial; the company acquires RPG (Aventis) in France, becoming the leading generics manufacturer for that market. 2005: The Company launches a new $100 million production facility in Brazil. inexpensive workforce, building up a strong staff of chemists and chemical engineers 2008: Ranbaxy entered into an alliance with one of the largest Japanese innovator companies, Daiichi Sankyo Company Ltd., to create an innovator and generic pharmaceutical powerhouse.

Mission

“To become a Research based International pharmaceutical company”

Vision-2012 Achieve significant business in proprietary prescription products by 2012 with a strong presence in developed markets

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Aspirations-2012  Aspire to be a$5 billion company  Become a Top 5 global generics player  Significant income from Proprietary products

VALUES OF RANBAXY LABORATORIES LIMITED 1. Achieving customer satisfaction is fundamental to their business. 2. Practice dignity and equity in relationships and provide opportunities for people to realize their full potential. 3. Ensure profitable growth and enhance wealth of shareholders. 4. Foster mutually beneficial relationships with all their business partners. 5. Manage their operations with concern for safety and environment. 6. Be a responsible corporate citizen.

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OBJECTIVES OF RANBAXY LABORATORIES LTD 1. 2. 3. 4. 5. 6. To be a leader in the Pharmaceutical industry. To be a profitable company with a steady growth in earnings. To set an example as a socially responsible company. To diversify in health care related areas. To strive for excellence and continuous improvement in all spheres. To improve the quality of life of people by providing better services and quality products.

VISION GARUDA

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During the year 2002, the company has evolved a 10-year vision till 2012, for sustaining significant growth consistent with its mission to be an international research based Pharmaceutical Company, under the rubric ‘Vision Garuda’, with increasing emphasis on Novel Drug Delivery Systems Research (DDR).

In licensing and out licensing, relationship with other important pharmaceutical entities, expansion of manufacturing facilities both in India and strategic overseas locations, revamping of organizational structures to cater to the wider and more dispersed span of operations, and streamlining and standardizing the business processes through out the global organization, are other areas that receive focus and attention of management on priority.

DAIICHI SANKYO DEAL In November 2008, Daiichi Sankyo completed the acquisition of 63.92% shares of Ranbaxy and in the process infused US $ 736 into Ranbaxy’s Balance Sheet. Accordingly, the company became a subsidiary of Daiichi Sankyo, effective 20, 2008. Further Daiichi Sankyo became promoter of the Company effective November 7, 2008.

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Under the deal structure that created the 15th biggest drug maker globally, the Japanese firm acquired the entire 34.82 per cent stake in the Gurgaon-based firm from its then promoters Malvinder Singh and family. Besides, Daiichi also made an open offer for an additional 20 per cent stake in Ranbaxy at a price of Rs 737 per share. Post acquisition, Ranbaxy became a debt-free firm with a cash surplus of around Rs 2,800 crore. Daiichi Sankyo is a Japanese pharmaceutical company established through the merger of two leading Japanese pharmaceutical companies , Daiichi Pharmaceuticals Co. Ltd. And Sankyo Company, Limited.Daiichi Sankyo is engaged in the business of research and development, manufacturing, import and sales & marketing of pharmaceutical products globally. Ranbaxy and Daichii Sankyo share a common view on the nature of fundamental changes in the dynamics of the industry. The partnership between Ranbaxy and Daiichi Sankyo has created a powerful hybrid business model, with complementary strengths ranging from excellence in new drug research & development to extensive reach across global markets.

VARIOUS DIVISIONS OF RANBAXY LABORATORIES LTD

1. 2. 3. 4.

Chemical Division Diagnostic Division Stan care Division Curradia Division

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5. 6. 7. 8. 9.

International Division Pharmaceutical Division Technical Division Corporate Division Animal Health Care Division

THE VARIOUS DEPARTMENTS

Human Resource Department The basic function of the human resource department in the modern corporate world is knowledge management. The HR department strives to maintain cohesiveness among employees. It also ensures interdepartmental cooperation in achieving targets. The appraisal system is also taken care by this department. Finance Department

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The finance department takes care of the regular financial needs of the company it ensures proper allocation of funds and takes care of the working capital requirements. It verifies capital raised by different departments and sends them for approval to the higher authorities. Stores Department The function of this department is to provide adequate and proper storage and preservation of various items to meet the demand of various other departments by proper issues and maintaining accounts of consumption. It also keeps a track of stock accumulation and abnormal consumption. Erection and Fabrication Department As the name suggests, this department identifies new projects and helps in erecting them. This department also undertakes major modifications of equipment. ERP Department ERP department helps to integrate the entire enterprise starting from the supplier to the customer, covering financial and human resources. This will enable the enterprise to increase productivity by reducing costs. It also ensures a single solution to the information needs of the whole organization. Production Department As a part of their on going commitment to produce hi-tech quality drugs and pharmaceuticals that take care of the specific needs of markets around the world, Ranbaxy Laboratories Limited has increased the investment in the production department. It is the most important department of the company and has the following objectives:

1. Improving volume of production. 2. Reducing rejection rate. 3. Maintaining rework rate. Engineering Department This department undertakes building, construction and maintenance. Maintaining service facilities such as water, gas, heating, ventilation, air conditioning, painting and plumbing are some of the other areas dealt by this department. This department also helps in maintaining electrical equipments such as generators, transformers, telephone system and electrical installation. Purchase Department

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The purchase department provides material to the factory without which the wheels of machines cannot move. The various functions performed by this department include: Securing good vendor performance, including prompt deliveries of supplies of acceptable qualities. 1. To develop satisfactory sources of supply and maintaining good relationships with the suppliers. 2. To pay reasonably low prices. Quality Control/Quality Assurance Department The purpose of QC & QA departments is to ensure that the desired quality standard is achieved. It also ensures that the processing or fabrication of material conforms to the specific characteristics selected, to assure that the resulting product will in fact perform its intended function.

BRIEF INTRODUCTION OF RANBAXY PLANT IN PUNJAB
In the chemical division, various bulk drugs are manufactured. The chemical division has three units in Punjab. One is located at Toansa, two are located at Mohali and one unit is located at Dewas near Indore in Madhya Pradesh, where Ciprofloxacin is manufactured. In the plant of chemical division, various drugs like antibiotics, anti-malarial, anti bacterial and anti ulcer are manufactured. Two plants at Mohali are generally known as Mohali-1 and Mohali –II.. The Mohali-1 plant started functioning in 1974 Toansa plant started functioning in 1987, the Mohali-II plant started functioning in 1991and Dewas plant started functioning in 1991.Various plant heads

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independently manage all these plants. In each unit, separate facilities with respect to the manufacture of drugs, along with their manufacturing areas have been provided. This is required to reduce the chance of any cross contamination under the drug laws and to comply with good manufacturing practices. MOHALI-I Mohali-1 plant is an old plant and most of the drugs were first introduced here for commercial production, before shifting them to other locations with better facilities from FDA point of view. This plant is so designed that the title modification of different drugs can be manufactured the plant basically deals mostly with the manufacturing of ACTIVE PHARMACEUTICAL INGRIDIENTS (API). This plant is divided into plant areas A10 & A11. MOHALI II At MOHALI –II PLANTS, separate Blocks have been divided for the preparation of each drug .The Toansa, Mohali-II and Dewas plants are planned in such a way that their system, facilities, manufacturing practices and standards meet the requirements OF FDA .MOHALI-II plant deals mainly in the manufacturing of active pharmaceutical ingredients (API).The plant is divided into two plant areas A8 and A9.

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R&D
Ranbaxy views its R&D capabilities as a vital component of its business strategy that will provide a sustainable, long-term competitive advantage. The Company has a pool of over 1,200 scientists engaged in path-breaking research. Ranbaxy is among the few Indian pharmaceutical companies in India to have started its research program in the late 70's, in support of its global ambitions. A first-of-its-kind world class R&D centre was commissioned in 1994. Today, the Company's multi-disciplinary R&D centre at Gurgaon, in India, houses dedicated facilities for generics research and innovative research. The robust R&D environment for both drug discovery and development reflects the Company's commitment to be a leader in the generics space offering value added formulations based on its Novel Drug Delivery System (NDDS) and New Chemical Entity (NCE) research capabilities. The new drug research areas at Ranbaxy include anti-infectives, inflammatory / respiratory, metabolic diseases, and oncology, urology and anti-malaria therapies. Presently, the Company has 8-10 programs including one Anti-malaria combination drug, Arterolane maleate + Piperaquine phosphate for which Phase-III clinical trials have commenced in India, Bangladesh and Thailand.. The Company has signed collaborative research programs with GSK and Merck. NDDS focus is mainly on the development of NDA/ANDAs of oral controlled-release products for the regulated markets. Ranbaxy’s first significant international success using the NDDS technology platform came in September 1999, when the Company out-licensed its first once-aday formulation to a multinational company.

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PRODUCT REVIEW

Using the finest R&D and Manufacturing facilities, Ranbaxy Laboratories Limited manufactures and markets generic pharmaceuticals, value added generic pharmaceuticals, branded generics, active Pharmaceuticals (API) and intermediates. The Company remains focused on ascending the value chain in the marketing of pharmaceutical substances and are determined to bring in increased revenues from dosage forms sales. Ranbaxy's diverse product basket of over 5,000 SKUs available in over 125 countries worldwide encompasses a wide therapeutic mix covering a majority of the chronic and acute segments. Healthcare trends project that the chronic treatment segments will outpace the acute treatment segments, primarily driven by a growing aging population and dominance of lifestyle diseases. Our robust performance in Cardiovascular, Central Nervous System, Respiratory, Dermatology, Orthopedics, Nutritionals and Urology segments, clearly indicates that the Company has strengthened its presence in the fast-growing chronic and lifestyle disease segments. Ranbaxy's top 20 products, ranging from Anti-infectives to Dermatological, account for revenues of over US $ 600 Mn. Anti - Infectives Anti- infective has been the main driver of Ranbaxy’s sales. The important brands in this category are Cifran (Ciprofloxacin), Sporidex (Ciphalexin), Enhancin (Amoxyclav), Crixan (Clarithromycin), Vercef (Cefaclor), Oframax (Ceftriaxone), Cepodem (Cefpodoxime Proxetil),

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Zanocin (Ofloxacin), Ceroxim (Cefuroxime Axetil), and Loxof (Levofloxacin).The antiinfectives franchise remained the largest revenue generator for the Company during 2008,accounting for 37% of global dosage from sales. Co-Amoxiclav was the leading contributor. In India, Ranbaxy continued to maintain its leadership in the Anti-infective segment, garnering 10.9% market share during the year 2008. Cardiovascular Cardiovascular was the second largest therapeutic segment for the Company in the year 2008. Statins have been the key drivers for this segment. The sale of Simvastatin has grown substantially in the past few years, a trend that is likely to continue in the future. In India, Simvotin (Simvastatin) is the market leader in the cholesterol reducer segment. Another leading brand in this category is Storvas (Atorvastatin). Storvas has been one of the fastest-ever to enter the top-300 brands list of the Indian Pharma industry. Other global cardiovascular brands are Covance (Losartan) and Caslot (Carvedilol). Central Nervous System The Central Nervous Segment is one of the important focus areas identified by Ranbaxy, with Serlift being the key brand. In India, Serlift is number 1 amongst Sertraline brands. Gebapentin was another major contributor in this segment during the year 2008. Gastrointestinal The key brands in this category include Histac and Romesac. The segment showed a growth of 56% in revenues in 2008. The company was designated as the US distributor for the Authorized Generic versions of Omerprazole , garnering 43% market share. Musculoskeletal

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This segment emerged as the fourth largest therapeutic segment for Ranbaxy in 2008 and posted healthy growth of 18%.Ketrolac Tromethamine emerged as a leading product in this segment. Ranbaxy became the first company to launch Teriparatide injection, a biogeneric product for the treatment of Osteoporosis, in India. Respiratory Antihistamines form the core of Ranbaxy’s presence in this segment. Other key products in this segment include Chlorpheniramine, Cetirizine and their combinations. Nutritionals Nutritionals have been a major contributor to Ranbaxy’s sales. Two of the important products in this category are Revital and Riconia. It is a leading brand in India and has done exceedingly well in some parts of the world as an OTC product. Dermatological The dermatology category is mainly driven by India region and is likely to show a good growth pattern in the future. Some of the key brands doing well in this segment are Mobizox, Silverex, Moisturex, etc

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ALLIED BUSINESSES Ranbaxy Animal Health The Animal Health division saw an encouraging growth despite the prevailing poor market conditions. The division grew at twice the growth rate recorded in the industry. On the basis of having a vast dome satiated animal population, the livestock, poultry business and pets business are among the fastest growing sectors in India. A vast infrastructure of veterinary colleges, agricultural institutes, technologists and researchers are helping farmers to source healthy, cost effective products. In conjunction with the present scenario, the AHC division of Ranbaxy Laboratories Limited has introduced several latest generation products. Ranbaxy Fine Chemicals Limited (RFCL) RANKEM is established as a powerful brand, RFCL's brand for its range of Reagents is now synonymous with excellence in reagents and fine chemicals in the country. The focus of business remains on developing extensive customer relations; enhancing service levels and enriching the product mix with the help of a qualified and competent marketing and sales team Diagnostics The diagnostics division has aggressively focused on market expansion activities based on strategy of reliability, quality products and efficient service. Introduction of products in ‘Point of Care’ markets has expanded market presence and over the next few years this segment will see considerable expansion in line with world trends. Plans are afoot for the introduction of more parameters for the ‘Point of Care’ market and the launch of Special Chemistries, a range of drug assays, plus an entry into automated microbiology in both the Base and Dade Behring business areas.

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OPERATING JOINT VENTURES AND SUBSIDIARIES BRAZIL CHINA EGYPT GERMANY HONG KONG INDIA : : : : : : Ranbaxy S.P. Medicamentos Ltd. Ranbaxy (Guangzhou China) Ltd. Ranbaxy Egypt Ltd. Basics Gmb H. Ranbaxy (Hong Kong) Ltd. Rexcel pharmaceuticals Ltd., Solus pharmaceuticals Ltd., Vidyut Travel Services ltd. IRELAND MALAYSIA NETHERLANDS NIGERIA PANAMA POLAND SOUTH AFRICA THAILAND : : : : : : : : Ranbaxy Ireland Ltd. Ranbaxy (Malaysia) Sdn. Bhd. Ranbaxy Pharmaceuticals B.V. Ranbaxy Nigeria Ltd. Ranbaxy Panama SA. Ranbaxy Poland Sp. Zo. Ranbaxy (SA) (Pty.) Ltd. Unichem pharmaceuticals LTD., Unichem Distributors Ltd. Part, Ranbaxy Unichem CO.Ltd. U.K USA : : Ranbaxy (UK) Ltd Ranbaxy pharmaceuticals Inc. Ohm Laboratories Inc., Ranbaxy Schein Pharma, LLC VIETNAM : Ranbaxy Vietnam Company Ltd.

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Corporate Social Responsibility
Ranbaxy Community Health Care Society Ranbaxy has a strong element of Corporate Social Responsibility inscribed in its values and its concern for the society extends well beyond its business motives. The company does not view success and achievements in terms of commercial gains only but firmly believes that corporate social responsibility is the key for providing a deep symbiotic relationship that exists between the company and the environment it functions. Over two decades ago, in 1979, in the wake of grim health scenario of India, Ranbaxy realized the urgency to reach out to those who had little or no access even to basic health care and instituted ‘Ranbaxy Rural Development Trust’. The main objective of the programme was to deliver primary health care to the underserved and underprivileged section of the society to achieve positive health for them and thus to contribute to the national objective ‘Health For All’. As the scope of the programme and company’s commitment grew, in 1994, a professionally managed, nonprofit, independent body ‘Ranbaxy Community Health Care Society’ (RCHS) was established against the backdrop of full moral and financial support of the company. Community participation It was recognized that over 70 percent of the deliveries in RCHS service areas were conducted at home by either untrained or improperly trained ‘dais'. Thus, as a strategy, two-phase intervention was planned where the RCHS Medical officers were trained to train the ‘dais' in the first phase and training of ‘dais' from the community was done in the second phase. RCHS has established community based local groups like health committees, women groups and other interactive groups like “dais”, “anganwari” workers, volunteers, adolescents and breastfeeding support groups to promote community involvement and self-sustainability. Scientific approach With a view to plan future strategies for need based interventions, RCHS regularly monitors and records all vital events such as live births, infant deaths, maternal deaths and abortions etc. Special attention is given to promote ORS in Diarrhea and early diagnosis and appropriate treatment of Pneumonia. Focused work with precise risk groups like pregnant women, lactating mothers, newly married eligible couples and adolescent girls to prevent low birth weight and anemia in pregnancy, including referral services for dealing with obstetrical emergencies are some of the steps taken in order to bring down the infant and maternal mortality rates in RCHS

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areas. Ranbaxy Science Foundation later reconstituted as a separate society as Ranbaxy Science Foundation and registered under the Societies Act in May 1994. with an implicit
Ranbaxy Laboratories Limited incorporated Ranbaxy Research Foundation in 1985 and was mission of giving impetus to research activity and help in reviving India’s great scientific tradition. The Foundation instituted Ranbaxy Research Awards to recognize original outstanding contributions in the fields of Medical and Pharmaceutical Sciences. Every year the Foundation invites nominations for 4 awards – 3 Awards for Rs. 1,00,000/- each in the fields of Medical Sciences in Basic. Applied and Clinical and 1 Awards of Rs. 1,00,000/- in the field of Pharmaceutical Sciences. So far 104 scientists have been honored by the Foundation.

Ranbaxy Science foundation (RSF) is a non profit organization dedicated to promote scientific endeavors in the country by encouraging and rewarding and channeling national and international knowledge and expertise on subjects connected with treatment of diseases afflicting mankind. To achieve these objectives, the Foundation conducts Round Table Conferences on topics concerning public health and symposia on topics at the cutting edge of research in medical sciences to explore the latest in the selected area of specialty and its potential application for the benefit of mankind.

Being committed to recognizing and furthering excellence, the Foundation has also initiated “Research Scholarship Awards for the Young Scientists” with an aim to stimulate their interest in research.

Ranbaxy's Anti-Malaria collaborative research program Ranbaxy has been working on the anti-malaria collaborative research project since May 2003. Although ant malarial drugs have a large market, it is a market with very limited resources. Together with the challenges of drug resistance, poor health systems, lack of affordable, safe and convenient treatment options, malaria treatment represents one of the largest unmet medical needs. Ranbaxy is developing a synthetic peroxide ant malarial drug in order to address this unmet need. The Company has obtained approval from the Drug Controller General of India to initiate Phase III human clinical trials for this drug in India. Ranbaxy plans to seek regulatory approval in other countries outside India to the Phase-III clinical trials. The production of RBx 11160 (Arterolane) is not dependent on the availability of agricultural resources (from which the current Artemisinin drugs are derived), giving it a clear advantage in product scale-up and cost. Ranbaxy is committed to developing a drug that is not only safe and effective, but also affordable to people in India, Africa and other disease endemic countries. Ranbaxy comprehensive anti-HIV portfolio comprises Bio-Equivalent Anti-Retrovirals (ARVs) and Anti-Infectives for Opportunistic infections Ranbaxy, in its endeavor to make ARVs accessible to patients around the world, is leveraging its global network of offices, affiliates, joint ventures and alliances. With Ranbaxy products being marketed in over 125 countries and ground operations in 49 countries, Ranbaxy provides pre & post sales support to institutions, NGOs, and Ministries of Health, making Ranbaxy ARVs available in their respective treatment programs

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Encouraged by the positive response to its efforts to make quality anti-HIV generics, Ranbaxy is committed to working on all possible fronts and seeking partnerships to improve access to these medicines. Ranbaxy offers a complete basket of pharmaceuticals for several first line HAART regimens. The current portfolio is the largest range of bio-equivalent generic ARVs available from a single company. These products are manufactured at Ranbaxy's WHO prequalified and USFDA approved facilities.
• • • • • • • • •

Several Ranbaxy ARVs approved by USFDA and WHO First Asian pharmaceutical company to get approval for a generic ARV from USFDA Over 250 approvals of ARVs across 40 countries, with 130 more in pipeline Only company using both WHO & USFDA approved API supplier Bioequivalence studies conducted at leading CROs in North America All ARVs comply with Zone IV and Zone II stability requirements Leading supplier of ARVs to global NGOs, Institutions & Government programs Ranbaxy's ARVs have catered to treatment programs in over 50 countries globally Ranbaxy's quality FDCs reduce pill burden and improve patient compliance

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Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project. Strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements. The financial statements are of much interest to a number of groups of persons. Apart from management there are other interested parties like shareholders, debenture holders, potential investors – large and small, bankers, trade creditors, journalists, legislators and politicians who are increasingly getting interested in the analysis and interpretation of financial statements. “To interpret, means to put the meaning of a statement into simple terms for the benefit of a person.” This is essentially done through the tools of analysis such as comparative statements, common size statements and ratio analysis. These tools may be compared with the laboratory tests, which aid a physician in the diagnosis of a malady. Just as laboratory test are only aids to a physician and the physician must use his intelligence in the correct diagnosis,
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similarly the tools of analysis only help in establishing relationship between one accounting figure and another in the financial statements and go no far. It is the expert who has to grasp the significance of related figures and form an opinion as to whether the ratio calculated indicates a favorable or adverse state of affairs. Therefore while analysis comprises resolving the statements by breaking them into simpler statements by a process or rearranging, regrouping and the calculation of ratios, interpretation is the mental process of understanding the terms of such statements and forming opinions of inferences about the financial health, profitability, efficiency and such other aspects of the undertaking. There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis. Goals Financial analysts often assess the firm's: 1. Profitability - its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency - its ability to pay its obligation to creditors and other third parties in the long-term; 3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations; Both 2 and 3 are based on the company's balance sheet, which indicates the financial condition of a business as of a given point in time. 4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of the income statement and the balance sheet, as well as other financial and non-financial indicators Methods Financial analysts often compare financial ratios (of solvency, profitability, growth, etc.):
• •

Past Performance - Across historical time periods for the same firm (the last 5 years for example), Future Performance - Using historical figures and certain mathematical and statistical techniques, including present and future values, This extrapolation method is the main source of errors in financial analysis as past statistics can be poor predictors of future prospects.
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Comparative Performance - Comparison between similar firms.

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Objectives of the study
1. To study the financial condition of Ranbaxy 2. To depict the trends in Ranbaxy’s operations 3. To analyze the financial strengths and weaknesses of Ranbaxy 4. To compare the financial condition of Ranbaxy with its key competitor in the Indian market Dr Reddy’s

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Financial Analysis tools used in the Project

 Common size Statement
An efficient way of analyzing financial statements is to convert them in to common size statements by expressing absolute rupee amounts into percentages. When this method is pursued, the income statement exhibits each expense item as a percentage of net sales, and net sales are taken at 100%. Similarly, each individual asset or liability classification is shown as percentage of total assets and liability respectively.

 Trend Percentages
Horizontal analysis of financial statements can be carried out by computing trend percentages. Trend percentage states several years' financial data in terms of a base year. The base year equals 100%, with all other years stated in some percentage of this base.

 Ratio analysis
o Financial Ratio are used as a relative measure that facilitates the evaluation of efficiency or condition of a particular aspect of a firm's operations and status o Ratio Analysis involves methods of calculating and interpreting financial ratios in order to assess a firm's performance and status There are two types of ratio comparisons that can be made:  Cross-Sectional Analysis

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 Time-Series Analysis – Combined Analysis uses both types of analysis to assess a firm's trends versus its competitors or the industry

Financial ratios may be classified basically in to following classes;

1. Liquidity ratio The liquidity ratios measure the ability of a firm to meet its short term obligations and the short term obligations and reflect the short term financial strength/solvency of a firm. The ratios which indicate the liquidity of a firm are: (i) (ii) (iii) (iv) (v) (vi) (vii) Net working capital Current ratios Acid test / quick ratios Super quick ratios Turnover ratios Defensive-interval ratios Cash flow from operations ratios

2. Leverage / Capital Structure Ratios The long term solvency of a firm can be examined by using leverage or capital structure ratios. The leverage or capital structures may be defined as financial ratios which throw light on the long term solvency of a firms reflected in its ability to assure the long term lenders with principal on maturity or in predetermined installments at due dates. There are two different, but mutually dependent and interrelated types of leverage ratios. First type of ratios, are based on the relationships between borrowed funds and owner’s capital. These ratios are computed from the balance sheet and have many variations such as a) Debt-equity ratio b) Debt-assets ratio

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c) Equity-assets ratio The second type of capital ratios also called coverage ratios are calculated from profit and loss account. Included in this category are a) Interest coverage ratio b) Dividend coverage ratio c) Total fixed charges ratio d) Cash flow ratios e) Debt services coverage ratio

3. Profitability Ratios Profitability ratios can be determined on the basis of either sales or investments. The profitability ratios on the basis of sales are a) Profit margin(gross and net) ratio b) Expenses ratio. Profitability in relation to investments is measured by a) Return on assets b) Return on capital employed c) Return on share holder’s equity

4. Activity Ratios Activity ratios are concerned with measuring the efficiency in the asset management. These ratios are also called efficiency ratios and asset utilization ratios. The efficiency with which the assets are used would be reflected in the speed and rapidity with which assets are converted into sales. a) Inventory turnover ratio b) Capital turnover ratio c) Current Asset turnover ratio

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d) Fixed Asset turnover ratio

Words of Caution Regarding Ratio Analysis • • • • • A single ratio rarely tells enough to make a sound judgment. Financial statements used in ratio analysis must be from similar points in time. Audited financial statements are more reliable than unaudited statements. The financial data used to compute ratios must be developed in the same manner. Inflation can distort comparisons.

 Du-Point analysis
The return on investment (ROI) ratio developed by Du Point for its own use is now used by many firms to evaluate how effectively assets are used. It measures the combined effects of profit margins and asset turnover

The return on equity (ROE) ratio is a measure of the rate of return to stockholders. Decomposing the ROE into various factors influencing company performance is often called the Du Point system.

Where
• • •

Net profit = net profit after taxes Equity = shareholders' equity EBIT = Earnings before interest and taxes

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Sales = Net sales

This decomposition presents various ratios used in fundamental analysis.
• • • • • • •

The company's tax burden is (Net profit ÷ pretax profit). This is the proportion of the company's profits retained after paying income taxes. The company's interest burden is (Pretax profit ÷ EBIT). This will be 1.00 for a firm with no debt or financial leverage. The company's operating profit margin or return on sales (ROS) is (EBIT ÷ Sales). This is the operating profit per dollar of sales. The company's asset turnover (ATO) is (Sales ÷ Assets). The company's leverage ratio is (Assets ÷ Equity), which is equal to the firm's debt to equity ratio . This is a measure of financial leverage. The company's return on assets (ROA) is (Return on sales x Asset turnover). The company's compound leverage factor is (Interest burden x Leverage).

ROE can also be stated as: ROE = Tax burden x Interest burden x Margin x Turnover x Leverage ROE = Tax burden x ROA x Compound leverage factor Profit margin is (Net profit ÷ Sales), so the ROE equation can be restated:

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Du-Point Model

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Statistical Tools Used
Least square method of fitting trend line
This is the best method of trend fitting na time series and is most used in practice. This is a mathematical method and a trend line in this method is fitted or obtains in such a way that following two conditions are fulfilled. (1) ∑(Y - Yc) = 0 i.e. the sum of deviations of the actual values of Y and computed trend values (Yc) is zero. (2) ∑(Y - Yc)2 least i.e. the sum of the squares of deviations of the actual and computed trend values from this line is the least. Trend line thus fitted under this method is called as the Line of Best Fit Least square method can be used to fit straight line trend or parabolic trend or exponential trend. Fitting of Straight Line Trend A straight line trend can be expressed by the following equation: Y=a+bX Where Y = Trend Values, X = Unit of Time a is the Y- intercept and b is the slope of the time. In the above equation, to determine two constants, a and b, the following two normal equations are solved: ∑ Y = Na + b ∑ X ∑ XY = a ∑ X + b ∑ X2 After determining the equation Y = a + bX, we have find the trend values related to different years and plot them on the graph paper which shows a straight line trend.

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Computation of Straight Line Trend The procedure to compute straight line trend in this method is as follows: (i) (ii) (iii) (iv) Any year is taken as the year of origin. Usually first year is taken as zero, deviations of the other years are marked on 1,2,3………etc. Time deviations are denoted by X; Then ∑ X, ∑ Y, ∑ XY and ∑ X2 are computed. The values computed are put in the following normal equations. Finally, the calculated values of a and b are put in Y = a + bX and trend values are computed.

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Limitations
1. Ranbaxy follows calendar year while Dr Reddy follows fiscal year. Therefore comparable final reports were not available. The final reports of Ranbaxy have been compared with that of Dr Reddy’s corresponding to the calendar year. 2. Ranbaxy adopted the new financial guidelines (AS-30) of ICAI w.e.f. Oct 1, 2008. Consequently the financial statements of 2008 may not be comparable to those of previous years in some respects. 3. The impact of inflation on the company financials has been ignored.

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ANALYSIS OF BALANCE SHEET ITEMS
COMMON SIZE BALANCE SHEET
LIABILITIES SHARE CAPITAL RESERVES AND SURPLUS SHARE APPLICATION MONEY EQUITY SHARE WARRANTS SECURED LOANS UNSECURED LOANS DEFFERED TAX LIABILITY CURRENT LIABILITY PROVISIONS TOTAL
Table 1

04 4.5 56.2 0.069

05 3.991 46.953

06 2.691 31.232

07 2.372 29.889

08 1.794 28.434

0.006

0.001

0.015

1.5

3.23 0.06 3.51 20.12 12.3 100

7.576 14.495 2.49 15.608 8.873 100

3.239 42.662 2.17 10.445 7.547 100

4.642 39.9 3.203 10.593 9.386 100

1.383 30.417

30.23 6.242 100

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ASSETS FIXED ASSETS CAPITAL WORK-INPROGRESS INVESTMENTS INVENTORIES SUNDRY DEBTORS CASH AND BANK BALANCE OTHER CURRENT ASSETS LOANS AND ADVANCES DEFFERED TAX ASSET TOTAL

04 21.25

05 25.718

06 20.708

07 18.685

08 12.435

6.4 16.45 21.71 19 0.9 1.95 2.34

9.277 16.348 19.094 17.287 2.499 2.527 7.251

4.359 38.7 13.79 14.639 1.027 1.128 5.648

4.163 41.166 12.411 11.226 2.295 1.297 8.756

3.66 30.884 10.231 8.746 16.517 1.149 7.307 9.072

100

100

100

100

100

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TREND PERCENTAGES
2004 SHARE CAPITAL RESERVES &SURPLUS SECURED LOANS UNSECURED LOANS CURRENT LIABILITY PROVISIONS 100 100 100 100 100 100 2005 100.18 94.4 265.4 27161. 12 87.67 81.52
Table 2

2006 100.29 93.19 168.17 118646. 99 87.07 102.93

2007 100.33 101.29 273.72 126022 .4 100.29 145.36

2008 113.07 143.53 121.52 143104. 38 426.3 143.99

2004 FIXED ASSETS CAPITAL WIP INVESTMENTS INVENTORIES S. DEBTORS CASH & BANK BALANCE OTHER CURRENT ASSETS LOANS AND ADVANCES 100 100 100 100 100 100 100 100

2005 136.7 4 163.8 6 112.3 3 99.4 102.8 312.9 2 146.4 6 66.41

2006 163.41 114.28 394.65 106.54 129.19 190.96 96.99 76.77

2007 167.45 123.95 476.76 108.9 112.52 484.3 126.73 135.18

2008 165.988 162.31 532.79 133.71 130.57 5193.07 167.13 168.03

Table 3

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Figure 1

Figure 2

TREND:The proportion of share capital in the total liabilities has been declining over the years. A major fall was seen during the year 2006. REASON: To fund the several inorganic growth initiatives, the company during March 2006,raised US $ 440 MN through a FCCB offering. This was by far the largest fund raising exercise in the Indian pharmaceutical sector.Debt was raised through various other modes also. INTERPRETATION:Depicts decreasing reliance of the company on share holder’s money and deployment of the retained profits along with debt.

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Figure 3

Figure 4

TREND: As depicted by the graph the percentage of resrves and surplus declined steeply during the year 2006 and remained consistent over the next to years. REASON: A substantial decline in resrves and surplus in theyear 2006 was seen because of the augmentation,modernization and automation of manufacturing capacities and research and development involving substantial investments. INTERPRETATION: Ranbaxy has ensured heavy internal accruals over the years to fund its operations along with expansions.

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Figure 5

Figure 6

TREND: Secured loans have shown an intresting trend. Decreasing in the year 2006, then rising in the next year followed by a steep fall. REASON:loans were raised to fund the Capex plans of the company during the year 2007, while majority of them were retired through the proceedes of the Daiichi Sankyo deal and thus resulted in the decline in both the terms as a percentage of total liablities as well as absolute value. INTERPRETATION: Secured loans have been major component of the capital structure of Ranbaxy though their proportion has declined during the last year.

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Figure 7

Figure 8

TREND: As can be seen from the graph unsecured loans rose at an unpreecedenting pace and then fell abruptly as percentage of total liabilities while the amount kept increasing througout the period. REASON:Raising of the FCCBs along with other loans to finance the updation and modernization of various facilities lead to the increase in the proprtion of the unsecured loans. INTERPRETATION: The continuous increase in value clearly depicts increasing reliance on debt and specifically unsecured ones might be because of the ease with which these can be raised.

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Figure 9

Figure 10

TREND: Current liabilities as a proportion of total liabilities kept falling for the first three years while increased abruptly in the year 2008. REASON: When seen in conjunction with the long term liabilities this fall can be attributed to the increase in the more than proportionate increase in the long term loans. The sudden increase in the current liabilities was because of the loss borne because of the fair valuations of the derivatives. INTERPRETATION: The steep increase in the current liabilities is not a major cause of concern for the company because it is a consequence of factors not within the control of the company.

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Figure 11

Figure 12

TREND: The value of fixed assets as a proportion of total assets has been declining over the years. This is despite extensive capital expenses being taken over by the company. REASON: The main reason behind such a trend is huge investments being made by the company in different ventures along with the expansion of various facilities of Ranbaxy. Also Greenfield investments were made. INTERPRETATION: Though the absolute value of fixed assets has been increasing still an increasing proportion of the assets are being locked up in the low yielding short term assets which may be a cause for concern.

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Figure 13

Figure 14

TREND: A consistent fall in the work in progress can be seen in the graph as a percentage while the absolute value continuously increased. REASON: Efforts towards reducing working capital lead to a well managed inventory situation which is clearly depicted in the graph. A substantial fall in the working capital was observed during the year 2007. INTERPRETATION: Reduction in the proportion of capital WIP is a sign of the increasing efficiencies of the company. Also it depicts the declining importance of WIP among total assets of Ranbaxy.

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Figure 15

Figure 16

TREND: Ranbaxy experienced an increase in the proportion of investments while a fall was seen in the last year. The absolute value of investments has been increasing and they form a substantial proportion of the total assets. REASON: Acquisition of controlling stakes in entities in as well as abroad is the basic reason. The increase is particularly high in the year 2006 in which Ranbaxy made significant acquisitions. INTERPRETATION: Ranbaxy has been focusing on different modes of growth and expanding wings across the world. That’s why continuous endeavors are being made to control the various related entities of Ranbaxy.

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Figure 17

Figure 18

TREND: Inventories as a proportion of the total assets has been declining over the years despite a slight increase in their absolute values over the years. REASON: A concentrated effort towards reducing working capital during the year 2006 &2007 lead to a significant decline in the level of inventories, receivables which is clearly depicted in the graph. A reduction in the level of working capital has added to the efficiencies of Ranbaxy. INTERPRETATION: Operational efficiencies of Ranbaxy have been improving which is clearly shown by this trend. Inventory is being quickly converted in to receivables and thus improving the working capital scenario.

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Figure 19

Figure 20

TREND: Sundry debtors have been loosing importance as a percentage of total assets. Absolute value increased at a seep rate in the year 2006 followed by a sudden fall. A sort of revival was observed during the last year. REASON: Sales of Ranbaxy increased at a robust pace during the year 2006 which created better receivable condition for the company .A concentrated effort towards reducing working capital during the last some years lead to a significant decline in the level of inventories, receivables which is clearly depicted in the graph. A reduction in the level of working capital has added to the efficiencies of Ranbaxy. INTERPRETATION: The decline in the operating cycle has added on to the effectiveness of the company.

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Figure 21

Figure 22

TREND: Cash levels of Ranbaxy have remained consistent except for the last year when a sharp increase in the level of cash was seen. REASON: As a part of the Daiichi Sankyo deal the company received US $736 million which was basically responsible for the sudden increase in the level of cash. INTERPRETATION: A constant level of cash despite the increase in the level of operations along with sales is a sure sign of efficient cash management at Ranbaxy.

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Figure 23

Figure 24

TREND: Sharp fluctuations can be seen in the level of loans and advances as a percentage of total assets,while the absolute value kept on increasing. REASON: Continous efforts towards reducing working capital , improved the current asset position conditions and thus the level of loans and advances.

INTERPRETATION: The company has turned compariritively more efficient in terms of managing its working capital which is a sign of good health.
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Analysis of Operating Activities

Figure 25

TREND: Sales of Ranbaxy have been increasing at a steady pace depicting good health of the company. But the increase in sales slowed down during the year 2008. REASON: This stagnation in growth can be attributed to the import alerts issued but US FDA over 30 molecules manufactured by Ranbaxy at Poanta Sahib and Dewas facilities. INTERPRETATION: Ranbaxy has maintained its sales growth over all these years. In fact US continued to remain largest market for Ranbaxy’s products despite the various troubles faced by the company last year. Therefore Ranbaxy on the back of its solid product portfolio and new innovations will maintain the sales growth. FUTURE TRAJECTORY: The trend line drawn using the sales data for the last five years when extended clearly depicts expansion in sales. Sales are expected to be above Rs 45000 million in the year 2009 and approximately Rs 47500 million in the year 2010 as per the trend line so drawn.

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Figure 26

TREND: Gross profit of Ranbaxy depict an increasing trend with negative fluctuations in the year 2005 and 2007. Gross profits of the year 2008 are also higher than that of last year even though it was a turbulent year in general.This clearly shows that Ranbaxy has maintained its operating efficiency over the years. REASON: The decline in the gross profits in the year 2005 can be attributed to the steep price erosion in US,the largest market for Ranbaxy while the decline in the year 2007 is because of a sudden increase in the material cost. INTERPRETATION: Management’s continuous efforts towards enhancing efficiency and optimising cost structure has been paying off in the form of continuously increasing gross profits despite the changes in the external environment. FUTURE TRAJECTORY: The trend line drawn using the gross profit data for the last five years is expected to reach approximately Rs 22700 million level in the year 2009 and above Rs23500 in the year 2010.

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Figure 27

TREND: Profits of Ranbaxy have been fluctuating over the years. A slight fall in the year 2005 followed by steep increase in the next two years and then a sudden decline in the last year. REASON: The good growth in the year 2006 and 2007 can be attributed to a number of factors: expansion in to new geographical territories, settlement of litigations against GlaxoSmithline along with the introduction of new products like Simvastin and the flagship brands Revital and Volini. The turmoil in the year 2008 was because of the following reasons: a) Decline in the value of Rupee against all major currencies b) Adoption of the new guidelines of ICAI which lead to derivative loss c) Import alerts issued by the US FDA. INTERPRETATION: Ranbaxy has been enjoying good profits all these years. The year 2008 though troublesome had a few positive things to offer like positive sales growth, the deal with Daiichi Sankyo whicch further promoted Ranbaxy’s presence in the global markets. All these factors predict a sound future for the company.

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Figure 28

TREND:Ranbaxy experienced a consistent growth in the EPS over the years followed by a sudden fall in the year 2008. REASON:The sudden fall in the EPS during the year 2007-08 can be attributed to the forex losses that Ranbaxy had to bear because of the fair valuations of the exchange derivatives . INTERPRTATION: The fall in the EPS is a cause of concern considering the shareholder’s derive direct meaning from this value and fall in the EPS shakes the investor’s confidence, thus affecting the goodwill of the company in the capital market.

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Figure 29

TREND: Though there was a general increase in the cashflow from operating activities but this increase was quite strong in the year 2007. REASON: Focussed efforts towards reducing working capital and a steep increase in the sales resulted in stronger cash flow position for the company during the year 2007.The problems faced by the company also impacted the cash flow from operating activities. INTERPRETATION: The year 2008 has been a setback for the company but the generation of positive cash flows may not be tough job for Ranbaxy considring its diverse portfolio both in terms of products as well as markets.

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RATIO ANALYSIS FOR OPERATING ACTIVITIES
GROSS PROFIT MARGIN= GROSS PROFIT (SALES –COST OF GOODS SOLD) SALES
DEC2004/MAR 2005 54.3 51.14 DEC2005/ MAR 2006 51.9 48.71 DEC2006/MAR 2007 53.9 59.3
Table 4

RANBA XY DR REDDY ’S

DEC2007/MAR 2008 50.8 48.76

DEC2008/MAR 2009 50.8 51.2

Figure 30

TREND: The gross profit margin of Ranbaxy has shown a general declining trend except for one particular year which may not augur well for the company.These figures are comparable with the key competitor except for the year 2006. REASON: The improved financial performance during the year 2006 was a result of focussed efforts on improving productivity and optimizing cost structure, besides the mix of sales but the increase in the cost of material in the very next year impacted the gross profit margin.inflation may have influenced this particular ratio. INTERPRETATION: Despite various macroeconomic changes and external difficulties , Ranbaxy has maintained a consistent GP margin during the last two years which is a sign of

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internal strengths and cost control capabilities of the company. But getting to the 2006 level still remains to be achieved.

NET PROFIT RATIO= PAT/SALES
DEC2004/MAR 2005 0.151 0.042 DEC2005/ MAR 2006 0.064 0.105 DEC2006/MAR 2007 0.096 0.313
Table 5

RANBAX Y DR REDDY’S

DEC2007/MAR 2008 0.152 0.142

DEC2008/MAR 2009 (0.241) 0.14

Figure 31

TREND: Net profit ratio has not shown any major changes over the years and the movement has been rangebound if one leaves aside the last year’s performance. Ranbaxy’s performance on this front is slightly weak when compared to its key competitor Dr Reddy’s. REASON: The decline in the performance in the year 2005 is basically due to the steep price fall in the US which is the largest market for Ranbaxy’s products. Consistent efforts towards enhancing efficiency and reducing cost did pay off in the year 2006 and 2007. The net profit ratio for the last year was marred by the forex losses realised because of the adoption of the new guidelines along with a steep decline in the value of Rupee. INTERPRETATION: The problems faced by Ranbaxy during the last year were not of the recurrent nature and may not affect the long term. Also post the Daiichi Sankyo deal synergies are expected to emerge because of the consolidation of the two entities which will definitely effect the net profit of the company positively.

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COST OF GOODS SOLD RATIO = COST OF GOODS SOLD/SALES
DEC2004/MA R2005 0.457 0.489 DEC2005/ MAR 2006 0.481 0.513 DEC2006/MA R2007 0.461 0.407
Table 6

RANBA XY DR REDDY’ S

DEC2007/MA R2008 0.492 0.515

DEC2008/MA R2009 0.492 0.488

Figure 32

TREND: Cost of goods sold as a percentage of the sales has been consistent over the years, which is a considerable achievement. Ranbaxy has maintained its competitiveness on this front over DR Reddy’ even during the turbulent year of 2008. REASON:The consistent efforts of the management at all levels towards improving productivity and optimising cost structure has really worked well. INTERPRETATION: The company has done a commendable job of maintaining an almost constant cost of goods sold ratio.capitalizing on this strength the company needs to take forward this thing to a new level.

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OPERATING EXPENSES RATIO = SELLING, GENERAL +ADMINISTRATIVE EXPENSES RATIO/SALES

RANBA XY DR REDDY’ S

DEC2004/MA R2005 0.22 0.286

DEC2005/ MAR 2006 0.25 0.259

DEC2006/MA R2007 0.216 0.191
Table 7

DEC2007/MA R2008 0.234 0.236

DEC2008/MA R2009 0.278 0.252

Figure 33

TREND: Operating expenses ratio of Ranbaxy has been increaing over the last two years though it is comparable to Dr Reddy’s.

REASON: This can be possibly attributed to the increasing competition in the pharma industry along with the two major events of last year-Ranbaxy Daiichi deal and the warnings imposed by the US FDA.

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INTERPRETATION: Optimising the operating expenses ratio is something the company needs to focus on because this may impact the long term competitiveness of the company.

OPERATING RATIO = COST OF GOODS SOLD+OPERATING EXPENSES/SALES

DEC 2004/MAR 2005 RANBAXY DR REDDY’S 0.688 0.775

DEC2005/ MAR 2006 0.732 0.772

DEC2006/MA R2007 0.677 0.598
Table 8

DEC2007/MA R2008 0.726 0.748

DEC2008/MA R2009 0.769 0.74

Figure 34

TREND: Ranbaxy has maintained a lower or almost comparable operating ratio as compared to Dr Reddy’s. but there has been a steady increase in the operating ratio during the last two years. REASON: Heavy expenses were made by the company so as to conduct market research and advertisisng and sales promotion during the last two years which got reflected to increase in the operating expenses of the company in general and selling and administration expenses in particular.

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INTERPRETATION: Reducing operating expenses will add up to the efficiencies of the company and this needs to be achieved in reasonably small time so as to maintain competitiveness.

FIXED ASSET TURN OVER = COST OF GOODS SOLD/FIXED ASSET

DEC2004/MA R2005 RANBA XY DR REDDY’ S TREND 0.894 0.776

DEC2005/ MAR 2006 0.701 0.687

DEC2006/MA R2007 0.415 0.851

DEC2007/MA R2008 0398 0.539

DEC2008/MA R2009 0.388 0.587

0.8302

0.6947

0.5592
Table 9

0.4237

0.2882

TREND: The performance of the company on this parameter has been declining over the years but the good thing is it is very good as compared to that of Dr Reddy’s REASON:The major reason behind this kind of Figure 35 trend is the extensive capital expenses carried out by the company during 2006 and 2007.Some of which include commissioning of sterile facilities at Dewas and non sterile facilities at dewas and Toansa along with the improvement of 14 key API product capacities during the year 2006 and upgradation of Poanta Sahib,Toansa, Malanpur and Dewas facilities during 2007.

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INTERPRETATION: Ranbaxy has been quite efficient in terms of rolling out goods over all these years . Capitilization of this strength may further reinforce Ranbaxy’s dominant position in the pharma space. CAPITAL TURNOVER = COST OF GOODS SOLD /CAPITAL EMPLOYED
DEC2004/MA R2005 RANBA XY DR REDDY’ S TREND 0.616 0.324 DEC2005/ MAR 2006 0.493 0.323 DEC2006/MA R2007 0.331 0.325 DEC2007/MA R2008 0.332 0.324 DEC2008/MA R2009 0.294 0.331

0.5742

0.4937

0.4132
Table 10

0.3327

0.2522

Figure 36

TREND: Ranbaxy has depicted a declining performance in terms of capital turnoverand has actually lost its competitiveness over Dr Reddy’s though by a slight margin. REASON: This decline in performance should be considered keeping in mind that the cost of goods sold to sales ratio remained consistent all these years. So this decline in performance should be basically attributed to the substantial expansion of the capital structure of the company. Huge funds were raised during the 2005- 2006 period so as to facilitate the inorganic growth of the company. While the capital base was further raised during the last year because of the acquisition of Ranbaxy by Daiichi Sankyo.

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INTERPRETATION: The company has failed to maintain its dominance on this front though the different is still marginal. Consolidation with Daiichi Sankyo may create a better scenario for Ranbaxy.

TOTAL ASSET TURNOVER = COST OF GOODS SOLD/TOTAL ASSET
DEC2004/MA R2005 RANBA XY DR REDDY’ S TREND 0.39 0.271 DEC2005/ MAR 2006 0.36 0.267 DEC2006/MA R2007 0.265 0.278 DEC2007/MA R2008 0.255 0.278 DEC2008/MA R2009 0.182 0.272

0.3906

0.3405

0.2904
Table 11

0.2403

0.1902

Figure 37

TREND: The performance of the company on this parameter has been declining over the years . Ranbaxy has been succesful in maintaing its competitiveness on this front also over Dr Redy’s. REASON:The major reason behind this kind of trend is the extensive capital expenses carried out by the company during 2006 and 2007.some of which include commisioning of sterile facilities at Dewas and non sterile facilities at dewas and Toansa along with the improvement of 14 key API product capacities during the year 2006 and upgradation of Poanta Sahib,Toansa,

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Malanpur and Dewas facilities during 2007along with various acquisitions carried out by the company over the years. INTERPRETATION: There has been an expansion in the product portfolio as well as the sales of Ranbaxy. But this ratio indicates that this expansion has not been in line with the expansion of assets made by the company.

Analysis of investing activities

Figure 38

TREND: There has been an increase in the amount of cash used for the investment purpose with a slight dcline in the last year. REASON: Ranbaxy has been expanding continuously within domestic as well as foreign territories through organic as well as inorganic routes. Major expansions were carried out by the company in its existing manufacturing facilities along with creation of new facilities during the year 2006 and 2007. Also various mergers and acquisitions were carried out by the company the acquisition of Terapia in romania and Be-Tabs Pharma in South Africa being the two most prominent ones. INTERPRETATION: There is a clear indication that Ranbaxy is moving fast and firm on the growth path. Along with growth in the sales , substantial expansion in the scale of operations whih is a good signal for the future.

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RATIO ANALYSIS OF INVESTING ACTIVITIES
RoA=NET PROFIT AFTER TAXES/ TOTAL ASSETS
DEC2004/MAR 2005 RANBA XY DR REDDY ’S 0.128 0.023 DEC2005/ MAR 2006 0.048 0.0548 DEC2006/MAR 2007 0.055 0.214 DEC2007/MAR 2008 0.079 0.0775 DEC2008/MAR 2009 (0.089) 0.078

Table 12

Figure 39

TREND: The returns earned by the company have been increasing over the years which is a positive sign. A substantial expansion was made in the year 2007.But the year 2008 proved to be a diffcult one and infact it entered in to the negative territory.when compared to Dr Reddy’s the performance has been average. There is a wide gap in Ranbaxy’s and Dr Reddy’s numbers during the year 2006 because that was an extraordinary year for Dr Reddy’s.

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REASON:The improved financial performance in the year 2006 was a result of the company’s focussed efforts towards improving productivity and optimising cost structures across the entire value chain. The downgradation in the year 2008 is basically due to the derivative losses faced by the company INTERPRETATION: The negative return on assets is not a major concern for the company since it happened because of reasons beyond the control of the company. There are signs that indicate that the company would recover easily from the trouble.

RoCE=EBIDTA/TOTAL CAPITAL
DEC2004/MA R2005 RANBA XY DR REDDY’ S 0.273 0.063 DEC2005/ MAR 2006 0.093 0.051 DEC2006/MA R2007 0.11 0.329 DEC2007/MA R2008 0.112 0.143 DEC2008/MA R2009 (0.079) 0.16

Table 13

Figure 40

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TREND: There was a major decline in the year 2005 while a revival took place in the next year followed by a sudden fall in the last year . in fact Ranbaxy’s performance has not been good enough as compared to Dr Reddy’s. REASON: This fall may be attributed to massive capital expansion carried out by the company over the years while the decline in the year 2008 was because of the forex troubles. INTERPRETATION:Despite continuous expansion in the EBIDTA there has been fall in the value of this ratio. The expansion in the capital has not been effectively translated in to the EBIDTA growth.

Return on Shareholder’s Equity= PAT/Share Capital+Reserves and Surplus

DEC2004/MA R2005 RANBA XY DR REDDY’ S 0.288 0.032

DEC2005/ MAR 2006 0.094 0.066

DEC2006/MA R2007 0.162 0.25

DEC2007/MA R2008 0.243 0.09

DEC2008/MA R2009 (0.295) 0.095

Table 14

Figure 41

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TREND: As depicted by the graph return on shareholder’s equity kept increasing except for the last year when it eperienced a sudden fall. The performance has been quite good when compared to Dr Reddy’s. REASON: The management’s continuous focus towards enhancing productivity and optimising cost structure lead to better results but because of the problems faced by the company in the last year return on shareholder’s equity turned negative. INTERPRETATION: Though there has been decline in the return on capital employed still there has been increase in this ratio. This is basically due to the almost consistent equity while expansion in the capital via raising of long term loans.

ANALYSIS OF SOLVENCY CONDITIONS
CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITIES +PROVISIONS

DEC2004/MAR 2005 RANBAX Y DR REDDY’S TREND 1.98 4.15 2.145

DEC2005/ MAR 2006 1.988 3.86 1.9713

DEC2006/MAR 2007 2.014 5.03 1.7976
Table 15

DEC2007/MAR 2008 1.801 3.85 1.6239

DEC2008/MAR 2009 1.205 3.25 1.4502

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Figure 42

TREND: The current ratio of Ranbaxy is quite consistent over the years except for a slight fall in the last year. The value of current ratio through out these years has been very low as compared to Dr Reddy’s still it has been within comfartable range all these years. REASON: Continuous endeavour towards working capital management has been behind such a consistent performance. INTERPRETATION:Ranbaxy has been quite efficient in maintaing a balance between its current assets and liabilities, which is a remarkable thing.the most imporatant thing is Ranbaxy has been always been within the prescribed limits as far as current ratio is considered.

QUICK RATIO= QUICK ASSETS/ CURRENT LIABILITIES +PROVISIONS

DEC2004/MA R2005 RANBA XY DR REDDY’ S TREND 1.05 3.46

DEC2005/ MAR 2006 1.208 3.13

DEC2006/MA R2007 1.247 4.37

DEC2007/MA R2008 1.18 3.02

DEC2008/MA R2009 0.925 2.63

1.176

1.1498

1.122
Table 16

1.0942

1.0664

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Figure 43

TREND: Ranbaxy has always been comfortable as far as quick ratio is concerned. In the last year sudden drop in quick ratio was seen, which is a sign of worry.Ranbaxy has been far better in management of current assets and liabilities as compared to Dr Reddy’s. REASON: There was a sudden spurt in the current liabilities in the year 2008 which was responsible for the fall in the quick ratio even though the cash levels increased by hefty amounts because of the Daiichi Sankyo deal. INTERPRETATION:The fall in the value of quick ratio in the year 2008 is a sign of concern because this despite the increase in the cash levels.

Analysis of working capital situation
INVENTORY TURNOVER = COST OF GOODS SOLD/CLOSING INVENTORY

RANBA XY DR REDDY’ S TREND

DEC2004/MA R2005 1.82 2.05 1.8744

DEC2005/ MAR 2006 1.886 2.32 1.8828

DEC2006/MA R2007 1.92 3.13 1.8912
Table 17

DEC2007/MA R2008 2.05 2.66 1.8996

DEC2008/MA R2009 1.78 2.655 1.908

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Figure 44

TREND: The performance of Ranbaxy on this front is slightly weak as compared to Dr Reddy’s, though it had been improving over the years. REASONS:This continuously improving is because of the efforts taken by the management towards reducing working capital except for the year 2008 which saw higher closing inventory because of the import alerts issued by the US FDA. INTERPRETATION: Focus should be shifted towards increasing inventory turnover so as compete more effectively against other players.

DEBTORS TURNOVER RATIO = SALES/ SUNDRY DEBTORS
DEC2004/MA R2005 4.46 3.73 4.344 DEC2005/ MAR 2006 4.33 3.448 4.328 DEC2006/MA R2007 3.92 3.55 4.312
Table 18

RANBA XY DR REDDY’ S TREND

DEC2007/MA R2008 4.61 3.71 4.296

DEC2008/MA R2009 4.24 2.817 4.28

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Figure 45

TREND: The performace of Ranbaxy on this front is much better when compared to Dr Reddy’s. Also it has been consistent over the years. REASON: Ranbaxy’s prformance on this front is quite remarkable and has been improving over the years.This can be specifically attributed to better recievables and inventory management during the year 2007 which also lead to reduction in working capital by more than 3% of total sales. INTERPRETATION: Rabaxy does enjoy better situation on this front which may add to the capabilities of the company on efficient employement.

CURRENT ASSET TURNOVER =COST OF GOODS SOLD/CURRENT ASSET

DEC2004/MA R2005 RANBA XY DR 0.705 0.416

DEC2005/ MAR 2006 0.74 0.437

DEC2006/MA R2007 0.73 0.412

DEC2007/MA R2008 0.71 0.575

DEC2008/MA R2009 0.41 0.507

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REDDY’ S TREND 0.783 0.721 0.659
Table 19

0.597

535

Figure 46

TREND: Ranbaxy’s performance has been quite good as far as current asset turnover is concerned in comparison to Dr Reddy’s. But continuous fall over the years followed by a steep fall in the year 2008 may be a cause of concern for the company. REASON: The fall in the ratio may be assigned to the continuous increase in the current liabilies which was substantial in the last years. INTERPRETATION:Energies should be diverted towards achieving the 2004 levels so as to avoid associated troubles.

WORKING CAPITAL TURNOVER = COST OF GOODS SOLD /WORKING CAPITAL

DEC2004/MA R2005

DEC2005/ MAR 2006

DEC2006/MA R2007

DEC2007/MA R2008

DEC2008/MA R2009

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RANBA XY DR REDDY’ S TREND

1.68 0.549

1.489 0.59

1.45 0.514

1.59 0.78

2.44 0.733

1.0456

1.5677

1.7298
Table 20

1.8919

2.054

Figure 47

TREND: Working capital turnover of Ranbaxy is quite high as compared to Dr Reddy’s and has been improving over the years.it increased during the year 2008 also, in which the company’s performance struggled over many other fronts , so it is a very good sign. REASON: The main reason behind such an encouraging performance has been the company’s continuous efforts towards better management of working capital. The management at all levels worked aggressively on optimising resource allocation , lead to a significant reduction of over 3% in gross working capital. INTERPRETATION:Ranbaxy has maintained its dominance over Dr Reddy’s consistently which is a good sign and should be employed efficiently.

WORKING CAPITAL RATIO= WORKING CAPITAL/CURRANT LIABILITIES +PROVISISONS

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DEC2004/MA R2005 RANBA XY DR REDDY’ S TREND 0.72 3.15

DEC2005/ MAR 2006 0.988 2.86

DEC2006/MA R2007 1.014 4.03

DEC2007/MA R2008 0.801 2.85

DEC2008/MA R2009 0.205 2.25

0.99

0.8693

0.7486
Table 21

0.6279

0.5072

Figure 48

TREND: This ratio has been declining over the years and has been significantly low as compared Dr Reddy’s. further it has always been within comfortable region. REASON: The basic reason towards such a good performance is basically the actions taken towards reducing working capital which resulted in to significant positive outcomes in the year 2008. INTERPRETATION:Ranbaxy’s performance on this ground has been phenomenal and serves as a base for good growth in the future.

CASH RATIO =CASH/CURRENT LIABILITIES+PROVISIONS

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DEC2004/MA R2005 RANBA XY DR REDDY’ S TREND 0.028 2.02

DEC2005/ MAR 2006 0.102 1.07

DEC2006/MA R2007 0.057 1.978

DEC2007/MA R2008 0.114 0.696

DEC2008/MA R2009 0.452 0.325

0.0646

0.1506
Table 22

0.2366

0.3226

Figure 49

TREND: Though substantially lower than that of Dr Reddy’s cash ratio of Ranbaxy has been increasing over the years. REASON: Sudden spurt in the cash ratio is basically because of the $736 million received as a consequence of the daiichi Sankyo deal is responsible for the sharp increase in the value of cash ratio. INTERPRETATION: A significantly lower cash ratio indicates good cash management at Ranbaxy . Cash is not kept idle and utilized to earn returns for the company.

WORKING CAPITAL/CURRENT ASSET RATIO

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DEC2004/MA R2005 RANBA XY DR REDDY’ S TREND 0.42 0.758

DEC2005/ MAR 2006 0.497 0.741

DEC2006/MA R2007 0.503 0.801

DEC2007/MA R2008 0.445 0.74

DEC2008/MA R2009 0.17 0.692

0.5174

0.4622

0.407
Table 23

0.3518

0.2966

Figure 50

TREND: This ratio is significantly lower than that of the Dr Reddy’s and also has been declinig over the years. REASON: The efforts towards reducing working capital lead to the decline in this ratio . the sharp fall in the year 2008 is because of the sudden increase in the cash levels. INTERPRETATION:The ratio has been in the comfortable region and augurs well for the company.

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ANALYSIS OF FINANCIAL STRUCTURE

Figure 51

TREND: Ranbaxy has been raising money contiuously from the year 2005. Substantial amounts were raised during the year 2006 and 2008. REASON: To fund several inorganic growth initiatives, the company during March 2006, raised US 4440 million through a FCCB which was by far the largest fund raising exercise in the Indian Pharmaseutical space. The Daichi Sankyo deal of 2008 added lots of cash in to Ranbaxy’s kitty. INTERPRETATION:Ranbaxy has been moving firmly on the expansion path with path breaking capital raisaings.

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DEGREE OF FINANCIAL LEVERAGE = % Change in EBIDTA % change in EPS

Figure 52

TREND: degree of financial leverage of Ranbaxy has fluctuating the last four years.ia sudden spurt followed by steep fall reflects the changes in the level of debt.

The

been for

a

REASON: Heavy debts raised during the year 2006 and 2007 lowered the debt equity ratio and thus an increase in the degree of financial leverage. Cash proceedes received through the Daichi Sankyo deal were used to pay off debts , turning Ranbaxy in a debt free company and thus the fall in the degree of operating leverage. INTERPRETATION: The company has been efficiently using its capabilities to raise funds to finance its expansion. But caution should be observed regarding use of debt , during the difficult times.

DEBT/EQUITY RATIO

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DEC2004/MAR 2005 RANBA XY DR REDDY ’S TREND 0.054 0.132

DEC2005/ MAR 2006 0.433 0.408

DEC2006/MAR 2007 1.353 0.075

DEC2007/MAR 2008 1.381 0.096

DEC2008/MAR 2009 1.05 0.122

0.2662

0.5602

0.8542
Table 24

1.1482

1.4422

Figure 53

TREND:Ranbaxy has been using more of debt over the years as compared to equity . Ranbaxy’s reliance on debt has been quite high as compared to Dr Reddy’s. REASON: The main reason behind the increasing use of debt is the extensive capital expenses taken by the company during the year 2006 and 2007. During the year2008 company entered in to the deal with Daiichi Sankyo. The money thus received was used to retire debt, also preference shares and warrants were issued to the company because of which the debt equity ratio fell steeply during the year. INTERPRETATION: Ranbaxy has used more of debt as compared to equit which was basically responsible for increasing return to the shareholder’s consequent of the function of leverage.

DEBT/TOTAL CAPITAL RATIO

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DEC2004/MAR 2005 RANBA XY DR REDDY ’S TREND 0.051 0.016

DEC2005/ MAR 2006 0.302 0.29

DEC2006/MAR 2007 0.575 0.07

DEC2007/MAR 2008 0.58 0.088

DEC2008/MAR 2009 0.513 0.109

0.1638

0.284

0.4042
Table 25

0.5244

0.6446

Figure 54

TREND: The proportion of debt in the total capital of the company kept increasing during the period 2005-07 while it fell slightly in 2008. There is a wide gap between the capital structure of the two companies as Dr Reddy finaces its assets mostly through equity. REASON: The heavy debts raised during the year 2006 and 2007 were retired dduring the last year which lead to the fall in the ratio. INTERPRETATION: Increase in the proportion of debt has added to the leverage of the firm though it would have increased the riskiness of the firm. But that is not a cause of concern for Ranbaxy considering it’s a well established firm.

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DU POINT MODEL 2008

Figure 55

DU POINT MODEL 2007
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Figure 56

DU POINT MODEL 2006

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.
Figure 57

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DU POINT MODEL 2005

Figure 58

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Analysis of Du-Point Model
Assumption: Ranbaxy is a zero debt company i.e. all assets are financed by shareholder’s money. In that case Interest Burden =1 Financial Leverage=1 in the du- point model. The impact of this change is depicted below 2005
Actual As per assumpti on

2006
Actual As per assumpti on

2007
Actual As per assumpti on

2008
Actual As per assumpti on

Net 0.06 0.101 0.09 0.131 0.15 0.133 (0.24 Profit 4 6 2 1) Margin RoA 0.04 0.075 0.05 0.075 0.07 0.069 (0.08 8 5 9 9) 0.09 0.075 0.16 0.075 0.24 0.069 (0.24 4 2 3 5)
Table 26

(0.08 5) (0.03 15) (0.03 15)

RoE

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Figure 59

INTERPRETATION: Use of leverage lead lowering of net profit margin when the company was enjoying low operating profit margin but as it incresed in the year 2007 , the use of debt proved to be a profitable avenue. In the year 2008 use of leverage again proved to be a detterent . Had the company not used debt in its capital structure , its losses could have been lower.

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Figure 60

INTERPRETATION Use of leverage lead lowering of RoA when the company was enjoying low operating profit marginbut as it incresed in the year 2007 , the use of debt proved to be a profitable avenue. In the year 2008 use of leverage again proved to be a detterent . had the company not used debt in its capital structure , its losses could have been lower.

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Figure 61

INTERPRETATION: A different kind of trend is depicted by RoE. As the proportion of debt increased in the capital structure, returns on shareholder’s equity also increased. But as the income of the company turned negative, debt proved to be a burden to the shareholders. The extent of negative returns could have been lesser, had the debt not been used.

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Major findings
 Focussed efforts towards managing Working Capital did pay off resulting in to better recievables and inventory management along with reduction in the working capital.

 Ranbaxy faced a difficult period in terms of income. The turmoil in the year 2008 was because of the following reasons: o Decline in the value of Rupee against all major currencies o Adoption of the new guidelines of ICAI which lead to derivative loss o Import alerts issued by the US FDA.

 There has been an expansion in the product portfolio as well as the sales of Ranbaxy. But the turnover ratios are quite low and actually experiencing a decline,whichindicates that this expansion has not been in line with the expansion of assets made by the company.

 There is a clear indication that Ranbaxy is moving fast and firm on the growth path. Along with growth in the sales , substantial expansion in the scale of operations which is a good signal for the future.

 The has maintained optimum level of current assets as well as the current liablities , thus has been comfortable in covering liabilities, which is a remarkable thing.but the sudden spurt in the current liabilities during the last year is something to worry about.

 The fall in the value of quick ratio in the year 2008 is a sign of concern because this has happened despite a steep increase in the cash levelduring the year..

 Ranbaxy has been using more of debt over the years as compared to equity. Increase in the proportion of debt added to the leverage of the firm though it would have increased the riskiness of the firm. But as the debt was retired during the last year through the proceedes of the Diichi Sankyo deal turning Ranbaxy in to a low debt company.

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 Ranbaxy has weathered the storm of inflation very efficiently and maintained cost of goods sold at an optimum level.

Interpretation
 The year 2008 has been a setback for the company but thefactors responsible were because of the changes in the macroeconomic environment and thus beyond the control of the company. The problems faced by Ranbaxy during the last year were not of the recurrent nature and may not affect the long term. The generation of positive cash flows may not be tough job for Ranbaxy considring its diverse portfolio both in terms of products as well as markets.

 Ranbaxy has maintained a consistent GP margin during the last two years which is a sign of internal strengths and cost control capabilities of the company.

 Daichi Sankyo deal is a milestone in the Ranbaxy’s journey . Along with providing access to diverse markets it has added to the financial strengths of the company.Upon the consolidation of the two entities synergies are expected to emerge which will turn the fortunes of Ranbaxy.

 The consistent efforts of the management at all levels towards improving productivity and optimising cost structure has really worked well.

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 Ranbaxy has efficiently employed the concept of leverage.Though there has been decline in the return on capital employed still there has been increase in the return on shareholder’s equity . This is basically due to the inceasing proportion of debt in the capital structure of the company. But the same advantage turned negative when the losses were recorded because of the reverse effect.

Recommendations
 Selling and administrative expenses have been increasing over the last years. Optimising the operating expenses is something the company needs to focus on because this may impact the long term competitiveness of the company.Reducing operating expenses will add up to the efficiencies of the company and this needs to be achieved in reasonably small time so as to maintain dominance in the Pharmaceutical space.

 Operating cycle time need to be reduced so as to roll out products quickly in to the market. This would also increase the turnover ratios and thus enhance the productivity of the company.

 Focus should be shifted towards managing current liablities which increased at a sharp pace during the last year so as to avoid problems at the working capital front.,

 As a part of the Daiichi Sankyo deal , the cash available with the company has increased at a tremendous pace. Energies should be diverted towards effective cash management.

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 Product portfolio along with marketing efforts should be expanded in the Indian market , considering increased affordability of Pharma products because of economic growth and the rising awareness.  Prudent decisions need to taken so as to tackle the problem of exchange rate fluctuations since majority of the markets for Ranbaxy’s products lie outside India.

 The proportion of debt needs to be adjusted according to the expectations of the future regardin the level of profits, othervise it may dampen the problems as it happened during the last year.

 Reasonable financial standards need to be adopted which must be updated regularly so as to adjust maintain consistency and growth.

REFERENCES

• • • • • • •

Company’s Internal Documents Annual Reports of Last 4 years Journals of Ranbaxy Text Books & Literature Khan, M.Y., Jain, PK, Financial Management, Tata McGraw-Hill,Publishing Company Ltd., New Delhi, 2003. Pandey, I.M., Financial Management, Vikas Publishing House Private Limited, New Delhi, 2001. Chandra Prasanna, Financial Management Theory and Practice, TATA Mcgraw-Hill Publishing Company, 2004.

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Quantitative methods, Levin and Rubin

WebPages

• • • • • • • • • • • •

www.bizstats.com www.reuters.com www.economictimes.com www.rbi.org www.dereddys.com www.economic times.com www.bloomsberg.com www.livemint.com www.studyfinance.com www.bized.com www.bpubs.com www.pharmaceutical-business-review.com

APPENDIX 1 Abbreviations ABBREVIATION GP RoA RoCE EBIDTA PAT EPS OPM WIP RoE DEFINITION Gross Profit Return on Assets Return on Capital Employed Earning Before Interest , Depreciation, Taxes and Amortization Profit After Tax Earning per share Operating Profit Margin Work In Progress Return on Equity
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Appendix 2 List of charts
Figure 1 Figure 2 Figure 3 SHARE CAPITAL (AS A PERCENTAGE OF TOTAL ASSETS) SHARE CAPITAL (TREND PERCENTAGES) RESERVES AND SURPLUS (AS A PERCENTAGE OF TOTAL ASSETS)

Figure 4 RESERVES AND SURPLUS (TREND PERCENTAGES) Figure 5 SECURED LOANS (AS A PERCENTAGE OF TOTAL ASSETS)

Figure 6 SECURED LOANS (TREND PERCENTAGES)

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Figure 7 UNSECURED LOANS (AS A PERCENTAGE OF TOTAL ASSETS) Figure 8 UNSECURED LOANS (TREND PERCENTAGES) Figure 9 CURRENT LIABILITIES (AS A PERCENTAGE OF TOTAL ASSETS) Figure 10 CURRENT LIABILITIES (TREND PERCENTAGES) Figure 11 FIXED ASSETS (AS A PERCENTAGE OF TOTAL ASSETS) Figure 12 FIXED ASSETS (TREND PERCENTAGES) Figure 13 CAPITAL WIP (AS A PERCENTAGE OF TOTAL ASSETS) Figure 14 CAPITAL WIP (TREND PERCENTAGES) Figure 15 INVESTMENTS (AS A PERCENTAGE OF TOTAL ASSETS) Figure 16 INVESTMENTS (TREND PERCENTAGES) Figure 17 Figure 18 Figure 19 Figure 20 Figure 21 Figure 22 Figure 23 Figure 24 Figure 25 Figure 26 Figure 27 Figure 28 Figure 29 Figure 30 Figure 31 Figure 32 Figure 33 Figure 34 Figure 35 Figure 36 INVENTORIES (AS A PERCENTAGE OF TOTAL ASSETS) INVENTORIES (TREND PERCENTAGES) SUNDRY DEBTORS (AS A PERCENTAGE OF TOTAL ASSETS) SUNDRY DEBTORS (TREND PERCENTAGES) CASH AND BANK BALANCE (AS A PERCENTAGE OF TOTAL ASSETS) CASH AND BANK BALANCE (TREND PERCENTAGES) LOANS AND ADVANCES (AS A PERCENTAGE OF TOTAL ASSETS) LOANS AND ADVANCES (TREND PERCENTAGES) SALES( RS MILLION) GROSS PROFITS (RS MILLION) PROFIT AFTER TAX (RS MILLION) EPS CASH FLOW FROM OPERATING ACTIVITIES ( RS MILLION) GROSS PROFIT MARGIN NET PROFIT RATIO COSTS OF GOODS SOLD RATIO OPERATING EXPENSES RATIO OPERATING RATIO FIXED ASSET TURNOVER RATIO CAPITAL TURNOVER

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Figure 37 Figure 38 Figure 39 Figure 40 Figure 41 Figure 42 Figure 43 Figure 44 Figure 45 Figure 46 Figure 47 Figure 48 Figure 49 Figure 50 Figure 51 Figure 52 Figure 53 Figure 54 Figure 55 Figure 56 Figure 57 Figure 58 Figure 59 Figure 60 Figure 61

TOTAL ASSET TURNOVER CASH USED IN INVESTING ACTIVITIES RoA RoCE RETURN ON SHAREHOLDER’S EQUITY CURRENT RATIO QUICK RATIO INVENTORY TURNOVER DEBTORS TURNOVER CURRENT ASSET TURNOVERS WORKING CAPITAL TURNOVERS WORKING CAPITAL RATIOS CASH RATIO WORKING CAPITAL CURRENT ASSET RATIO CASH FLOW FROM FINANCING ACTIVITY DEGREE OF FINANCIAL LEVERAGE DEBT EQUITY RATIOS DEBT TOTAL CAPITAL RATIOS DU PIONT MODEL 2008 DUPOINT MODEL 2007 DU PONT MODEL 2006 DU POINT MODEL 2005 NETPROFIT MARGIN (DU POINT ANALYSIS) RoA (DU POINT ANALYSIS) RoE (DU POINT ANALYSIS)

List of tables
1. COMMON SIZE STATEMENT

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2. 3. 4. 5. 6. 7. 8. 9.

TREND PERCENTTAGES (LIABILITY SIDE) TREND PERCENTAGES ( ASSET SIDE) GROSS PROFIT MARGIN NET PROFIT RATIO COSTS OF GOODS SOLD RATIO OPERATING EXPENSES RATIO OPERATING RATIO FIXED ASSET TURNOVER RATIO

10. CAPITAL TURNOVER 11. TOTAL ASSET TURNOVER 12. RoA 13. RoCE 14. RETURN ON SHAREHOLDER’S EQUITY 15. CURRENT RATIO 16. QUICK RATIO 17. INVENTORY TURNOVER 18. DEBTORS TURNOVER 19. CURRENT ASSET TURNOVERS 20. WORKING CAPITAL TURNOVERS 21. WORKING CAPITAL RATIOS 22. CASH RATIO 23. WORKING CAPITAL CURRENT ASSET RATIO 24. DEBT EQUITY RATIOS 25. DEBT TOTAL CAPITAL RATIOS 26. DU POINT ANALYSIS

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