1. Equity Research
FMT-1(Assignment)
GROUP M2

2. Pharmaceutical Industry
• Involved in developing, producing, and
marketing drugs or pharmaceuticals licensed
for use as medications.
• Industry worth 839 billion US$ with a growth
of 4.5% on a year on year basis.
• The periods for comparison is one year for all
the four companies.

3. Companies Analyzed
Company Revenue Number of Employees
(Established in) (Net income) 2012 estimate
2012 estimate
Dr. Reddy’s US$2.1 bn 14923
Laboratory(DRL) (US$300 mn)
(1984)
Sun Pharma US$ 1.46 bn 11200
(1983) (US$540.9 mn)
Ranbaxy US$ 1.82 bn 10435
(1961) (US$ 333.04 mn)
GlaxoSmithKline(GSK) ₤27.387 bn 97389
(2000) (£5.458 bn)
Biocon US$283.01 mn 5585
(1978) (US$46.41 mn)

4. KEY RATIOS
DR REDDY'S GLAXOSMITHKL
KEY RATIOS LABORATORY SUN PHARMA RANBAXY INE BIOCON
Mar-12 Mar-11 Mar-12 Mar-11 Dec-11 Dec-10 Dec-11 Dec-10 Mar-12 Mar-11
Debt-Equity Ratio 0.25 0.18 0.01 0.01 1.23 0.82 0 0 0.08 0.1
Long Term Debt-Equity
0.03 0.04
Ratio 0.08 0.04 0 0 0.62 0.61 0 0
Current Ratio 2.45 2.31 3.5 3.9 1.09 2.04 2.41 2.89 1.59 1.75
Quick Ratio 2.11 1.63 2.67 3.06 0.88 1.6 2.12 2.55 1.44 1.6
Fixed Assets 2.08 1.96 2.9 2.6 2.56 2.05 8.11 7.09 1.38 1.49
Inventory 5.67 5.45 5.81 5.32 4.84 4.12 7.82 8.06 5.22 6.16
Debtors 3.65 3.77 5.91 5.77 3.05 3.97 36.15 42.78 3.72 3.99
2,791. 1,357.
180.06 518.2
Interest Cover Ratio 19.2 107.25 0 0 2.19 24.71 09 08
PBIDTM (%) 24.03 24.53 51.5 48.04 20.95 27.94 39.36 39.86 24.92 38.01
PBITM (%) 19.59 19.88 49.64 46.01 17.34 23.87 38.51 39.04 19.07 32.38
PBDTM (%) 23.01 24.34 51.5 48.04 13.01 26.98 39.35 39.83 24.82 37.95
APATM (%) 13.46 16.73 47.25 43.79 9.21 17.95 24.7 26.16 15.92 28.7
ROCE (%) 16.63 15.1 27.03 23.28 0 15.6 47.71 45.47 13.59 26.3
RONW (%) 14.33 14.97 26.07 22.32 0 21.15 30.69 30.55 12.64 26.16
Price Earning (P/E) 34.1 32.14 31.76 34.54 0 22.21 44.29 38.87 19.89 15.28
Price to Book Value (
2.27 3.53
P/BV) 4.44 4.61 7.27 6.85 8.89 4.92 8.54 10.28
Price/Cash EPS
14.28 12.73
(P/CEPS) 25.37 24.97 30.52 32.93 -6.16 18.49 41.98 37.57

5. Working Capital Ratios
Glaxosmithkli
Dr. Reddys Sun Pharma Ranbaxy ne Biocon
Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar-
11 10 11 10 11 10 11 10 11 10
RM Holding Period 134.48 104.48 157.93 142.46 134.51 137.88 73.53 66.98 48.61 54.39
FG Conversion
Period 22.23 18.28 21.49 19 40.24 35.02 47.59 50.76 11.38 7.87
Debtor Conversion
Period 98 101.69 101.98 120.4 90.22 96.25 8.53 10.66 108.76 110.76
No. of days in
working capital 190.22 144.48 392.36 187.91 226.11 123.55 280.85 278.86 229.8 192.28

6. Dr. Reddy’s Laboratory(Analysis)
• Current Ratio at 1.44 ,lower than 2:1.Liquidity
good before 2010.
• Debtor collection period increased from 95 to
99 days which should be bought down.
• Low gearing company, Interest coverage ratio
drastically reduced which may affect raising
funds.
• Return on Capital Employed high and
increasing.

7. Sun Pharma
• Current ratio improved over last year, liquidity
position good.
• Inventory turnover increased but not a
problem as liquidity position is good.
• Healthy increase in the profitability ratios of
the company.
• Cash rich company and hence no debt, Debt
equity ratio is zero.

8. Ranbaxy
• Current Ratio worsened compared to previous
year. It is at 1.00 well below the ideal
2:1,Company’s liquidity position has worsened.
• Debtor collection period increased from 91 days
to 119 days. Debtors taking more days now to
repay the debt worsening the liquidity of the
company.
• Company in losses in the current year though it
made profits till last year. This is due to the
enormous increase in the “Miscellaneous
Expenses” of the company.

9. GlaxoSmithKline
• Current Ratio at 2.67.Decreased when
compared to last year it was above the thumb
rule of 2.0.
• Return on Capital Employed improved from
last year and is at a healthy 47.71%.

10. Biocon
• Current Ratio fell from 1.75 to 1.59 and it is
still below 2:1 ratio. Debtors now taking more
days to return the debt, increased from 90 to
97 days.
• Debt Equity ratio fell from 0.1 to 0.08 so a low
gearing company.
• Return on Capital Employed and Return on
Equity have reduced significantly when
compared with last year.

11. Risk and Return Analysis
Required
Average Risk
Market Risk Rate of Alpha
Company Beta Return Free
Return (Variance) Return (ἀ)
on Stock Return
DRL 0.21 0.020% 8% -0.035% 5.22 6.26% 0.028
Sun
-0.035%
Pharma 0.21 0.048% 8% 3.12 6.25% 0.055
Ranbaxy -0.035%
0.54 -0.09% 8% 7.77 3.62% 0.074
-0.035%
GSK 0.036 0.075% 8% 3.15 7.70% 0.076
Biocon -0.035% 8.32
0.52 -0.09% 8% 3.76% 0.078

12. Portfolio Risk and Return
Portfolio Return -0.00942
Portfolio Risk(for sunpharma,
Dr.reddy and GlaxoSmithKline) 0.157759
Portfolio Beta 0.30819
Risk free return 8
Market Return -0.03568
Required Return 1.520462

13. Co-variances
Return on
Return on Return on Return on Return On
Glaxo Smith
SunPharma Dr.Reddy Ranbaxy Biocon
Kline
Return on
4.515793642
SunPharma
Return on
0.880738595 5.219180547
Dr.Reddy
3.15534052
Return on Glaxo 0.326325511 0.620647204
3
Return on 0.61146284
1.046097722 1.221240798 7.767644091
Ranbaxy 2
Return On 0.59669728
0.917574653 1.378536454 2.382855991 8.314926192
Biocon 1

14. Characteristic Line of Ranbaxy
Return On Ranbaxy y = 0.544x - 0.074
20 R² = 0.118
15
10
5
Axis Title
0 Return On Ranbaxy
-15 -10 -5 0 5 10 15 20 Linear (Return On Ranbaxy)
-5
-10
-15
-20
Axis Title

15. Characteristic Line of Biocon
Return On Biocon
25
y = 0.526x - 0.078
20 R² = 0.104
15
10
5
Axis Title
0 Return On Biocon
-15 -10 -5 0 5 10 15 20 Linear (Return On Biocon)
-5
-10
-15
-20
-25
Axis Title

16. Characteristic Line of GlaxoSmithKline
Return on Glaxosmithkline
y = 0.036x + 0.076
12 R² = 0.001
10
8
6
4
Axis Title
2
Return on Glaxosmithkline
0 Linear (Return on Glaxosmithkline)
-15 -10 -5 0 5 10 15 20
-2
-4
-6
-8
-10
Axis Title

17. Characteristics of SunPharma
Return on SunPharma
10
y = 0.217x + 0.055
R² = 0.032
5
0
Axis Title
-15 -10 -5 0 5 10 15 20
Return on SunPharma
Linear (Return on SunPharma)
-5
-10
-15
Axis Title

18. Characteristic Line of DRL
Return on Dr Reddy
30
y = 0.216x + 0.028
R² = 0.027
25
20
15
10
Axis Title
5 Return on Dr Reddy
Linear (Return on Dr Reddy)
0
-15 -10 -5 0 5 10 15 20
-5
-10
-15
-20
Axis Title