comparative equity analysis of pharma stocks

139
Abstract This project was carried out with an intention to know and understand the facts of fast developing Indian economy, among the various financial institutions, the share market has become a major source of investment for every category of investors ranging from big institutional investors to small individual investor. Unlike earlier days when common man used to invest his savings in less risky and well trusted financial institutions and instruments like public and private sector Banks, Government Bonds and policies etc., today’s investors have realized that stock market is a crucial source of earning quicker and higher returns on their investments as compared to the returns earned in traditional investment methods The project contains five pharmaceutical sector stocks namely Cipla, Dr. Reddy’s, GlaxoSmithKline, Lupin and Ranbaxy The analysis is done on these five stocks to determine which one is better for investor. !or each stock based upon the ratios I have recommended which stock to buy. Some investors look for sales of a company, some may look for dividend payout ratio. It again depends on investor based upon the ratios he can choose which stock to invest. 1

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Comparative Equity Analysis of five pharmaceutical sector stocks namely Cipla, Dr. Reddy’s, GlaxoSmithKline, Lupin and Ranbaxy

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Abstract

This project was carried out with an intention to know and understand the facts of fast

developing Indian economy, among the various financial institutions, the share market

has become a major source of investment for every category of investors ranging from

big institutional investors to small individual investor.

Unlike earlier days when common man used to invest his savings in less risky and

well trusted financial institutions and instruments like public and private sector Banks,

Government Bonds and policies etc., today’s investors have realized that stock market

is a crucial source of earning quicker and higher returns on their investments as

compared to the returns earned in traditional investment methods

The project contains five pharmaceutical sector stocks namely Cipla, Dr. Reddy’s,

GlaxoSmithKline, Lupin and Ranbaxy The analysis is done on these five stocks to

determine which one is better for investor. !or each stock based upon the ratios I have

recommended which stock to buy. Some investors look for sales of a company, some

may look for dividend payout ratio. It again depends on investor based upon the ratios

he can choose which stock to invest.

At the end conclusion and recommendations have been specified so as to make the

project work more meaningful and purposeful.

1

CHAPTER-I

INTRODUCTION

2

INTRODUCTION

India is a developing country. Nowadays many people are interested to invest in

financial markets especially on equities to get high returns, and to save tax in honest

way. Equities are playing a major role in contribution of capital to the business from

the beginning. Since the introduction of shares concept, large numbers of investors are

showing interest to invest in stock market.

In an industry plagued with skepticism and a stock market increasingly difficult to

predict and contend with, if one looks hard enough there may still be a genuine aid for

the Day Trader and Short Term Investor.

The price of a security represents a consensus. It is the price at which one person

agrees to buy and another agrees to sell. The price at which an investor is willing to

buy or sell depends primarily on his expectations. If he expects the security's price to

rise, he will buy it; if the investor expects the price to fall, he will sell it. These simple

statements are the cause of a major challenge in forecasting security prices, because

they refer to human expectations. As we all know firsthand, humans expectations are

neither easily quantifiable nor predictable. If prices are based on investor

expectations, then knowing what a security should sell for (i.e., fundamental analysis)

becomes less important than knowing what other investors expect it to sell for. That's

not to say that knowing what a security should sell for isn't important--it is. But there

is usually a fairly strong consensus of a stock's future earnings that the average

investor cannot disprove

Fundamental analysis and technical analysis can co-exist in peace and complement

each other. Since all the investors in the stock market want to make the maximum

profits possible, they just cannot afford to ignore either fundamental or technical

analysis.

3

NEED OF THE STUDY

To start any business capital plays major role. Capital can be acquired in two ways by

issuing shares or by taking debt from financial institutions or borrowing money from

financial institutions. The owners of the company have to pay regular interest and

principal amount at the end.

Stock is ownership in a company, with each share of stock representing a tiny piece of

ownership. The more shares you own, the more of the company you own. The more

shares you own, the more dividends you earn when the company makes a profit. In

the financial world, ownership is called “Equity”.

Advantages of selling stock:

A company can raise more capital than it could borrow.

A company does not have to make periodic interest payments to creditors.

A company does not have to make principal payments

Stock/shares play a major role in acquiring capital to the business in return investors

are paid dividends to the shares they own. The more shares you own the more

dividends you receive.

The role of equity analysis is to provide information to the market. An efficient

market relies on information: a lack of information creates inefficiencies that result in

stocks being misrepresented (over or under valued). This is valuable because it fills

information gaps so that each individual investor does not need to analyze every stock

thereby making the markets more efficient.

4

SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The

project is based on tools like fundamental analysis and ratio analysis. Further, the

study is based on information of last five years.

The analysis is made by taking into consideration five companies i.e. Cipla,

Dr Reddys, GlaxoSmithKline, Lupin and Ranbaxy.

The scope of the study is limited for a period of five years.

The scope is limited to only the fundamental analysis of the chosen stocks.

OBJECTIVES OF THE STUDY

The objective of this project is to deeply analyze our Indian pharma sector for

investment purpose by monitoring the growth rate and performance on the basis of

historical data.

The main objectives of the Project study are:

Detailed analysis of Pharmaceutical Sector which is gearing towards

international standards

Analyze the impact of qualitative factors on industry’s and company’s

prospects

Comparative analysis of five key players in the industry which include Cipla,

Dr Reddys, GlaxoSmithKline, Lupin and Ranbaxy through fundamental

analysis.

5

METHODOLOGY

Research design or research methodology is the procedure of collecting, analyzing

and interpreting the data to diagnose the problem and react to the opportunity in such

a way where the costs can be minimized and the desired level of accuracy can be

achieved to arrive at a particular conclusion.

The methodology used in the study for the completion of the project and the

fulfillment of the project objectives.

The sample of the stocks for the purpose of collecting secondary data has been

selected on the basis of Random Sampling. The stocks are chosen in an unbiased

manner and each stock is chosen independent of the other stocks chosen. The stocks

are chosen from the pharmaceutical sector.

The sample size for the number of stocks is taken as 5 for fundamental analysis of

stocks as fundamental analysis is very exhaustive and requires detailed study.

LIMITATIONS

This study has been conducted purely to understand Equity analysis for

investors.

The study is restricted to three companies based on Fundamental analysis.

The study is limited to the companies having equities.

Detailed study of the topic was not possible due to limited size of the project.

There was a constraint with regard to time allocation for the research study i.e.

for a period of 45 days.

Suggestions and conclusions are based on the limited data of five years.

6

CHAPTER-II

REVIEW OF LITERATURE

7

EQUITY ANALYSIS

Investment success is pretty much a matter of careful selection and timing of stock

purchases coupled with perfect matching to an individuals risk tolerance. In order to

carry out selection, timing and matching actions an investor must conduct deep

security analysis.

Investors purchase equity shares with two basic objectives;

1. To make capital profits by selling shares at higher prices.

2. To earn dividend income.

These two factors are affected by a host of factors. An investor has to carefully

understand and analyze all these factors. There are basically two approaches to study

security prices and valuation i.e. fundamental analysis and technical analysis

The value of common stock is determined in large measure by the performance of the

firm that issued the stock. If the company is healthy and can demonstrate strength and

growth, the value of the stock will increase. When values increase then prices follow

and returns on an investment will increase. However, just to keep the savvy investor

on their toes, the mix is complicated by the risk factors involved. Fundamental

analysis examines all the dimensions of risk exposure and the probabilities of return,

and merges them with broader economic analysis and greater industry analysis to

formulate the valuation of a stock.

8

FUNDAMENTAL ANALYSIS

Fundamental analysis is a method of forecasting the future price movements of a

financial instrument based on economic, political, environmental and other relevant

factors and statistics that will affect the basic supply and demand of whatever

underlies the financial instrument. It is the study of economic, industry and company

conditions in an effort to determine the value of a company’s stock. Fundamental

analysis typically focuses on key statistics in company’s financial statements to

determine if the stock price is correctly valued. The term simply refers to the analysis

of the economic well-being of a financial entity as opposed to only its price

movements.

Fundamental analysis is the cornerstone of investing. The basic philosophy

underlying the fundamental analysis is that if an investor invests re.1 in buying a

share of a company, how much expected returns from this investment he has.

The fundamental analysis is to appraise the intrinsic value of a security. It insists that

no one should purchase or sell a share on the basis of tips and rumors. The

fundamental approach calls upon the investors to make his buy or sell decision on the

basis of a detailed analysis of the information about the company, about the industry,

and the economy. It is also known as “top-down approach”. This approach attempts to

study the economic scenario, industry position and the company expectations and is

also known as “economic-industry-company approach (EIC approach)”.

Thus the EIC approach involves three steps:

1. Economic analysis

2. Industry analysis

3. Company analysis

9

1. ECONOMIC ANALYSIS

The level of economic activity has an impact on investment in many ways. If the

economy grows rapidly, the industry can also be expected to show rapid growth and

vice versa. When the level of economic activity is low, stock prices are low, and when

the level of economic activity is high, stock prices are high reflecting the prosperous

outlook for sales and profits of the firms. The analysis of macro economic

environment is essential to understand the behavior of the stock prices.

The commonly analyzed macro economic factors are as follows:

Gross Domestic Product (GDP): GDP indicates the rate of growth of the economy.

It represents the aggregate value of the goods and services produced in the economy.

It consists of personal consumption expenditure, gross private domestic investment

and government expenditure on goods and services and net exports of goods and

services. The growth rate of economy points out the prospects for the industrial sector

and the return investors can expect from investment in shares. The higher growth rate

is more favorable to the stock market.

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Savings and investment: It is obvious that growth requires investment which in turn

requires substantial amount of domestic savings. Stock market is a channel through

which the savings are made available to the corporate bodies. Savings are distributed

over various assets like equity shares, deposits, mutual funds, real estate and bullion.

The savings and investment patterns of the public affect the stock to a great extent.

Inflation: Along with the growth of GDP, if the inflation rate also increases, then the

real growth would be very little. The effects of inflation on capital markets are

numerous. An increase in the expected rate of inflation is expected to cause a nominal

rise in interest rates. Also, it increases uncertainty of future business and investment

decisions. As inflation increases, it results in extra costs to businesses, thereby

squeezing their profit margins and leading to real declines in profitability.

Interest rates: The interest rate affects the cost of financing to the firms. A decrease

in interest rate implies lower cost of finance for firms and more profitability. More

money is available at a lower interest rate for the brokers who are doing business with

borrowed money. Availability of cheap funds encourages speculation and rise in the

price of shares.

Tax structure: Every year in March, the business community eagerly awaits the

Government’s announcement regarding the tax policy. Concessions and incentives

given to a certain industry encourage investment in that particular industry. Tax

relief’s given to savings encourage savings. The type of tax exemption has impact on

the profitability of the industries.

Infrastructure facilities: Infrastructure facilities are essential for the growth of

industrial and agricultural sector. A wide network of communication system is a must

for the growth of the economy. Regular supply of power without any power cut would

boost the production. Banking and financial sectors also should be sound enough to

provide adequate support to the industry. Good infrastructure facilities affect the stock

market favorably.

11

2. INDUSTRY ANALYSIS

An industry is a group of firms that have similar technological structure of production

and produce similar products and Industry analysis is a type of business research that

focuses on the status of an industry or an industrial sector (a broad industry

classification, like "manufacturing"). Irrespective of specific economic situations,

some industries might be expected to perform better, and share prices in these

industries may not decline as much as in other industries. This identification of

economic and industry specific factors influencing share prices will help investors to

identify the shares that fit individual expectations

Industry Life Cycle: The industry life cycle theory is generally attributed to Julius

Grodensky. The life cycle of the industry is separated into four well defined stages.

Pioneering stage: The prospective demand for the product is promising in this

stage and the technology of the product is low. The demand for the product

attracts many producers to produce the particular product. There would be

severe competition and only fittest companies survive this stage. The

producers try to develop brand name, differentiate the product and create a

product image. In this situation, it is difficult to select companies for

investment because the survival rate is unknown.

Rapid growth stage: This stage starts with the appearance of surviving firms

from the pioneering stage. The companies that have withstood the competition

grow strongly in market share and financial performance. The technology of

the production would have improved resulting in low cost of production and

good quality products. The companies have stable growth rate in this stage and

they declare dividend to the shareholders. It is advisable to invest in the shares

of these companies.

Maturity and stabilization stage: the growth rate tends to moderate and the

rate of growth would be more or less equal to the industrial growth rate or the

gross domestic product growth rate. Symptoms of obsolescence may appear in

the technology. To keep going, technological innovations in the production

process and products should be introduced. The investors have to closely

monitor the events that take place in the maturity stage of the industry.

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Decline stage: demand for the particular product and the earnings of the

companies in the industry decline. It is better to avoid investing in the shares

of the low growth industry even in the boom period. Investment in the shares

of these types of companies leads to erosion of capital.

Growth of the industry: The historical performance of the industry in terms of

growth and profitability should be analyzed. The past variability in return and growth

in reaction to macro economic factors provide an insight into the future.

Nature of competition: Nature of competition is an essential factor that determines

the demand for the particular product, its profitability and the price of the concerned

company scrips. The companies' ability to withstand the local as well as the

multinational competition counts much. If too many firms are present in the organized

sector, the competition would be severe. The competition would lead to a decline in

the price of the product. The investor before investing in the scrip of a company

should analyze the market share of the particular company's product and should

compare it with the top five companies.

SWOT analysis: SWOT analysis represents the strength, weakness, opportunity and

threat for an industry. Every investor should carry out a SWOT analysis for the

chosen industry. Take for instance, increase in demand for the industry’s product

becomes its strength, presence of numerous players in the market, i.e. competition

becomes the threat to a particular company. The progress in R & D in that industry is

an opportunity and entry of multinationals in the industry is a threat. In this way the

factors are to be arranged and analyzed.

13

3. COMPANY ANALYSIS

In the company analysis the investor assimilates the several bits of information related

to the company and evaluates the present and future values of the stock. The risk and

return associated with the purchase of the stock is analyzed to take better investment

decisions. The present and future values are affected by a number of factors.

Competitive edge of the company: Major industries in India are composed of

hundreds of individual companies. Though the number of companies is large, only

few companies control the major market share. The competitiveness of the company

can be studied with the help of the following;

Market share: The market share of the annual sales helps to determine a

company’s relative competitive position within the industry. If the market

share is high, the company would be able to meet the competition

successfully. The companies in the market should be compared with like

product groups otherwise, the results will be misleading.

Growth of sales: The rapid growth in sales would keep the shareholder in a

better position than one with stagnant growth rate. Investors generally prefer

size and growth in sales because the larger size companies may be able to

withstand the business cycle rather than the company of smaller size.

Stability of sales: If a firm has stable sales revenue, it will have more stable

earnings. The fall in the market share indicates the declining trend of

company, even if the sales are stable. Hence the stability of sales should be

compared with its market share and the competitor’s market share.

Earnings of the company: Sales alone do not increase the earnings but the costs and

expenses of the company also influence the earnings. Further, earnings do not always

increase with increase in sales. The company’s sales might have increased but its

earnings per share may decline due to rise in costs. Hence, the investor should not

only depend on the sales, but should analyze the earnings of the company.

Financial analysis: The best source of financial information about a company is its

own financial statements. This is a primary source of information for evaluating the

investment prospects in the particular company’s stock. Financial statement analysis

is the study of a company’s financial statement from various viewpoints. The

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statement gives the historical and current information about the company’s

operations. Historical financial statement helps to predict the future and the current

information aids to analyze the present status of the company. The two main

statements used in the analysis are Balance sheet and Profit and Loss Account.

The balance sheet is one of the financial statements that companies prepare every year

for their shareholders. It is like a financial snapshot, the company's financial situation

at a moment in time. It is prepared at the year end, listing the company's current assets

and liabilities. It helps to study the capital structure of the company. It is better for the

investor to avoid a company with excessive debt component in its capital structure.

From the balance sheet, liquidity position of the company can also be assessed with

the information on current assets and current liabilities.

Ratio analysis: Ratio is a relationship between two figures expressed mathematically.

Financial ratios provide numerical relationship between two relevant financial data.

Financial ratios are calculated from the balance sheet and profit and loss account. The

relationship can be either expressed as a percent or as a quotient. Ratios summarize

the data for easy understanding, comparison and interpretations.

Ratios for investment purposes can be classified into profitability ratios, turnover

ratios, and leverage ratios. Profitability ratios are the most popular ratios since

investors prefer to measure the present profit performance and use this information to

forecast the future strength of the company. The most often used profitability ratios

are return on assets, price earnings multiplier, price to book value, price to cash flow,

and price to sales, dividend yield, return on equity, present value of cash flows, and

profit margins.

a) Return on Assets (ROA)

ROA is computed as the product of the net profit margin and the total asset turnover

ratios.

ROA = (Net Profit/Total income) x (Total income/Total Assets)

This ratio indicates the firm's strategic success. Companies can have one of two

strategies: cost leadership, or product differentiation. ROA should be rising or

keeping pace with the company's competitors if the company is successfully pursuing

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either of these strategies, but how ROA rises will depend on the company's strategy.

ROA should rise with a successful cost leadership strategy because the company’s

increasing operating efficiency. An example is an increasing, total asset, turnover

ratio as the company expands into new markets, increasing its market share. The

company may achieve leadership by using its assets more efficiently. With a

successful product differentiation strategy, ROA will rise because of a rising profit

margin.

b) Return on Investment (ROI)

ROI is the return on capital invested in business, i.e., if an investment Rs 1 crore in

men, machines, land and material is made to generate Rs. 25 lakhs of net profit, then

the ROI is 25%. The computation of return on investment is as follows:

Return on Investment (ROI) = (Net profit/Equity investments) x 100

As this ratio reveals how well the resources of a firm are being used, higher the ratio,

better are the results. The return on shareholder’s investment should be compared

with the return of other similar firms in the same industry. The inert-firm comparison

of this ratio determines whether the investments in the firm are attractive or not as the

investors would like to invest only where the return is higher.

c) Return on Equity

Return on equity measures how much an equity shareholder's investment is actually

earning. The return on equity tells the investor how much the invested rupee is

earning from the company. The higher the number, the better is the performance of

the company and suggests the usefulness of the projects the company has invested in.

The computation of return on equity is as follows:

Return on equity = (Net profit to owners/value of the specific owner's

Contribution to the business) x 100

The ratio is more meaningful to the equity shareholders who are invested to know

profits earned by the company and those profits which can be made available to pay

dividend to them.

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d) Earnings per Share (EPS)

This ratio determines what the company is earning for every share. For many

investors, earnings are the most important tool. EPS is calculated by dividing the

earnings (net profit) by the total number of equity shares.

The computation of EPS is as follows:

Earnings per share = Net profit/Number of shares outstanding

The EPS is a good measure of profitability and when compared with EPS of similar

other companies, it gives a view of the comparative earnings or earnings power of a

firm. EPS calculated for a number of years indicates whether or not earning power of

the company has increased.

e) Dividend per Share (DPS)

The extent of payment of dividend to the shareholders is measured in the form of

dividend per share. The dividend per share gives the amount of cash flow from the

company to the owners and is calculated as follows:

Dividend per share = Total dividend payment / Number of shares outstanding

The payment of dividend can have several interpretations to the shareholder. The

distribution of dividend could be thought of as the distribution of excess

profits/abnormal profits by the company. On the other hand, it could also be

negatively interpreted as lack of investment opportunities. In all, dividend payout

gives the extent of inflows to the shareholders from the company.

f) Dividend Payout Ratio

From the profits of each company a cash flow called dividend is distributed among its

shareholders. This is the continuous stream of cash flow to the owners of shares, apart

from the price differentials (capital gains) in the market. The return to the

shareholders, in the form of dividend, out of the company's profit is measured through

the payout ratio. The payout ratio is computed as follows:

Payout Ratio = (Dividend per share / Earnings per share) * 100

17

The percentage of payout ratio can also be used to compute the percentage of retained

earnings. The profits available for distribution are either paid as dividends or retained

internally for business growth opportunities. Hence, when dividends are not declared,

the entire profit is ploughed back into the business for its future investments.

g) Dividend Yield

Dividend yield is computed by relating the dividend per share to the market price of

the share. The market place provides opportunities for the investor to buy the

company's share at any point of time. The price at which the share has been bought

from the market is the actual cost of the investment to the shareholder. The market

price is to be taken as the cum-dividend price. Dividend yield relates the actual cost to

the cash flows received from the company. The computation of dividend yield is as

follows

Dividend yield = (Dividend per share / Market price per share) * 100

High dividend yield ratios are usually interpreted as undervalued companies in the

market. The market price is a measure of future discounted values, while the dividend

per share is the present return from the investment. Hence, a high dividend yield

implies that the share has been under priced in the market. On the other hand a low

dividend yield need not be interpreted as overvaluation of shares. A company that

does not pay out dividends will not have a dividend yield and the real measure of the

market price will be in terms of earnings per share and not through the dividend

payments.

h) Price/Earnings Ratio (P/E)

The P/E multiplier or the price earnings ratio relates the current market price of the

share to the earnings per share. This is computed as follows:

Price/earnings ratio = Current market price / Earnings per share

This ratio is calculated to make an estimate of appreciation in the value of a share of a

company and is widely used by investors to decide whether or not to buy shares in a

particular company. Many investors prefer to buy the company's shares at a low P/E

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ratio since the general interpretation is that the market is undervaluing the share and

there will be a correction in the market price sooner or later. A very high P/E ratio on

the other hand implies that the company's shares are overvalued and the investor can

benefit by selling the shares at this high market price.

i) Debt-to-Equity Ratio

Debt-Equity ratio is used to measure the claims of outsiders and the owners against

the firm’s assets.

Debt-to-equity ratio = Outsiders Funds / Shareholders Funds

The debt-equity ratio is calculated to measure the extent to which debt financing has

been used in a business. It indicates the proportionate claims of owners and the

outsiders against the firm’s assets. The purpose is to get an idea of the cushion

available to outsiders on the liquidation of the firm.

19

CHAPTER-III

INDUSTRY PROFILE& COMPANY PROFILE

20

INDUSTRY PROFILE

Finance is the pre-requisite for modern business and financial institutions play a vital

role in the economic system. It is through financial markets and institutions that the

financial system of an economy works. Financial markets refer to the institutional

arrangements for dealing in financial assets and credit instruments of different types

such as currency, cheques, bank deposits, bills, bonds, equities, etc.

Financial market is a broad term describing any marketplace where buyers and sellers

participate in the trade of assets such as equities, bonds, currencies and derivatives.

They are typically defined by having transparent pricing, basic regulations on trading,

costs and fees and market forces determining the prices of securities that trade.

Generally, there is no specific place or location to indicate a financial market.

Wherever a financial transaction takes place, it is deemed to have taken place in the

financial market. Hence financial markets are pervasive in nature since financial

transactions are themselves very pervasive throughout the economic system. For

instance, issue of equity shares, granting of loan by term lending institutions, deposit

of money into a bank, purchase of debentures, sale of shares and so on.

In a nutshell, financial markets are the credit markets catering to the various needs of

the individuals, firms and institutions by facilitating buying and selling of financial

assets, claims and services.

21

CLASSIFICATION OF FINANCIAL MARKETS

22

Financial markets

Organized markets Unorganized markets

Capital Markets Money Markets

Industrial Securities Market

Government Securities Market

Long-term loan market

Primary Market

Secondary market

Call Money Market

Commercial Bill Market

Treasury Bill Market

Money Lenders, Indigenuos Bankers

Capital Market

The capital market is a market for financial assets which have a long or indefinite

maturity. Generally, it deals with long term securities which have a period of above

one year. In the widest sense, it consists of a series of channels through which the

savings of the community are made available for industrial and commercial

enterprises and public authorities. As a whole, capital market facilitates raising of

capital.

The major functions performed by a capital market are:

1. Mobilization of financial resources on a nation-wide scale.

2. Securing the foreign capital and know-how to fill up deficit in the required

resources for economic growth at a faster rate.

3. Effective allocation of the mobilized financial resources, by directing the same

to projects yielding highest yield or to the projects needed to promote balanced

economic development.

Capital market consists of primary market and secondary market.

Primary market: Primary market is a market for new issues or new financial claims.

Hence it is also called as New Issue Market. It basically deals with those securities

which are issued to the public for the first time. The market, therefore, makes

available a new block of securities for public subscription. In other words, it deals

with raising of fresh capital by companies either for cash or for consideration other

than cash. The best example could be Initial Public Offering (IPO) where a firm offers

shares to the public for the first time.

Secondary market: Secondary market is a market where existing securities are traded.

In other words, securities which have already passed through new issue market are

traded in this market. Generally, such securities are quoted in the stock exchange and

it provides a continuous and regular market for buying and selling of securities. This

market consists of all stock exchanges recognized by the government of India.

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Money Market

Money markets are the markets for short-term, highly liquid debt securities. Money

market securities are generally very safe investments which return relatively low

interest rate that is most appropriate for temporary cash storage or short term time

needs. It consists of a number of sub-markets which collectively constitute the money

market namely call money market, commercial bills market, acceptance market, and

Treasury bill market.

Derivatives Market

The derivatives market is the financial market for derivatives, financial instruments

like futures contracts or options, which are derived from other forms of assets. A

derivative is a security whose price is dependent upon or derived from one or more

underlying assets. The derivative itself is merely a contract between two or more

parties. Its value is determined by fluctuations in the underlying asset. The most

common underlying assets include stocks, bonds, commodities, currencies, interest

rates and market indexes. The important financial derivatives are the following:

Forwards: Forwards are the oldest of all the derivatives. A forward contract

refers to an agreement between two parties to exchange an agreed quantity of

an asset for cash at a certain date in future at a predetermined price specified

in that agreement. The promised asset may be currency, commodity,

instrument etc.

Futures: Future contract is very similar to a forward contract in all respects

excepting the fact that it is completely a standardized one. It is nothing but a

standardized forward contract which is legally enforceable and always traded

on an organized exchange.

Options: A financial derivative that represents a contract sold by one party

(option writer) to another party (option holder). The contract offers the buyer

the right, but not the obligation, to buy (call) or sell (put) a security or other

financial asset at an agreed-upon price (the strike price) during a certain period

of time or on a specific date (exercise date). Call options give the option

to buy at certain price, so the buyer would want the stock to go up. Put options

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give the option to sell at a certain price, so the buyer would want the stock to

go down.

Swaps: It is yet another exciting trading instrument. Infact, it is the

combination of forwards by two counterparties. It is arranged to reap the

benefits arising from the fluctuations in the market – either currency market or

interest rate market or any other market for that matter.

Foreign Exchange Market

It is a market in which participants are able to buy, sell, exchange and speculate on

currencies.  Foreign exchange markets are made up of banks, commercial companies,

central banks, investment management firms, hedge funds, and retail forex brokers

and investors. The forex market is considered to be the largest financial market in the

world. It is a worldwide decentralized over-the-counter financial market for the

trading of currencies. Because the currency markets are large and liquid, they are

believed to be the most efficient financial markets. It is important to realize that the

foreign exchange market is not a single exchange, but is constructed of a global

network of computers that connects participants from all parts of the world.

Commodities Market

It is a physical or virtual marketplace for buying, selling and trading raw or primary

products. For investors' purposes there are currently about 50 major commodity

markets worldwide that facilitate investment trade in nearly 100 primary

commodities. Commodities are split into two types: hard and soft commodities. Hard

commodities are typically natural resources that must be mined or extracted (gold,

rubber, oil, etc.), whereas soft commodities are agricultural products or livestock

(corn, wheat, coffee, sugar, soybeans, pork, etc.)

25

INDIAN FINANCIAL MARKETS

India Financial market is one of the oldest in the world and is considered to be the

fastest growing and best among all the markets of the emerging economies.

The history of Indian capital markets dates back 200 years toward the end of the 18th

century when India was under the rule of the East India Company. The development

of the capital market in India concentrated around Mumbai where no less than 200 to

250 securities brokers were active during the second half of the 19th century.

The financial market in India today is more developed than many other sectors

because it was organized long before with the securities exchanges of Mumbai,

Ahmadabad and Kolkata were established as early as the 19th century.

By the early 1960s the total number of securities exchanges in India rose to eight,

including Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi,

Bangalore and Pune. Today there are 21 regional securities exchanges in India in

addition to the centralized NSE (National Stock Exchange) and OTCEI (Over the

Counter Exchange of India).

However the stock markets in India remained stagnant due to stringent controls on the

market economy that allowed only a handful of monopolies to dominate their

respective sectors. The corporate sector wasn't allowed into many industry segments,

which were dominated by the state controlled public sector resulting in stagnation of

the economy right up to the early 1990s. Thereafter when the Indian economy began

liberalizing and the controls began to be dismantled or eased out; the securities

markets witnessed a flurry of IPO’s that were launched. This resulted in many new

companies across different industry segments to come up with newer products and

services.

A remarkable feature of the growth of the Indian economy in recent years has been

the role played by its securities markets in assisting and fuelling that growth with

26

money rose within the economy. This was in marked contrast to the initial phase of

growth in many of the fast growing economies of East Asia that witnessed huge doses

of FDI (Foreign Direct Investment) spurring growth in their initial days of market

decontrol. During this phase in India much of the organized sector has been affected

by high growth as the financial markets played an all-inclusive role in sustaining

financial resource mobilization. Many PSUs (Public Sector Undertakings) that

decided to offload part of their equity were also helped by the well-organized

securities market in India.

The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter

Exchange of India) during the mid 1990s by the government of India was meant to

usher in an easier and more transparent form of trading in securities. The NSE was

conceived as the market for trading in the securities of companies from the large-scale

sector and the OTCEI for those from the small-scale sector. While the NSE has not

just done well to grow and evolve into the virtual backbone of capital markets in India

the OTCEI struggled and is yet to show any sign of growth and development. The

integration of IT into the capital market infrastructure has been particularly smooth in

India due to the country’s world class IT industry. This has pushed up the operational

efficiency of the Indian stock market to global standards and as a result the country

has been able to capitalize on its high growth and attract foreign capital like never

before.

The regulating authority for capital markets in India is the SEBI (Securities and

Exchange Board of India). SEBI came into prominence in the 1990s after the capital

markets experienced some turbulence. It had to take drastic measures to plug many

loopholes that were exploited by certain market forces to advance their vested

interests. After this initial phase of struggle SEBI has grown in strength as the

regulator of India’s capital markets and as one of the country’s most important

institutions.

27

FINANCIAL MARKET REGULATIONS

Regulations are an absolute necessity in the face of the growing importance of capital

markets throughout the world. The development of a market economy is dependent on

the development of the capital market. The regulation of a capital market involves the

regulation of securities; these rules enable the capital market to function more

efficiently and impartially.

A well regulated market has the potential to encourage additional investors to partake,

and contribute in, furthering the development of the economy. The chief capital

market regulatory authority is Securities and Exchange Board of India (SEBI).

SEBI is the regulator for the securities market in India. It is the apex body to develop

and regulate the stock market in India It was formed officially by the Government of

India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by

C B Bhave, SEBI is headquartered in the popular business district of Bandra-Kurla

complex in Mumbai, and has Northern, Eastern, Southern and Western regional

offices in New Delhi, Kolkata, Chennai and Ahmedabad. In place of Government

Control, a statutory and autonomous regulatory board with defined responsibilities, to

cover both development & regulation of the market, and independent powers has been

set up.

The basic objectives of the Board were identified as:

to protect the interests of investors in securities;

to promote the development of Securities Market;

to regulate the securities market and

For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to

the fulfillment of its objectives with commendable zeal and dexterity. The

improvements in the securities markets like capitalization requirements, margining,

establishment of clearing corporations etc. reduced the risk of credit and also reduced

the market.

28

SEBI has introduced the comprehensive regulatory measures, prescribed registration

norms, the eligibility criteria, the code of obligations and the code of conduct for

different intermediaries like, bankers to issue, merchant bankers, brokers and sub-

brokers, registrars, portfolio managers, credit rating agencies, underwriters and others.

It has framed bye-laws, risk identification and risk management systems for Clearing

houses of stock exchanges, surveillance system etc. which has made dealing in

securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX

Nifty & Sensex) in 2000. A market Index is a convenient and effective product

because of the following reasons:

It acts as a barometer for market behavior;

It is used to benchmark portfolio performance;

It is used in derivative instruments like index futures and index options;

It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national

level, and also to diversify the trading products, so that there is an increase in number

of traders including banks, financial institutions, insurance companies, mutual funds,

primary dealers etc. to transact through the Exchanges. In this context the introduction

of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD

is a real landmark.

SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively

and successively (e.g. the quick movement towards making the markets electronic and

paperless rolling settlement on T+2 bases). SEBI has been active in setting up the

regulations as required under law.

STOCK EXCHANGES IN INDIA

29

Stock Exchanges are an organized marketplace, either corporation or mutual

organization, where members of the organization gather to trade company stocks or

other securities. The members may act either as agents for their customers, or as

principals for their own accounts.

As per the Securities Contracts Regulation Act, 1956 a stock exchange is an

association, organization or body of individuals whether incorporated or not,

established for the purpose of assisting, regulating and controlling business in buying,

selling and dealing in securities.

Stock exchanges facilitate for the issue and redemption of securities and other

financial instruments including the payment of income and dividends. The record

keeping is central but trade is linked to such physical place because modern markets

are computerized. The trade on an exchange is only by members and stock broker do

have a seat on the exchange.

List of Stock Exchanges in India

Bombay Stock Exchange

National Stock Exchange

OTC Exchange of India

Regional Stock Exchanges

1. Ahmedabad

2. Bangalore

3. Bhubaneswar

4. Calcutta

5. Cochin

6. Coimbatore

7. Delhi

8. Guwahati

9. Hyderabad

10. Jaipur

11. Ludhiana

12. Madhya Pradesh

13. Madras

14. Magadh

15. Mangalore

16. Meerut

17. Pune

18. Saurashtra Kutch

19. Uttar Pradesh

20. Vadodara

30

BOMBAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay

Stock Exchange. It is the oldest market not only in the country, but also in Asia. In the

early days, BSE was known as "The Native Share & Stock Brokers Association." It

was established in the year 1875 and became the first stock exchange in the country to

be recognized by the government. In 1956, BSE obtained a permanent recognition

from the Government of India under the Securities Contracts (Regulation) Act, 1956.

In the past and even now, it plays a pivotal role in the development of the country's

capital market. This is recognized worldwide and its index, SENSEX, is also tracked

worldwide. Earlier it was an Association of Persons (AOP), but now it is a

demutualised and corporatised entity incorporated under the provisions of the

Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization)

Scheme, 2009 notified by the Securities and Exchange Board of India (SEBI).

BSE Vision

The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock

exchange by establishing global benchmarks."

BSE Management

Bombay Stock Exchange is managed professionally by Board of Directors. It

comprises of eminent professionals, representatives of Trading Members and the

Managing Director. The Board is an inclusive one and is shaped to benefit from the

market intermediaries participation.

The Board exercises complete control and formulates larger policy issues. The day-to-

day operations of BSE are managed by the Managing Director and its school of

professional as a management team.

BSE Network

The Exchange reaches physically to 417 cities and towns in the country. The

framework of it has been designed to safeguard market integrity and to operate with

transparency. It provides an efficient market for the trading in equity, debt instruments

and derivatives. Its online trading system, popularly known as BOLT, is a proprietary

system and it is BS 7799-2-2002 certified. The BOLT network was expanded,

nationwide, in 1997. The surveillance and clearing & settlement functions of the

Exchange are ISO 9001:2000 certified.

BSE Facts

BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the

benchmark equity index that reflects the robustness of the economy and finance. It

was the –

First in India to introduce Equity Derivatives

First in India to launch a Free Float Index

First in India to launch US$ version of BSE Sensex

First in India to launch Exchange Enabled Internet Trading Platform

First in India to obtain ISO certification for Surveillance, Clearing &

Settlement

'BSE On-Line Trading System’ (BOLT) has been awarded the globally

recognized the Information Security Management System standard

BS7799-2:2002.

First to have an exclusive facility for financial training

Moved from Open Outcry to Electronic Trading within just 50 days

BSE with its long history of capital market development is fully geared to continue

its contributions to further the growth of the securities markets of the country, thus

helping India increases its sphere of influence in international financial markets.

NATIONAL STOCK EXCHANGE OF INDIA LIMITED

The National Stock Exchange of India Limited has genesis in the report of the High

Powered Study Group on Establishment of New Stock Exchanges, which

recommended promotion of a National Stock Exchange by financial institutions (FI’s)

to provide access to investors from all across the country on an equal footing. Based

on the recommendations, NSE was promoted by leading Financial Institutions at the

behest of the Government of India and was incorporated in November 1992 as a tax-

paying company unlike other stock Exchange in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation)

Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market

(WDM) segment in June 1994. The Capital Market (Equities) segment commenced

operations in November 1994 and operations in Derivatives segment commenced in

June 2000.

NSE GROUP

National Securities Clearing Corporation Ltd. (NSCCL)

It is a wholly owned subsidiary, which was incorporated in August 1995 and

commenced clearing operations in April 1996. It was formed to build confidence in

clearing and settlement of securities, to promote and maintain the short and consistent

settlement cycles, to provide a counter-party risk guarantee and to operate a tight risk

containment system.

NSE.IT Ltd.

It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is

uniquely positioned to provide products, services and solutions for the securities

industry. NSE.IT primarily focuses on in the area of trading, broker front-end and

back-office, clearing and settlement, web-based, insurance, etc. Along with this, it

also provides consultancy and implementation services in Data Warehousing,

Business Continuity Plans, Site Maintenance and Backups, Stratus Mainframe

Facility Management, Real Time Market Analysis & Financial News.

India Index Services & Products Ltd. (IISL)

It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and

index related services and products for the Indian Capital markets. It was set up in

May 1998. IISL has a consulting and licensing agreement with the Standard and

Poor's (S&P), world's leading provider of investible equity indices, for co-branding

equity indices.

National Securities Depository Ltd. (NSDL)

NSE joined hands with IDBI and UTI to promote dematerialization of securities. This

step was taken to solve problems related to trading in physical securities. It

commenced operations in November 1996.

NSE Facts

It uses satellite communication technology to energize participation from

around 400 cities in India.

NSE can handle up to 1 million trades per day.

It is one of the largest interactive VSAT based stock exchanges in the world.

The NSE- network is the largest private wide area network in India and the

first extended C- Band VSAT network in the world.

Presently more than 9000 users are trading on the real time-online NSE

application.

Today, NSE is one of the largest exchanges in the world and still forging ahead. At

NSE, we are constantly working towards creating a more transparent, vibrant and

innovative capital market.

OVER THE COUNTER EXCHANGE OF INDIA

OTCEI was incorporated in 1990 as a section 25 company under the companies Act

1956 and is recognized as a stock exchange under section 4 of the securities Contracts

Regulation Act, 1956. The exchange was set up to aid enterprising promotes in raising

finance for new projects in a cost effective manner and to provide investors with a

transparent and efficient mode of trading Modeled along the lines of the NASDAQ

market of USA, OTCEI introduced many novel concepts to the Indian capital markets

such as screen-based nationwide trading, sponsorship of companies, market making

and scrip less trading. As a measure of success of these efforts, the Exchange today

has 115 listings and has assisted in providing capital for enterprises that have gone on

to build successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant

mineral water, etc.

Need for OTCEI:

Studies by NASSCOM, software technology parks of India, the venture capitals funds

and the government’s IT tasks Force, as well as rising interest in IT, Pharmaceutical,

Biotechnology and Media shares have repeatedly emphasized the need for a national

stock market for innovation and high growth companies.

Innovative companies are critical to developing economics like India, which is

undergoing a major technological revolution. With their abilities to generate

employment opportunities and contribute to the economy, it is essential that these

companies not only expand existing operations but also set up new units. The key

issue for these companies is raising timely, cost effective and long term capital to

sustain their operations and enhance growth. Such companies, particularly those that

have been in operation for a short time, are unable to raise funds through the

traditional financing methods, because they have not yet been evaluated by the

financial world.

COMPANY PROFILE

Kotak Mahindra Bank

Type Public

Traded asBSE: 500247

NSE: KOTAKBANK

Industry Banking, Financial service

Founded 1985 (as Kotak Mahindra Finance Ltd)

Headquarters Mumbai, India

Key people Uday Kotak  (Founder & Executive Vice Chairman)

ProductsDeposit accounts, Loans, Investment services, Business banking solutions,

Treasury and Fixed income products etc.

Net worth 19,785 crore (US $3.21 billion)(June 2014)

Website www.kotak.com

Kotak Mahindra Bank (BSE: 500247, NSE: KOTAKBANK) is an Indian

financial service firm established in 1985. It was previously known as Kotak

Mahindra Finance Limited, a non-banking financial company. In February 2003,

Kotak Mahindra Finance Ltd, the group's flagship company was given the license to

carry on banking business by the Reserve Bank of India (RBI). Kotak Mahindra

Finance Ltd. is the first company in the Indian banking history to convert to a bank.

Today it has more than 26,000+ employees and Rs. 10,000 crore in revenue.[2]

Mr. Uday Kotak is Executive Vice Chairman & Managing Director of Kotak

Mahindra Bank Ltd. In July 2013 Mr. C. Jayaram and Mr. Dipak Gupta, whole time

directors of the Bank, were appointed the Joint Managing Directors of Kotak

Mahindra Bank. Dr. Shankar Acharya is the chairman of board of Directors in the

company. The Bank has its registered office at Nariman Bhavan, Nariman Point,

Mumbai.

History

It bought stressed assets from a number of banks, at full loan value of Rs 1,000 crore

in 2005.[3] In January 2013, the bank reported a 32% rise in net profit to Rs188 crore

for the quarter ended December 2012 against Rs. 142 crore the corresponding quarter

last year.[4] Kotak Mahindra bank also reached the top 100 most trusted brands of

India in The Brand Trust Report published by Trust Research Advisory in 2013.

The group specializes in offering top class financial services catering to every

segment of the industry. The various group companies include.

Kotak Mahindra Capital Limited

Kotak Mahindra Securities Limited

Kotak Mahindra Inc

Kotak Mahindra (International) Limited

Global Investments Opportunities Fund Limited

Kotak Mahindra(UK) Limited Kotak Securities Limited

Kotak Mahindra Old Mutual Life Insurance Company Limited

Kotak Mahindra Asset Management Company Limited

Kotak Mahindra Trustee Company Limited

Kotak Mahindra Investments Limited

Kotak Forex Brokerage Limited

Kotak Mahindra Private-Equity Trustee Limited

Group Structure

Kotak Mahindra Bank

Kotak Mahindra Capital Company

Kotak Securities

Kotak Mahindra Investments

Kotak Mahindra Prime

Kotak Mahindra Asset Management Company

Kotak Mahindra Trust Company

Kotak Mahindra Securities

Kotak Mahindra ( International)

Kotak Mahindra Inc.

Kotak Mahindra (UK)

Global Investment Opportunities Fund

BOARD OF DIRECTORS

Dr. Shankar Acharya, Non-Executive Chairman

(DIN: 00033242)

Dr. Shankar Acharya, B.A. (Hons.) from Oxford University and Ph.D. (Economics)

from Harvard University, aged 68 years, has considerable experience in various fields

of economics and finance. He is a Honorary Professor at the Indian Council for

Research on International Economic Relations (ICRIER) and a Member of the Court

of Governors at the Administrative Staff College of India (ASCI). He was Chief

Economic Adviser, Ministry of Finance, Member, Securities and Exchange Board of

India (SEBI) and Member, Twelfth Finance Commission. He has held several senior

positions in the World Bank, including Director of World Development Report (1979)

and Research Adviser. He was re-appointed as the Non-Executive Chairman of the

Bank at the Annual General Meeting held on 19th July 2012 for a period of three

years with effect from 20th July 2012.

He is on the Board of Eros International Media Ltd. and South Asia Institute for

Research and Policy (Private) Limited, Sri Lanka. During 2013-14, Dr.Acharya was

the Chairman of the Audit Committee of the Bank, Member of the Audit Committee

of Eros International Media Limited and the Chairman of the Shareholders'

Grievance/Investors' Relations Committee of Eros International Media Ltd.

Mr. Uday Kotak, Executive Vice-Chairman and Managing Director

(DIN: 00007467)

Mr. Uday Kotak, aged 55 years, holds a Bachelors degree in Commerce and an MBA

from Jamnalal Bajaj Institute of Management Studies, Mumbai. He is the Executive

Vice-Chairman and Managing Director of the Bank and its principal founder and

promoter. Under Mr. Kotak's leadership, over the past 28 years, Kotak Mahindra

group established a prominent presence in every area of financial services from stock

broking, investment banking, car finance, life insurance and mutual funds. Mr. Kotak

is the recipient of several prestigious awards. He is a member of the Government of

India's high level committee on Financing Infrastructure, the Primary Market

Advisory Committee of SEBI, Member of the Board of Governors of Indian Council

for Research on International Economic Relations, National Institute of Securities

Markets and National Council of CII.

Mr. C. Jayaram, Joint Managing Director

(DIN: 00012214)

Mr. C. Jayaram, B. A. (Economics), PGDM-IIM, Kolkata, aged 58 years, is Joint

Managing Director of the Bank and currently heads the wealth management business

and international operations for Kotak Mahindra group. He also oversees the

alternative investments business which includes private equity funds and real estate

funds, as well as the institutional equities business. He has varied experience of over

36 years in many areas of finance and business and was earlier the Managing Director

of Kotak Securities Limited. He has been with the Kotak Group for 24 years and has

been instrumental in building a number of new businesses at Kotak Group. Prior to

joining the Kotak Group, he was with Overseas Sanmar Financial Ltd.

Mr. Dipak Gupta, Joint Managing Director

(DIN: 00004771)

Mr. Dipak Gupta, B.E. (Electronics), PGDM-IIM, Ahmedabad, aged 53 years, is the

Joint Managing Director of the Bank and has over 28 years of experience in the

financial services sector, 22 years of which have been with the Kotak Group. He is

responsible for Group HR, administration, infrastructure, operations and IT. He is also

responsible for asset reconstruction business of the Bank. Mr. Dipak Gupta was

responsible for leading the Kotak Group's initiatives into the banking arena. He was

the Executive Director of Kotak Mahindra Prime Limited. Prior to joining the Kotak

Group, he was with A. F. Ferguson & Company for approximately six years.

Mr. Asim Ghosh

(DIN: 00116139)

Mr. Asim Ghosh, aged 66 years, is the President and Chief Executive Officer of

Husky Energy Inc. He has a B.Tech, IIT Delhi and MBA from the Wharton School,

University of Pennsylvania. Mr. Ghosh commenced his career in consumer goods

marketing with Procter & Gamble in the U.S. and Canada and worked subsequently

with Rothmans International as a Senior Vice President of Carling O'Keefe

Breweries, then one of Canada's major breweries. He moved to Asia in 1989 as CEO

of the Frito Lay (Pepsi Foods) start up in India. Thereafter, he was in executive

positions with Hutchison in Hong Kong and India for 16 years. He continued as the

CEO of the predecessor company of Vodafone India Limited till 31st March 2009 and

as a Non-Executive Director till 9th February 2010. He serves on the Board of Husky

Energy Inc., other Husky Group Companies, some Hutchison Whampoa Group

Companies and the Canadian Council of Chief Executives.

Mr. Prakash Apte

(DIN: 00196106)

Mr. Prakash Apte, B.E. (Mechanical), aged 59 years, is presently the Chairman of

Syngenta India Limited, one of the leading agri business companies in India. Mr.

Apte, in a career spanning over 36 years has considerable experience in various areas

of management and business leadership. During more than 16 years of very successful

leadership experience in agri business, he has gained varied knowledge in various

aspects of Indian Agri Sector and has been involved with many initiatives for

technology, knowledge and skills up gradation in this sector, which is so vital for

India's food security. He was instrumental in setting up the Syngenta Foundation India

which focuses on providing knowledge and support for adopting scientific growing

systems to resource poor farmers and enabling their access to market. He is a Director

of Syngenta Foundation India and Kotak Mahindra Old Mutual Life Insurance

Limited. Mr. Apte is a member of Audit Committee of Bank and Syngenta India

Limited.

Mr. Amit Desai

(DIN: 00310510)

Mr. Amit Desai, B.Com, LLB, aged 55 years, is an eminent professional with 33

years of experience. He is also on the Board of Kotak Mahindra Trustee Company

Limited.

Mr. Narendra P. Sarda

(DIN: 03480129)

Mr. N.P. Sarda, B.Com, F.C.A., aged 68 years, is a Chartered Accountant for more

than 40 years. He is a former partner of M/s. Deloitte Haskin & Sells, Chartered

Accountants, the past President of the Institute of Chartered Accountants of India (in

1993) and was a public representative Director of the Stock Exchange, Mumbai

(BSE).

Prof. Mahendra Dev

(DIN: 06519869)

Prof. S. Mahendra Dev, PhD from the Delhi School of Economics, aged 56 years is

currently Director and Vice Chancellor, Indira Gandhi Institute of Development

Research (IGIDR), Mumbai, India. He was Chairman of the Commission for

Agricultural Costs and Prices (CACP), Govt. of India, Delhi. He was Director, Centre

for Economic and Social Studies, Hyderabad for 9 years during 1999 to 2008. He has

done his Post-doctoral research at Yale University and was faculty member at the

Indira Gandhi Institute of Development Research, Mumbai for 11 years. He has been

a member of several government committees including the Prime Minister's Task

Force on Employment and Rangarajan Commission on Financial Inclusion. He has

received honors for eminence in public service. He is the Chairman of the Committee

on Terms of Trade on agriculture constituted by the Ministry of agriculture, Govt. of

India. He is also member of the newly constituted Expert Panel on poverty estimates

chaired by Dr. C. Rangarajan.

Mrs. Farida Khambata

(DIN: 06954123)

Mrs. Khambata, is currently Global Strategist of Cartica Management, LLC and a

member of its Investment Committee. She was earlier with International Finance

Corporation (IFC) and was a member of IFC's Management Group, the senior

leadership team of IFC. In her last position at IFC she served as Regional Vice

President in charge of all operations in East Asia and the Pacific, South Asia, Latin

America and the Caribbean and the Global Manufacturing Cluster. Mrs. Khambata

joined IFC in 1986 from the World Bank where she managed pension fund assets.

YEAR MILESTONE

1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting

1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market

1990 The Auto Finance division is started

1991The Investment Banking Division is started. Takes over FICOM, one of

India's largest financial retail marketing networks

1992 Enters the Funds Syndication sector

1995

Brokerage and Distribution businesses incorporated into a separate company

- Kotak Securities. Investment Banking division incorporated into a separate

company - Kotak Mahindra Capital Company

1996

The Auto Finance Business is hived off into a separate company -Kotak

Mahindra Prime Limited (formerly known as Kotak Mahindra Primus

Limited). Kotak Mahindra takes a significant stake in Ford Credit Kotak

Mahindra Limited, for financing Ford vehicles. The launch of Matrix

Information Services Limited marks the Group's entry into information

distribution.

1998Enters the mutual fund market with the launch of Kotak Mahindra Asset

Management Company.

2000Kotak Mahindra ties up with Old Mutual plc. For the Life Insurance

business.

Kotak Securities launches its on-line broking site (now

www.kotaksecurities.com).

Commencement of private equity activity through setting up of Kotak

Mahindra Venture Capital Fund.

2001 Matrix sold to Friday Corporation

Launches Insurance Services

Kotak Securities Ltd. was incorporated

2003Kotak Mahindra Finance Ltd. converts to a commercial bank - the first

Indian company to do so.

2004 Launches India Growth Fund, a private equity fund.

2005 Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra

Prime (formerly known as Kotak Mahindra Primus Limited) and sells Ford

credit Mahindra.

2005 Launches a real estate fund

2008Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital

Company and Securities

2010 Launched a Pension Fund under the New Pension System

2011Kotak Mahindra Bank Ltd. Opened a representative office in Dubai

Entered Ahmedabad Commodity Exchange as anchor investor

2012Ahmedabad Derivatives and Commodities Exchange, a Kotak anchored

enterprise, became operational as a national commodity exchange.

2013Kotak Mahindra Bank Ltd entered into a Business Cooperation arrangement

with CIMB Group Sdn Bhd, Malaysia.

Awards

Recent achievements

At Kotak Mahindra Group we take a client-centric view and constantly innovate to

provide you with the best of services and infrastructure. We have regularly received

accolades that stand testimony to our success in this endeavour. Some of our recent

achievements are:

BANKING

ICAI Award

Excellence in Financial Reporting under Category 1 - Banking Sector for the

year ending 31st March, 2012

Asiamoney

Best Local Cash Management Bank 2012

IDG India

Kotak won the CIO 100 'The Agile 100' award 2012

IDRBT

Banking Technology Excellence Awards Best Bank Award in IT Framework

and Governance Among Other Banks' - 2011

Banking Technology Award for IT Governance and Value Delivery, 2010

IR Global Rankings

Best Corporate Governance Practices - Ranked among the top 5 companies in

Asia Pacific, 2011

FinanceAsia

Best Private Bank in India, for Wealth Management business, 2011

Kotak Royal Signature Credit Card

Was chosen "Product of the Year" in a survey conducted by Nielsen in 2011

IBA Banking Technology Awards

Best Customer Relationship Achievement - Winner 2010 & 2011

Best overall winner, 2009

Best IT Team of the Year, 4 years in a row from 2008 to 2011

Best IT Security Policies & Practices, 2009

Euromoney

Best Private Banking Services (overall), 2011

Emerson Uptime Champion Awards

Technology Senate Emerson Uptime Championship Award in the BFSI

category, 2010

The February 2014 edition of The Banker magazine, from The Financial Times (UK) stable, published the following global recognition to Kotak Mahindra Bank, on a study by Brand Finance Banking 500:

Ranked 245th among the world’s top 500 banks Brand valuation of around half a billion dollars (US$ 481 million) Brand rating of AA+ Ranked among the top 5 Best Ranked Companies for Corporate Governance

Practices in IR Global Ranking

WEALTH MANAGEMENT

Awarded in multiple categories in Euromoney Private Banking Survey 2014:

o Among Top 5 - Best Family Office Services Provider, Asiao Best Range of Advisory Serviceso Best Corporate Advisory for Private Banking Clientso Best Bespoke Wealth Planningo Private Equity Investmento Equity portfolio managemento Specialised Services for Inherited Wealth and Businesses

Awarded Best Private Bank India by FinanceAsia Country Awards for Achievement 2013

MISCELLANEOUS

Best Local Trade Bank in India

The UK based Trade & Forfaiting Review awarded Kotak Mahindra Bank

Ltd. the Bronze Award in the category of Best Local Trade Bank in India at

the TFR Awards 2013.

LACP Vision Awards 2012 for Annual Report 2012-11

Platinum Award - Best among Banking Category, APAC

Gold Award - Most Creative Report, APAC

Ranked No. 21 among Top 50 Reports, APAC

Ranked No. 87 among the World's Top 100 Annual Reports

Businessworld

'Most Valuable CEO' overall, 2012 awarded to Mr. Uday Kotak, Executive

Vice Chairman & Managing Director

CNBCTV 18

'Best Performing CFO in the Banking/Financial Services sector by CNBCTV

18 CFO Awards 2012 awarded to Mr. Jaimin Bhatt

GIREM

GIREM awarded Kotak Realty Funds Group, the "Investor of the Year"

Award for 2011

IBA Banking Technology Awards

Best Use of Business Intelligence - up, 2010

Best Enterprise Risk Management - Runner up, 2010

The Great Places to Work Institute, India

Best Workplaces in India, 2010

Hewitt

10th Best Employer in India, 2009, 2010 & 2011

Financial Insights Innovation Award

Best Innovation in Enterprise Security Management in the Asia Pacific

Region, 2011

Frost & Sullivan

Best Passenger Vehicle Finance Company in India, 2008

CNBC TV 18

Indian Business Leader of the Year, 2010 awarded to Uday Kotak, Executive

Vice Chairman & Managing Director

INTERNATIONAL ASSET MANAGEMENT

Global Investor (Editorial Award)

Asian Asset Manager of the Year, 2011

ASSET MANAGEMENT

ICRA Mutual Fund Awards 2011

Kotak Liquid (Regular Plan) - Ranked as a Seven Star Fund for its 1 year

performance

Kotak Flexi Debt Fund - Ranked as a Five Star Fund for its 1 year

performance

Kotak Flexi Debt Fund - Ranked as a Five Star Fund for its 3 year

performance

Kotak 30 - Ranked as a Five Star Fund for its 3 year performance

INVESTMENT BANKING

FinanceAsia

Best Investment Bank in India, 2012

Best Equity House in India, 2012

Best Broker in India, 2012

Asiamoney

Best Domestic Equity House, 2012

Best Local Brokerage in the Asiamoney Brokers Poll – 2012

Global Finance

Best Investment Bank in India, 2012

Euromoney Real Estate Poll

Best Bank for Equity Finance in India, 2012

Asset Asian Awards

Best Domestic Investment Bank, 2012

FinanceAsia Country Awards for Achievement

Best Investment Bank in India, 2008, 2009, 2010, 2011 & 2012

Best Equity House in India, 2010 & 2012

Asiamoney Best Domestic Bank Awards

Best Domestic Equity House, 2010, 2011 & 2012

IFR Asia

India Equity House of the Year, 2010

Global Finance

Best Investment Bank in India, 2010, 2011 & 2012

Asset Asian Awards

Best Domestic Investment Bank, 2008, 2009, 2010 & 2011

KOTAK INSTITUTIONAL EQUITIES

Awarded India’s Best Local Brokerage in the Asia money Brokers Poll, 2013-

8th year in a row. Also adjudged, #1 for Most Independent Research

Brokerage among all domestic and foreign brokerages, #2 for Best Overall

Country Research among all domestic and foreign brokerages; #2 for Best

Analyst among all domestic and foreign brokerages, #3 for Best Overall Sales

Services among all domestic and foreign brokerages

Ranked #3 in Institutional Investor’s All-India Research Team survey - 2013.

Kotak Institutional Equities enjoys four first-place positions in The Best

Analysts of the Year in the survey, which is twice as many as any other firm

Awarded Best Brokerage House - India in The Asset Country Awards 2013

KOTAK MAHINDRA CAPITAL COMPANY

Awarded Best M&A House in India by Euro money Awards for Excellence

2013

Awarded Best Domestic Equity House by Asia money 2013

Awarded Best Domestic Investment Bank in The Asset Country Awards 2013

Awarded Securities Advisory Firm of the Year in India in Corporate INTL

Global Awards 2014

SECURITIES

FinanceAsia

Best Broker in India - 2012

CNBC Financial Advisor Awards

Best Performing Equity Broker, 2010 & 2011

Asiamoney Brokers Poll

Best Local Brokerage, 2008, 2009, 2010 & 2011

Best Analyst in India – Sanjeev Prasad, 2005, 2008, 2009, 2010 & 2011

FinanceAsia Country Awards for Achievement

Best Broker in India, 2008, 2011 & 2012

Thomson Extel Surveys Awards

India's Leading Equity House, 2009

SuperBrands Council of India

Business Superbrand India, 2010

Won NSDL Star Performers Award 2013 -Top Performer in New Accounts

Opened (Non-Bank Category)

Awarded Best Equity Broking House - Dun & Bradstreet Equity Broking

Awards 2013

Awarded Depository Participant of the Year - Dun & Bradstreet Equity

Broking Awards 2013

CHAPTER-IV

DATA ANALYSIS

& INTERPRETATION

ANALYSIS OF PHARMACEUTICAL SECTOR

To understand this industry for the purpose of investment we need to analyze it by the

following approach:

Fundamental Analysis (E.I.C Approach)

a. Economy analysis

b. Industry analysis

c. Company analysis

Fundamental Analysis

Fundamental analysis is the study of economic, industry and company conditions in

an effort to determine the value of a company s stock. Fundamental analysis typically

focuses on key statistics in company s financial statements to determine if the stock

price is correctly valued.

Most fundamental information focuses on economic, industry and company statistics.

The typical approach to analyzing a company involves three basic steps:

1. Determine the condition of the general economy.

2. Determine the condition of the industry.

3. Determine the condition of the company.

1. ECONOMY ANALYSIS

Economic analysis is the analysis of forces operating the overall economy a country.

Economic analysis is a process whereby strengths and weaknesses of an economy are

analyzed. Economic analysis is important in order to understand exact condition of an

economy.

The Centre for Monitoring Indian Economy (CMIE) has estimated India’s gross

domestic product (GDP) to expand at 9.2 per cent in 2014-11 as compared to the

growth of 7.4 per cent in 2013-10. Overall growth in industrial output was 10.8 per

cent year-on-year (y-o-y) in October 2014. The growth in the industrial sector is

expected to increase at 9.4 per cent in 2014-11, as compared to 9.2 per cent in 2013-

10. According to a survey by the Confederation of Indian Industry (CII) and ASCON,

around 50 segments (out of 127) in the manufacturing sector grew by 39 per cent,

entering the 'excellent growth' category, during April-December 2014-11 compared to

29 sectors (22.9 per cent) in April-December 2013 which shows a marked

improvement. Also, services sector is projected to expand by 10 per cent as compared

to 8.6 per cent last year, led by the trade and transport segment. The major turnaround

is expected from the agriculture and allied sector, which is being projected to grow by

5.7 per cent in 2014-11. As per Use-based classification, the Sectoral growth rates in

October 2014 over October 2013 are 7.7 per cent in Basic goods, 22 per cent in

Capital goods and 9.5 per cent in Intermediate goods. The Consumer durables and

Consumer non-durables have expanded by 31 per cent and 0.1 per cent respectively in

the reported month.

The industrial output registered a robust growth of 10.8 per cent year-on-year (y-o-y)

in October 2014. Among the three major constituents of the IIP, manufacturing and

electricity recorded higher growth rates of 11.3 per cent and 8.8 per cent in October as

against their corresponding levels of 10.8 per cent and 4 per cent for the

corresponding month in 2013. The third constituent mining index registered 6.5 per

cent in October 2014.

The Economic scenario

Foreign injections amounted to US$ 6.4 billion in October 2014, which was almost 25

per cent of the total inflows in the stock market registered so far in 2014. The net

foreign fund investment crossed the US$ 100 billion mark on November 8 2014, since

the liberalization policy was implemented in 1992. As per the data given by SEBI, the

total figure stood at US$100.9 billion, wherein US$ 4.78 billion were infused in

November itself. The humungous increase in investment mirrors the foreign

investors’ faith in the Indian markets. FIIs have made investments worth US$ 4.11

billion in equities and poured US$ 667.71 million into the debt market.

Data sourced from SEBI shows that the number of registered FIIs stood at 1,738 and

number of registered sub-accounts rose to 5,592 as of November 10, 2014.

As on December 17, 2014, India's foreign exchange reserves totalled US$ 294.60

billion, an increase of US$ 11.13 billion over the same period last year, according to

the Reserve Bank of India's (RBI) Weekly Statistical Supplement.

Moreover, India received foreign direct investment (FDI) equity worth US$ 12.39

billion during April-October, 2014-11, taking the cumulative amount of FDI inflows

during April 2000 - October 2014 to US$ 179.45 billion, according to the Department

of Industrial Policy and Promotion (DIPP).

The services sector comprising financial and non-financial services attracted 21 per

cent of the total FDI equity inflow into India, with FDI worth US$ 2,163 million

during April-October 2014, while telecommunications including radio paging, cellular

mobile and basic telephone services attracted second largest amount of FDI worth

US$ 1,062 million during the same period. Metallurgical industries were the third

highest sector attracting FDI worth US$ 920 million followed by power sector which

garnered US$ 729 million during the financial year April-October 2014.

Exports from India have increased by 26.8 per cent year-on-year (y-o-y) to

touch US$ 18.9 billion in November 2014, urging the Government to exude

confidence that overall shipments in 2014-11 may touch US$ 215 billion. For

the April-November 2014 period, exports have grown by 26.7 per cent to US$

140.3 billion, while imports totaled up to US$ 222 billion, expanding 24 per

cent.

India's logistics sector is witnessing increased activity. According to the Indian

Shipping ministry, the country's major ports handled 44.4 million tones of

cargo during September 2014, 4.5 per cent higher as compared to 5.9 per cent

growth in September 2013. Leading consultants Frost&Sullivan, as cited by

The Economic Times, are expecting traffic to boost at Indian ports from 814.1

million tones (MT) to 1,373.1 MT from 2014 to 2015 at a CAGR of 11 per

cent. The study group has underlined three key trends in the sector, namely,

increase in containerized cargo, increased private sector participation and

traffic diversion toward minor ports.

Foreign Tourist Arrivals (FTA) in India during the period of January-

November 2014 were 4.93 million as compared to the FTAs of 4.46 million

during the same period of 2013, showing a growth of 10.4 per cent. The

Foreign Exchange Earnings (FEE) during the period of January-November

2014 were US$ 12.88 billion as compared to US$ 10.67 billion during the

same period of 2013, registering a growth rate of 20.7 per cent, according to

data released by the Ministry of Tourism.

The total telephone subscriber base in the country reached 742.12 million as

on October 31, 2014, taking the overall tele-density to 62.51, according to the

figures released by the Telecom Regulatory Authority of India (TRAI). Also

the wireless subscriber base increased to 706.69 million.

The average assets under management of the mutual fund industry stood at

US$ 160.44 billion for the month of September 2014, according to the data

released by Association of Mutual Funds in India (AMFI).

As per NASSCOM’s Strategic Review 2014, the Indian IT-BPO sector

continues to be the fastest growing segment of the industry and is estimated to

aggregate revenues of USD 73.1 billion in FY2014, with the IT software and

services industry accounting for USD 63.7 billion of revenues.

The cumulative production of vehicles in India grew by 32.4 per cent upto

August 2014 as compared to the same period in 2013, Mr B S Meena,

Secretary, Ministry of Heavy Industry, reported. Passenger vehicles,

commercial vehicles and two-wheeler segments had all recorded impressive

growth rates of 32 per cent, 49 per cent and 31 per cent, respectively during

the period upto August 2014.

According to the Gem and Jewellery Export Promotion Council, jewellery

shipments were worth US$ 23.57 billion in April-November 2014, registering

a rise of 38.25 per cent as compared to US$ 17.05 billion in the corresponding

period of 2013.

According to the Ministry of Civil Aviation, passengers carried by domestic

airlines from January-November, 2014 were 46.81 million as against 39.35

million in the corresponding period of year 2013, thereby registering a growth

of 18.9 per cent.

According to Ernst & Young (E&Y), a global consultancy firm, India is

expected to receive more than US$ 7 billion in private equity (PE) investments

in 2014, on the back of robust economic growth. According to research firm

VCCEdge, mergers and acquisition (M&A) deals worth US$ 54.6 billion have

been signed till December 15, 2014, significantly more than the previous high

of US$ 42 billion achieved in 2011.

The HSBC Market Business Activity Index, which measures business activity

among Indian services companies, based on a survey of 400 firms, rose to 60.1

in November 2014 from 56.2 in October 2014.

Agriculture

Agriculture is one of the strongholds of the Indian economy and accounts for 14.6 per

cent of the country's gross domestic product (GDP) in 2013-10, and 10.23 per cent

(provisional) of the total exports. Furthermore, the sector provided employment to 55

per cent of the work force.

India's agriculture and allied sector grew by 3.8 per cent in the first six months of the

current fiscal (2014-11). Capital investment in agriculture has increased from US$ 1.2

billion in 2011-08 to US$ 3.26 billion in 2014-11 (inclusive of State Plan Scheme

Rashtriya Krishi Vikas Yojana), as per a Ministry of Agriculture press release dated

August 3, 2014.

In the Union Budget 2014-11, the Finance Minister, Mr Pranab Mukherjee made the

following announcements for the agriculture sector.

US$ 86.89 million is provided to increase the Green Revolution to the eastern

region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern up,

West Bengal and Orissa.

US$ 65.17 million has been provided to organise 60,000 pulses and oil-seed

villages in rain-fed areas in 2014-11 and provide an integrated intervention for

water harvesting, watershed management and soil health to improve

productivitiy of the dry land farming areas.

Banks have been consistently meeting the targets set for agricultural credit

flow in the past few years. For the year 2014-11, the target has been set at US$

81.47 billion.

In addition to the 10 mega food park projects already being set up, the

government has decided to set up five more such parks.

External commercial borrowings are available for cold storage for

preservation or storage of agricultural and allied products, marine products

and meat.

Growth potential story

The data centre services market in the country is forecast to grow at a

compound annual growth rate (CAGR) of 22.7 per cent between 2013 and

2014, to touch close to US$ 2.2 billion by the end of 2014, according to

research firm IDC India’s report published in March 2014. The report further

stated that the overall India data centre services market in 2013 was estimated

at US$ 1.39 billion.

According to a report by research and advisory firm Gartner published in

March 2014, the domestic BPO market is expected to grow at 25 per cent in

2014 to touch US$ 1.2 billion by 2014. Further, the BPO market in India is

estimated to grow 19 per cent through 2014 and grow to US$ 1.8 billion by

2014. According to the report, the domestic India BPO services market grew

by 7.3 per cent year-on-year in 2013.

The BMI India Retail Report Quarter 3, 2014 released in May 2014, forecasts

that total retail sales will grow from US$ 353 billion in 2014 to US$ 543.2

billion by 2015.

According to a report titled 'India 2020: Seeing, Beyond', published by

domestic broking major, Edelweiss Capital in March 2014, stated that India's

GDP is set to quadruple over the next ten years and the country is likely to

become an over US$ 4 trillion economy by 2020.

India will overtake China to become the world's fastest growing economy by

2018, according to the Economist Intelligence Unit (EIU), the research arm of

London-based Economist magazine.

Economic Survey 2013-10 Highlights

According to the Economic Survey 2013-10, tabled in Parliament on February 25,

2014 by the Union Finance Minister, Mr Pranab Mukherjee, the economy is expected

to grow at 7.2 per cent in 2013-10. The expected growth comes on the back of the

growth momentum witnessed in Q2 2013-10 estimates, when the economy recorded a

GDP growth of 7.9 per cent as against 7.5 per cent in the corresponding quarter of

2012-09. The industrial and the service sectors are growing at 8.2 and 8.7 per cent

respectively, as per the advance estimates of gross domestic product (GDP) for 2013-

10, released by the Central Statistical Organisation (CSO).

The Economic Survey estimates:

Growth rate of GDP at factor cost expected to be 7.2 per cent.

Growth in the manufacturing sector has more than doubled from 3.2 per cent

in 2012-09 to 8.9 per cent in 2013-10.

Growth of private investment demand picked up in 2013-10.

Savings rate as a percentage of GDP in 2012-09 stood at 32.5 per cent.

Growth rate of capital formation as a percentage of GDP in 2012-09 stood at

34.9 per cent.

Foreign Exchange Reserves in 2013-10 as of December 31, 2013 stood at US$

283.5 billion.

Financing, insurance, real estate and business services have retained their

growth momentum at around 10 per cent in 2013-10.

The main highlights of the survey are:

The recovery in GDP growth for 2013-10, as indicated in the advance

estimates, is broad based. Seven out of eight sectors/sub-sectors show a

growth rate of 6.5 per cent or higher. Sectors including mining and quarrying;

manufacturing; and electricity, gas and water supply have significantly

improved their growth rates at over 8 per cent in comparison with 2012-09.

The construction sector and trade, hotels, transport and communication have

also improved their growth rates over the preceding year.

Strong growth in automobiles, rubber and plastic products, wool and silk

textiles, wood products, chemicals and miscellaneous manufacturing; modest

growth in nonmetallic mineral products.

The opening of the telecom sector led to rapid growth in subscriber base. From

only 54.6 million telephone subscribers in 2003, the number increased to

429.7 million at the end of March 2013 and further to 562 million as of

October 31, 2013 showing an addition of 96 million subscribers during the

period from March to December 2013.

There has been improvement in the balance of payments (BoP) situation

during H1 of 2013-10 over H1 of 2012-09, reflected in higher net capital

inflows and lower trade deficit.

Net capital flows to India at US$ 29.6 billion in April-September 2013

remained higher as compared to US$ 12 billion in April-September 2012.

During fiscal 2013-10, foreign exchange reserves increased by US$ 31.5

billion from US$ 252 billion in end March 2013 to US$ 283.5 billion in end

December 2013.

Growth rate of gross fixed capital formation in 2013-10 has recovered, as per

the revised National Accounts Statistics (NAS).

Turnaround in merchandise export growth witnessed in November 2013,

which has been sustained in December 2013.

2. INDUSTRY ANALYSIS (PHARMACEUTICAL)

India's pharmaceutical industry is now the third largest in the world in terms of

volume and stands 14th in terms of value. According to data published by the

Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, the total

turnover of India's pharmaceuticals industry between September 2012 and September

2013 was US$ 21.04 billion. Of this the domestic market was worth US$ 12.26

billion.

The Indian pharmaceuticals market is expected to reach US$ 55 billion in 2020 from

US$ 12.6 billion in 2013, according to a report ‘India Pharma 2020: Propelling access

and acceptance, realising true potential’ by McKinsey & Company. The report states

that the market has the further potential to reach US$ 70 billion by 2020 in an

aggressive growth scenario.

Moreover, according to an Ernst & Young and industry body study, the increasing

population of the higher-income group in the country, will open a potential US$ 8

billion market for multinational companies selling costly drugs by 2015. Besides, the

report said the domestic pharma market is estimated to touch US$ 20 billion by 2015,

making India a lucrative destination for clinical trials for global giants.

Further, IMS Health India, which tracks drug sales in the country through a network

of nationwide drug distributors, estimates the healthcare market in India to reach US$

31.59 billion by 2020.

Growth

The Indian pharmaceutical market reached US$ 10.04 billion in size, with a value-

wise growth rate of 20.4 per cent over the previous year’s corresponding period on a

Moving Annual Total (MAT) basis for the 12 months ended July 2014, according to

data from IMS Health India.

Cipla maintained its leadership position in the domestic market with 5.27 per cent

share, followed by Ranbaxy. The highest growth in the domestic market was for

Mankind Pharma, which grew 37.2 per cent. Leading companies in the domestic

market such as Sun Pharma (25.7 per cent), Abbott (25 per cent), Zydus Cadila (24.1

per cent), Alkem Laboratories (23.3 per cent), Pfizer (23.6 per cent), GSK India (19

per cent), Piramal Healthcare (18.6 per cent) and Lupin (18.8 per cent) had impressive

growth during July 2014, shows the data.

According to the All India Organisation of Chemists and Druggists (AIOCD), the

pharmaceuticals industry in India will grow by over 100 per cent over the next two

years.

"The people are increasingly becoming health conscious and the sell of all types of

medicines, particularly anti-biotic, will zoom up in the coming years. We expect the

business to double by 2014", as per JS Shinde, President, AIOCD.

According to Shinde, the pharmaceutical industry is currently growing at the rate of

12 per cent, but this will accelerate soon. The sale of all types of medicines in the

country stands at US$ 9.61 billion, which is expected to reach around US$ 19.22

billion by 2014.

India's domestic pharmaceutical market is valued approximately at US$ 12 billion in

2014, and has shown a strong growth of 21.3 per cent for the 12 months ending

September 2014, as per consulting firm Pricewaterhouse Coopers (PwC). It estimates

that over the next 10 years, the domestic market will grow to US$ 49 billion, at a

compounded annual growth rate (CAGR) of 15 per cent.

Further, a RNCOS report titled 'Booming Pharma Sector in India' projects that the

formulations industry is expected to prosper parallel to the pharmaceutical industry. It

is expected that the domestic formulations market in India will grow at an annual rate

of around 17 per cent in 2013-10, owing to increasing middle class population and

rapid urbanisation.

Diagnostics Outsourcing/Clinical Trials

According to the research published by RNCOS titled 'Indian Diagnostic Market

Analysis' published in January 2014, the Indian diagnostic services are projected to

grow at a CAGR of more than 20 per cent during 2013-2014.

Some of the major Indian pharmaceutical firms, including Sun Pharma, Cadilla

Healthcare and Piramal Life Sciences, had applied for conducting clinical trials on at

least 12 new drugs in 2014, indicating a growing interest in new drug discovery

research.

Generics

According to Mr Srikant Kumar Jena, Union Minister of State for Chemicals and

Fertilisers, India tops the world in exporting generic medicines worth US$ 11 billion

and currently, the Indian pharmaceutical industry is one of the world's largest and

most developed.

Moreover, as per a press release by research firm RNCOS in May 2014, the report

titled ‘Booming Generics Drug Market in India' projects the Indian generic drug

market to grow at a CAGR of around 17 per cent between 2014-11 and 2014-13. Mr

Anand Sharma, Union Minister of Commerce and Industry and Lim Hng Kiang,

Minister for Trade and Industry, Singapore , have signed a 'Special Scheme for

Registration of Generic Medicinal Products from India' in May 2014, which seeks to

fast-track the registration process for Indian generic medicines in Singapore.

According to Lim Hng Kiang, "What we have agreed is that if your (Indian) generics

have already cleared the regulations of one of the five countries/ regions - US,

Canada, the European Union, UK or Australia - Singapore will take that as 'already

cleared' and we will import it (the generic medicines) without any additional

clearances."

Mr Sharma said, "This (understanding) will facilitate quick registration and approvals

(of Indian generic drugs) in Singapore. It is a major movement forward. One-fourth of

the world's generics come from India. This has ensured easy availability of life-saving

medicines particularly where affordability has been an issue."

Government Initiative

100 per cent foreign direct investment (FDI) is allowed under the automatic route in

the drugs and pharmaceuticals sector including those involving use of recombinant

technology. (DIPP). The Government plans to set up a US$ 639.56 million venture

capital (VC) fund to give a boost to drug discovery and strengthen the pharma

infrastructure in the country.

According to Mr Ashok Kumar, Secretary, Department of Pharmaceuticals, the

Government had issued an expression of interest (EoI) for technical and financial bids

for the selection of a global level consultant (GLC) for the preparation of a detailed

project report (DPR) in order to develop India as a drug discovery and pharma

innovation hub by 2020. The Drugs and Pharmaceuticals Manufacturers Association

has received an in-principle approval for its proposed special economic zone (SEZ)

for pharmaceuticals, bulk drugs, active pharmaceutical ingredients (APIs) and

formulations to be located at Nakkapalli mandal in Visakhapatnam district, according

to a government press release.

According to Mr Srikant Kumar Jena, Union Minister of State for Chemicals and

Fertilisers, the Department of Pharmaceuticals has prepared a "Pharma Vision 2020"

for making India one of the leading destinations for end-to-end drug discovery and

innovation and for that purpose provides requisite support by way of world class

infrastructure, internationally competitive scientific manpower for pharma research

and development (R&D), venture fund for research in the public and private domain

and such other measures. The government plans to open 3,000 Jan Aushadhi stores,

which sell unbranded generic drugs at heavy discounts to branded drugs, in the next

two years

Investment

The healthcare sector has attracted growing investor support in 2014 with nearly a

tenth of the total private equity funding going to this sector. In the third quarter the

calendar year 2014, a total of US$ 2,047 million was invested across 88 deals, of

which 9 per cent were healthcare deals, according to research firm Venture

Intelligence.

Further, in October 2014, the pharma, healthcare and biotech sector witnessed five

merger and acquisition transactions (M&A) worth US$ 250 million, according to

global consultancy firm Grant Thornton.

The drugs and pharmaceuticals sector has attracted FDI worth US$ 1,825.43 million

between April 2000 and September 2014, according to data published by Department

of Industrial Policy and Promotion (DIPP).

Some of the major investment developments in the sector include:

Hyderabad-based Natco Pharma plans to raise US$ 22.22 million to fund its

expansion plans and research activities.

Private equity major Sequoia Capital has made its first investment in the

pharmaceutical sector in the country by investing US$ 15.86 million into

Celon Labs, which will use the funds to double its manufacturing facility.

Belgium based Helvoet Pharma, part of the Daetwyler Group is setting up its

first greenfield production facility in Khandala Industrial Area, phase I (SEZ),

on Pune- Bangalore Highway, near Pune. The company has invested US$

26.56 million for the plant.

Swiss Pharma major Lonza AG, would invest around US$ 55.33 million

through its Indian subsidiary in a phased manner in Genome Valley project,

Hyderabad, said Stefan Borgas, CEO, Lonza.

Chennai-based Bafna Pharmaceuticals plans to raise around US$ 4.43 million

for its future expansion by issuance of warrants and shares.

Hyderabad Menzies Air Cargo Private Limited, a joint venture between GMR

Hyderabad International Airport Limited (GHIAL) and Menzies Aviation, has

launched India's first airport-based pharma zone, a dedicated pharmaceutical

cargo storage and handling facility, at Hyderabad. The project involved an

investment of US$ 1.22 million.

Road Ahead

According to a report by PwC in April 2014, India will join the league of top 10

global pharmaceuticals markets in terms of sales by 2020 with the total value reaching

US$ 50 billion.

3. COMPANY ANALYSIS

The company analysis shows the long-term strenght of the company that what is the

financial position of the company in the market, where it stands among its competitors

and who are the key drivers of the company, what are the future plans of the

company, what are the policies of government towards the company and how the

stake of the company divested among different groups of people.

Here, I have taken five companies namely Cipla, Dr. Reddy’s, Glaxo SmithKline,

Lupin and Ranbaxy for the purpose of fundamental analysis.

Cipla

Cipla Limited engages in the manufacture and sale of pharmaceutical products in

India and internationally. The company offers various prescription pharmaceutical

products for various diseases; and animal health care products, including aqua

products, disinfectants and sanitizers, equine products, feed and feed additives, herbal

products, dog treats and chews, poultry products, products for companion animals and

livestock animals, and surgical products and equipment.

It also provides over the counter products comprising child care, eye care, food

supplements, foot care and hair care, health drinks, sweeteners, nutraceuticals and

tonics, oral hygiene, pain care, probiotics/indigestion, sports care/muscle building,

vitamins and minerals, and skin care products, as well as cough, cold, and flu

products.

In addition, the company offers bulk drugs, which include active pharmaceutical

ingredients and drug intermediates; and flavors to food and beverage, and

pharmaceutical industries for use in fruit juices, medicinal liquids, baked goods, and

oral hygiene products, as well as fragrances for various applications in personal care

products, laundry detergents, and room fresheners.

Further, it provides agrochemicals, including pesticides; and technology services,

which comprise consulting, project appraisal, engineering, plant supply,

commissioning, training, operational management, support, and quality control

services. The company was founded in 1935 and is based in Mumbai, India.

Dr. Reddy’s

Established in 1984, Dr. Reddy’s Laboratories (NYSE: RDY) is an emerging global

pharmaceutical company. As a fully integrated pharmaceutical company, the

company provides affordable and innovative medicines through its three core

businesses:

Pharmaceutical Services and Active Ingredients, comprising its Active

Pharmaceuticals and Custom Pharmaceuticals businesses;

Global Generics, which includes branded and unbranded generics; and

Proprietary Products, which includes New Chemical Entities (NCEs),

Differentiated Formulations, and Generic Biopharmaceuticals.

The company products are marketed globally, with a focus on India, US, Europe and

Russia. Dr. Reddy’s conducts NCE research in the areas of metabolic disorders,

cardiovascular indications, anti-infectives and inflammation.

The company’s strong portfolio of businesses, geographies and products gives it an

edge in an increasingly competitive global market and allows it to provide affordable

medication to people across the world, regardless of geographic and socio-economic

barriers.

Glaxo SmithKline

GlaxoSmithKline Pharmaceuticals Limited, a research-based healthcare and

pharmaceuticals company, provides prescription medicines and vaccines worldwide.

Its product portfolio comprises prescription medicines that range across therapeutic

areas, such as anti-infectives, dermatology, gynecology, diabetes, oncology,

analgesic, anti-inflammatory, anti-parasitic, gastrointestinal, endocrine,

immunosuppressant, nutritional, central nervous system, and cardiovascular and

respiratory diseases; and vaccines for the prevention of various diseases, including

hepatitis A, hepatitis B, invasive disease caused by H, influenza, chickenpox,

diphtheria, pertussis, tetanus, rotavirus, and cervical cancer. The company was

founded in 1924 and is based in Mumbai, India.

Lupin

Lupin Limited, a pharmaceutical company, produces a range of generic and branded

formulations, and active pharmaceutical ingredients. It offers various formulations

principally in the cephalosporins, cardiovascular, central nervous system, anti-asthma,

anti-tuberculosis, diabetology, dermatology, GI, and other therapy markets.

The company also provides contract research and manufacturing services. Its contract

manufacturing products include aryl piperazines, benzhydryl derivatives, optically

active building blocks, and other products. The company sells its products in

approximately 70 countries worldwide. Lupin Limited was founded in 1968 and is

headquartered in Mumbai, India.

Ranbaxy

Ranbaxy Laboratories Limited, a pharmaceutical company, engages in manufacturing

and trading formulations, active pharmaceuticals ingredients and intermediates,

generics, and drug discovery and consumer health care products. Its products are used

for the treatment of chronic and lifestyle diseases in the areas of cardiovascular,

central nervous system, respiratory, dermatology, orthopedics, nutritional, and

urology, as well as anti-infectives, musculoskeletal, and gastrointestinal areas.

The company also involves in the discovery and development of drug molecules in

the areas of infectious diseases, metabolic diseases, inflammatory diseases, oncology,

and anti-malaria therapies. In addition, it offers financial services. The company has

operations in North America, Latin America, Europe, the Commonwealth of

Independent States countries, Africa, the Asia Pacific, and the Middle East. It has

collaborative research programs with GlaxoSmithKline and Merck.

The company was incorporated in 1961 and is headquartered in Gurgaon, India.

Ranbaxy Laboratories Limited operates as a subsidiary of Daiichi Sankyo Company,

Ltd.

Cipla- Balance sheet

Balance Sheet

------------------- in Rs. Cr.

-------------------

  Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

12 mths 12 mths 12 mths 12 mths 12 mths

Sources of Funds        

Total Share Capital 59.97 155.46 155.46 155.46 160.58

Equity Share Capital 59.97 155.46 155.46 155.46 160.58

Reserves 1,913.98 3,071.84 3,591.39 4,186.32 5,744.54

Revaluation Reserves 9.32 8.97 8.97 8.97 8.97

Networth 1,983.27 3,236.27 3,755.82 4,350.75 5,914.09

Secured Loans 51.27 7.25 16.98 2.79 0.41

Unsecured Loans 417.64 116.31 563.55 937.45 4.66

Total Debt 468.91 123.56 580.53 940.24 5.07

Total Liabilities 2,452.18 3,359.83 4,336.35 5,290.99 5,919.16

Application of Funds        

Gross Block 1,366.67 1,799.71 2,201.79 2,693.29 2,895.44

Less: Accum. Depreciation 310.06 411.64 540.43 700.80 884.27

Net Block 1,056.61 1,388.07 1,661.36 1,992.49 2,011.17

Capital Work in Progress 87.01 73.19 233.12 366.32 684.24

Investments 22.43 117.80 94.75 81.32 265.10

Inventories 957.00 978.60 1,120.49 1,398.32 1,512.58

Sundry Debtors 875.96 1,028.78 1,393.91 1,837.15 1,552.71

Cash and Bank Balance 44.45 56.33 79.12 52.84 60.32

Total Current Assets 1,877.41 2,063.71 2,593.52 3,288.31 3,125.61

Loans and Advances 414.84 695.81 1,150.30 1,131.10 2,357.29

Fixed Deposits 0.03 75.16 0.16 0.16 0.52

Total CA, Loans & Advances 2,292.28 2,834.68 3,743.98 4,419.57 5,483.42

Current Liabilities 733.84 643.78 980.05 1,177.00 1,177.11

Provisions 272.31 410.13 416.81 391.71 1,347.66

Total CL & Provisions 1,006.15 1,053.91 1,396.86 1,568.71 2,524.77

Net Current Assets 1,286.13 1,780.77 2,347.12 2,850.86 2,958.65

Total Assets 2,452.18 3,359.83 4,336.35 5,290.99 5,919.16

Contingent Liabilities 1,600.75 1,586.64 1,664.58 730.75 423.87

Book Value (Rs) 65.83 41.52 48.20 55.86 73.55

Cipla – Profit & Loss account

Profit & Loss account

------------------- in Rs. Cr.

-------------------

  Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

12 mths 12 mths 12 mths 12 mths 12 mths

Income        

Sales Turnover 3,103.62 3,656.92 4,293.95 5,295.33 5,657.85

Excise Duty 122.27 94.93 90.66 61.04 52.16

Net Sales 2,981.35 3,561.99 4,203.29 5,234.29 5,605.69

Other Income 112.20 100.68 134.92 -139.51 125.71

Stock Adjustments 94.35 -30.73 41.37 113.55 184.09

Total Income 3,187.90 3,631.94 4,379.58 5,208.33 5,915.49

Expenditure        

Raw Materials 1,564.11 1,754.89 2,162.48 2,513.11 2,687.54

Power & Fuel Cost 63.08 86.71 96.90 91.71 92.15

Employee Cost 150.76 184.59 255.45 271.33 318.87

Other Manufacturing Expenses 170.63 186.47 233.90 262.65 259.67

Selling and Admin Expenses 354.33 418.34 547.10 887.28 867.98

Miscellaneous Expenses 78.90 78.43 96.66 76.92 182.64

Total Expenses 2,381.81 2,709.43 3,392.49 4,103.00 4,408.85

Operating Profit 693.89 821.83 852.17 1,244.84 1,380.93

PBDIT 806.09 922.51 987.09 1,105.33 1,506.64

Interest 16.07 11.16 18.05 52.23 28.30

PBDT 790.02 911.35 969.04 1,053.10 1,478.34

Depreciation 80.18 103.37 130.68 151.79 165.25

Profit Before Tax 709.84 807.98 838.36 901.31 1,313.09

Extra-ordinary items 0.00 0.00 0.00 0.00 11.90

PBT (Post Extra-ord Items) 709.84 807.98 838.36 901.31 1,324.99

Tax 102.20 139.95 136.93 124.50 243.50

Reported Net Profit 607.64 668.03 701.43 776.81 1,081.49

Total Value Addition 817.70 954.54 1,230.01 1,589.89 1,721.31

Equity Dividend 155.46 155.46 155.46 155.46 160.58

Corporate Dividend Tax 21.80 26.42 26.42 26.42 26.67

Per share data (annualised)        

Shares in issue (lakhs) 2,998.70 7,772.91 7,772.91 7,772.91 8,029.21

Earning Per Share (Rs) 20.26 8.59 9.02 9.99 13.47

Equity Dividend (%) 100.00 100.00 100.00 100.00 100.00

Book Value (Rs) 65.83 41.52 48.20 55.86 73.55

DR REDDYS – Balance Sheet

Balance Sheet

------------------- in Rs. Cr.

-------------------

  Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

12 mths 12 mths 12 mths 12 mths 12 mths

Sources of Funds        

Total Share Capital 38.35 83.96 84.09 84.20 84.40

Equity Share Capital 38.35 83.96 84.09 84.20 84.40

Reserves 2,223.79 4,289.40 4,727.72 5,174.90 5,830.20

Networth 2,262.14 4,373.36 4,811.81 5,259.10 5,914.60

Secured Loans 145.13 1.92 3.40 2.60 0.80

Unsecured Loans 778.74 327.98 458.91 637.70 562.40

Total Debt 923.87 329.90 462.31 640.30 563.20

Total Liabilities 3,186.01 4,703.26 5,274.12 5,899.40 6,477.80

Application of Funds        

Gross Block 1,052.90 1,291.19 1,750.21 2,157.30 2,425.70

Less: Accum. Depreciation 491.08 609.15 762.80 946.50 1,110.10

Net Block 561.82 682.04 987.41 1,210.80 1,315.60

Capital Work in Progress 112.92 280.61 245.71 411.20 745.40

Investments 911.36 966.99 2,080.71 1,865.10 2,652.70

Inventories 443.10 487.58 640.93 735.10 897.40

Sundry Debtors 581.22 1,055.70 897.71 1,419.70 1,060.50

Cash and Bank Balance 25.50 148.60 67.19 84.30 47.90

Total Current Assets 1,049.82 1,691.88 1,605.83 2,239.10 2,005.80

Loans and Advances 723.61 1,028.56 1,272.02 1,331.20 1,321.40

Fixed Deposits 625.44 1,308.11 470.15 300.10 320.10

Total CA, Loans & Advances 2,398.87 4,028.55 3,348.00 3,870.40 3,647.30

Current Liabilities 624.25 731.96 786.36 1,163.30 1,543.80

Provisions 174.70 522.97 601.38 294.80 339.40

Total CL & Provisions 798.95 1,254.93 1,387.74 1,458.10 1,883.20

Net Current Assets 1,599.92 2,773.62 1,960.26 2,412.30 1,764.10

Total Assets 3,186.02 4,703.26 5,274.09 5,899.40 6,477.80

Contingent Liabilities 2,409.27 1,896.92 1,892.55 1,934.80 2,016.10

Book Value (Rs) 294.95 260.45 286.12 312.17 350.30

DR REDDYS – Profit & Loss account

Profit & Loss account

------------------- in Rs. Cr.

-------------------

  Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

12 mths 12 mths 12 mths 12 mths 12 mths

Income        

Sales Turnover 2,101.97 3,872.92 3,428.40 4,080.40 4,469.60

Excise Duty 98.71 89.66 84.51 80.90 74.00

Net Sales 2,003.26 3,783.26 3,343.89 3,999.50 4,395.60

Other Income 95.98 233.95 197.29 212.20 254.00

Stock Adjustments 36.72 23.23 93.87 64.10 117.30

Total Income 2,135.96 4,040.44 3,635.05 4,275.80 4,766.90

Expenditure        

Raw Materials 792.87 1,144.82 1,347.33 1,534.00 1,599.40

Power & Fuel Cost 48.23 57.83 77.12 90.00 104.10

Employee Cost 205.85 299.04 366.28 412.50 516.40

Other Manufacturing Expenses 74.95 155.63 130.35 105.90 117.30

Selling and Admin Expenses 567.59 777.06 896.54 1,117.90 1,036.60

Miscellaneous Expenses 33.42 44.76 37.44 45.30 50.60

Total Expenses 1,722.91 2,479.14 2,855.06 3,305.60 3,424.40

Operating Profit 317.07 1,327.35 582.70 758.00 1,088.50

PBDIT 413.05 1,561.30 779.99 970.20 1,342.50

Interest 24.63 51.96 14.69 27.40 16.00

PBDT 388.42 1,509.34 765.30 942.80 1,326.50

Depreciation 111.33 133.50 161.99 193.60 222.40

Other Written Off 13.31 18.16 20.71 19.70 19.30

Profit Before Tax 263.78 1,357.68 582.60 729.50 1,084.80

Extra-ordinary items -0.01 -0.02 -0.06 -0.10 -0.10

PBT (Post Extra-ord Items) 263.77 1,357.66 582.54 729.40 1,084.70

Tax 52.64 188.99 108.88 168.60 238.70

Reported Net Profit 211.12 1,176.86 475.22 560.90 846.10

Total Value Addition 930.04 1,334.32 1,507.73 1,771.60 1,825.00

Equity Dividend 38.35 62.97 63.06 105.30 190.00

Corporate Dividend Tax 5.38 10.70 10.72 17.80 31.60

Per share data (annualised)        

Shares in issue (lakhs) 766.95 1,679.12 1,681.73 1,684.69 1,688.45

Earning Per Share (Rs) 27.53 70.09 28.26 33.29 50.11

Equity Dividend (%) 100.00 75.00 75.00 125.00 225.00

Book Value (Rs) 294.95 260.45 286.12 312.17 350.30

Glaxosmithkline– Balance Sheet

     

------------------- in Rs. Cr.

-------------------

  Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

12 mths 12 mths 12 mths 12 mths 12 mths

Sources of Funds        

Total Share Capital 84.70 84.70 84.70 84.70 84.70

Equity Share Capital 84.70 84.70 84.70 84.70 84.70

Reserves 863.90 1,110.01 1,276.21 1,456.39 1,674.45

Networth 948.60 1,194.71 1,360.91 1,541.09 1,759.15

Unsecured Loans 4.85 5.54 5.77 5.65 5.42

Total Debt 4.85 5.54 5.77 5.65 5.42

Total Liabilities 953.45 1,200.25 1,366.68 1,546.74 1,764.57

Application of Funds        

Gross Block 253.11 253.63 266.71 282.15 289.18

Less: Accum. Depreciation 171.54 167.83 179.24 191.75 196.37

Net Block 81.57 85.80 87.47 90.40 92.81

Capital Work in Progress 15.37 8.66 5.43 9.95 21.36

Investments 913.06 1,139.41 1,333.32 751.87 190.91

Inventories 218.13 240.95 205.96 228.38 253.02

Sundry Debtors 67.39 60.45 37.77 57.94 53.73

Cash and Bank Balance 47.53 28.68 45.91 43.79 74.75

Total Current Assets 333.05 330.08 289.64 330.11 381.50

Loans and Advances 169.93 206.40 188.87 236.86 187.35

Fixed Deposits 0.00 6.35 109.08 862.75 1,597.85

Total CA, Loans & Advances 502.98 542.83 587.59 1,429.72 2,166.70

Current Liabilities 268.97 258.29 254.59 280.71 324.25

Provisions 290.55 318.15 392.55 454.51 382.96

Total CL & Provisions 559.52 576.44 647.14 735.22 707.21

Net Current Assets -56.54 -33.61 -59.55 694.50 1,459.49

Total Assets 953.46 1,200.26 1,366.67 1,546.72 1,764.57

Contingent Liabilities 142.49 264.97 208.40 258.47 208.47

         

Glaxosmithkline – Profit & Loss account

Profit & Loss account

------------------- in Rs. Cr.

-------------------

  Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

12 mths 12 mths 12 mths 12 mths 12 mths

Income        

Sales Turnover 1,579.58 1,681.07 1,721.12 1,762.64 1,924.27

Excise Duty 105.51 139.14 142.54 86.28 40.13

Net Sales 1,474.07 1,541.93 1,578.58 1,676.36 1,884.14

Other Income 262.55 254.01 241.51 216.03 91.39

Stock Adjustments -0.54 22.58 -16.80 2.33 32.41

Total Income 1,736.08 1,818.52 1,803.29 1,894.72 2,007.94

Expenditure        

Raw Materials 637.26 651.18 616.40 653.26 728.65

Power & Fuel Cost 16.61 19.23 20.54 24.75 24.66

Employee Cost 156.06 153.87 151.45 173.05 209.71

Other Manufacturing Expenses 28.97 40.35 43.33 46.55 52.03

Selling and Admin Expenses 167.56 143.93 136.31 140.68 182.82

Miscellaneous Expenses 44.37 43.80 12.27 12.27 10.02

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00

Total Expenses 1,050.83 1,052.36 980.30 1,050.56 1,207.89

Operating Profit 422.70 512.15 581.48 628.13 708.66

PBDIT 685.25 766.16 822.99 844.16 800.05

Interest 1.67 1.35 1.35 0.53 0.37

PBDT 683.58 764.81 821.64 843.63 799.68

Depreciation 15.73 15.85 16.16 16.34 16.37

Other Written Off 0.00 0.00 0.00 0.00 0.00

Profit Before Tax 667.85 748.96 805.48 827.29 783.31

Extra-ordinary items 5.84 6.70 -38.87 0.50 2.72

PBT (Post Extra-ord Items) 673.69 755.66 766.61 827.79 786.03

Tax 171.62 194.23 211.46 231.54 253.59

Reported Net Profit 502.08 545.51 537.66 576.57 512.29

Total Value Addition 413.57 401.18 363.90 397.31 479.24

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 237.17 262.58 304.93 338.81 254.11

Corporate Dividend Tax 33.26 36.83 51.82 57.58 40.13

Per share data (annualised)        

Shares in issue (lakhs) 847.03 847.03 847.03 847.03 847.03

Earning Per Share (Rs) 59.28 64.40 63.48 68.07 60.48

Equity Dividend (%) 280.00 310.00 360.00 400.00 300.00

Book Value (Rs) 111.99 141.05 160.67 181.94 207.68

Lupin – Balance Sheet

Balance Sheet

------------------- in Rs. Cr.

-------------------

  Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

12 mths 12 mths 12 mths 12 mths 12 mths

Sources of Funds        

Total Share Capital 40.14 80.34 82.08 82.82 88.94

Equity Share Capital 40.14 80.34 82.08 82.82 88.94

Reserves 603.81 808.07 1,234.97 1,292.48 2,441.61

Networth 643.95 888.41 1,317.05 1,375.30 2,530.55

Secured Loans 428.65 390.91 560.88 565.12 704.00

Unsecured Loans 483.95 473.64 404.67 379.79 202.81

Total Debt 912.60 864.55 965.55 944.91 906.81

Total Liabilities 1,556.55 1,752.96 2,282.60 2,320.21 3,437.36

Application of Funds        

Gross Block 835.06 951.71 1,155.05 1,331.37 1,616.52

Less: Accum. Depreciation 192.66 237.90 291.98 355.75 425.13

Net Block 642.40 713.81 863.07 975.62 1,191.39

Capital Work in Progress 25.21 82.55 68.95 116.31 140.83

Investments 9.50 5.86 292.49 473.87 724.07

Inventories 310.29 402.07 625.85 715.88 713.70

Sundry Debtors 348.39 479.30 632.26 709.06 916.59

Cash and Bank Balance 11.62 17.78 11.45 9.36 36.53

Total Current Assets 670.30 899.15 1,269.56 1,434.30 1,666.82

Loans and Advances 239.99 247.95 260.46 383.31 665.79

Fixed Deposits 444.18 335.00 203.63 2.77 0.89

Total CA, Loans & Advances 1,354.47 1,482.10 1,733.65 1,820.38 2,333.50

Current Liabilities 402.27 464.96 567.28 923.58 785.62

Provisions 72.76 66.40 108.28 142.39 166.81

Total CL & Provisions 475.03 531.36 675.56 1,065.97 952.43

Net Current Assets 879.44 950.74 1,058.09 754.41 1,381.07

Total Assets 1,556.55 1,752.96 2,282.60 2,320.21 3,437.36

Contingent Liabilities 99.41 89.34 72.47 114.41 113.70

Book Value (Rs) 160.42 110.57 160.46 166.06 284.51

Lupin – Income Statement

Profit & Loss Account

------------------- in Rs. Cr.

-------------------

  Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

12 mths 12 mths 12 mths 12 mths 12 mths

Income        

Sales Turnover 1,717.43 2,051.70 2,661.62 2,997.49 3,723.96

Excise Duty 64.50 65.91 86.23 42.79 33.87

Net Sales 1,652.93 1,985.79 2,575.39 2,954.70 3,690.09

Other Income 1.10 146.29 114.57 13.19 -14.12

Stock Adjustments 30.05 42.59 184.17 25.46 -1.98

Total Income 1,684.08 2,174.67 2,874.13 2,993.35 3,673.99

Expenditure        

Raw Materials 826.85 1,004.11 1,346.25 1,351.62 1,596.77

Power & Fuel Cost 73.25 90.26 109.26 123.83 141.68

Employee Cost 155.72 187.50 241.82 334.47 376.55

Other Manufacturing Expenses 49.15 63.37 82.93 102.73 115.15

Selling and Admin Expenses 234.36 301.55 383.83 444.21 562.13

Miscellaneous Expenses 40.28 48.03 54.16 49.18 54.72

Total Expenses 1,379.61 1,694.82 2,218.25 2,406.04 2,847.00

Operating Profit 303.37 333.56 541.31 574.12 841.11

PBDIT 304.47 479.85 655.88 587.31 826.99

Interest 34.24 41.70 42.15 49.99 36.76

PBDT 270.23 438.15 613.73 537.32 790.23

Depreciation 40.35 46.37 56.11 66.35 81.57

Other Written Off 0.00 0.00 0.00 0.00 0.00

Profit Before Tax 229.88 391.78 557.62 470.97 708.66

Extra-ordinary items -3.40 0.89 -0.56 0.40 -1.08

PBT (Post Extra-ord Items) 226.48 392.67 557.06 471.37 707.58

Tax 47.48 94.69 114.26 54.41 59.73

Reported Net Profit 182.72 302.06 443.38 416.97 648.93

Total Value Addition 552.76 690.71 872.00 1,054.42 1,250.23

Equity Dividend 26.09 40.17 82.08 103.53 120.07

Corporate Dividend Tax 3.66 6.83 14.04 17.59 20.12

Per share data (annualised)        

Shares in issue (lakhs) 401.41 803.45 820.81 828.20 889.44

Earning Per Share (Rs) 45.52 37.60 54.02 50.35 72.96

Equity Dividend (%) 65.00 50.00 100.00 125.00 135.00

Book Value (Rs) 160.42 110.57 160.46 166.06 284.51

Ranbaxy – Balance Sheet

Balance Sheet

------------------- in Rs. Cr.

-------------------

Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

12 mths 12 mths 12 mths 12 mths 12 mths

Sources of Funds        

Total Share Capital 186.22 186.34 186.54 210.19 210.21

Equity Share Capital 186.22 186.34 186.54 210.19 210.21

Share Application Money 0.28 0.88 1.18 175.66 175.85

Reserves 2,190.80 2,162.79 2,350.68 3,330.92 3,748.54

Networth 2,377.30 2,350.01 2,538.40 3,716.77 4,134.60

Secured Loans 353.49 224.29 365.07 162.07 175.83

Unsecured Loans 676.31 2,954.31 3,137.96 3,563.30 3,172.55

Total Debt 1,029.80 3,178.60 3,503.03 3,725.37 3,348.38

Total Liabilities 3,407.10 5,528.61 6,041.43 7,442.14 7,482.98

Application of Funds        

Gross Block 1,799.32 2,133.57 2,261.48 2,386.75 2,620.92

Less: Accum. Depreciation 599.35 699.54 791.96 930.07 1,027.52

Net Block 1,199.97 1,434.03 1,469.52 1,456.68 1,593.40

Capital Work in Progress 432.84 301.88 327.42 428.77 414.92

Investments 762.78 2,679.95 3,237.55 3,618.03 3,833.69

Inventories 890.93 954.91 976.07 1,198.52 1,230.48

Sundry Debtors 806.62 1,013.75 882.91 1,024.54 1,534.65

Cash and Bank Balance 30.48 27.06 69.38 49.86 25.56

Total Current Assets 1,728.03 1,995.72 1,928.36 2,272.92 2,790.69

Loans and Advances 594.94 581.18 882.99 2,351.98 1,967.65

Fixed Deposits 86.11 44.09 111.07 1,885.08 728.56

Total CA, Loans & Advances 2,409.08 2,620.99 2,922.42 6,509.98 5,486.90

Current Liabilities 983.57 985.57 1,177.35 3,840.11 3,082.89

Provisions 413.99 522.67 738.14 731.20 763.03

Total CL & Provisions 1,397.56 1,508.24 1,915.49 4,571.31 3,845.92

Net Current Assets 1,011.52 1,112.75 1,006.93 1,938.67 1,640.98

Total Assets 3,407.11 5,528.61 6,041.42 7,442.15 7,482.99

Contingent Liabilities 202.40 159.40 201.00 252.85 261.05

Book Value (Rs) 63.82 63.03 68.01 84.24 94.16

Ranbaxy – Income Statement

Profit & Loss account

------------------- in Rs. Cr.

-------------------

  Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

12 mths 12 mths 12 mths 12 mths 12 mths

Income        

Sales Turnover 3,727.05 4,218.98 4,344.39 4,676.21 4,797.49

Excise Duty 86.56 53.86 51.37 24.17 15.90

Net Sales 3,640.49 4,165.12 4,293.02 4,652.04 4,781.59

Other Income 122.25 -28.65 551.13 -1,587.64 485.66

Stock Adjustments 30.96 44.70 40.66 115.59 33.96

Total Income 3,793.70 4,181.17 4,884.81 3,179.99 5,301.21

Expenditure        

Raw Materials 1,567.55 1,708.23 1,861.17 2,049.30 1,916.58

Power & Fuel Cost 69.55 80.70 90.35 108.83 109.57

Employee Cost 298.38 328.45 420.04 472.65 582.50

Other Manufacturing Expenses 67.09 79.52 82.60 94.65 89.94

Selling and Admin Expenses 1,339.12 1,234.42 1,341.03 1,402.77 1,306.25

Miscellaneous Expenses 144.32 146.23 123.90 383.26 158.07

Total Expenses 3,486.01 3,577.55 3,919.09 4,511.46 4,162.91

Operating profit 185.44 632.27 414.59 256.17 652.64

PBDIT 307.69 603.62 965.72 -1,331.47 1,138.30

Interest 26.41 58.44 93.43 145.83 39.47

PBDT 281.28 545.18 872.29 -1,477.30 1,098.83

Depreciation 101.33 106.75 118.73 154.47 148.20

Profit Before Tax 179.95 438.43 753.56 -1,631.77 950.63

Extra-ordinary items 12.72 19.34 35.46 17.76 111.42

PBT (Post Extra-ord Items) 192.67 457.77 789.02 -1,614.01 1,062.05

Tax -22.34 62.43 156.69 -574.24 488.86

Reported Net Profit 212.04 380.54 617.72 -1,044.80 571.98

Total Value Addition 1,918.46 1,869.31 2,057.93 2,462.16 2,246.33

Equity Dividend 316.67 316.89 317.15 0.00 0.00

Corporate Dividend Tax 44.41 44.44 53.90 0.00 0.00

Per share data (annualised)        

Shares in issue (lakhs) 3,724.42 3,726.87 3,730.71 4,203.70 4,204.17

Earning Per Share (Rs) 5.69 10.21 16.56 -24.85 13.61

Equity Dividend (%) 170.00 170.00 170.00 0.00 0.00

Book Value (Rs) 63.82 63.03 68.01 84.24 94.16

RATIO ANALYSIS OF CIPLA, DR REDDYS,

GLAXOSMITHKLINE, LUPIN AND RANBAXY

EARNINGS PER SHARE

EARNINGS PER SHARE

YEARS Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

CIPLA 20.26 8.59 9.02 9.99 13.47

DR REDDYS 27.53 70.09 28.26 33.29 50.11

GLAXOSMITHKLIN

E 59.28 64.40 63.48 68.07 60.48

LUPIN 45.52 37.60 54.02 50.35 72.96

RANBAXY 5.69 10.21 16.56 -24.85 13.61

Interpretations

EPS measures the profit available to the equity shareholders per share, that is, the

amount that they can get on every share held. CIPLA and DR Reddy’s have been

recording a consistent growth in the EPS over the last five years. GlaxoSmithKline

has also registered a consistent EPS of around 60% in the last five years. Though

fluctuating, LUPIN has also delivered good EPS with the maximum of Rs. 73 in

2014. RANBAXY is the only odd player in the group registering a negative EPS in

2013 though recovered sharply in 202.

SALES

SALES In Rs.Cr

Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

CIPLA 3,103.62 3,656.92 4,293.95 5,295.33 5,657.85

DR REDDYS 2,101.97 3,872.92 3,428.40 4,080.40 4,469.60

GLAXOSMITHKLIN

E 1,579.58 1,681.07 1,721.12 1,762.64 1,924.27

LUPIN 1,717.43 2,051.70 2,661.62 2,997.49 3,723.96

RANBAXY 3,727.05 4,218.98 4,344.39 4,676.21 4,797.49

Interpretations

All the five companies have shown a positive trend in sales over the past five years.

Though slowdown in the economy brought hurdles, healthcare companies are the least

effected and have potential to grow in future as lots of products are still to add in their

portfolio. Moreover increased demand in foreign market also seems to be a positive

signal for better future.

DIVIDEND PER SHARE

DIVIDEND PER SHARE

YEARS Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

CIPLA 2.00 2.00 2.00 2.00 2.00

DR REDDYS 5.00 3.75 3.75 6.25 11.25

GLAXOSMITHKLIN

E 31.00 36.00 40.00 30.00 31.00

LUPIN 6.50 5.00 10.00 12.50 13.50

RANBAXY 8.50 8.50 8.50 -- --

Interpretations

CIPLA has declared a consistent dividend of Rs.2 per share over the last five years.

Dr Reddys has been registering a good growth in the last two years. Glaxo Smith

Kline has also been consistent in declaring the dividends. Lupin has also been

registering a good growth in declaring the dividends. Again, RANBAXY is the only

odd player without declaring any dividends.

RETURN ON INVESTMENT (ROI)

Return on Investment

YEARS Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

CIPLA 30.78 20.70 18.72 17.89 18.31

DR REDDYS 9.33 26.91 9.87 10.66 14.30

GLAXOSMITHKLIN

E 52.93 45.66 39.51 37.41 29.12

LUPIN 28.37 34 33.66 30.31 25.64

RANBAXY 8.92 16.19 24.34 -29.5 14.44

Interpretations

ROI is one of the most important ratios used for measuring the overall efficiency of a

firm and determines whether the investments in the firms are attractive or not. Glaxo

Smith Kline has the best ROI of nearly 30% followed by Lupin with 25.64%. Cipla,

Ranbaxy and Dr Reddy’s have a ROI of 18.31%, 14.44% and 14.30 respectively.

DIVIDEND PAYOUT RATIO

DIVIDEND PAYOUT RATIO

YEARS Mar ‘10 Mar ‘11 Mar ‘12 Mar ‘13 Mar’14

CIPLA 29.17 27.22 25.92 23.41 17.31

DR REDDYS 20.71 6.25 15.52 21.94 26.19

GLAXOSMITHKLIN

E 53.86 54.88 66.35 68.75 57.43

LUPIN 16.28 15.55 21.67 29.04 21.6

RANBAXY 170.28 94.95 60.06 -- --

Interpretations

Dividend payout ratio is the percentage of earnings paid to shareholders in dividends.

It provides an idea to an investor of how well earnings support the dividend payments.

All the companies have been following a consistent dividend payout ratio over the last

five years, though there is a fall seen in the last year.

CHAPTER V

FINDINGS, SUGGESTIONS

& CONCLUSION

FINDINGS

From the data analysis and interpretations of the ratios of five companies’ viz. Cipla,

DR Reddys, Lupin, Glaxosmithkline and Ranbaxy, the following findings have been

given:

CIPLA and DR Reddy’s have been recording a consistent growth in the EPS

over the last five years. GlaxoSmithKline has also registered a consistent EPS

of around 60% in the last five years. Though fluctuating, LUPIN has also

delivered good EPS with the maximum of Rs. 73 in 2014. RANBAXY is the

only odd player in the group registering a negative EPS in 2011 though

recovered sharply in 2014.

All the five companies have shown a positive trend in sales over the past five

years. Though slowdown in the economy brought hurdles, healthcare

companies are the least effected and have potential to grow in future as lots of

products are still to add in their portfolio. Moreover increased demand in

foreign market also seems to be a positive signal for better future.

CIPLA has declared a consistent dividend of Rs.2 per share over the last five

years. Dr Reddys has been registering a good growth in the last two years.

Glaxo Smith Kline has also been consistent in declaring the dividends. Lupin

has also been registering a good growth in declaring the dividends. Again,

RANBAXY is the only odd player without declaring any dividends.

Glaxo Smith Kline has the best ROI of nearly 30% followed by Lupin with

25.64%. Cipla, Ranbaxy and Dr Reddy’s have a ROI of 18.31%, 14.44% and

14.30 respectively.

All the three companies had a more or less stable dividend payout ratio since

2009.

SUGGESTIONS

By analyzing the pharmaceutical sector with the help of fundamental analysis, it has

been revealed that this industry has a lot of potential to grow. So recommending

investing in pharmaceutical industry with no doubt is going to be a good and smart

option because this industry is booming like never before not only in India but all

over the world.

Except for Ranbaxy, all the other companies seem to be a good bet for

investment.

Glaxosmithkline with the maximum Rate of Return is recommended for buy

in the long run. The company also pays the maximum dividend compared to

its peers.

Lupin follows Glaxosmithkline in terms of ROI and Dividend and it can also

be recommended for a buy.

RANBAXY for some reasons had been lagging behind in the race and can be

avoided in the short run.

Few Suggestions for “Right Stock Selection”

There are three factors which an investor must consider for selecting the right stocks.

Business: An investor must look into what kind of business the company is

doing, visibility of the business, its past track record, capital needs of the

company for expansion etc.

Balance Sheet: The investor must focus on its key financial ratios such as

earnings per share, price-earning ratio; debt-equity ratio, dividends per share

etc and he must also check whether the company is generating cash flows.

Bargaining: This is the most important factor which shows the true worth of

the company. An investor needs to choose valuation parameters which suit its

business.

Investment rules

Invest for long term in equity markets

Align your thought process with the business cycle of the company.

Set the purpose for investment.

Long term goals should be the objective of equity investment.

Disciplined investment during market volatility helps attains profits.

Planning, Knowledge and Discipline are very crucial for investment.

CONCLUSION

The outlook for Indian pharma sector for 2014 is stable. Earnings and profitability of

Indian generic-based pharmaceutical companies will benefit from continued demand

for generics. Strong revenue visibility coupled with stable operating profitability

margins and limited capex spending would result in stable credit profiles for Fitch-

rated entities. However, liquidity would remain a concern for the sector mainly on

account of high working capital requirements.

US market is expected to be the main growth driver for the demand of generics. It is

also expected that Indian pharmaceutical companies to see earnings visibility from the

domestic markets and the positive prospects of outsourcing. The increasing interest

towards generics among global innovator companies to either set shop in India or

forge alliances and partnerships with Indian pharmaceutical companies will be

additional revenue triggers for the sector.

During FY11, the margins of Indian pharmaceutical companies will mostly remain

stable driven by increasing scale in the generic segment. This is also expected to

continue into FY12. Fitch expects the profitability of Indian pharmaceutical

companies to continue to benefit from better geographic and product mix, as well as

from higher capacity utilization levels. Despite the positives that would guide margin

expansions, competition and subsequent price erosions could limit the expected

improvement.

Working capital levels for the sector are more likely to remain high and would most

likely have a negative impact on the liquidity profiles of smaller pharmaceutical

companies. For larger and mid size pharmaceutical companies, size, scale and track

record will enable them to raise finance and better manage their liquidity.

Downside risks to the outlook could be on account of regulatory and litigation risks.

Fitch notes that regulatory risks emanating from quality issues will have a significant

impact on the earnings visibility of Indian pharmaceutical companies.

Furthermore, litigation risks stemming from Para IV and First-to-File filing will have

a negative impact on profitability. Other concerns that plague the industry range from

delays in attaining product approvals, intensifying competition and price controls. All

these factors if and when materialized could also have a negative impact on the sector.

BIBLIOGRAPHY

Text Books

Security Analysis and Portfolio Management by Punithavathy Pandian, Vikas

Publications.

Security analysis and portfolio management by V.A. Avadhani

Financial Markets and Services by Gordon and Natarajan, Himalaya

Publications.

Financial Management by Shashi K Gupta and R. K Sharma, Kalyani

Publications.

Newspapers

Economic times

Business line

Websites

www.nseindia.com

www.bseindia.com

www.investopedia.com

www.moneycontrol.com

www.indiainfoline.com

www.sebi.gov.in

www.yahoofinance.com

CNBC TV18 – “The Informed Investor” supported by SEBI and presented by

NSE