A Research Project on Fundamental Analysis of PHARMA SECTOR SRM UNIVERSITY For the partial fulfilment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION BY RAJESH NARAYANAN 3511210125 Under the GUIDENCE of Mr, R, Sectharaman Asst. Prof. (0.G) Faculty of Engineering and Technology Kattankulathur-603203 MAY.JULY 2013wo SRM University 4 School of Management 2 5 ee Kattankulathur see CERTIFICATE This is to certify that the project report entitled “Fundamental Analysis of Phrarma Sector ”, Submitted by Rajesh Narayanan (Reg. No: 3511210125) in partial fulfilment for the final project in awards of Master of Business Administration of SRM University Kattankulathur, is a bonafide research work carried out under my supervision and guidance and no part of this project has been submitted for any other degree /diploma. ‘The assistance and help received during the course of the investigation has been fully acknowledged. Dr.(Mrs). Jayshree Suresh Mr. R. Seetharaman B.A M.BA., Ph.D, B.SC PDGM M.B.A Dean Asst. Professor & Project Guide Submitted to the Department of Management Studies, SRM UNIVERSITY (Kattankulathur Campus) for the examination held on __ Internal Examiner External ExaminerDECLARATION 1, Rajesh Narayanan, Reg. No: 3511210125, hereby declare that the project report titled “Fundamental Analysis of Phrarma Sector ” under the supervision and the guidance of Mr. R. Seetharaman, Asst. Professor, Department of Management Studies, SRM UNIVERSITY (Kattankulathur Campus- Chennai), is the result of the original work dene by me and to the best of my knowledge. a similar work has not been submitted earlier to any University or any other Institution Rajesh NarayananACKNOWLEDGEMENT In the course of this project, I have received help from a number of people. I would like to take this opportunity to thank them all. Iam grateful to our College Administration for giving me an opportunity to do this Project. Ivis my great pride and privilege to appreciate our respected Dean Dr-Jayashree Suresh and my beloved project guide Mr. R, Seetharaman, Dept, of Business Administration, S.R.M, School of Management, who have motivated and encouraged me with their tireless guidance and support for the successful completion of this project. I would also extend my heartfelt gratitude to the Manager Mr.Ashish Jaiswal of Relaince Securities~ Banglore and my Industrial project guide Mr.Harsh Mahothra of Relaince Securities, for their support and valuable time spent to make this project a reality. [am also thankful to the Regional Co-Ordinator of Relainee Money- Banglore especially Malini Kashyap for his motivation and care throughout the course of this said project. Last but not the least; I would like to thank the almighty and all our faculty members, friends and family for their support and inspiration, Rajesh NarayananCONTENTS Chapter Topics Page No ‘Chapter 1: Introduction LI Tatroduction to Fundamental Analysis 12 Industry Prefile Le ‘Company Profile 4 Objective ofthe study ef a) ow) 1s ‘Concept of Fundamental Analysis 16 ‘Methodology of Fundamental Analysis RD LT Research Methodology 2 18 Limitation of the study a" (Chapter 2: Integrated perspective of all functional areas in organization. 21 Human Resources.and Development Department Function B Finance Department Funetion 5 Marketing Department Function 8 ‘Chapter 3: Analysis of Data Bd ‘Economic Analysis 32 Industry Analysis a ‘Company Analysis 34 Ratio Analysis S| &] 6) 8 Chapter 4: Findings & Suggestions ar Findings of the project a2 Suggestions to Investors 19 ‘Chapters: Summary & Bibliography 51 ‘Summary it 52. Bibliography 132LIST OF TABLES & CHARTS TABLES 12°5 RATIO ANALYSIS SUB-TABLES RATIO ANALYSIS TABLE FOR SUN PHARAMA. RATIO ANALYSIS TABLE FOR DR.REEDY’S. RATIO ANALYSIS TABLE FOR LUPIN RATIO ANALYSIS TABLE FOR CIPLA RATIO ANLAYSIS TABLE FOR RANBAXY LIST OF CHARTS CHARTS COLUMN CHART FOR GROSS DOMESTIC PRODUCT LINE CHART FOR GDP GROWTH COLUMN CHART FOR INFLATION RATE, LINE CHART FOR INFLATION RATE COLUMN CHART FOR FDI LINE CHART FOR INDIAN IMPORT LINE CHART FOR INDIAN EXPORTCHAPTER-1 INTRODUCTION1.1 Introduction to Fundamental Analysis What is analysis? ‘The examination and evaluation of the relevant information to select the best course of action from among various alternatives. The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. Fundamental analysis involves analyzing the characteristics of a company inorder to estimate its value. Technical analysis takes a completely different approach; it doesn't care one bit about the "value" of a company or acommodity. Technicians (sometimes called chartists) are only interested in the price movement in the market What is technical analysis? Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns thal can suggest fulure activity What is fundamental analysis Fundamental Analysis involves examining the economic, financial and other qualitative and quantitative factors related to. security inorder to determine its intrinsic value, It attempts to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies). Fundamental wolves delving into a company's financial statements (such as profit and lass account and balance sheet) in order to study various financial indicators (such as revenues, earnings, liabilities, expenses and assets), Such analysis is usually carried out by analysts, brokers and savvy investors, Many analysts and investors focus on a single number-net income (or earnings)--to evaluate performance. When investors attempt to forecast the market value of a firm, they frequently rely on earnings. Many institutional investors, analysts and regulators believe earings are not as relevant as analysis, which is also known as quantitative analysis, they once were. Due to nonrecurring events, disparities in measuring risk and management's ability to disguise fundamental earnings problems. other measures beyond net income can assist in predicting future firm earnings.1.2 Industry Profile: Indian Pharmaceutical Industry Introduction ‘The Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured from simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously. Playing a key role in promoting and sustaining development in the vilal field of medicines, Indian Pharma Industry boasts of quality producers and many units approved by regulatory authorities in USA and UK. International companies associated with this sector have stimulated, assisted and spearheaded this dynamic development in the past 53 years. and helped to put India on the pharmaceutical map of the world, The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share, It is an extremely fragmented market with severe price competition and government price control India is now among the top five pharmaceutical emerging markets. The Indian pharma industry has been growing at a compounded annual growth rate (CAGR) of more than 15 per cent over the last five years and has significant growth opportunities.‘The Indian pharmaceutical sector is expected to grow five-fold to reach Rs 5 lakh crore (USS 91.45 billion) by 2020, as per Dr A J V Prasad, Joint Secretary, Department of Pharmaceuticals (DoP). The industry, particularly, has been the front runner in a wide range of specialties involving complex drugs’ manufacture, development, and technology. With the advantage of being a highly organized sector, the number of pharmaceutical companies are increasing their operations in India. ‘The pharmaceutical industry in India is an extremely fragmented market with severe price competition and goverment price control. The industry meets around 70 per cent of the country’s demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals, and injectables. Sector Structure/ Market Size ‘The domestic pharmaceutical market is expected to register a strong double-digit growth of 13-14 per cent in 2013 on back of increasing sales of generic medicines, continued growth in chronic therapies and a greater penetration in rural markets. ‘The cumulative drugs and pharmaceuticals sector has attracted foreign direct investments (FDI) worth USS 10,308.75 million during April 2000 to February 2013, according to the latest data published by Department of Industrial Policy and Promotion (DIPP). Growth Drug sales to retailers in India registered a growth of 7.7 per cemt in February 2013, according to a data compiled by market research firm AIOCD AWACS. This was probably due to a high base given the strong performance last year and higher substitution of branded drugs with their unbranded equivalents ‘Among the listed companies, ZydusCadila topped the list, recording 25.3 per cent growth in February, Other companies that managed to grow faster than the industry include Sun Pharma (4,8 per cent), JB Chemicals (13.7 per cent), IPCA Labs (13 per cent), Lupin (11.6 per cent), Glenmark (10.3 per cent) and Cipla (9 percent). Exports ‘The Ministry of Commerce has targeted Indian ph 2014 at an annual growth rate of 25 per cent. ma sector exports at USS 25 billion by Last year, the industry registered exports of US$ 13 billion at a growth rate of 30 per cent, as per Dr P V Appaji, Director-General, Pharmaceutical Exports Council of India (Pharmexcil) ‘The Government has also planned a “Pharma India’ brand promotion action plan spanning cover a three-year period to give an impetus to generic exports. “Of the export markets, Indian pharma will focus on the US market which presents significant opportunities for the next two years for generics, due to patent cliffs and recent changes in healthcare policies,” said the India Ratings report on outlook for Indian pharmaceuticals for 2013,Generies Generics will continue to dominate the market while patent-protected products are likely to constitute 10 per cent of the pie till 2015. according to McKinsey report ‘India Pharma 2015- Unlocking the potential of Indian Pharmaceuticals market’ Dr Reddy's Laboratories Lid has launched Finasteride tablets, a bio-equivalent generic version of Propecia (Finasteride) tablets, in the US market. The tablets are used for treating male pattern hair loss. Diagnostics Outsourcing/ Clinical Trials Indian diagnostics and labs test services, in view of its growth potential, is expected to reach Rs 159.89 billion (US$ 2.93 billion) by 2013. The Indian market for both therapeutic and diagnostic antibodies is expected to grow exponentially in the coming years. Findings from the report by “Corporate Catalyst India” suggest that more than 60 per cent of the total antibodies market is currently dominated by diagnostic antibodies. According to new RNCOs report, “Booming Clinical Trials Market in India”, the number of clinical studies by domestic and global players has sharply risen. Besides. availability of skilled manpower and good medical infrastructure will augment the number of clinical trials from 1300 in 2009 to more than 1900 by 2013. Further, the report also indicates that, India, cover the last decade, has developed significant capabilities in clinical trials, along with certain ‘apabilities in project management and data management. The country is able to provide significant cost savings of 50-60 per cent for clinical trials Investments Some of the investments in the sector are: + Orchid Chemicals and Pharmaceuticals has entered ito a partnership with Europe- based Allecra Therapeutics to develop antibiotics to treat multi-drug resistant bacterial infections «Ranbaxy Pharmaceuticals Inc has entered into an in-licensing agreement with Alembic Pharmaceuticals to exclusively market desvenlafaxine base extended release tablets in the US. The drug is used for treatment of major depressive disorder + Biocon has entered into an agreement with Mylan for the global development and commercialisalion of Biocon's generic insulin analog products (long lasting insulins), which has a global addressable market of USS 11.5 billion + ZydusCadila has received tentative approval for Doxepin Hel tablets from the US drug authorities. Cadila will launch the drug in 2020 after original drug maker's patent expires » Aurobindo Pharma Lid has received US Food and Drug Administration (USFDA) approval to manufacture and market Tamsulosin Hydrochloride Capsules and Clindamycin Palmitate Hydrochloride for oral solution + Sun Pharma has received a tentative approval from the US Food and Drug Administration (USFDA) for a generic version of Januvia, Sun Pharma is expected to launch the drug in 2022Government Initiatives FDI, up to 100 per cent, under the automatic route, would continue to be permitted for Greenfield investments in the Pharmaceuticals sector. 100 Per cent FDI is also permitted for Brownfield investment (ie. investments in existing companies). under the Government approval route. According to the Union Budget 2013-14, investment allowance of 15 per cent on new plant and machinery has been allowed. The allowance is expected to increase investments in new projects while simultaneously providing tax benefit to the industry The Department of Pharmaceuticals has prepared a ‘Pharma Vision 2020’ document for making India one of the leading destinations for end-to-end drug discovery and innovation and for that purpose, the department provides requisite support by way of world class infrastructure, internationally competitive sciemtific manpower for pharma research and development (R&D), venture fund for research in the public and private domain and such other measures. Road Ahead In order to encourage production of drugs by indigenous industries, the 12 Five Year Plan (2012-17) has recommended capacity building of private sector to meet WHO-GMP standards and other international manufacturing standards, The pharmaceutical companies such as Cipla, Ranbaxy, Dr Reddy's Labs and Lupin might soon be par of the government's ambitious ‘Jan Aushadhi’ project. In an attempt to commercialise the project, the Government is likely to rope in the private sector to bulk- procure generic drugs from them, There are 117 Jan Aushadhi stores across the country and the plan is to expand to at least 600 in the next two years and 3,000 by 2016. Further, India will see the largest number of merger and acquisitions (M&A) im the pharmaceutical and healtheare sector, according to consulting firm Grant Thornton, A survey conducted across 100 companies has revealed that one-fourth of the respondents were optimistic about acquisitions in the pharmaceutical sector1.3 Company Profile: Reliance Group | |RELIANCE| The Reliance Group is among India's top three private sector business houses onall major financial parameters, with assets in excess of Rs.180,000 crore, and net worth to the tune of Rs.89,000 crore. Across different companies, the group has a customer base of over 100 million, the largest in India, and a shareholder base of over 12 million, among the largest in the world. ‘Through its products and services, the Reliance Group touches the life of 1 in 10 Indians every single day. It has a business presence that extends to over 20000 towns and 4.5 lakhs villages in India, and 5 continents across the world. ‘The interests of the Group range from communications (Reliance Communications) and financial services (Reliance Capital Ltd), to generation, transmission and distribution of power (Relianee Energy), infrastructure and entertainment Reliance Capital Ltd. ReELI/ANCeE Capital Reliance Capital Limited is a financial services company and part of a Reliance Anil Dhirubhai Ambani Group. It is registered with the Reserve Bank of India under section 45-LA of the Reserve Bank of India Act, 1934, as a public limited company in 1986 and is now listed on the Bombay Stock Exchange and the National Stock Exchange (India), Reliance Capital has a net worth of over 233 billion (US8570 million) and over 165,000 shareholders. Onconversion of outstanding equity instruments, the net worth of the company will increase to about €41 billion (US$710 million).It is headed by Anil Ambani and is a part of the Reliance ADA Group.Reliance Capital ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital has interests in: + Asset management + Mutual funds. + Life and general insurance. + Private equity and proprietary investments. + Stock broking, + Reliance PMS + Depository services and financial products. » Consumer finance and other activities in financial services. Reliance Mutual Fund is amongst top two Mutual Funds in India with aver six million investor folios. Reliance Life Insurance and Reliance General Insurance are amongst the leading private sector insurers in India. Reliance Securities is one of India’s leading retail broking houses. Reliance Money is one of India’s leading distributors of financial products and services, Reliance Securities & Reliance Money Lt Reliance Securities Ltd. Reliance Securities, the broking arm of R ‘the one of the India’s leading retail broking houses in India, providing customers with access to equities, equity options and commodities futures, wealth management, wealth management services, mutual funds, IPOs. and investment banking Reliance Securities has over 7 Lac retail broking accounts through its pan India presence with over 6,200 outlets. Reliance Money Ltd. ‘The third party distribution business of Reliance Capital, branded as “Reliance Money’ is a comprehensive financial services and solutions provider, providing customers with access to life and general Insurance products, money transfer, currency exchange, loans and gold coins. Reliance Money Infrastructure Lid. provides financial products and services including mutual fund money transfer and money changing services. The company also offers gold coin distribution services. ILwas formerly known as Reliance Money Limited, The company is based in Mumbai, India, Reliance Money Infrastructure Lid, operates as a subsidiary of Reliance Capital Limited14 OBJECTIVE OF STUDY + The main objective of project is to do fundamental analysis of a pharmaceutical of companies. + Secondly to study the present scenario of a pharmaceutical industry. + Analyze the information collected on sales, profit, eaming per share, market price ete + Todo Ratio Analysis for the selected companies and make necessary comments on it so as lo provide complete idea and core ideology of the company. So thal investors can easily get idea about the fundamental analysis of pharmaceutical companies. * To carry out financial and non-financial analysis of Pharma Sector as a whole for the selected period L5 Concept of Fundamental Analysis Two Approaches of Fundamental Analysis While carrying out fundamental analysis, investors can use either of the following approaches: 1 Top-down approach: In this approach, an analyst investigates both international and national economic indicators, such as GDP growth rates, energy prices, inflation and interest rates. The search for the best security then trickles down to the analysis of total sales, price levels and foreign competition in a sector in order to identify the best business in the sector 2. Bottom-up approach: In this approach, an analyst starts the search with specific businesses, irrespective of their industy/region. How does fundamental analysis works? Fundamental analysis is carried out with the aim of predicting the future performance of a company, It is based on the theory that the market price of a security tends to move towards its ‘real value’ or ‘intrinsic value.’ Thus, the intrinsic value of a security being higher than the security's market value represents a time to buy. If the value of the security is lower than its market price, investors should sell it The steps involved in fundamental analysis are: 1, Macroeconomic analysis, which involves considering currencies, commodities and indices. (Economy Analysis) 2. Industry sector analysis, which involves the analysis of companies that are a part of the sector. (Industry Analysis) 3. Situational analysis of a company. (Company Analysis) 4, Financial analysis of the company 5. Valuation,The valuation of any security is done through the discounted cash flow (DCF) model, which takes into consideration: 1. Dividends received by investors 2. Earnings or eash flows of a company 3. Debt, which is calculated by using the debt to equity ratio and the current ratio (current assets/current liabilities) Fundamental Analysis Tools These are the most popular tools of fundamental analysis. + Earnings per Share ~ EPS # Price to Earnings Ratio P/E ¢ Projected Eamings Growth ~ PEG © Price to Sales — P/S © Price to Book ~P/B © Dividend Payout Ratio © Dividend Yield * Book Value * Return on Equity + Ratio analysis Financial ratios are tols for interpreting financial statements to provide abasis for valuin securities and appraising financial and management performance. A good financial analyst will build in financial ratio calculations extensively in a financial modelling exercise to enable robust analy ss, Financial ratios allow a financial analyst to: ‘Standardize information from financial statements across multiple financial years to allow comparison of a firm’s performance aver time in a financial model ¥ Standardize information from financial statements from different companies to allow apples to apples comparison between fims of differing size ina financial model. > Measure key relationships by relating inputs (costs) with outputs (benefits) and facilitates comparison of these relationships over time and across firms in a financial model.In general, there are 4 kinds of financial ratios that a financial analyst will use most frequently, these are: + Performance ratios + Working capital ratios + Liquidity ratios + Solvency ratios These 4 financial ratios allow a good financial analyst to quickly and efficiently address the following questions or concerns: + Performance ratios ‘What return is the company making on its capital investment? What are its profit margins? © Working capital ratios How quickly are debts paid? How many times is inventory turned? * Liquidity ratios Can the company continue to pay its liabilities and debts? * Solvency ratios (Longer term) What is the level of debt in relation to other assets and to equity? Is the level of interest payable out of profits? WHY ONLY FUNDAMENTAL ANALYSIS. Long-term Trends Fundamental analysis is good for long-term investments based on long-term trends, very long-term. The ability to identify and predict long-term economic, demographic. technological or consumer trends ean benefit patient investors who pick the right industry ‘Eroups or companies. Value Spotting Sound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors think long-term and value. Graham and Dodd, Waren Buffett and John Neff are seen as the champions of value investing. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying power,Business insights One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such pains taking research and analysis, an investor will be familiar with the key tevenue and profit drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians will agree to that. ‘A good understanding can help investors avoid companies thal are prone to shortfalls and identify those that continue to deliver. [n addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies, within an industry. A stock's price is heavily influenced by its industry group. By swdying, these groups, investors can better position themselves to identify opportunities that sre high- risk (lech), low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation) or income-oriented (high yield). 1.6 Methodology of FUNDAMENTAL ANALYSIS Economic Analysis ‘The economic analysis aims at determining if the economic climate is conclusive and is capable of encouraging the growth of business sector, especially the eapital market, When the economy expands, most industry groups and companies are expected to benefit and grow. When the economy declines, most sectors and companies usually face survival problems. Hence, to predict share prices, an investor has to spend time exploring the forces operating in overall economy. Exploring the global economy is essential in an international investment setting. The selection of country for investment has to focus itself to examination of a national economic scenario, It is important to predict the direction of the national economy because economic activity affects corporate profits, not necessarily through tax policies but also through foreign policies and administrative procedures. Tools for Economy Analysis. ‘The most used tools for performing economic analysis are: Gross Domestic Product (GDP) Monetary policy and Liquidity Inflation Interest rates. International influences Fiscal policy Influences on long term expectations Influences on short term expectations vey 1}Gross Domestic product GDP is one measure of economic activity. This is the total amount of goods and services produced in a country in a year. It is ealeulsted by adding the market values of all the final goods and services produced ina yearIisa gross measurement because i includes the total amount of goods and services produced, of which some merely replace goods that have depreciated or have worn out It is domestic production because it includes only goods and services produced within the country. 2)Inflation Inflation can be defined as a trend of rising prices caused by demand exceeding supply. Over time, even a small annual increase in prices of say 1 % will tend to influence the purchasing power of the nation, In others word, if prices rise steadily. after a number of years, consumers will be able to buy only fewer goods and services assuming income level does not change with inflation. 3) Interest rate Interest rate is the price of credit. It is the percentage fee received or paid by individual or organization when they lend and borrow money. In general, increases in interest rate, whether caused by inflation, government policy, rising risk premium, or other factors, will lead to reduced borowing and economic slowdown. 4) International influences Rapid growth in overseas market can create surges in demand for exports, leading to growth in export sensitive industries and overall GDP. In contrast, the erection of trade barriers, quotas, currency restrictions can hinder the free flow of currency, goods, and services, and harm the export sector of an economy 5)Fiseal policy ‘The fiscal policy of the government involves the collection and spending of revenue. In particular, fiseal policy refers to the efforts by the government to stimulate the economic directly, through s pending Industry Analysis ‘An industry analysis helps inform business managers about the viabilily of their current strategy and on where to focus a business among its competitors in an industry. The analysis examines factors such as competition and the external business environment, substitute products, management preferences, buyers and suppliers. Industry analysis involves reviewing the economic, political and market factors that influence the way the industry develops. Major factors can include the power wielded by suppliers and buyers, the condition of competitors. And the likelihood of new market entrants, Data needs for industry analysis Industry analysis requires a variety of quantitative and qualitative data. Though one single source for all the data needs might not found, industry associates, businesspublications and the department of economic analysis perform a comprehensive industry analysis. A suggestive list of data categories that are utilized for performing industry analysis is listed below. ‘Product lines Product growth Complementary product ‘Economics of scale ‘Suppliers. om ‘Substitute products ‘Buyers and their behaviour ‘Product patiern (cyclical, seasonal) * Cost structure ‘Tools for industry analy: > Cross-sectional industry > Industry performance over time Differences in industry risk Prediction about market behaviour Competitors over the industry life cycleCOMPANY ANALYSIS Analysis of the company consists of measuring its performance and ascertaining the cause of this performance, When some companies have done well imespective of economic or industry failure, this implies that there are certain unique characteristics for this particular company that had made it a success. The identification of these characteristics, whether quantitative or qualitative, is referred to as company analysis. Quantitative indicators of company analysis are the financial indicators and operational efficiency indicators. Financial indicators are the profitability indicators and financial position indicators analyzed through the income and balance sheet statements, respectively. of the company. Operational indicators are capacity utilization and cost versus sales efficiency of the company, which includes the marketing edge of the company Besides the quantitative factors, qualitative factors of a company also influence investment decision process of an institutional investor. The focus of the qualitative data, as revealed in the annual report- as in the director’s speech. Rather than on quantitative data. ‘Tools for company analysis Company analysis involves choice of investment opportunities within a specific industry that comprises of several individual companies. The choice of an investible company broadly depends on the expectations about its future performance in general. Here. the business cycle that a company is undergoing is a very useful tool to assess the future performance from the company Company analysis ought to examine the levels of competition, demand, and other forces that affect the company's ability to be profitable. OF these factors, understanding the competitive environment is most important A business faces five forces of competition (porter’s model) namely, seller's competition, buyer's competition, competition from new entrants, exit competition, Competitive forces include the power of those who sell the business, those who buy the business; those who buy from the business, how easily new businesses ean enter the industry, how costly it is to exit, and finally, the competition from those who already in the industry. How well a company deals with each of these forces will determine whether the company earns above or below average profit. Each of these forces is discussed below Porter model Porter's Five Forces is a framework for industry analysis and business. strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon Industrial Organization (10) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market Attractiveness in this context refers to the overall industry profitability. An unattractive" industry is one in which the combination of these five forces acts 10 drive down overall profitability. A very unattractive industry would be one approaching "pure competition”, in which available profits for all firms are driven down tozero, Three of Porter's five forces refer to competition from external sources. The remainder are internal threats.Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forees normally. requires 2 business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply thatevery firm in the industry will return the same profitability. Firms are able to apply their core competencies. business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return im excess of the industry average Porter's five forces include - three forees from ‘horizontal’ competition: threat of substitute produets, the threat of established rivals, and the threst of new entrants: and two forces from ‘vertical’ competition: the bargaining power of suppliers and the bargaining power of customers, This five forces analysis is just one part of the complete Porter stralegic models. The other elements are the value chain and the generic strategies (a) The threat of the entry of new competitors Profitable markets that yield high retums will attract new firms, This results in many new entrants, which eventually will decrease profitability for all firms in the industry Unless the entry of new firms can be blocked by incumbents, the abnormal profit rale will fall towards zero (perfect competition).© The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms canexiteasily. Economies of product differences. Brand equity Switching costs or sunk costs Capital requirements ‘Access to distribution Customer loyalty to established brands * Absolute cost * Industry profitability; the more profitable the industry the more attractive it will be to new competitors (b) The threat of substitute products or services ‘The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives: © Buyer propensity to substitute © Relative price performance of substitute + Buyer switching costs © Perceived level of product differentiation Number of substitute products available in the market + Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product © Substandard product © Quality depreciation (©) The bargaining power of customers (buyers) ‘The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. + Buyer concentration to firm concentration ratio © Degree of dependency upon existing channels of distribution © Bargaining leverage, particularly in industries with high fixed costs + Buyer volume © Buyer switching costs relative to firm switching costs © Buyer information availability + Ability to backward integrate © Availability of existing substitute products © Buyer price sensitivity * Differential advantage (uniqueness) of industry products © RFM Analysis,(a) The bargaining power of suppliers ‘The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there ate few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources, © Supplier switching costs relative to firm switching costs © Degree of differentiation of inputs + Impact of inputs on cost or differentiation © Presence of substitute inputs © Strength of distribution channel + Supplier concentration to firm concentration ratio © Employee solidarity (e.g. labor unions) © Supplier competition - ability to forward vertically integrate and cut out the BUYER (e) The intensity of competitive rivalry For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry © Sustainable competitive advantage through innovation © Competition between online and offline companies: click-nd-mortar -v- slags on a bridge © Level of adventising expense + Powerful competitive strategy © The visibility of proprietary items on the Web used by a company which can intensify competitive pressures on their rivals. ‘The financial statements of the company: Records that outline the financial activities of a business, an individual or any other entity. Financial statements are meant to present the financial information of the entity in question as clearly and concisely as possible for both the entity and for readers, Financial statements for businesses usually include: income statements, balance sheet, statements of retained earnings and cash flows, as well as other possible statements 3. Ratio analysis A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis, There are many ratios that can be calculated from the financial statements pertaining to a company’s performance, activity,financing and liquidity. Some common ratios include the price-earnings ratio, debt- equity ratio, earnings per share, asset turnover and working capital, 4. ROA: Retum on assets, which, offering a different take on management's effectiveness reveals how much profit a company earns for every dollar of its assets. Assets include things like eash in the bank, accounts receivable, property, equipment inventory and furniture. ROA is calcutated like this 5. ROI: Return on Investment is one of several commonly used approaches for evaluating the financial consequences of business investments, devisions, of actions. ROL analysis compares the magnitude and timing of investment gains directly with the magnitude and timing of investment costs. A high ROI means that investment gains compare favorably to investment costs GAINS «INVESTMENT COSTS Total Assets 6. ROE: Of all the fundamental ratios that investors look at, one of the most important is return on equity. Its a basic test of how effectively a company’s management uses investors’ money - ROE shows whether management is. growing the company's value at an acceptable rate. ROE is calculated as: Annual Net Income Average Shareholders’ Equity7. EPS: The portion of a company's profit allocated to each outstanding share of common stock. Eamings per share serve as an indicator of a company's profitability, Calculated as: Average Outstanding shares 8 DPS: The the sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued. DPS can be calculated by using the following formula: D - Sum of dividends over a period (usually 1 year) SD - Special, one time dividends S$ - Shares outstanding forthe period9. P/O RATIO: The amount of earnings paid out in dividends to shareholders, Investors can use the payout ratio to determine what companies are doing with their earnings Calculated Dividends per share Pay Out Ratio= Earnings per Share 15 Research methodology Research methodology is a way to systematically solve the research problem. The research methodology using for find out the solution of the research problem is analytical research methodology and some extend descriptive research methodology 0 Secondary Data The sources of secondary data for solve the problems are:~ % Company Annual Report > Internet-websites 1.6 LIMITATION OF THE STUDY © As the data available to me has been taken from the secondary s ources (like internet). It is not sure that collected data are accurate and complete. © The data which are very useful for the fundamental analysis are lacking in this Project ‘or contract that are still in negotiation or any kind of deal which is in-process. Here that is ignored. + Dueto lack of experience and knowledge of the pharmaceutical industry it can't be said that the projection has been made totally corect and accurate. © Today's stock market is totally running on the investor's perception so the conclusion derived onthe basis if fundamental analysis would not viable in long run.CHAPTER- 2 INTEGRATED PERSPECTIVE OF ALL FUNCTIONAL AREAS IN ORGANIZATION2. INTEGRATED PERSPECTIVE OF ALL FUNCTIONAL AREAS IN ORGANIZATIO: ‘There are three main functional areas prevails in Reliance Securities. They are + Human Resources and Development department. ¢ Finance department + Marketing department. 2.1 HR DEPARTMENT Function Human Resources Department is involved in arranging staff waining activities and supporting the continuous professional development of all staffs. The main function is to recruit the right employees at the right time for right job. Experienced peoples cope up with HR's and train the new employees about the organization's culture and mainly about the reliance securities products. Mostly they prefer students with MBA in the Specialization Marketing and Finance. They train them to acts as a sales force to reach their products in the market and to maintain the accounts of the organization. They also prefer HR students but limited candidates only. They train the employees to stain the organization's goal. HR person handles job satisfaction among employees and also satisfies their needs. They periodically measure their employee performance and train them accordingly 2.2 FINANCE DEPARTMENT Function Finance Department will be expected to monitor and support aims and objectives linked to keeping costs low to improve profitability of the organization. Finance staff record all the money earned and spent so that the senior managers always know how much profit (or loss) is being made by each product or each part of the business and how much money is currently held by the business. This enables critical decisions to be made rapidly and accurately because they are based on accurate information. There are management accountants, financial accountants to manage the cash flow in the organization they maintain the records of the expenses daily and report the senior manager on the monthly basis through mail 2.3 MARKETING DEPARTMENT Function Marketing department mainly focus on sales and distribution of the Reliance Securities Products. They satisfy the needs of customers. This department follows the marketing mix ie. four P's. The organization sets target to every employee to sale their products. Marketing involves promoting their products in the market. It concentrates also the competitors and their products. They mainly concentrate to create uniqueness of their products among competitors, The Main functions of Marketing Department are Carrying out market research to obiain feedback on potential and existing products and/or services.Analyzing market research responses and advising senior managers of the results and implications. It also includes Promoting products and services through a variety of advertising and promotional methods, e.g. press, TV, online, direct mail, sponsorship and trade shows or exhibitions. Obtaining and updating a profile of existing customers to target advertising and promotions appropriately. Producing and distributing publicity materials, such as catalogues or Brochures, Designing, updating and promoting the company website.CHAPTER-3 DATA ANALYSISThe process of evaluating data using analytical and logical reasoning to examine each component of the data provided. This form of analysis is just one of the many steps that must bbe completed when conducting a research experiment. Data from various sources is gathered, reviewed, and then analyzed 0 form some sort of finding or conclusion. There are a variety of specifie data analysis method, some of which include data mining, text analytics, business intelligence, and data visualizations Data can be of se veral types © Quantitative data is a number © Qualitative data is a pass/fail or the presence of a characteristic Quantitative data is data measured or identified on a numerical scale. Numerical data can be analyzed using statistical methods, and results can be displayed using tables, charts, histograms and graphs. The term qualitative data is used to describe certain types of information. This is almost the converse of quentitative data, in which items are more precisely described as data in terms of quantity and in which numerical values are used However, data originally obtained as qualitative information about individual items may give rise to quantitative daia if they are summarized by means of counts. Qualitative data described items in terms of some quality or categorization that may be ‘informal’ or may use relatively ill-defined characteristics such as warmth and flavor, However, qualitative data can include wellfefined aspects such as gender, nationality or commodity typeECONOMY ANALYSIS3.1 ECONOMIC ANALYSIS Analysis of Indian Economy The Indian economy after reporting fairly robust growth of over 9 per cent during 2005-08, moderated to a growth of 6.7 percent in 2008-09 because of the global financial crisis. Because there was fiscal and monetary space, timely stimulus allowed the economy 10 recover fairly quickly to a growth of 84 per cent in 2009-10 and 2010-11. Since then, however, the fragile global economic recovery and a number of domestic factors have led to a slowdown once again. ‘The slowdown in the Indian economy that began in the second quarter of 2011-12, when the growth rate declined to 6.7 percent from a level of 8.0 per cent in the first quarter, continued in subsequent quarters. Growth has been in the range of $.3-5.5 pereemt in the last three quarters. (Q4 of 2011-12 to Q2 of 2012-13). The slowdown is not just confined to India. There has been a general slowdown in the global economy which has been passing through a rather prolonged phase of uncertainty. The recovery from the global crisis of 2008-09 in the advanced economies has been uneven, with a decisive resolution yet to emerge to the sovereign debt problem in the Euro zone, Having achieved a GDP growth of 5.1 percent in 2010, the rate of growth in the global economy declined to 3.8 per cent in 2011 and is expected to decline further to 3.3 per cent in 2012, as per the World Economic Qutlook released by the IMF in October 2012. The rate of growth of advanced economies declined from 3.0 per cent in 2010 to 1.6 percent in 2011 and is expected to decline further to 1.3 percent in 2012. Even the emerging economies have slowed down during this period, partly as a result of the slowdown in their export markets. China's growth declined from 10.4 percent in 2010 to 92 per cent in 2011 and is expected to be 7.8 per cent in 2012. Brazil's growth dipped from 7.5 per cent in 2010 to 2.7 per cent in 201 1 and is expected to be 1.5 percent in 2012. The growth rate of the Indian economy (measured in terms of GDP at factor cost at 2004-05 prices) was 5.4 per cent in the first half (H1) of year 2012-13 as against 7.3 per cent in the corresponding time period of the previous year. The growth for the full year of 2011-12 was 6.5 per cent vis-a-vis the growth rate of 8.4 per cent achieved in each of the previous two years ie. 2009-10 and 2010-11. The slowdown has been all pervasive and almost all the sectors have been affected. The growth rate has been 2.1 percent for agriculture and allied sectors, 3.2percent for industry sector and 7.0 percent for the services sector in the first half 0f 2012-13, The growth rates were 3.4 per cent, 4.7 per eent and 9.5 percent, for agriculture industry and services, respectively in H1 of 2011-12, The growth of GDP in the first and second quarters of 2012-13 was 5.5 percent and 5.3 per cent respectivelySWOT Analysis of Indian Economy India is the ninth largesteconomy in the world in terms of GDP. The Indian Economy due to its peculiar trends has been a subject of interest for the world. After independence, the Indian economy was more like a socialist economy: democratic, large public sectors and heavy regulations on private sectors. Around the 1990s the economy reached a point of stagnation, ‘Then, in 1991, India saw the largest economic reforms pioneered by Dr Manmohan Singh, the then finance minister. These changes improve the rale of economic growth and social development. Economists predict that the Indian economy will be the third largest by 2025, after the USA and China. Strength: ‘The strength of the Indian economy lies in its robust nature, which is evident from its constant growth even during times of recession (2008-09). The banking and credit system has been able to survive the downturn due to heavy regulations imposed by the RBI. This brought more transparency to the system. Another important factor that forms the spine of the Indian economy is agriculture, because it employs nearly 50% of the total population. Although agriculture shares only 18.5% of GDP. it makes India self-reliant in terms of food supply. Today, India is a leading producer of a number of agricultural products that give a boost to the export value. The youth of India, which makes a large part of the population is an advantage as it constitutes a huge work force. Weaknesses: Primary weakness of the Indian economy is its excessive dependence on agriculture, Since agriculture is monsoon dependent trade, production can vary by large margins and cause turbulence in the economy. India also lags behind in social development. A large part of the population is still living below the poverty line. Another weakness is the literacy rate. Although we have achieved high progress rates in terms of GDP, more than athird of the population remains illiterate, thus, easily exploitable. Opportunities: India has ample opportunities for growth, The agriculture sector and SMEs need to be encouraged and assisted as they have high potential, Indian government should focus on defining and properly implementing the policies for rural development, as most of the population resides in rural India. «Also, there is a scope for large-scale infrastructure development anda need to properly carry out the MNREGA, JNNURM and other schemes, so that the benefits penetrate to the lower level of the population. Tourism is a thriving industry in India and we need to hamess its potential. It will help raise our foreign reserves and create employment opportunities.Threats: Terrorism and corruption are the greatest threats that India faces. It is because both hamper the growth of people and trade, which is a must for overall economic growth. The rising inflation, hording and black-marketing, also pose a threal to economic development Economic growth, mainly the exports, has seen a downward trend due to the worldwide economic downturn and has become a cause of concern. The Indian government needs to redefine its policies and bring more stringent reforms to steer out of this turbulence. India’s Economic Survey 2013 A government study is optimistic that the pace of India’s economic growth ~ now at its slowest in a decade —will speed up. But while it expects gross. domestic product to expand up 106.7% next year, it warned that inflation and a high current account deficit are major concems. ‘The document, prepared by India’s finance ministry, looks back at the economic performance of the country over the past year, reviews the government's recent policy initiatives, and gives recommendations for the coming year. Under the leadership of Chief Economie Advisor Raghuram Rajan, the report provides clues on the priorities of the finance ministry a day before Finance Minister P. Chidambaram, presents the annual budget. The study is released on a yearly basis, aday before the budget is presented. Here are a few highlights from this year’s economic survey In the year starting April 1, the study expects India’s gross domestic productdo expand between 6.1% and 6.7% — higher than the 5% growih rate estimated for this year. The study cites the positive impact of a partial recovery in the global economy and recent government policies, including steps to open up foreign investment in sectors like retail and aviation and toderegulate the price of subsidized fuel, But challenges remain. Key obstacles to growth, the survey notes, are poor infrastructure, low growth in agriculture and industrial activities, and the gap between energy supply and demand. ‘The study says India is ontrack to meetits fiscal deficit target of 5.3% of GDP this fiscal year, and to narrow it down to 4.8% of GDP next year. The gap between revenue and expenditure surged to 5.8% last year, largely because of slowing economic growth and high subsidy payments on fuel, food and fertilizers, The governmenthas this year curtailed expenditure, and with the increase in diesel prices, expects to bring down the budget gap steadily to 3% of GDP by March 2017 The Indian government expects inflation to ease. The study expects the monthly inflation rate tobe between 6.2%-6.6% by the end of March from a year earlier, from 6.62% in January. A lower inflation rate may encourage the Reserve Bank of Indiato reduce key interest rates. The survey described fighting inflation as a “priority,” calling foran increase in food production and for better infrastructure to reduce agricultural waste‘The study recommended curbing imports, mainly of gold, in a bid to reduce India’s current account deficit, which stood at 4.2% of GDP last year and is projected to be at similar levels this year. Steps to raise diesel prices and increase import duties on goods like gold will help bring down the current account deficit nest year, the study said, ‘The study expected agricultural production to decline. The study said allowing more foreign direct investment in retail could help the country's agricultural sectors through the introduction of new technology and improved infrastructure. The study expects food grain production to slip 3.5% to 250.1 million tons this year from a year earlier. Although the study revealed thatagriculture accounted for only 14.1% of GDP in 2011-12, the sector employs over half of the nation’s population. ‘The study had a special focus on job creation, saying it expects over half of the people joining the labour force from 201 1 10 2030 tobe in the 30-49 year age group. It said a priority was to create jobs in manufacturing and services, rather than in construction. The study said a priority should be to reduce waste in social spending through projects like direct-cash transfers to the poor. India’s spending on social welfare increased from 5.9% of GDP in the year that ended March 31, 2008 to an estimated 7.1% of GDP in the current year Gross Domestic Product (GDP The Gross Domestic Product (GDP) in India was worth 1841.70 billion US dollars in 2012. The GDP value of India represents 2.97 percent of the world economy. GDP in India is reported by the World Bank Group. India GDP averaged 485.65 USD Billion from 1970 until 2012, reaching an all time high of 1872.90 USD Billion in December of 2011 and a record low of 63.50 USD Billion in December of 1970, The gross domestic product (GDP) measures of national income and output for a given country's economy. The gross domestic product (GDP) is equal to the total expenditures for all final goods and services produced within the country in astipulated period of time.mou cor urs ae a0 soa 00 van 1088 087 zat ram 00 20H aot aie India's Q4 GDP at 4.8% ; FY 2013 GDP is worst in a decade India’s GDP or economic growth rates for the 4th quarter ending March 31, 2013 has come in line with estimates at a hugely disappointing 4.8 per cent. The whole year GDP for FY 2013 at 5 per cent is the worst seen in almost a decade and is way below the 9 per cent recorded a few years back. Poor growth rates in electricity and mining were largely responsible for tepid GDP growth rates. Stock markets failed to recover after the GDP data was announced with the Sensex down 220 points and the Indian rupee trading at a 1-year low of Rs 55.51 to the dollar. The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation, released the provisional estimates of national income for the financial year 2012-13 and the quarterly estimates of Gross Domestic Product (GDP) for the fourth quarter January-March) of 2012-13, According to the figures released by the CSO. farm sector output for the 4th quarter has seen a growth of 1.4 per cent quarter on quarter, while manufacturing has seen a growth rate of 2.6 per cent. ‘The growth rates in various sectors were as follows: ‘agriculture, forestry and fishing’ (1.4 percent), “1 and quarrying’ (-3. | percent), ‘manufacturing’ (2.6 pereent), ‘electricity, gas and water supply (2.8 percent) ‘construction’ (44 percent), ‘trade, hotels, transport and communication’ (6.2 percent), ‘financing, insurance, real estate and business services’ (9.1 percent), and ‘community, social and personal services’ (4.0 percent). For the full year 2012-2013, the key indicators of construction sector, namely, cement and consumption of finished steel registered growth of 5.6 percent and 3.3 percent, respectively in 2012-13 as against 6.1 percent and 3.9 percent, respectively during April-December 2012. Consequently, the growth of the seetor is revised downward to 4.3 percent as against 5.9 percent inthe Advance Estimates.‘Components of GMP By Quareer- Revised India GDP Growth Rate The Gross Domestic Product (GDP) in India expanded 1.30 percent in the fourth quarter of 2012 over the previous quarter. GDP Growth Rate in India is reported by the OECD. India GDP Growth Rate averaged 1.63 Percent from 1996 until 2012, reaching an all time high of 5.80 Percent in December of 2003 and a record low of -1.70 Percent in March of 2009, In India, the growth rate in GDP measures the change in the seasonally adjusted value of the goods and services produced by the Indian economy during the quarter. India is the world’s temth largest economy and the second most populous, The most important and the fastest growing sector of Indian economy are services. Trade, hotels, transport and communication; financing, insurance, real estate and business services and community, social and personal services account for more than 60 percent of GDP. Agriculture, forestry and. fishing constitute around 12 percent of the output, but employs more than 50 percent of the labor force, Manufacturing accounts for 15 percent of GDP. construction for another 8 percent and mining, quarrying, electricity, gas and water supply for the remaining § percent mou GOP GROWTH RATE as 28 s 18 os as ‘are 2010) a a a aa aInflation India Inflation Rate The inflation rate in India was recorded at 4.70 percent in May of 2013. Inflation Rate in India is reported by the Ministry of Commerce and Industry. India Inflation Rate averaged 7.73 Percent from 1969 until 2013, reaching an all time high of 34.68 Percent in September of 1974 and a record low of -11.31 Perent in May of 1976, In India, the wholesale price index (WPI) is the main measure of inflation. The WPI measures the price of a representative basket of wholesale goods. In India, wholesale price index is divided into three groups: Primary Articles (20.1 percent of total weight), Fuel and Power (14.9 percent) and Manufactured Products (65 percent). Food Articles from the Primary Articles Group account for 14.3 percent of the total weight, The most important components of the Manufactured Products Group ate Chemicals and Chemical products (12 percent of the total weight): Basic Metals, Alloys and Metal Products (10.8 percent); Machinery and Machine Tools (8.9 percent); Textiles (7.3 percent) and Transport, Equipment and Parts (5.2 percent). wantIndia's Inflation Slows to 4.7 % in May India's annual rate of inflation, based on the Wholesale Price Index, stood at 4.70 percent (provisional) for the month of May as compared to 4.9 percent in the previous month, the lowest level in more than three years. The index for Fuel and Power’ declined by 1.3 percent despite higher price of electricity (+13 percent) as the price of other items such as coal (-10 percent), aviation turbine fuel (.6 percent) and petrol (-S percent) declined. The index for ‘Food Articles’ group rose by 1.5 percent due to higher price of pouliry chicken and ragi (+5 percent each), fruits and vegetables (44 percent), fish-marine (+3 percent) and rice (+2 percent). However, the price of tea (-5 percent) and coffee and maize (- 2 percent each) declined. The prices of ‘Manufactured Goods’ rose 0.3 percent and the index for ‘Beverages, Tobacco and Tobacoo Products’ group increased by 0.4 percent due to higher price of soft drinks and carbonated water, bidi and beer (+1 percent each), The index for ‘Transport, Equipment and Parts’ group declined 0.2 percent due to lower price of bicycles (-3 percent) and motor vehicles (-1 percent) The price index of “Basie Metals, Alloys and Metal Products’ declined 0.3 percent due to lower price of silver (-5 percent), gold and gold ornaments (-3 percent) and aluminium (-2 percent), INA INFLATION RATE, 2 ae = eat 12 0 0 . ‘ ‘ ‘ * “4 on wah wo deatIndia Foreign Direct Investment Foreign Direct Investment in India increased to 2596 USD Million in April of 2013 from 1344 USD Million in March of 2013. Foreign Direct Investment in India is reported by the Reserve Bank of India. India Foreign Direct Investment averaged 913.12 USD Million from 1995 umtil 2013, reaching an all time high of 5670.00 USD Million in February of 2008 and a record low of 58.00 USD Million in April of 2003. INOW FOREIGN DIRECT INVESTHENT ton ae ooo son 2000 200 mt anv a re) ‘Indian economy is capable of absorbing USS 50 billion in foreign direct investment (FD), per year’, said Mr P Chidambaram, the Finance Minister, India, FDI is an economic segment that enjoys intense focus and attention from policy makers of the highest rank in the administration. ‘The Government relaxed FDI regime in sectors including multi-brand retail, single-brand retail, commodity exchanges, power exchanges, broadcasting, non-banking financial institutions (NBFCs) and asset reconstruction companies (ARCs) in 2012 ‘There were several big-bang reforms and the Government allowed 51 per cent FDI in multi- brand retail and 49 per cent in the aviation sector. FDI cap was also raised from 49 per cent to 74 per cent in broadcasting and ARCs, with an aim to bring foreign expertise in the segments. Foreign investment has also been allowed in power exchanges while foreign institutional investors (FIIs) have been allowed to invest up to 23 per cent in commodity exchanges without seeking prior approval from the Government. ‘Thus, reforms and policies at such a massive level indicate that Indian FDI landscape offers a plethora of opportunities to foreign investors as the economy is booming and vibrant as. compared to its global peers. Furthermore, favourable demographics and growth opportunities keep India an ‘attractive’ destination for merger and acquisition (M&: A) activities across diverse sectors including consumer goods and pharmaceuticals, according to global consultancy Ernst & Young.India Imports Imports in India decreased to 2166 INR Billion in June of 2013 from 2456.19 INR Billion in May of 2013. Imports in India are reported by the Directorate General of Commerce. India Imports averaged 364.23 INR Billion from 1978 until 2013, reaching an all time high of 2475.94 INR Billion in January of 2013 and a record low of 4:98 INR Billion in April of 1978. India is heavily dependent on coal and foreign oil imports for its energy needs. Other imported products include: machinery, gems, fertilizers and chemicals, India’s main import partners are China (12 percent of total imports), United Arab Emirates, Switzerland, Saudi Arabia, United States, rag and Kuwait want nitsIn orts Exports in India increased to 1430 INR Billion in June of 2013 from 1348.08 INR Billion in ‘May of 2013. Exports in India are reported by the Directorate General of Commerce. India Exports averaged 243.74 INR Billion from 1978 until 2013, reaching an all time high of 1678.36 INR Billion in March of 2013 and a record low of 3.75 INR Billion in May of 1978. India's main exports are engineering goods (19 percent of total exports), gems and jewelry (15 percent), chemicals (13 percent), agricultural products (9 percemt) and textiles (# percent). India is alsoone of Asia's largest refined product exporters with petroleum accounting for around 18 percent of tolal exports. [ndia’s main export pariners are United Arab Emirates (12 percent of total exports) and United States (11 percent). Others include: China, Singapore, Hong Kong and Netherlands, wart aniINDUSTRIAL ANALYSIS3.2 INDUSTRY ANALYSIS INDIAN PHARMACEUTICAL INDUSTRY REVIEW History The history of Indian pharmaceutical market in 1970's was almost nonexistent Today, India has gained immense importance and carved a niche for itself im the pharmaceutical domain, In fact, it has emerged as a big mart for the pharmaceutical industry. In today's world, Indian pharmaceutical industry ranks 4th in terms of volume and 13th im terms of value, For example it might be anything like formulations, bulk drugs, generies, Novel Drug Delivery Systems, New Chemical Entities, or Biotechnology, etc. Indian companies are dominating in the marketplace which was traditionally manned by MNC’s. In 1930, im Calcutta the first pharmaceutical company called Bengal Chemicals and Pharmaceutical Works, which still is today as one of 5 government-owned drug manufacturers was started. Brief introduction ‘The Indian Pharmaceutical Industry today is in the front rank of India’s science- based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth § 4.5 billion, growing st about 8 to 9 percent annually. It tanks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously Playing a key role in promoting and sustaining development in the vital fiekd of medicines, Indian Pharma Industry boasts of quality producers and many units approved by regulatory authorities in USA and UK. International companies associated with this sector have stimulated, assisted and spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world. The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades, The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price contral ‘The pharmaceutical industry in India meets around 70% of the country’s demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectables. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the complete range of pharmaceutical formulations ie., medicines ready for consumption by patients andabout 350 bulk drugs ie, chemicals having therapeutic value and used for production of pharmaceutical formulations. Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs and pharmaceutical products has been done away with Manufacturers are free to produce any drug duly approved by the Drug Control Authority. Technologically strong and totally self-reliant, the pharmaceutical industry in India has low costs of production, low R&D costs, innovative sciemific manpower, strength of national laboratories and an increasing balance of trade. The Pharmaceutical Industry, with its rich scientific talents and research capabilities, supported by Intellectual Property Protection regime is well set to take om the intermational market Market capitalization ‘The Indian Pharmaceutical industry consists of more than 20,000 registered units which are highly fragmented. It has been expanding in a tremendous manner in the last two decades and includes 250 pharmaceutical companies which control 70% of the market Size of the industry ‘The Indian Pharma Industry has around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. 250 large units and about 8000 Small Scale Units, form the core of the pharmaceutical industry in India. The units produced have the complete range of medicines which are ready for consumption by patients. Current Scenari India’s pharmaceutical market grew at 15.7 per cent during December 2011 Globally, India ranks third in terms of manufacturing pharma products by volume. According to McKinsey, the Pharmaceutical Market is ranked 14th in the world. By 2015 it is expected to reach top 10 in the world beating Brazil, Mexico, South Korea and Turkey. More importantly, the incremental market growth of US$ Ibillion over the next decade is likely to be the third largest among all markets. The US and China are expected to.add US$ 200bn and US$ 23bn respectively. McKinsey & Company's report, “India Pharma 2020: Propelling access and acceptance, realizing true potential,” predicted that the Indian pharmaceuticals market will grow to USSSS billion in 2020; and if aggressive growth strategies are implemented, it has further potential to reach US$70 billion by 2020, While, Market Research firm Cygnus’ report forecasts that the Indian bulk drug industry will expand al an annual growth rate of 21 percent to reach $16.91 billion by 2014, The report also noted that India ranks third in terms of volume among the top 15 drug manufacturing countries.Further, McKinsey reports Healthcare grew from 4 per cent of average household income in 1995 to 7 per cent in 2005 and is expected to grow to 13 percent by 2025. Top leading Companies GlaxoSmithKline (GSK), Novartis India Limited Wyeth India Limited AVENTIS PHARMA INDIA PFIZER INDIA LIMITED AstraZeneca India Lid JOHNSON & JOHNSON (ETHNOR DIVISION) Cipla Limited Ranbaxy India Limited Dr.Reddy Laboratories Nicholas Piramal India Limited SUN PHARMA LIMITED UCB Pharma Lid EMerck India Lid ELI Lilly and Company (India) Aurobindo Pharma Lid Aventis Pharma Lid Cadila Pharmaceuticals Lid Cipla Lid Dabur Pharma Lid Dr. Reddy's Laboratories Lid Elder Pharmaceuticals Lid Glenmark Pharmaceuticals Ltd Demand: The demand for pharmaceutical products in India is significant and is driven by many factors like low drug penetration, rising middle-class & disposable income, increased govemment & private spending on healthcare infrastructure, increasing medical insurance penetration, changing demographic pattern and rise in chronic lifestyle-related diseases; adoption of product patents, and aggressive market penetration driven by the relatively smaller companies. According to CARE research demand triggers for the growth are: + Between 2010 and 2015 patent drugs worth US$17i are estimated to go off-patent leading to a huge surge in generic products. + High margin pharma export business is expected to grow at a higher rate than domestic market given increased in outsourcing activities. + Increased M&A activities is set to consolidate the market which widens geographic reach, strengthens distribution network and venture into new therapeutic segments. + Indian companies files the highest number of ANDA’s with USFDA leading to greater chances of approvals and thereby increasing export to regulated markets especially the US,