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CASE STUDY

PROJECT AT A GLANCE

1. PROJECT:

Project is for setting up a new unit for manufacturing the following pharmaceutical formulation:

a) Tablets

b) Capsules

c) Oral Liquids

d) Injectables

e) Ointments

2. TYPE OF UNIT: Medium Scale project.

5. TECHNOLOGY: The technology is fully indigenous and very well tried in the country.

6. INSTALLED CAPACITY: (On single shift basis only)

a) Tablets 2 Crore Nos.

b) Capsules 3 Crore Nos.

c) Oral Liquids 2 Lacs Ltrs.

d) Injectables 150 Lacs Vials

e) Ointments 15,200 Kgs.

7. COMMERCIAL PRODUCTION: From April 1996.

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8. CAPACITY UTILISATION:

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

50% 60% 70% 80% 90% 93%

9. ENVISAGED NET TURNOVER:

(Rs. In lacs)

Products 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

a. Tablets 411.50 493.80 576.10 658.40 740.70 765.39

b. Capsules 137.00 164.40 191.80 219.20 246.60 254.82

c. Injectables 511.50 613.80 716.10 818.40 920.70 951.39d. Oral

Liquids

54.50 65.40 76.30 87.20 98.10 101.37

e. Ointments 24.00 28.80 33.60 38.40 43.20 44.64

1138.50 1366.20 1593.90 1821.60 2049.30 2117.61

10. SOURCE OF TECHNOLOGY OF PLANT & MACHINERY: INDIA

11. COST OF PROJECT

Rs. In lacs

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LAND INCLUDING SITE DEVELOPMETN 25.23BUILDING 86.50

PLANT AND MACHINERY 182.35

ELECTRICAL INSTALLATIONS 19.50

OTHER ASSETS 39.50

PRELIMINARY & ISSUE EXPENSES 55.00PRE OPERATIVE EXPENSES 20.00

CONTINGENCIES 11.00MARKET DEVELOPMENT AND PRODUCT

LAUNCHING EXPENSES

30.00

469.08WORKING CAPITAL MARGIN 101.92

571.00

12. MEANS OF FINANCE:

SHARE CAPITAL- From Promoters 131.00

- Through Public Issue 370.00 501.00

TERM LOAN FROM BANK / FINANCIAL INST. 70.00571.003

13. FINANCIAL ASSISTANCE:

a) Term Loan Rs. 70 lacs

b) Working capital loan Rs. 110 lacs

14. UTILISATION OF FUNDS:

a) Term loan is partly required for purchase of Plane & Machinery, Building and other fixed assets.

b) Working capital assistance is required for purchase of Raw Material, Packing Materials, Semi-finished,finished goods storage, Outstanding debtors etc.

15. RAW MATERIAL:

Easily available in the local market

16. UTILITIES:

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a) Power: 100 KVAb) Water: 10.000 Ltrs. / Day

17. KEY FINANCIAL DATA:

(Rs. Lacs)

1ST FULLYEAR OF

OPERATIONS2001-02

2002-03 2003-04

TOTAL INCOMES 1,138.50 1,366.20 1,593.90

PROFIT BEFORE INTEREST & DEPR. 267.16 358.37 447.38PROFIT BEFORE INTERST 249.76 340.97 430.30

PROFIT BEFORE TAX 214.68 295.03 381.17

PROFIT AFTER TAX 154.77 180.60 223.28

NET PROFIT TO SALES (%) 13.59 13.22 14.00SHARE CAPITAL 501.00 501.00 501.00

NET WORTH 580.62 661.02 774.00EARNING PER SHARE 3.09 3.60 4.40CASH EARNING PER SHARE 3.75 4.26 5.1

DIVIDEND 15.00 20.00 25.00

DEBT EQUITY RATIO 0.12:1 0.08:1 0.08:1CURRENT RATIO 1.89 1.92 2.1

D.S.C.R. 8.10 8.81 11.70

BREAK EVEN POINT IN TERMS OFCAPACITY UTILISATION

19.11 19.69 20.00

18. TERM LOAN PAYMENT SCHEDULE:

6 Years including moratorium period of six months

19. BREAK EVEN POINT ( AT 93% CAPACITY): 22.26%

Introduction:

Being a core industry since planned economic development of the country started in 1951, pharmaceutical

industry assumes a strategic importance. It is described as a life line industry looking to its crucial role in

alleviating suffering from disease and increasing longevity of human life. Also, with changing life style of

urban people, pharmaceutical industry and in particular drugs like anti-inflationary, anti-hypertensive, anti-

ulcer, etc. would emerge as the most essential need of the society .

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Brief History:

The XYZ company ltd. Is a company promoted by experienced promoters having proven track record in

various business activities with the object to manufacture pharmaceutical formulations comprising o

tablets(antibiotic, anti-malarial, Anti-acid, Analgesic, Anti-hypertensive, Anti-amoebis, etc.), capsules

(penecilin, multivitamins,doxycycline ,etc.) liquid (Erythromicine, IB+pra, Antiacid suspension, cough syrup

etc.), Injectible (Analgin, Cloroquine, Oxytetracycline, Gentamycine, etc.) and ointments (flocinomycine

Miconazole, etc.)

The XYZ ltd., is a company promoted with firm determination to become an ideal pharmaceutical company

manufacturing as per WHO GMP standards and thereby setting guiding road for others.The proposed project is located in the Category B backward area and is eligible for subsidy and sales tax

exemption.

The company has started implementation of the project after acquiring land and completing the site

development works. The construction of the company work has also been completed.

There are 5 promoters for the company each one with expertise in their field.

Promoter 1: is a science graduate and a well known builder and the land developer. He has the rich experience

in development of as many as 14 societies in 13 years.

Promoter 2: has more than 12 years of experience in the field of construction and development of many

societies.

Promoter 3: is a M.Pharm. (Pharmaceutical Chemistry) DHRM and has experience of 8 yrs, in Pharma

Industry and is fully devoted to Pharma line. He has visited to USA to acquaint himself with lates

promotional know-how and technology of Pharma industry. He will look after production as well as

development of the new product development in drugs.

Other directors;

1st : Ph. D in synthesis of Heterocycles and potential drugs. He has done his doctoral studies in Viena in

1083-84.

2nd : is a well known industrialist having rich experience of about 50yrs. in the industry.

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3rd : is a 49 yr MD (Gen. Medicine) a consulting Physician since 1978. he was also Hon. Asst. Prof. Of

nephrology at an renowned institution for 8yrs.

The overall power of the organization west in the board of directors comprising of experienced and reputedprofessional from different fields.

About the Proposed Project: -

The proposed project is located at ( ABC ROAD, Dist - DEF, Taluka- www)

The proposed project shall be for setting up of versatile plant for manufacturing of pharmaceutical

formulations.

The company proposes to have following section:

SECTION PRODUCT / PRODUCT GROUP

a) Tablet Section Antibiotics, Antimalarials, Antacids, Analgesic Anti-

inflammatory, Antipsychotic, Anti Amoebic etc.

b) Capsule Section Penicillin group and other than Penicillin group i.e.

Multivitamins, Doxycyclin, Tetracycline etc.

c) Oral Liquid Section Erythromycin, Ilouprofen plus paracetamol, Antheidsuspension, Cough Syrup etc.

d) Injectable Section Analgin, Chloroquine, Oxytetracycline, gentamicine etc.

e) Ointment Section Fluocinolone, Miconazole, Betamethasone, Clotrimezole,

Nitrofurazone etc.

Project Technical Aspects: -

Mr. Promoter 3 . M. Pharma. (Pharmaceutical Chemistry), D.H.R.M. who is Director of the Company and

having 8 years experience in pharmaceutical Industry shall be looking after total technical aspects of the

company. He will be assisted by Production In-charge and no. of the Chemists. Dr. Chaintanya G. Dave who

has long experience in Pharmaceutical line will also extend required guidance in case of a problem or in

development of new product range. In view of the same Company does not foresee any technical problem.

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COST OF PROJECT

Rs. In

lacsLAND INCLUDING SITE DEVELOPMETN 25.23

BUILDING 86.50PLANT AND MACHINERY 182.35


OTHER ASSETS 39.50PRELIMINARY & ISSUE EXPENSES 55.00

PRE OPERATIVE EXPENSES 20.00

CONTINGENCIES 11.00

MARKET DEVELOPMENT AND PRODUCTLAUNCHING EXPENSES

30.00

469.08WORKING CAPITAL MARGIN 101.92

571.00571

572MEANS OF FINANCE:

SHARE CAPITAL

- From Promoters 131.00

- Through Public Issue 370.00501.00

STATE CASH SUBSIDY 0.00

TERM LOAN FROM BANK / FINANCIAL INST. 70.00

571.003

BUSINESS PROSPECTS AND PROFITABILITY:

The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug

intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. There are about

250 large units and about 8000 Small Scale Units which form the core of the pharmaceutical industry in India

(including 5 Central Public Sector Units). These units produce the complete range of pharmaceutica

formulations i.e. medicines ready for consumption by patients and about 350 bulk drugs i.e. chemicals having

therapeutic value and used for production of pharmaceutical formulations. India's USD 3.1 billion

pharmaceutical industry is growing at the rate of 14 percent per year. It is one of the largest and mos

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advanced among the developing countries.

The production value of bulk drugs during the year 1997-98 was 2623.00 and that of pharmaceutica

formulations was Rs.12068 crores. The production of pharmaceuticals in India increased by 13.68% duringthe year 1997-98 against the previous year. The exports of Pharmaceuticals during the year 1998-97 was Rs

49780 million. From a meager Rs.46 crores worth of Pharmaceuticals, Drugs and Fine Chemicals exports in

1980-81, pharmaceutical exports has risen to approximately Rs. 6152 Crores (Prov.1998-99), a rise of 11.91%

against the last year exports. Amongst the total exports of India, the percentage share of Drugs

Pharmaceuticals and Fine Chemicals during April-October (2000-2001) was 4.1%, an increase of 7%.

Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs and

pharmaceutical products has been done away with; manufacturers are free to produce any drug duly approved

by the Drug Control Authority. Technologically strong and totally self reliant, the pharmaceutical industry in

India has low costs of production, low R&D costs, innovative scientific manpower, strength of national

laboratories and an increasing balance of trade.

Budget review: (2001)

Pharmaceutical Overall Impact: Positive

Important Measures

Government would substantially reduce price control on drugs. The government would reserve its right to

intervene while relaxing price controls. To boost research and development activities and provide impetus

to growth, it has proposed to provide weighted deduction on expenditure for R&D shall be available for

the business of biotechnology. Expenditure on scientific research shall include expenditure shall include

expenditure incurred on clinical trials, regulatory approval and filing of patents. Tax concessions for

scientific research. The pharmaceutical industry will benefit from the removal of the 10% surcharge on

customs duty. Dividend tax has been reduced from 20% to 10%.

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Corporate surcharge has been removed.

Import duty surcharge of 3.5% on vaccines and life saving drugs has been removed.

Government has taken steps to protect the intellectual property residing in traditional Indian medicines.

Impact

The actual impact to each company can only be estimated after the new drug policy is announced. The

new drug policy is expected to exclude drugs in the multivitamin and cardiac category. But the logic of

letting market force control the prices of medicines, rather than price fixation by Government cannot be

questioned. Multinationals companies like Glaxo, EMerck may benefit from the relaxation.

DPCO may bring about an increase in MAPE (Maximum allowable post manufacturing expenses)

to 125% from the current level of 100%, so that the surplus could be invested in R&D.

Key to survival of Indian pharmaceutical companies in the WTO era would be indigenous research &

development. Allowing the 150% weighted deduction of research expenses in biotechnology, clinical trials

and patenting research efforts for the purposes of income tax is a welcome step. Indian companies like

Ranbaxy, Sun Pharma, Dr Reddy's Lab and Wockhardt would benefit from this move as the companies

have been actively involved in filing of ANDAs and carrying out clinical trials on new researched drugs

This essentially will reduce costs incurred in the first few phases of clinical trials.

Tax concessions on the sum paid to an approved body like National lab or a University for carrying our

scientific research has been made eligible for weighted deduction of one and one-fourth times of the sum

so paid. This would further encourage investments in basic research by pharmaceutical companies and

forge an alliance between the industry and the research community.

Import duty surcharge on vaccines and life saving drug like cyclosporin has been reduced. This has been

positive for multinationals like SmithKline Beecham Pharma and Novartis who are the leading players in

the above segments.

Cut in dividend tax from 20% to 10% has been positive, as the pharmaceutical sector has maintained one

of the highest dividend rates (25-30%) in the industry. The cut in the dividend taxes would increase the

dividend at the hands of the shareholders.

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MNCs like Glaxo would benefit from the 10% reduction of customs duty as it imports a substantial

portion (34%) of its raw material and intermediaries.

With the FM reducing the rates on PPF and other saving instruments by 150 bps the overall direction is

towards a lower interest rate regime. Therefore, one could see further lowering of interest rates. This could

benefit the domestic companies like Dr Reddy's and Wockhardt with high interest burden.

Company Impact

Company Name Overall Impact Reasons

Ranbaxy Positive Weighted deduction on R&D include clinical trial, regulatory filing and

patents. Tax concessions, Dividend tax cut.

Dr. Reddy's Lab Positive Same as above

Glaxo Wellcome Positive DPCO policy relaxation's, custom duty reduction

Wockhardt Positive Biotech tax concessions, Weighted deduction on regulatory filings.

Impact of recession on Pharma Industry - Can we overcome it?

Pharma Industry is a vibrant industry. There is a saying that pharma industry will continue to grow as long as

diseases continue to affect people. Still, off-late industry, inspite of covering only 60% of the market is facing

the impact of slow growth. The only silver line is that the last three months August 2001 to October 2001

were much better. Degree of competition, changing market scenario, change in customer profile who is an

influencer, awareness among end users have resulted in a dramatic change in the market environment. Year

2000 was not so good for many companies. Similarly, 2001 appears to be heading in the same direction. A

closure scrutiny of growth analysis of top 100 companies revealed the following.

No. of companies with No. of company %

>20% growth 23 23%

>15% growth 8 8%

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Total 100 100%

This has never happened. Companies should relook at their own strategies, people, products mix etc to face

competition better.

Growth comes from either:

Adding more people

Improving productivity from existing people

Expanding territory and customers base

New high volume products

Retaining and increasing usage by existing customers

What pharmacy companies have done to be on growth path?

Old methods and style have resulted in lower growth of many companies. No wonder, in 2000 year only

2 new products could be listed among top 250 products! Why? The deterioration in capability has

started during the last four years. Is it due to lack of good quality of people? or people are more

comfortable in adopting yesterdays method in solving todays problem?

New product success is the barometer for any marketing professionals. Really, it is not upto the mark for many

companies.

Year No. of new product listed in top 250 products

1998 9

1999 7

2000 2

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New products add growth. Unfortunately, due to lack of success, it has affected the growth of many pharma

companies. However, there is some silver lining too. There are 25 companies who have grown over 20%. A

review of these companies revealed that high growth rate has come due to new products.

Top 50 companys growth analysis

Growing more than all India growth

No. of new products

Incl. Line Extensions with more than 15 new product

introduction

19 10

There are other reasons too. These companies have changed their marketing style of operations.

The major changes are as under.

1] Focus on growing market

Companies should be more alert to changing market environment. Heavy dependency on antibiotic led to slow

growth of Ranbaxy, Hoechst, Lyka, Bluecross. More alert companies like Sun, Alkem, Aristo, Lupin

Unichem, Microlab, Glenmark etc. could change their product mix by introducing products in markets, which

were growing. This focused approach led to better growth of these companies.

2] Activities to improve prescriptions base from existing customers

It appears that marketing team members of these star companies were more alert and could fight much better

compared to others. Alkem, Glenmark, Sun Pharma, Unichem etc. started different divisions in order to getmore focused. More products started getting more attention during detailing to doctors. This helped the

companies to get quick business and also helped to improve productivity and growth.

Therefore, companies should relook at their investment portfolio and take decisions accordingly. The author

can suggest some decisions, which are given below:

Some selected therapeutic segment analysis

HOLD INVEST DIVEST

Existing in market Digestive enzyme, Haematinic,

Doxycycline, Macroloids,

Protein supplement, Anti-

malarial,

Antioxidant,

Diabetic,

Cholesterol red,

Hypotensive,

Deworming,

Anti-malarial

Cough prep.,

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Cough and cold,

Anti-inflammatory, Analgesic,

Vaccine

Oestrogen and comb.,

Anti-asthmatic,

Nimesulide,

Ceftizoxime,

Cefuroxime,

Cefixime,

Antidepressant,

Opthalmological,

Analgesic,

Ibuprofen,

Tonic ,

Protein supplement

New in market Anti-malarial,

Cough and cold, Analgesic,

Diclofenac,

Vaccine,

Drug for sexual disorder,

Anti-asthamatic,

Hypotensive,

Haematinic, Antioxidant,

Digestive enzyme

Protein supplement,

Deworming,

Ibuprofen,

Doxycycline,

Macroloids,

Tonics

The above suggestions are based on market attractiveness. However, companies must also look at their

strengths before taking any decision.

3] Expanding the coverage

These star companies are always looking for an opportunity not waiting for the opportunity to knock at them.

This attitude has really made them different than others.

Growth has come due to expansion through addition of:

Areas

People

New therapeutic segments

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What about others? Today, marketing environment has become more demanding and changing fast. It is

therefore, survival of the fittest. Alertness, investing in right segment/areas only will help the companies to

progress.

4] Updating skills of peopleOne of the major areas of weakness in pharma industry is developing "know all syndrome" among executives

This self-developed ego led to downfall of people and companies. They are not able to face competition today

due to different mindset. There is a saying that when companies are not doing well they should invest in

people so that they can become more capable. But, how many companies are updating the skills of people?

The author very sadly says that this is the most important missing link. Due to lack of skills, company today is

not able to take decisions in the right way leading to stagnant growth or degrowth. Mindset should change

Skills of yesterday will not be useful today.

Growing during recession gives challenge to marketing personnel. It is the crucial test of their ability

Recession gives an opportunity to show skills. A good marketing oriented company will not degrow but will

continue to grow. When environment is good anybody can grow but in a stagnant environment growing at a

good pace is a challenge to any marketing professional.

DPCO:

Introduction

DPCO controls the domestic prices of major bulk drugs and their formulations with an aim to provide patients

with medicines at affordable prices. DPCO ascertains, as per Drug Policy guidelines, the bulk drugs (and their

formulations) to be kept under price control. Under DPCO, a bulk drug and formulation are as follows:

Bulk drug means any pharmaceutical-chemical, biological or plant product including its salts, derivatives

etc used as such or as an ingredient in any formulation.

Formulation means any medicine processed out of or containing one or more bulk drug or drugs for

internal or external use or for diagnosis, treatment, mitigation or prevention of disease in human beings or

animals, but shall not include any medicine included in any bonafide Ayurvedic, Homeopathic or Unani

system of medicine.

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Thus, DPCO is applicable only to allopathic drugs. Ceiling prices for the DPCO bulk drugs and formulations

are notified by the Government authorities and periodically revised. DPCO came into existence in 1970

thereafter revised in 1979, 1987 and 1995.

Key Issues In DPCO 95

Based on outdated data : The criteria of selection for drugs to be put under price control were decided so as to

prevent a cartel of manufacturers from exploiting the customers (patients). But, the basis of selection was the

1990 turnover values. As a result some drugs where there was high level of competition as players had

mushroomed after 1990, were unnecessarily included under DPCO.

High span of control : As per the 1990 turnover records, only 50% of the pharma industry is under DPCO 95

But, as sales of some of the controlled drugs, earlier outside price control, have grown at a higher rate than the

overall industry, the actual span of control encompasses 60-65% of the domestic pharma industry.

Lack of stability : The number of drugs under DPCO can be modified, either increased or decreased any time.

There is no stability about the inclusion or exclusion of any drug or formulation under DPCO. So, prices of

drugs and formulations in the domestic market can undergo drastic changes, irrespective of the competitive

market forces.

Prices of input materials are not controlled : Even key intermediates used in the pharma sector are outside

DPCO purview. These intermediates often find application in various other chemical industries. As a result

their price trends, both in India as well as internationally follow a very different cycle compared to the bulk

drugs wherein they are used. Prices of some intermediates get indirectly regulated, if they are largely used in a

bulk drugs under DPCO.

For eg Penicillin G and Amoxycillin are both bulk drugs under DPCO. Amoxycillin can be developed from

basic Pen G stage or from 6-APA, a derivative of Pen G. As 6-APA is classified as an intermediate (it has no

medicinal properties), it remains free from any direct price controls. But naturally, its price varies due to

presence of alternate process of manufacturing Amoxycillin from Pen-G stage.

Artificial disallowances : Prices of DPCO drugs and formulations have to be fixed after taking into the

cognisance the cost of inputs used in their manufacture. But, in many cases the actual input costs are not

recognised by the Government. For eg in case of sugar, a common ingredient in most formulations, the

Government considers price of levy sugar as a benchmark while actually the pharma companies procure their

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requirement from the open market at a price thats 20-25% higher. In case of wages, power etc the norms are

as prevalent 3-5 years earlier and inflationary impact is not considered.

Delays in announcing prices : Price fixation exercise for DPCO drugs (and their formulations) is undertaken

only once every 4 years by the Government. Interim price changes are made only on specific price revisionapplications made by any manufacturer. In such a case, the Government has to collate data of other

manufacturers and then come to a conclusive judgment whether the price revision is justified. The

Government is expected to give the revised price within 4 months of submitting the application in case of bulk

drugs and within 2 months in case of formulations or reject the application with reasons thereof recorded in

writing. But, in reality the revisions are much delayed, even taking upto a year after an application for price

revision has been filed.

Market forces : For the drugs and formulations under DPCO, only the maximum price is specified. As a result

of competition from various players and price undercutting in some products where supply exceeds demand

the actual price may fall below that specified under DPCO. In such cases, artificial price regulation becomes

unnecessary.

New product launch delayed : A product made by an indigenous process for the first time in India gets a 5

year exemption under DPCO. If any other company launches the same product through another new process, it

too has to apply for a separate DPCO exemption pre-launch. Else, if the application has not been filed, the

product may be included under DPCO for the second manufacturer. However, once the drug/ formulation

developer has filed his application for his new process, he can launch the product without waiting for DPCO

clearance. So product launches are not unduly delayed.

Trade margins : For formulations derived from DPCO drugs, Government decides the trade margins as well

For DPCO formulations, the minimum retail margin is 16% (otherwise 20% as per industry norms) and

minimum wholesale margin is 8% (otherwise 10%) as fixed by the Government. Formulators are free to give

higher margins. Some also try to push their products by giving free packs to retailers for eg against 6 injection

vials, 1 vial comes free. This is as good as giving the retailer a higher margin.

Drug Price Equalisation Account (DPEA) : As directed by the Government since DPCO 1979, any pharma

company which makes undue profits by selling a DPCO controlled bulk drug or formulation at a price higher

than the ceiling price notified by the Government, must deposit the same into the DPEA. The amounts

collected in this manner will be used to

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Paying a manufacturer, importer or distributor, as the case may be, the shortfall between his retention price

and the common selling price.

Meeting the expenses of the Government in discharging the functions under enforcing compliance to

DPEA regulations.

Promoting higher education and research in Pharmaceutical Sciences.

National Pharmaceuticals Pricing Authority : It has been proposed to set up this regulatory authority for

governing the pharma sector. The NPPA is also supposed to take over the role of pharma product pricing from

BICP (Bureau for Industrial Costs & Prices). But, the formation of NPPA continues to be delayed time and

again. Also, for some of the new drugs included under DPCO 95, revised prices have not been announced. So

these drugs and their formulations are under price freeze ie they are sold at the same price by their

manufacturers as at the time of inclusion under DPCO.

Present Scenario

Over 20,000 registered pharmaceutical manufacturers exist in the country. The market share of MNCs has

fallen from 75% in 1971to around 35% in the Indian pharmaceuticals market, while the share of Indian

companies has increased from 20% in 1971 to nearly 65%. PSUs have almost lost out completely.

The sector has undergone several policy swells as attitudinal changes over the past two years. It was one of the

major beneficiaries from the budget proposals. Some of the positive steps taken were:

Pharmaceutical industry is recognized as knowledge based industry. The government has plans to increase

the investment in research and development.

Rationalization of excise duty and reduction in interest rates in export financing.

Additional deductions under Income Tax laws for R&D expenses.

Foreign direct investments permit up to 74% through automatic route.

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Setting up two high levels committees to review the drug policy for strengthening R&D capabilities and

reducing the price control regime.

Besides, the Indian Parliament has enacted the required changes in the Indian Patent Act 1970 (IPR) regarding

mailbox arrangement and exclusive marketing rights (EMR).

Emerging Trends:

Increased focus on R&D: Major domestic players namely Ranbaxy, Dr Reddys Labs, Cipla, Nicholas

Piramal and Wockhardt are aggressively investing in R&D. Dr Reddys Labs and Ranbaxy have already

discovered one new chemical entity (NCE) and are in Phase II and Phase I of the clinical trail respectively.

Wockhardt is expected to come out with in new molecule by F12/2000.

Marketing tie-ups: Domestic players and MNCs have entered into marketing arrangements to increase

market penetration and further strengthen positions in respective therapeutic segments. Ranbaxy has tied up

with Cipla, Glaxo and Hoechst Marion for products in specific therapeutic segment. Similarly Hoechst Marion

has tied up with Nicholas Piramal.

Product rationalization/ brand acquisition/ company acquisition: Most of the top pharmaceutica

companies are consolidating their position in the domestic market either through product rationalization brand

acquisition or company acquisition. Hoechst, Glaxo, Wockhardt and Ranbaxy have cut down their product

portfolio in order to be more focused. Similarly companies such as Sun Pharma, Nicholas Piramal and Dr

Reddys Labs have opted for brand/ company acquisition to increase the therapeutic reach and marke

penetration

Domestic Market

The domestic pharmaceuticals industry output exceeds Rs170bn, which accounts for merely 1.3% of the

global pharmaceutical sector. Of this formulations account for 81.5% and 18.5% is bulk drugs. In FY99

exports was at Rs53.7bn and imports stood at Rs31.3bn.

Rs mn 1965-66 1998-99

Capital Investment 1400 2150

Production:

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Formulations 1500 13878

Bulk Drugs 180 3148

Import 82 3128

Export 30.5 5366

R & D Expenditure 30 260

Source : OPPI

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has increased

drastically in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with

market leader having nearly 7% of the market share. It has become extremely competitive industry mainly due

to lower affordability, fragmented market with severe price competition and government price control.

Year # Of units

1969-70 2,25

1979-80 5,15

1989-90 16,00

1998-99 20,05

Source: OPPI

Over the years the Indian Pharmaceutical Industry has evolved around the opportunities presented in the

regulated environment:

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Lack of product patent: The Indian Patents Act 1970 allowed the Indian companies to reverse engineer the

patented molecules and launch it in the domestic market.

Price ceiling under DPCO limited the margins and shifted the focus to cost control.

FERA led to reduced MNC exposure in India.

Small-scale industry (SSI) exemptions led to proliferation of small formulation manufacturers and low

cost drug manufacturers.

Consequently the capital investment has also increased over the years, especially in the last two decades.

Year Rs bn

1973 2.

1977 4.

1979 5.

1982 6.

1985 6.

1988 8.

1993 10.

1994 12.

1995 13.

1996 16.

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PROJECTFINANCING

1997 18.4

1998 21.

Source: OPPI

Bulk drugs: Over 60% of Indias bulk drugs production is exported. The balance is sold locally to other

formulators. However, many of the MNCs affiliates/ subsidiaries in India import bulk drugs from the parent

company and formulate it for local markets. Also, local players who export formulations avail of duty free

imports of bulk drugs. Exports are mainly to developing countries incase of under patent drugs and to the

developed nations in case of generics. In FY99, exports stood at Rs53.7bn while import was at Rs31.3bn.

Production- Bulk Drugs

Year Rs bn

1980-81 2.4

1981-82 2.

1982-83 3.

1983-84 3.

1984-85 3.

1985-86 4.2

1986-87 4.

1987-88 4.

1988-89 5.

1989-90 6.4

1990-91 7.

1991-92 9.

1992-93 11.

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1993-94 13.2

1994-95 15.2

1995-96 18.2

1996-97 21.

1997-98 26.2

1998-99 31.

Source: OPPI

Formulations: More than 85% of the formulation production in the country is sold in the domestic market

India is largely self sufficient in case of formulations. Some life saving, new generation under-patent

formulations continue to be imported, especially by MNCs, which then market them in India. Overall, the size

of the domestic formulations market is around Rs130bn and it is growing at 10% pa. Formulation exports are

largely to developing nations like China, South Africa,CIS etc.

Production- Formulation

Year Rs bn

1980-81 12.

1981-82 14.

1982-83 16.

1983-84 17.

1984-85 18.

1985-86 19.

1986-87 21.4

1987-88 23.

1988-89 31.

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PROJECTFINANCING

1989-90 34.2

1990-91 38.4

1991-92 48.

1992-93 60.

1993-94 69.

1994-95 79.4

1995-96 91.

1996-97 104.

1997-98 120.

1998-99 138.

Exports

Indias pharmaceutical exports are tithe tune of Rs53.7bn, of which formulations contribute nearly 57% and

the rest 43% comes from bulk drugs. In FY99 exports grew by 5.6% yoy. Formulations export declined by

9.1%yoy while bulk drugs export jumped up by 33.9% yoy. Erstwhile USSR was a major market for Indian

formulations, but its disintegration adversely affected company exports in1991-92. Again the economic crisis

in Russia depressed the export of formulations in 1999.Overall pharma exports have registered a CAGR of

24% in the past 5 years. This is because low domestic margins on account of competitive pressures and

DPCO, led more players to focus on export markets. In exports, domestic companies have a 3-pronged

advantage over MNCs:

Process patents give freedom to make MNCs patented products, thus enabling wide therapeutic reach.

Strong process R&D and low manufacturing costs.

No restrictions on export markets by parents overseas ventures.

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PROJECTFINANCING

Year Formulations % of total Bulk Drugs % of total Total

Rs bn Rs bn Rs bn

1980-81 0.4 (76) 0.1 (24) 0.

1981-82 0.7 (82) 0.2 (18) 0.

1982-83 0.5 (83) 0.1 (17) 0.

1983-84 0.6 (77) 0.2 (23) 0.

1984-85 1.0 (77) 0.3 (23) 1.

1985-86 1.1 (76) 0.3 (24) 1.4

1986-87 1.0 (54) 0.9 (46) 1.

1987-88 0.9 (39) 1.4 (61) 2.

1988-89 1.6 (39) 2.4 (61) 4.

1989-90 3.1 (47) 3.5 (53) 6.

1990-91 3.7 (47) 4.1 (53) 7.

1991-92 5.6 (44) 7.2 (56) 12.

1992-93 9.7 (70) 4.1 (30) 13.

1993-94 13.1 (71) 5.3 (29) 18.4

1994-95 15.1 (66) 7.6 (34) 22.

1995-96 20.4 (64) 11.3 (36) 31.

1996-97 25.1 (61) 15.8 (39) 40.

1997-98 33.4 (66) 17.4 (34) 50.

1998-99 30.4 (57) 23.3 (43) 53.

Source: OPPI

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Imports

Indias pharmaceuticals imports (including bulk drugs, formulations, intermediates, chemicals, solvents etc)

are to the tune of Rs31.3bn. Imports have registered a CAGR of nearly 23% in the past 5 years. Imports of

formulations have increased significantly in the past 5 years registering CAGRof 32.9% in the past 5 years. In

FY99 import of formulations grew by 25.5% yoy. Import of bulk drugs have slowed down in the past 2-3

years mainly due to two reasons firstly there is over capacity in the domestic market and secondly the

quality of bulk drugs manufactured by the local manufacturers have improved significantly and they act as

import substitute for MNCs requirements.

(Rs bn) Bulk Drugs Formulations Intermediates, Total

Year

Chemicals & others

1980-81 0.87 0.10 0.16 1.1

1981-82 1.05 0.02 0.29 1.3

1982-83 1.16 0.05 0.28 1.4

1983-84 1.23 0.03 0.37 1.6

1984-85 1.78 0.10 0.27 2.1

1985-86 2.08 0.16 0.43 2.6

1986-87 2.07 0.22 0.58 2.8

1987-88 2.34 0.21 0.94 3.4

1988-89 3.28 0.35 0.83 4.4

1989-90 4.26 0.55 1.71 6.52

1990-91 3.23 0.85 1.96 6.04

1991-92 4.59 0.96 2.53 8.0

1992-93 5.08 1.20 5.09 11.3

1993-94 6.13 1.38 4.15 11.6

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PROJECTFINANCING

1994-95 8.11 1.73 3.84 13.6

1995-96 16.30 2.70 5.05 24.0

1996-97 17.05 3.45 5.56 26.0

1997-98 18.27 4.30 6.11 28.6

1998-99 19.18 5.40 6.70 31.2

Source: OPPI

MNCs vsLocal Players

Overall, the pharma MNCs are at disadvantage compared to local players, due to:

Limitation to parent companys portfolio and lack of freedom to reverse engineer any other MNCs

products.

Higher DPCO coverage due to a more mature product range.

Parent companys reluctance to launch new products due to absence of patent protection and threat of

process piracy and compulsion to price the product lower in India compared to other countries.

Lack of export opportunities due to parents global presence.

Higher cost of manufacture due to parent companys insistence on stricter compliance of GMP (Good

manufacturing Practices).

XYZ. PHARMACEUTICALS LTD.

LIST OF ANNEXURES

Annexure

No.

PARTICULARS

1 Statement showing cost of project and mean of finance.

2 Statement showing Performance and Profitability Projection

3 Cashflow statement.

4 Statement showing Projected Balance Sheet.

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PROJECTFINANCING

5 Statement showing Details of land and site development.

6 Statement showing details of building

7 Statement showing details of electrical installations.

8 Statement showing details of other assets.

9 Statement showing details of preliminary and preoperative expenses.

10 Statement showing gross and net sales value at installed capacity

11 Statement showing interest charges repayment of term loan.

12 Statement showing calculation of debt service coverage ratio.

13 Statement showing calculation of break even point

14 Statement showing capacity utilisation and sales value

15 Statement showing key financial data.

16 Statement showing list of assumptions.

Annexture : 1

COST OF PROJECT

Rs. In lacs

LAND INCLUDING SITE DEVELOPMETN 25.23

BUILDING 86.50PLANT AND MACHINERY 182.35


OTHER ASSETS 39.50

PRELIMINARY & ISSUE EXPENSES 55.00PRE OPERATIVE EXPENSES 20.00

CONTINGENCIES 11.00

MARKET DEVELOPMENT AND PRODUCT

LAUNCHING EXPENSES

30.00

469.08

WORKING CAPITAL MARGIN 101.92571.00

MEANS OF FINANCE:

SHARE CAPITAL

- From Promoters 131.00- Through Public Issue 370.00 501.00

TERM LOAN FROM BANK / FINANCIAL INST. 70.00571.003

20. FINANCIAL ASSISTANCE:

c) Term Loan Rs. 70 lacs

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PROJECTFINANCING

d) Working capital loan Rs. 110 lacs

Annexure : 2

PROJECTION OF PERFORMANCE AND PROFITABILITY STATEMENT

(RS. LACS)

NET TURNOVER @ 100%

CAPACITYUTILISATION ON SINGLE

SHIFT BASIS

2,277.00 2,277.00 2,277.00 2,277.00 2,277.00 2,277.00

PARTICULARS 2001 -02 2002 -03 2003 -04 2004 - 05 2005 - 06 2006 -07

Capacity Utilisation % 50% 60% 70% 80% 90% 93%

INCOME (Gross sales) 1,202.93 1,443.51 1,684.10 1,924.68 2,165.27 2,237.44

Less S.T. & E.D. 64.43 77.31 90.20 103.00 115.97 119.83NET SALES 1,138.50 1,366.20 1,593.90 1,821.60 2,049.30 2,117.61

EXPENDITURE

MATERIALS (Indigenous) 468.84 562.61 656.38 750.14 843.91 872.04

`Materials (Imported)

Packing Material 82.05 98.46 114.87 131.28 147.68 152.61

Salary / Wages 14.85 16.34 17.97 19.77 21.74 23.92

Electricity, Fuel & Water charges 4.50 4.95 5.45 5.99 6.59 7.25

Repairs and Maintenance 2.46 3.28 4.10 4.92 5.74 6.56

Consumables and spares 9.38 11.25 13.13 15.00 16.88 17.44

Other manufacturing cost 11.3 13.66 15.94 18.22 20.49 21.18

Depreciation on SLM 17.40 17.40 17.40 17.40 17.40 17.40

INTEREST

- On term loan (19.75%) 13.35 11.00 8.49 5.97 3.46 0.95

- On working capital (19.75%) 21.73 34.94 40.73 46.52 52.31 54.07

- On unsecured loan 0.00 0.00 0.00 0.00 0.00 0.00

Selling & Administrativeexpenses

262.38 281.79 302.80 325.54 350.19 376.91

Miscellaneous Expenses writtenoff

15.50 15.50 15.0 5.50 5.50 5.50

TOTAL COST OF

PRODUCTION

923.82 1,071.17 1,212.73 1,346.24 1,491.89 1,555.81

PROFIT BEFORE TAX 214.68 295.03 381.17 475.36 557.1 561.80

PROVISION FOR TAX 59.91 114.43 157.89 199.70 239.89 244.54

PROFIT AFTER TAX 154.77 180.60 223.28 275.66 317.52 317.27

ADD BACK DEPRECIATION 32.90 32.90 32.90 22.90 22.90 22.90

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PROJECTFINANCING

& AMORTISATION

NET CASH ACCRUALS 187.67 213.50 256.17 298.56 340.41 340.16

CUMMULATIVE CASH

ACCRUALS

187.67 401.17 657.35 955.91 1,296.32 1,636.48

PROPOSED DIVIDED 15.00% 20.00% 25.00% 30.00% 30.00% 30.00%

AMOUNT 75.15 100.20 125.25 150.30 150.30 150.30

EARNING PER SHARE 3.09 3.60 4.46 5.50 6.34 6.33

Annexture 3:

CASH FLOW STATEMENT (RS. LACS)

PARTICULARS 2001-

02

2002

-03

2003

-04

2004 -

05

2005 -

06

2006

-07

2007

08

SOURCE OF FUNDSP.B.T. + INTEREST 0.00 249.76 340.97 430.39 527.85 613.18 616.82

Depreciation (Book) 0.00 17.40 17.40 17.40 17.40 17.40 17.40

Amortisation 0.00 15.50 15.50 15.50 5.50 5.50 5.50

Incr. in share capital 501.00 0.00 0.00 0.00 0.00 0.00 0.00

Incr. in term loan 70.00 0.00 0.00 0.00 0.00 0.00 0.00

Incr. in working capital 0.00 110.00 66.92 29.30 29.31 29.32 8.92

Incr. in subsidy 0.00 0.00 0.00 15.00 0.00 0.00 0.00

Incr. in current liabilities 0.00 45.28 9.06 9.06 9.06 9.06 2.72

Incr. In reserves 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Sub total 571.00 437.94 449.84 516.64 589.11 674.45 651.35

DISPOSITION OF FUNDSIncr. in fixed assets 384.08 0.00 0.00 0.00 0.00 0.00 0.00

Incr. in preliminary exps. 55.00 0.00 0.00 0.00 0.00 0.00 0.00

Incr. in product launching exps. 30.00 0.00 0.00 0.00 0.00 0.00 0.00

Incr. in inventories 0.00 59.46 11.85 11.60 11.61 11.62 3.65

Incr. in Sundry Debtors 0.00 197.74 39.55 39.55 39.55 39.55 39.55

Incr. in other current assets 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Decr. in term loans 0.00 9.54 12.72 12.72 12.72 12.72 12.72

Interest payment 0.00 35.08 45.94 49.21 52.49 55.77 55.02

Taxation 0.00 59.91 114.43 157.89 199.70 239.89 244.54

Dividend 0.00 0.00 75.15 100.20 125.25 150.30 150.30Sub total 469.08 361.73 299.37 371.17 441.32 509.85 474.94

Surplus / Deficit for the year 101.92 76.21 150.47 145.47 147.80 164.60 176.41

Cumulative cash balance 101.92 178.13 328.60 474.07 621.87 786.47 962.87

D.S.C.R. 0.00 8.10 8.81 11.75 16.00 20.91 31.88

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Annexure : 4

PROJECTED BALANCE SHEET

(RS. LACS)PARTICULARS 2001

-02

2002

-03

2003

-04

2004 -

05

2005 -

06

2006

-07

2007

-08

LIABILITIES

EQUITY SHARE CAPITAL 501.00 501.00 501.00 501.00 501.00 501.00 501.00

RESERVES & SURPLUS

General Reserve 0.00 79.62 160.02 258.05 383.41 550.63 717.60

Subsidy 0.00 0.00 0.00 15.00 15.00 15.00 15.00

SECURED LOANSTerm loans 70.00 60.46 47.74 35.02 22.30 9.58 0.00

Foreign currency loan

Working capital loan 0.00 110.00 146.92 206.22 235.53 264.85 273.77

UNSECURED LOANS 0.00 0.00 0.00 0.00 0.00 0.00 0.00

CURRENT LIABILITIES /

PROVISION

Creditors for goods 0.00 45.28 54.33 63.39 72.45 81.50 84.22

Others 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Proposed Dividend 0.00 75.15 100.20 125.25 150.30 150.30 150.30

Total 571.00 871.51 1,040.21 1,203.93 1,379.99 1,572.86 1,741.88

ASSETS

FIXED ASSETS

Gross block 384.08 384.08 384.08 384.08 384.08 384.08 384.08

Less depreciation 0.00 17.40 34.80 52.19 69.59 86.99 104.39

Net block 384.08 366.68 349.28 331.89 314.49 297.09 279.69

INVESTE,EMTS

CURRENT ASSETS

Inventories 0.00 59.46 71.04 82.64 94.25 105.87 109.52

Book debts 0.00 197.74 237.29 276.84 316.39 355.93 367.80

Other current assets 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Cash & bank balance 101.92 178.13 328.60 474.07 621.87 786.47 962.87

LOANS & ADVANCES

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PROJECTFINANCING

PRELIMINARY EXPENSES 55.00 49.50 44.00 38.50 33.00 27.50 22.00

MISCELLANEOUS EXPENSES 30.00 20.00 10.00 0.00 0.00 0.00 0.00

TOTAL 571.00 871.51 1,040.21 1,203.93 1,379.93 1,572.86 1,741.88

Annexure 5:

DETAILS OF LAND INCLUDING SITE DEVELOPMENT

(RS. LACS)

LAND INCLUDING CONVEYANCE

CHARGES

6.52

COST OF LEVE 5.86BOREWELL EITH PUMP 2.50

INTERNAL ROADS 3.00

FENCING & BOUNDRY WALL 3.00

GATES 0.60

WATER STORAGE TANKS 1.25

ILLUMINATION 0.50

PARKING STAND 0.70

ANTITERMITE TREATMENT 0.40

TOILET BLOCKS 0.60

SECURITY ROOM 0.30

25.23

Annexure 6

DETAILS OF BUILDING

FACTORY BUILDING 80.00

OFFICE BUILDING AT NAVRANGPURA 5.00

CONSULATION FEE 1.50

86.50

Annexure 7:

DETAILS OF ELECTRICAL INSTALLATION

(RS. LACS)

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PROJECTFINANCING

QUANTITY NAME OF

MANUFACTUR

ER / SUPPLIER

COST REMARKS

DIESEL GENERATING SET 1 KIRLOSKAR 4.50

11 KV SUBSTATION 1 4.00

POWER DISTRIBUTION

SWITCH BOARDS

2.70

650 V GRADE CABLING 3.75

LIGHTNING 3.87

OTHERS 0.68

19.50

Annexure 8:

OTHER ASSETS

OFFICE EQUIPEMENT 4.00

FURNITURE & FIXTURES 16.50

VEHICLES 19.00

39.50

Annexure 9:

PRE-OPERATIVE EXPENSES

(RS. LACS)

ESTABLISHMENT EXPENSES 3.00TRAVELLING 3.00

MORTAGE, STAMP DUTY, UPRONT

FEE

6.00

STARTUP EXPENSES 3.00

INTERNET DURING CONSTRUCTION

PERIOD

4.00

OTHERS 1.00

20.00

PRELIMINARY EXPENSES

UNDERWRUTERS 9.25

BROKERAGE 5.55

PRINTERS 6.00

REGISTRAR 3.70

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PROJECTFINANCING

ADVERTISING 12.50

LEAGAL, STAMPS & OTHERS 9.00

LEAD MANAGERS 4.00

COMPANY FORMATION 5.00

55.00

Annexure 10:

INSTALLED CAPACITY

(RS. LACS)

SR.NO. NAME OF PRODUCT QUANTITY NET

SALES

VALUE

EXCISE

@ 15%

GROSS

SALES

1 Tablets (Excisable) 60,000,000 Nos. 492.00 73.80 565.

Tablets (Not Excisable) 180,000,000 Nos. 331.00 0.00 331.

240,000,000,Nos. 823.00 73.80 896.

2 Capsules (Excisable) 13,400,000 Nos. 210.00 31.50 241.

Capsules (Not Excisable) 16,600,000 Nos. 64.00 0.00 64.30,000,000 Nos. 274.00 31.50 305.

3 Injectables (Not Excisable) 15,000,000 Nos. 1,023.00 0.00 1,.023.

4 Oral Liquids (Excisable) 200,000 Liters 109.00 16.35 125.

5 Ointments (Excisable) 15,200 Kgs. 48.00 7.20 55.

2,277.00 128.52 2,405.

Annexure 11:

COMPUTATION OF TERM LOAN INTEREST AND REPAYMENT

(RS. LACS)

YEAR QUARTER PRINCIPAL REPAYMENT INTEREST YEARWISEREPAYMEN

YEARWIINTERES

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PROJECTFINANCING

T

2001-02 IV 70.00 3.46 3.46

2002-03 I 70.00 3.46

II 70.00 3.18 3.46

III 66.82 3.18 3.30 9.54 13.35

IV 63.64 3.18 3.14

2003-04 I 60.46 3.18 2.99

II 57.28 3.18 2.83

III 54.10 3.18 2.67 12.72 11.00

IV 50.92 3.18 2.51

2004-05 I 47.74 3.18 2.36

II 44.56 3.18 2.20

III 41.38 3.18 2.04 12.72 8.49IV 38.20 3.18 1.89

2005-06 I 35.02 3.18 1.73

II 31.84 3.18 1.57

III 28.66 3.18 1.42 12.72 5.97

IV 25.48 3.18 1.26

2006-07 I 22.30 3.18 1.10

II 19.12 3.18 0.94

III 15.94 3.18 0.79 12.72 3.46

IV 12.76 3.18 0.63

2007-08 I 9.58 3.18 0.47

II 6.40 3.18 0.32 9.58 0.95

III 3.22 3.22 0.16

IV 0.00 0.00 0.00

0.00 70.00

70.00 0.00

Assumption: 1) Rate of interest 19.75%2) Moratorium period 6 months

3) Repayment period 6 years including moratorium period.

Annexure 12:

CALCULATION OF DEBT SERVICE COVERAGE RATIO

(RS. LACS)

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PROJECTFINANCING

PARTICULARS 2001

-02

2002

-03

2003 -04 2004 - 05 2005 - 06 2006 -07

NET PROFIT (AFTER TAX) 154.77 180.6

0

223.28 275.66 317.52 317.27

DEPRECIATION &

AMORTISATION

32.90 32.90 32.90 22.90 22.90 22.90

INTEREST ON TERM LOAN 13.35 11.00 8.49 5.97 3.46 0.95

TOTAL 201.03 224.5

0

264.66 304.53 343.88 341.11

REPAYMENT OF TERM

LOAN

9.54 12.72 12.72 12.72 12.72 9.58

INTEREST ON TERM LOAN 13.35 11.00 8.49 5.97 3.46 0.95

TOTAL 22.89 23.72 21.21 18.69 16.18 10.53

D.S.C.R. 8.78 9.46 12.48 16.29 21.25 32.40

Annexure 13:

CALCULATION OF BREAK EVEN POINT

2001-02 2002-03 2003-04 2004-05 205-06 2006-0

FIXED EXPENSES

INTEREST ON TERM LOAN &

UNSECURED LOAN

13.35 11.00 8.49 5.97 3.46 0.95

DIRECT LABOUR (25%) 3.71 4.08 4.49 4.94 5.44 5.98

DEPRECIATION & OTHER EXPS.

(50%)

131.19 140.89 151.40 162.77 175.10 188.45

REPAIRS & MAINTENANCE 2.46 3.28 4.10 4.92 5.74 6.56

TOTAL 183.61 192.15 201.37 201.50 212.63 224.83

VARIABLE EXPENSES

RAW MATERIALS 468.84 562.61 656.38 750.14 843.91 872.04

ADMINISTRATIVE & OTHER EXPS.

(50%)

131.19 140.89 15140 162.77 175.10 188.45

DIRECT LABOUR (75%) 11.14 12.25 13.48 14.82 16.31 17.94

POWER & FUEL 4.50 4.95 5.45 5.99 6.59 7.25

OTHER MANUFACTURING EXPS. 11.39 13.66 15.94 18.22 20.49 21.18

CONSUMABLES AND SPARES 9.38 11.25 13.13 15.00 16.88 17.44

INTEREST ON WORKING CAPITAL 21.73 34.94 40.73 46.52 52.31 54.07

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PROJECTFINANCING

658.16 780.56 896.49 1,013.47 1,131.58 1,178.3

ANTICIPATED NET SALES AT

INSTALLED CAP.

2,277.00 2,277.00 2,277.00 2,277.00 2,277.00 2,277.0

ANTICIPATED SALES

REALISATION

1,138.50 1,366.20 1,593.90 1,821.60 2,049.30 2,117.6

CONTRIBUTION 480.34 585.64 697.41 808.13 917.72 939.24

B.E.P. SALES 435.20 448.26 460.23 454.20 474.81 506.91

B.E.P. IN TERM OF PERCENTAGE 19.11% 19.69% 20.21% 19.95% 20.85% 22.26%

Annexure 14:

Capacity Utilization,

Sales & sales Value :

Particulars 2001-02 2002-03 2003-04 2004-05 205-06 2006-07

Installed Capacity (Net Sales Value) 2,277.00 2,277.00 2,277.00 2,277.00 2,277.00 2,277.00

Excise Duty 128.85 128.85 128.85 128.85 128.85 128.85

Installed Capacity (Gross Sales

Value)

2,405.85 2,405.85 2,405.85 2,405.85 2,405.85 2,405.85

No. of working days 300.00 300.00 300.00 300.00 300.00 300.00

No. of working Hours 0.00 0.00 0.00 0.00 0.00 0.00

No. of shifts 1.00 1.00 1.00 1.00 1.00 1.00

Capacity Utilization 0.50 0.60 0.70 0.80 0.90 0.93

Annexure 15:

KEY FINACIAL DATA

(RS. LACS)

1ST FULL

YEAR OF

OPERATIONS

2001-02

2002-03 2003-04

TOTAL INCOME 1,138.50 1,366.20 1,593.90

PROFIT BEFORE INTEREST & DEPR. 267.19 358.37 447.78

PROFIT BEFORE INTEREST 249.76 340.97 430.39

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PROJECTFINANCING

PROFIT BEFORE TAX 241.68 295.03 387.17

PROFIT AFTER TAX 157.77 180.60 223.28

NET FROFIT TO SALES (%) 13.59% 13.22% 14.01%

SHARE CAPITAL 501.00 501.00 501.00

NET WORTH 580.62 661.02 774.05

EARNING PER SHARE 3.09 3.60 4.46

CASH EARNING SHARE 3.75 4.26 5.11

DIVIDEND 15.00% 20.00% 25.00%

DEBT EQUITY RATIO 0.21:1 0.08:1 0.08:1

CURRENT RATIO 1.89 1.92 2.11

D.S.C.R. 8.10 8.81 11.75BREAK EVEN POINT IN TERMS OF CAPACITY

UTILISATION

19.11% 19.69% 20.21%

Annexure 16:

ASSUMPTIONS

1) The company shall commence commercial production from April 1996. The company will operate for 300

days per year on single shift per day basis. It will utilize 50%, 60%, 70%, 80%, 90% and 93% of its capacity

during 1996-97, 1997-98, 1998-99, 1999-2000, 2000-2001 and 2001-2002 respectively.

2) The selling price and cost of raw material purchase have been assumed at current levels and to remain

uniform throughout the project, the underlying assumption being that any increase in purchase cost would be

offset commensurately by increase in selling price.

3) Sales tax rate considered nil as the unit is eligible for sales tax benefit.

4) Cost of packing materials has been assumed at 17.5% of raw materials consumed.

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5) Cost of consumables and spares has been assumed at 2% of raw materials consumed.

6) The power cost assumed at a subsidized of Rs. 2.50 per unit.

7) Repairs and maintenance has been levied at 0.75%, 1%, 1.25%, 1.5%, 1.75%, and 2% respectively in

seven years on the cost of factory building and plant & machinery.

8) Selling expenses considered at 12% of annual net sales.

9) Other manufacturing expenses considered at 1% of annual net sales.

10) Depreciation charged on SLM method as per the rates prescribed by schedule XIV of the companies Act.

1956.

11) 1/10th of preliminary and issue expenses have been amortized every year.

12) Miscellaneous Expenses (Market Development & Product launching) have been written off over a period

of three years.

13) Assumptions for working capital requirement:

a) Raw materials holing - 15 days

b) Work in process - 7 days

c) Finished goods- 15 days

d) Packing materials - 15 days

e) Sundry Debtors - 60 days outstanding of gross sales.

f) Sundry Creditors - 30 days credit from suppliers.

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14) During 1996-97 (First full year of working) export sales assumed at Rs. 100 lacs and thereafter an increase

of 10% considered every year on this assumption only.

project financing 2

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