Financial Reporting

Analysis
Project Report

Submitted to:
Dr. Ambrish Gupta
Faculty
FORE School of Management

Submitted by:
Group - 2

Manisha Singh-(024027)
Priyanshu Gupta-(024034)
Shreya Bindal-(024047)
Diksha Arya-(204074)
 Letter of Transmittal

Dear Prof. Ambrish Gupta,

Hereby attached is the report that was to be submitted on 19th March 2020 on the study of EVA
in the pharmaceutical company

After investing weeks of rigorous effort, we were able to collect and analyze the data as well as
conclude all our findings.

Thankyou
Group-2

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 Acknowledgement

The report has been done as an End Term Project for the year 2020 for the course Financial
Reporting and Analysis. Our Group is really thankful to our project instructor Prof. Ambrish
Gupta, Faculty, FORE School of Management, New Delhi for his invaluable guidance and
assistance.
We owe our deep gratitude to our project guide, who took keen interest in our project work and
guided us all along, till the completion of our project work by providing all the necessary
information for developing a good system.

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 Table of Contents

Letter of Transmittal 1
Acknowledgement 2
Executive Summary 4
Introduction 4
Sun Pharma 5
Dr. Reddy’s Laboratories Limited 7
Lupin 9
Cipla 11
Glenmark Pharma 13
Result and Analysis 15
EVA in absolute terms with EVA Chart 15
EVA creation in terms of EVA Spread and EVA Spread chart 15
EVA Ratios and Ratio chart 16
Correlation of EVA per share and EPS with market price 18
EV and MVA and analyse value creation/destruction on these pharma 19
Ranking the companies based on the above parameters 20

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 Executive Summary

Introduction
India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry
supplies over 50 percent of global demand for various vaccines, 40 percent of generic demand in
the US and 25 percent of all medicine in the UK.

India enjoys an important position in the global pharmaceuticals sector. The country also has a
large pool of scientists and engineers who have the potential to steer the industry ahead to an
even higher level. Presently over 80 per cent of the antiretroviral drugs used globally to combat
AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

India's pharmaceutical exports stood at US$ 17.27 billion in FY18 and have reached US$ 19.14
billion in FY19. Pharmaceutical exports include bulk drugs, intermediates, drug formulations,
biologicals, Ayush & herbal products and surgicals.

For this project, we have worked on the following 5 companies based on their market
Capitalisation:

Company Name Market Cap

Sun Pharma 100448.16

Dr Reddys Lab 42559.20

Cipla 40278.28

Lupin 34001.85

Glenmark 11742.43
Source:https://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/pharmaceuticals.htm

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Sun Pharma
Sun Pharmaceuticals Ltd. is India's largest (by market
capitalization) and the world's 5th largest specialty generic
pharmaceutical company. The company manufactures and
sells high-quality, affordable medicines in over 150
countries across 6 continents. As of 31st March 2015, Sun
Pharmaceuticals Ltd. had an intellectual capital of 2,000+
scientists, and had invested over 7% of its annual revenues
in R&D. The company has over 48 manufacturing
facilities across the globe. 30 of their brands are among the
top 300 pharma brands in India. The company markets its pharmaceutical formulations as
generics and branded generics in India and all major international markets. The therapeutic
segments covered by the company's portfolio of 2000+ molecules include psychiatry, anti-
infectives, neurology, cardiology, orthopaedics, diabetology, gastroenterology, ophthalmology,
nephrology, urology, dermatology, gynaecology, respiratory, oncology, dental and nutritionals.
Sun Pharma's business is broadly categorized into four segments: Active Pharmaceutical
Ingredients (API), International Branded Generics, Indian Branded Generics and US Generics.
They also make specialty APIs that include steroids, hormones, peptides and anti-cancers
manufactured at 14 international standard manufacturing facilities around the world. Over 72%
of Sun Pharma sales are from overseas markets. The US is its single largest market, accounting
for almost 60% of its turnover.

We calculated its EVA,

EVA Computation
Particulars 2018-19
Cost of Capital Employed
1. Average non current Debt 14935.95
2. Average Equity 434604.35
3. Average Capital Employed 449540.3

4. Rate of Cost of NCDebt, post-tax 77.3265076

5. Rate of Cost of Equity 7.9403
6. Weighted Average Cost of Capital 10.24565266
7. COCE amount 46058.33772

Economic Value Added (EVA)

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8. Profit after Tax 25,679.40
9. Add: Exceptional loss, after tax 7015.926996
Add: Interest after Tax 11549.44851

10. Net Operating Profit after Taxes

(NOPAT) (8+9) 44,244.78
11. COCE, as per (7) above 46058.33772
12. EVA: (10)-(11) -1,813.56

Ratios
EVA on Equity % -0.42%
EVA per share -7.558713822
EVA Margin % -0.62%
Price to EVA per
share (Times) -63.35072491

EVA Spread

Particulars 2018-19

Average Cost of Capital

Employed 449,540.30
NOPAT 44,244.78

ROCE % 9.84%
Less: COCE% 10.25%

EVA Spread -0.40%

Dr. Reddy’s Laboratories Limited

Dr. Reddy’s commenced its generics business in India in
1986 and is today a trusted name in the healthcare industry
consistently serving the needs of millions of patients with
high quality, affordable and innovative medicines across
therapy areas. Portfolio spanning wide range of therapy and

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disease areas. Over the years, the company has significantly grown its portfolio of products
across mass and specialty therapies. Today, our portfolio has over 200 products covering the
whole spectrum of disease areas spanning gastroenterology, oncology, pain management,
cardiovascular, dermatology, urology, nephrology, rheumatology and diabetes. Seven of our
brands are listed in “Top-300 of the Indian Pharma Market” and many others hold leadership
positions in their respective categories. Ensuring that medicines are available when needed. Dr.
Reddy’s has built a robust field force driven by zeal to make a difference in the lives of patients.
The 5000-member strong team network connects with more than three lakh doctors on a regular
basis to ensure that quality medicines we make are available for patients across the length and
breadth of the country. Their efforts are backed by our unique inventory management system,
VIVA (Viable Vision), to ensure that the medicines are available for patients when they need it.
We calculated its EVA,

Ratios
EVA on Equity % 2338.40%
EVA per share 49.95
EVA Margin % 13.05%
Price to EVA per
share (Times) 55.66

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EVA Spread

Particulars 2015-16

Average Cost of Capital Employed 24,497.50

NOPAT 19,816.04

ROCE % 80.90%
Less: COCE% 1.66%

EVA Spread 79.20%

Lupin

Lupin Ltd. is a multinational pharmaceutical company based in Mumbai, Maharashtra, India.

The company manufactures and sells a wide range of Branded and Generic Formulations, Active
Pharmaceutical Ingredients (APIs), Advanced Drug Delivery Systems (ADDS) and

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Biotechnology products - in over 100 countries. Its major markets include the USA, India,
Japan, Europe, South Africa, Philippines and Australia. Founded by Dr. Desh Bandhu Gupta (an
associate professor) in 1968, the company manufactures products in therapy areas such as
cardiovascular, anti-TB (world leader), anti-asthma, anti-diabetic, anti-infective, gastro-intestinal
(GI), central nervous system (CNS), gynecology, etc.

We calculated its EVA,

EVA Computation
Particulars 2018-19
Cost of Capital Employed
1. Average non current Debt 72801.9
2. Average Equity 136596.45
3. Average Capital Employed 209398.35

4. Rate of Cost of NCDebt, post-tax 1.377034687

5. Rate of Cost of Equity 11
6. Weighted Average Cost of Capital 7.654366386
7. COCE amount 16028.11692

Economic Value Added (EVA)

8. Profit after Tax 6,065.50
9. Add: Exceptional loss, after tax 0
Add: Interest after Tax 1002.507416
10. Net Operating Profit after Taxes (NOPAT)
(8+9) 7,068.01
11. COCE, as per (7) above 16028.11692
12. EVA: (10)-(11) -8,960.11

Ratios
EVA on Equity % -6.56%
EVA per share -197.80
EVA Margin % -6.03%
Price to EVA per
share (Times) -3.74

EVA Spread

Particulars 2015-16

Average Capital Employed 209,398.35

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NOPAT 7,068.01
ROCE % 3.4%
Less: COCE% 7.65%
EVA Spread -4.3%

Cipla

Cipla is an Indian pharmaceutical and biotechnology company with a

multinational presence, and one of the world's largest manufacturers of
generic pharmaceutical formulations. It was founded in 1935 by Dr.
Khwaja Abdul Hamiedas as The Chemical, Industrial & Pharmaceutical
Laboratories. It has its headquarters in Mumbai, Maharashtra, and offices in Belgium, UK,
and the United States. Its current chairman is Dr. Yusuf K. Hamied. Cipla has 34
manufacturing facilities in India that are cGMP compliant and conform to national and major
international standards. Its formulations are sold in 170+ countries including the United States,
Canada, Europe, Africa, Australasia, Latin America and Middle East. Cipla's portfolio includes
2000+ products across multiple therapeutic categories, including treatment for acute, chronic
and rare conditions. The company makes affordable medicines and has played a pioneering role
in HIV/AIDS treatment. It is among the leading manufacturers of ARV (anti-retroviral) drugs in
the world, and was the world's first pharmaceutical company (in 2001) to supply ARVs to

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countries at less than a dollar a day. In the financial year 2014-15 (according to company
sources), its ARV formulations were used by more than 2 million HIV patients in 100 countries.

We calculated its EVA,

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Glenmark Pharma

Glenmark Pharmaceuticals Limited is an Indian multinational

pharmaceutical company based in Mumbai, Maharashtra, India.
Founded by Mr. Gracias Saldanha in 1977, the company
manufactures and sells finished branded formulations, generic
drugs and active pharmaceutical ingredients (APIs) in 80+ countries including India, the United
States, EU, Japan and South America.

According to SCRIP 100 Rankings (2014), Glenmark was ranked among the world’s top 80
pharma and biotech companies in terms of revenues.

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The company’s US subsidiary (Glenmark Generics Inc.) is one of the Top 25 generic drug
companies in the US, with portfolio of 90+ products in niche segments like dermatology,
hormones, controlled substances, oncology, and modified release products, and has nearly 70
ANDAs pending for approval with the USFDA.

We calculated its EVA,

EVA Computation
Particulars 2018-19
Cost of Capital Employed
1. Average non current Debt 39036.34
2. Average Equity 53843.305
3. Average Capital Employed 92879.645

4. Rate of Cost of NCDebt, post-tax 5.654482426

5. Rate of Cost of Equity 13.162
6. Weighted Average Cost of Capital 10.00666916
7. COCE amount 9294.158789

Economic Value Added (EVA)

8. Profit after Tax 9,249.93
9. Add: Exceptional loss, after tax 1188.979945
Add: Interest after Tax 2207.302985
10. Net Operating Profit after Taxes
(NOPAT) (8+9) 12,646.21
11. COCE, as per (7) above 9294.158789
12. EVA: (10)-(11) 3,352.05

Ratios
EVA on Equity % 6.23%
EVA per share 118.7829249
EVA Margin % 3.40%
Price to EVA per
share (Times) 1.672799353

EVA Spread

Particulars 2018-19

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Average Cost of Capital
Employed 92,879.65
NOPAT 12,646.21

ROCE % 13.62%
Less: COCE% 10.01%

EVA Spread 3.61%

Result and Analysis

EVA in absolute terms with EVA Chart

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EVA creation in terms of EVA Spread and EVA Spread chart

EVA Ratios and Ratio chart

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16
Correlation of EVA per share and EPS with market price

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EV and MVA and analyze value creation/destruction on
these pharma

● Since, if the EVA of all the companies is positive, means the companies are creating
value for their shareholders. If the values are negative then it would be that company is
destroying the value.

● A company earns real profit only when it adds to shareholders (economic profit)and not
merely when it earns a profit which is less than the cost of its capital (accounting profit).

● EVA spread of the companies are as follows:

COMPANY ROCE COCE EVA RANKING

SPREAD

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 Dr. Reddy 11% 2 9.54% 3.1% 2
Lab Ltd

CIPLA Ltd 8.227% 3 6.72% -0.4% 3

Glenmark 13.16% 1 10.00% 3.61% 1

Sun Pharma 7.94% 4 10.25% -0.40% 4

Lupin Ltd 11% 2 7.65% -4.3% 5

Conventionally, Lupin Ltd is profitable with 2nd rank, but after taking into account EVA
spread, the ranking shifts to 5th. It has destroyed shareholder value.

Ranking the companies based on the above parameters

1. Glenmark
2. Dr. Reddy Lab Ltd
3. CIPLA Ltd.
4. Sun Pharma
5. Lupin Ltd

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