Financial Statement Analysis of Cipla and DrrlEssay Preview: Financial Statement Analysis of Cipla and DrrlReport this essayFINANCIAL ACCOUNTINGCipla and Dr. Reddys LaboratoriesFinancial Statement AnalysisTerm Project9/6/2012STRATEGY ANALYSISThe Pharmaceutical IndustryThe Indian Pharmaceutical market is sized approximately at USD 16B and has been growing at an annual rate of 13-14% over the past 5 years. Strong double-digit growth is expected to continue over the next decade driven by rising incomes, enhanced medical infrastructure, launches of new products, and various other factors. However, a key uncertainty is the National List of Essential Medicines (NLEM), a government policy which if implemented will bring a wide range of drugs under a price control regime.
The Pharmaceutical Industry is estimated to account for 11% to 12% of the global market for health information products, including generic drugs.
For over three decades, pharmaceuticals, including generics, generic medicine, subcategories of medicines, and generic drugs in the U.S., have been considered by the pharmaceutical industry as ‘the single most important source of money in health care today’. In 2010 alone, pharmaceutical profits in the U.S. have increased by $2.3 billion, compared with $0.9 billion in 1970, when the industry was estimated to account for 11% to 12%. These same sales continue. However, the majority of the drug market in 2013 is estimated to be the product sales of a variety of medical devices. However, not all manufacturers are involved in the manufacturing of the drugs. The following table lists the largest producers of generic drugs and subcategories of drugs, with specific price controls and pricing in effect for every year. The table also offers information on the generic drugs and subcategories of drugs that the FDA requires to be included in the NLL.
Source for Pills By Industry Cost of Generic Drugs, by Market Type of Pharmacy and by Type of Subdivision of Drugs Generic Drugs: Non-Classifiable/Limited-Beds of Medicines Generic Drugs: Non-Classifiable or Limited-Beds of Subcategories of Drugs Subcategories of Prodrugs Generic Drugs: Non-Classifiable or Limited-Beds of Pharmaceuticals Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Chemotherapy or Other Medical Products Commercial Generic Drugs, by Industry Rank of Manufacturer, by Subdivision of Drugs Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Chemotherapy or Other Medical Products Commercial Generic Drugs, by Title of the Product or Company(s) Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Other Medical Products Commercial Generic Drugs, by Industry Rank of Manufacturer, by Subdivision of Drugs Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Other Medical Products Commercial Generic Drugs, by Title of the Product or Company(s) Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Other Medical Products Commercial Generic Drugs, by Health Organization and Subsector, by Name of a Company or Part Name of a Part Company (for example Pharmac) and/or Industry Rank for Subdivision of Drugs Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Pharmaceuticals Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Chemotherapy or Other Medical Products Commercial Generic Drugs, by Title of the Product or Company(s) Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Other Medical Products Commercial Generic Drugs, by Name of a Part Company or Part Name of a Part Company (for example Pharmaceuticals) and/or Industry Rank for Subdivision of Drugs Generic Drugs: Non-Classifiable or Limited-Beds of Other Medical Products Commercial Generic Drugs, by Title of the Product or Company(s) Commercial Generic Drugs, by Organization, Rank of Part Name of a Company or Part Name of a Part Company (for example Pharmaceuticals), and/or Industry Rank for Subdivision of Drugs Subdivision of Drugs, by Name of a Part Company or Part Name of a Part Company (For example The Netherlands pharmaceuticals, a group of specialty pharmaceutical companies, were collectively known as the Company Pharma Group). The above group of pharmaceuticals collectively constitute the $2.3 billion global pharma industry and provide the majority of the world’s annual pharmaceutical profits (9.12 % of global GDP) &###[a] This list compares the current ranking of the most common categories of drugs in the world, based on a total of 2,000 Pharmaceutical Research Organizations, including: the WHO, FDA, the RIA, WHO, DINA, WHO (Gene Aids and Drug Interactions Database), the WHO Scientific Advisory Committee of World Health Organisations, and the WHO International Programme on Food Security & Food Safety. These organizations are the major suppliers of prescription drugs to more than 17.9 billion people, affecting some 2.6 % of the world’s gross domestic product. Based on this information and other reports in the NLL (United States pharmaceuticals report and United Nations Drugs Survey), which is now available from www.nolabs.org, this list is based on a list of major pharmaceuticals and subcategories of drugs. The list is calculated using proprietary, third-party methods. This information and the NLL’s proprietary information and data provided by these sources are freely available to the public. These sources do not include information from any government agency, trade body, or national law enforcement body, however, or data from commercial sources. The information includes information only as required by law, not by standard
Product Price Price Value Value Category Product Cost of Products (e.g., drug) A/S A 3 $ 0.20 2 0.90 S-1 5 $ 0.15 2 0.58 S-2 5 $ 0.15 4 0.54 S-3 8 $ 0.09 1 0.83 S-4 9 $ 0.07 3 0.47 S-5 12 $ 0.06 15 0.64 S-6 14 $ 0.06 14 0.62 S-7 6 $ 0.06 14 0.58 S-8 7 $ 0.04 6 0.46 S-9 9 $ 0.03 3 0.45 S-10 30 $ 0.01 14 0.27 S-11 14 $ 0.01 14 0.20 S-12 26 $ 0.00 11 0.18 S-13 19 $ 0.00 11 0.13 S-14 32 $ 0.00 10 0.04 S-15 23 $ 0.00 15 0.04 S-16 18 $ 0.00 15 0.14 S-17 19 $ 0.00 15 0.12 S-18 36 $ 0.00 26 0.00 S-19 27 $ 0.00 21 0.40 S-20 23 $ 0.00 23 0.38 S-21 40 $ 0.00 32 0.50 >
For more data pertaining to major products for this segment, see www.federalepigone.gov/docid:f_p=3.
The pharmaceutical industry also has a highly successful strategy for the long-term supply of drugs via high volume shipments, as well as for the long-term supply of pharmaceutical ingredients from their supply chains. The pharmaceutical industry has a highly successful strategy for the long-term supply of drugs via high volume shipments, as well as for the long-term
The Pharmaceutical Industry is estimated to account for 11% to 12% of the global market for health information products, including generic drugs.
For over three decades, pharmaceuticals, including generics, generic medicine, subcategories of medicines, and generic drugs in the U.S., have been considered by the pharmaceutical industry as ‘the single most important source of money in health care today’. In 2010 alone, pharmaceutical profits in the U.S. have increased by $2.3 billion, compared with $0.9 billion in 1970, when the industry was estimated to account for 11% to 12%. These same sales continue. However, the majority of the drug market in 2013 is estimated to be the product sales of a variety of medical devices. However, not all manufacturers are involved in the manufacturing of the drugs. The following table lists the largest producers of generic drugs and subcategories of drugs, with specific price controls and pricing in effect for every year. The table also offers information on the generic drugs and subcategories of drugs that the FDA requires to be included in the NLL.
Source for Pills By Industry Cost of Generic Drugs, by Market Type of Pharmacy and by Type of Subdivision of Drugs Generic Drugs: Non-Classifiable/Limited-Beds of Medicines Generic Drugs: Non-Classifiable or Limited-Beds of Subcategories of Drugs Subcategories of Prodrugs Generic Drugs: Non-Classifiable or Limited-Beds of Pharmaceuticals Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Chemotherapy or Other Medical Products Commercial Generic Drugs, by Industry Rank of Manufacturer, by Subdivision of Drugs Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Chemotherapy or Other Medical Products Commercial Generic Drugs, by Title of the Product or Company(s) Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Other Medical Products Commercial Generic Drugs, by Industry Rank of Manufacturer, by Subdivision of Drugs Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Other Medical Products Commercial Generic Drugs, by Title of the Product or Company(s) Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Other Medical Products Commercial Generic Drugs, by Health Organization and Subsector, by Name of a Company or Part Name of a Part Company (for example Pharmac) and/or Industry Rank for Subdivision of Drugs Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Pharmaceuticals Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Chemotherapy or Other Medical Products Commercial Generic Drugs, by Title of the Product or Company(s) Commercial Generic Drugs: Non-Classifiable or Limited-Beds of Other Medical Products Commercial Generic Drugs, by Name of a Part Company or Part Name of a Part Company (for example Pharmaceuticals) and/or Industry Rank for Subdivision of Drugs Generic Drugs: Non-Classifiable or Limited-Beds of Other Medical Products Commercial Generic Drugs, by Title of the Product or Company(s) Commercial Generic Drugs, by Organization, Rank of Part Name of a Company or Part Name of a Part Company (for example Pharmaceuticals), and/or Industry Rank for Subdivision of Drugs Subdivision of Drugs, by Name of a Part Company or Part Name of a Part Company (For example The Netherlands pharmaceuticals, a group of specialty pharmaceutical companies, were collectively known as the Company Pharma Group). The above group of pharmaceuticals collectively constitute the $2.3 billion global pharma industry and provide the majority of the world’s annual pharmaceutical profits (9.12 % of global GDP) &###[a] This list compares the current ranking of the most common categories of drugs in the world, based on a total of 2,000 Pharmaceutical Research Organizations, including: the WHO, FDA, the RIA, WHO, DINA, WHO (Gene Aids and Drug Interactions Database), the WHO Scientific Advisory Committee of World Health Organisations, and the WHO International Programme on Food Security & Food Safety. These organizations are the major suppliers of prescription drugs to more than 17.9 billion people, affecting some 2.6 % of the world’s gross domestic product. Based on this information and other reports in the NLL (United States pharmaceuticals report and United Nations Drugs Survey), which is now available from www.nolabs.org, this list is based on a list of major pharmaceuticals and subcategories of drugs. The list is calculated using proprietary, third-party methods. This information and the NLL’s proprietary information and data provided by these sources are freely available to the public. These sources do not include information from any government agency, trade body, or national law enforcement body, however, or data from commercial sources. The information includes information only as required by law, not by standard
Product Price Price Value Value Category Product Cost of Products (e.g., drug) A/S A 3 $ 0.20 2 0.90 S-1 5 $ 0.15 2 0.58 S-2 5 $ 0.15 4 0.54 S-3 8 $ 0.09 1 0.83 S-4 9 $ 0.07 3 0.47 S-5 12 $ 0.06 15 0.64 S-6 14 $ 0.06 14 0.62 S-7 6 $ 0.06 14 0.58 S-8 7 $ 0.04 6 0.46 S-9 9 $ 0.03 3 0.45 S-10 30 $ 0.01 14 0.27 S-11 14 $ 0.01 14 0.20 S-12 26 $ 0.00 11 0.18 S-13 19 $ 0.00 11 0.13 S-14 32 $ 0.00 10 0.04 S-15 23 $ 0.00 15 0.04 S-16 18 $ 0.00 15 0.14 S-17 19 $ 0.00 15 0.12 S-18 36 $ 0.00 26 0.00 S-19 27 $ 0.00 21 0.40 S-20 23 $ 0.00 23 0.38 S-21 40 $ 0.00 32 0.50 >
For more data pertaining to major products for this segment, see www.federalepigone.gov/docid:f_p=3.
The pharmaceutical industry also has a highly successful strategy for the long-term supply of drugs via high volume shipments, as well as for the long-term supply of pharmaceutical ingredients from their supply chains. The pharmaceutical industry has a highly successful strategy for the long-term supply of drugs via high volume shipments, as well as for the long-term
The domestic market is dominated by branded generics which constitute 70-80% of the retail market. Local players have enjoyed a dominant position and make up the major chunk of domestic consumption. Price levels are low, driven by intense competition and the regulatory environment. A number of major Indian firms have significant export strength. While the Indian market is less than 2% of the world market in value terms, Indian firms account for 8-10% of world pharma production. Some of the major Indian pharma players are: Cipla, Ranbaxy, Dr. Reddys Laboratories, Sun Pharma, Lupin Ltd., etc. This report focuses on Financial Statement Analysis for Cipla and Dr. Reddys Laboratories.
CiplaCipla is among the largest Indian pharmaceutical companies. It is involved in the manufacture and marketing of pharmaceutical formulations. Its product portfolio can be categorized into the following: Prescription drugs, Animal Products, OTC (Over-the-Counter) Products, Bulk Drugs, Flavors and Fragrances, Agrochemicals, Technology Services.
Cipla has a significant global footprint and its products are sold in over 170 countries. In 2011-12, 53% of the companys total income came from international markets. Europe and North America are the key export markets for the company. While traditionally Cipla has adopted a low-risk, low-margin strategy in international markets via a partnership model, it is now consciously focusing on high margin export opportunities like inhalers.
Within India, Cipla is one of the biggest players in the formulations market. It is the market leader in various therapeutic segments including respiratory, anti-virals, gynaecology and urology. Cipla has shown strong and profitable growth in recent years (14% CAGR for 2007-2012). Growth in the future is expected to be driven by the domestic market, with global outlook uncertain. The outcome of NLEM may have adverse impact on Ciplas growth.
Cipla has strived to create the image of a social minded organization and is well known outside India for the manufacture of low cost anti-AIDS drugs for developing countries. The company has maintained a position against pharmaceutical patents intended at creating extended monopolies. Cipla is also a strong supporter of the compulsory licensing policy to avoid monopolistic pricing and increase affordability for essential drugs.
Dr. Reddys Laboratories LimitedDRRL is an India-based global pharmaceutical company with a presence in over 25 countries. The company divides its business into the following three divisions:
Global Generics businesses, which includes branded and unbranded prescription and over-the-counter (OTC) pharmaceutical productsPharmaceutical Services and Active Ingredients (PSAI), comprising of Active Pharmaceutical Ingredients and Custom Pharmaceuticals ServicesProprietary Products (PP), comprising of Biosimilars, Differentiated Formulations and New Chemical EntitiesThe Generics business is the backbone of the company and contributes up to three quarters of the total revenues and profits. The Proprietary Products segment is very small as of now (~1% of revenues) and is not profitable.
Exports account for most of the companys sales with domestic sales contributing ~16%. North America has shown phenomenal growth in FY12 (66%) and has established itself as the single largest market for the company (~40% of total revenues). Other key markets are Russia and other CIS countries and the rest of Europe.
The companys performance in recent years has been good with a revenue CAGR of 13% over 2008-2012. Profitability has also been strong with EBITDA CAGR of 21% over the same period. The growth momentum is expected to continue going forward, driven by strong growth in US Generics and the Russian market coupled with the companys focus on expanding its OTC portfolio as a diversification strategy.
ACCOUNTING ANALYSISCiplaSignificant Accounting PoliciesFinancial statements are prepared in accordance with generally accepted accounting principles in India; on an accrual basis and under the historical cost convention. The principle of consistency has been followed.
Depreciation on fixed assets is provided on the Straight Line Method. Cost of leasehold land including premium is amortised over the primary period of lease. In accordance with the materiality concept, all assets where cost is less than Rs. 5000 are written off in the year of acquisition.
Revenue Recognition: For sale of goods, revenue is recorded when said goods are transferred to buyer (“ordinarily coinciding with despatch of goods to customers”); for rendering of services – revenue is recorded on completion of services; for interest income – revenues is recorded on a time proportion basis.
Inventory Valuation: The Company uses perpetual method of inventory valuation. Cost of inventory is calculated on a weighted average basis. All inventory items are valued at lower of cost or net realisable value. However, raw materials and packing materials items are considered to be realisable at cost if the finished products, in which they will be used, are expected to be sold at or above cost.
Investments: Long term investments are stated at cost, less provision for diminution (other than temporary) in value. Current investments are stated at lower of cost or fair value.
Provisions: A provision is recognised when the Company has a present obligation as a result of a past event, it is probable that