Novartis and IPCA Financial Analysis
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The document provides an analysis of the Indian pharmaceutical market and the performance of Novartis and IPCA, two pharmaceutical companies operating in India. It summarizes that the Indian pharmaceutical market is growing at 15.4% annually and is poised to reach $25 billion by 2010. However, factors like low public healthcare spending and currency appreciation are challenges. The analysis finds that Novartis has stronger leverage, profitability, liquidity and asset utilization compared to IPCA, making Novartis a more attractive investment option for shareholders.
Novartis and IPCA Financial Analysis
- 1. Financial Analysis & NOVARTIS IPCA
- 2. Management Discussion & Analysis Overview of Indian Pharma Market Front ranked among country's science based industries. Worth US$ 6 billion in domestic sales and US$ 4 billion in exports. In world pharmaceutical market, india has a share of about 1.8% by value and about 8% by volume. IPM is poised to grow to US$ 25 billion by 2010. IPM has registered a healthy growth of 15.4% with multinational companies growing at 11%.
- 3. The government’s continued focus on economic reforms and its commitment to increase investment in healthcare are expected to sustain growth momentum. Indian companies are today focusing on global generic business, increasing focus on R&D activities and alliances with multinational companies. Poor public healthcare funding and infrastructure, low per capita consumption of medicines are a cause of concern. Appreciation of the Rupee has significantly increased pricing pressure on Indian Companies Management Discussion & Analysis Overview of Indian Pharma Market
- 4. Management Discussion & Analysis Novartis Performance Overview Rs / Crores
- 5. MRP based excise levy has lead to overall increase in drug prices In OTC, implementation of excise duty on MRP continues to take a toll on product profitability. Management Discussion & Analysis Novartis Performance Overview
- 6. Management Discussion & Analysis IPCA Performance Overview
- 7. Management Discussion & Analysis IPCA Performance Overview Verticals 2006 (Crs) 2005 (Crs) Formulations 501.29 447.59 API & Intermediates 247.76 228.68 Net Total Sales 749.05 676.27
- 10. Company Novartis Ipca (Rs. / Crores) 2006 2005 2006 2005 SOURCE OF FUNDS Shareholders Funds 338 284 370 326 Loan Funds 6 7 197 221 Provision for Deferred Taxation (net) 48 43 Total 344 291 615 590 APPLICATION OF FUNDS Fixed Asset 10 22 374 323 Investments 7 48 4 3 Deferred Taxation 11 9 Current Assets: 449 329 358 361 Less : Current Liabilities 133 116 121 97 Net Current Assets 316 213 237 263 Pre-Operative Expenses (w/off) 0 Total 344 291 615 590
- 11. Novartis : Profit and Loss Account
- 12. IPCA : Profit and Loss Account
- 13. Basis of Accounting Statements are per Accrual system of accounting for revenue & Cost Fixed Assets Straightline Method of Depreciation Recorded at Cost of Acquisition or construction less CENVAT/ Service Tax VAT Intangible Assets are recorded at cost of acquisition Leasehold Land is amortized over leasehold period Cost of borrowing for assets taking substantial time to be ready for use is capitalized for the period up to the time the asset is ready for use Investments Long Term Investments stated at cost Provisions made for non-temporary diminution in value of investments Investments in associates are accounted for using equity method Significant Accounting Policies IPCA
- 14. Foreign Exchange Transactions Forex transactions recorded at exchange rates prevailing on transaction date Loss / Gain on Forex accounted for in the P&L for the year except for Fixed Assets outside India charged as carrying cost to Fixed Assets Revenues of Foreign subsidiary translated at average rates prevailing during the year Research & Development R&D expense charged to P&L on the year it is incurred Expenditure on Capital Assets depreciated over the useful life of the Asset Inventories Raw Materials computed on First In First Out Method WIP valued at cost including all Overheads except Selling & Distribution Finished Goods valued at cost or realizable value whichever is lower Significant Accounting Policies IPCA
- 15. Basis of Accounting Statements are per Historical Cost Convention Fixed Assets Straightline Method of Depreciation Trade Marks amortized over a period of 5 years Leasehold Land is amortized over leasehold period Cost of borrowing for assets taking substantial time to be ready for use is capitalized for the period up to the time the asset is ready for use Investments Long Term Investments stated at cost Provisions made for non-temporary diminution in value of investments Current Investments stated at lower of Cost and Fair Value Significant Accounting Policies Novartis
- 16. Foreign Exchange Transactions Forex transactions recorded at exchange rates prevailing on transaction date Loss / Gain on Forex accounted for in the P&L for the year Forex Loss / Gains on Purchase of Fixed Assets outside India charged as carrying cost to the Fixed Assets. Research & Development R&D expense charged to P&L on the year it is incurred Expenditure on Capital Assets depreciated over the useful life of the Asset Inventories Cost is determined on Moving Weighted Average Basis Cost of WIP and Finished Goods includes Labor & Manufacturing Overheads Inventories are valued at lower of Cost and Net Realizable Value. Significant Accounting Policies Novartis
- 17. Ratio Analysis Leverage Ratios Profitability Ratios Liquidity Ratios Turnover Ratios Dividend Ratios
- 18. Leverage Ratios This ratio shows the contributions of creditors and owners. IPCA relies strongly on debt to finance its funding requirements 1. Debt Equity Ratio (Rs. In Crores) Novartis Ipca Year 2006 2005 2006 2005 Long Term Debt 6 7 197 221 Shareholders Equity 338 284 371 326 Debt-Equity Ratio 0.02 0.02 0.53 0.68
- 19. Leverage Ratios The debt ratio measures the extent to which borrowed funds support the firm’s assets. Novartis doesn’t rely much on debt to fund asset acquisition 2. Debt Ratio (Rs. In Crores) Novartis Ipca Year 2006 2005 2006 2005 Long Term Debt 6 7 197 221 Total Assets 344 291 615 590 Debt Ratio 0.02 0.02 0.32 0.37
- 20. * Net Profit ( Before Tax and Interest) Impact of Borrowed Funds is almost 25 Paise on a Rupee of Net Profit earned. 3. Interest Coverage Ratio Leverage Ratios (Rs. In Crores) Novartis Ipca Year 2006 2005 2006 2005 Net Profit * 146 102 60 83 Interest 3 2 14 11 Interest Coverage Ratio 48.67 51.00 4.29 7.55
- 21. Leverage ratios help in assessing the risk arising from the use of debt-capital Novartis has outperformed IPCA as per Leverage Ratio analysis Summary of Leverage Ratios Leverage Ratios Leverage Ratios Novartis Ipca 2006 2005 2006 2005 Debt-Equity Ratio 0.02 0.02 0.53 0.68 Debt Ratio 0.02 0.02 0.32 0.37 Interest Coverage Ratio 48.67 51.00 4.29 7.55
- 22. Earning Per Share Price Earning Ratio Profitability Ratios
- 23. 3. Return on Capital Employed 4. Net Profit Ratio Profitability Ratios
- 24. Profitability Ratios reflect the final result of Business Operations Novartis has been managed better Returns on Assets Debt Servicing Cost has impacted profitability of IPCA to a great extent Summary Profitability Ratios
- 25. Current Ratio Quick Ratio Liquidity Ratios
- 26. Liquidity refers to the ability of a firm to meet its obligations in the short run Acid-test ratio includes the current assets which are highly liquid and hence inventories are excluded. Liquidity Position of Novartis is far better as compared to IPCA Liquidity Ratios Summary
- 27. This ratio measures how overall assets are efficiently employed so as to maximize sales Novartis has been more efficient in its Asset Utilization towards sales generation 1. Total Assets Turnover Turnover Ratios
- 28. This ratio measures the sale per rupee of investment in Fixed Assets Since IPCA is into Formulations & Bulk Drugs the Fixed Capital Requirements are very high 2. Fixed Assets Turnover Turnover Ratios
- 29. 3. Inventory Turnover Ratio 4. Debtors Turnover Ratio Turnover Ratios
- 30. Summary Novartis has been more efficient in its Asset Utilization IPCA needs to keep a check on its Debtors Ratio as its substantially high Based on the nature of business, IPCA needs to maintain a higher level of inventory as compared to Novartis Turnover Ratios
- 31. Novartis Investors have enjoyed a better Dividend as compared to IPCA Turnover Ratios Company ( Rs / Crores) Novartis Ipca Year 2006 2005 2006 2005 Final Dividend 47.9 32 7.5 7.5 No of Shares (Crores) 3 3 2.5 2.5 Dividend per Share 15 10 3 3 Dividend per Share 15 10 3 3 Market Price per Share 595 503 368 371 Dividend Yield % 2.52% 1.99% 0.82% 0.81% Final Dividend 47.9 32.0 7.5 7.5 Net Profit 108 65 62 71 Dividend Payout % 44.43% 49.08% 12.19% 10.55%
- 32. Summary of All Ratios
- 33. Summary of Ratio Analysis Novartis has greater leverage as compared to IPCA to raise Debts for its long term funding requirements Novartis has been more Profitable in its business operations Liquidity Position of IPCA is affected due to high level of inventories required to be maintained as per business requirement
- 34. IPCA has not been as efficient in its Asset Utilization due to High Fixed Asset requirements Dividend pay-out has been good for Novartis As an investor, we would prefer to invest in Novartis as compared to IPCA. Summary of Ratio Analysis
- 35. Thank You