Sun Pharma Report
Corporate finance Project Corporate finance Project Sun pharmaceuticals Sun pharmaceuticals Submitted to : Prof. S.
Ramesh Submitted by : Shamili. M (FPB1214/125) Submitted to : Prof. S. Ramesh Submitted by : Shamili. M (FPB1214/125) Type| Public| Traded as| BSE : 524715 NSE: sunpharma| Industry| Pharmaceuticals| Founded| 1983| Founder| Dilip Shanghvi| Headquarters| Mumbai, India. | Key people| Chairman : Israel Makov , MD : Dilip Shanghvi| Products| Pharmaceuticals, Generic drugs| Revenue| INR 8500 crore|
Net income| INR 2972 crore| Employees| 11200| Website| www.
sunpharma. com| EXECUTIVE SUMMARY: Fundamental analysis involves analyzing the underlying forces that affect the well-being of the economy, industry groups, and companies. Most often, the aim of company analysis is to derive a stock’s current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value.
By believing that prices do not accurately reflect all available information, fundamental analysts look to capitalize on perceived price discrepancies. In this project an attempt has been made to analyzed financial performance of Sun Pharmaceuticals Industries limited.
Earlier part of the report gives information about Indian economy and industry scenario. The later part of the project gives information about company financial performance and ratios analysis. This study will help us to determine the financial health of a company. Indian Pharmaceutical Industry Overview:
The Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4. 5 billion, growing at about 8 to 9 percent annually.
It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously.
Playing a key role in promoting and sustaining development in the vital field of medicines, Indian Pharma Industry boasts of quality producers and many units approved by regulatory authorities in USA and UK. International companies associated with this sector have stimulated, assisted and spear headed this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world. The Indian Pharmaceutical sector is highly fragmented with more than20,000 registered units. It has expanded drastically in the last two decades.
The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price control. 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 pharmaceutical 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. Environmental Analysis (PEST): Technological advancements, tighter regulatory-compliance overheads, rafts of patent expiries and volatile investor confidence have made the modern pharmaceutical industry an increasingly tough and competitive environment.
Below is an analysis of the structure of the pharmaceutical industry using the PEST model (political, economic, social and technological).
Increasing Political Attention: Over the years, the industry has witnessed increased political attention due to the increased recognition of the economic importance of healthcare as a component of social welfare. Political interest has also been generated because of the increasing social and financial burden of healthcare. Examples are the UK’s National Health Service debate and Medicare in the US. Economic Value Added:
In the decade to 2003 the pharmaceutical industry witnessed high value mergers and acquisitions7. With a projected stock value growth rate of 10.
5% (2003-2010) and Health Care growth rate of 12. 5% (2003-2010), the audited value of the global pharmaceutical market is estimated to reach a huge 500 billion dollars by 2004. Only information technology has a higher expected growth rate of 12. 6%. Majority of pharmaceutical sales originate in the US, EU and Japanese markets.
Nine geographic markets account for over80% of global pharmaceutical sales these are, US, Japan, France, Germany, UK, Italy,
Canada, Brazil and Spain. Of these markets, the US is the fastest growing market and since 1995 it has accounted for close to 60% of global sales. In 2000 alone the US market grew by 16% to $133 billion dollars making it a key strategic market for pharmaceuticals. The Social Dimension: Good health is an important personal and social requirement and the unique role pharmaceutical firms play in meeting the society’s need for popular wellbeing cannot be underestimated. In recent times, the impact of various global epidemics e.
g. SARS, AIDS etc. has also attracted popular and media attention to the industry. The effect of the intense media and political attention has resulted in increasing industry efforts to create and maintain good government-industry-society communications. Technological Advances: Modern scientific and technological advances in science are forcing industry players to adapt ever faster to the evolving environments in which they participate.
Scientific advancements have also increased the need for increased spending on research and development in order to encourage innovation. Legal Environment:
The pharmaceutical industry is a highly regulated and compliance enforcing industry. As a result there are immense legal, regulatory and compliance overheads which the industry has to absorb. This tends to restrict it’s dynamism but in recent years, government have begun to request industry proposals on regulatory overheads to so as not to discourage innovation in the face of mounting global challenges from external markets. India is the world’s fourth largest pharmaceutical market in terms of volume and the 15th largest in terms of value (USD 8 billion) (Source: ORG IMS).
It is primarily a retail-based branded generic market with 80% dispensed through pharmaceutical outlets.
As in most emerging economies, acute therapies dominate and account for close to 75% of the market. The Indian pharmaceutical industry has recorded a CAGR of 13. 5% over the past five years. However, over the past two years, growth slowed a bit to 12. 6%. Chronic therapies, such as diabetes, cardio-vasculars, and products used to treat central nervous system ailments, are growing faster than acute therapy.
A draft of a new/revised drug price policy was being previously examined by the group of Cabinet Ministers in the country. The draft proposal seeks to expand the number of drugs significantly, to 354 molecules including those used to treat lifestyle ailments, under the purview of a pricing control regime. We continue to monitor the developments and will be able to assess our situation with respect to the policy only when the final policy is out. With the domestic economy slowing, there have been well founded fears of slowing growth in the pharma market.
However, in our estimate, the impact may be much lower and perhaps also be slower in comparison to the well-known cyclicals due to the strength in the longer-term growth story and the structural underpinnings of the market that remain intact.
* Changing demographics (including population growth) and rising disposable income due to which spend on healthcare is increasing * Early and improving diagnosis. * Scope to increase penetration in the country. Less than 40% of population is estimated to have access to modern medicines. General increase in health awareness due to deep penetration of the electronic media. * Improving therapy/prescription compliance. * Improving health infrastructure with support from government’s incentives.
According to ORG IMS, other trends which continue to be witnessed by the industry include: * Therapeutic profile of the Indian pharma market is changing from acute illnesses to chronic ailments. While prescriptions written by General Practitioners (GPs) are estimated to be growing at 2%, growth in specialist prescriptions is estimated at more than 5-6% p. . * In order to gain penetration, companies are increasing their reach to Class II-VI towns and rural areas. However, access to the market (i.
e. connectivity and infrastructure), limited availability of doctors and dispensaries, lack of awareness and low inclination to pay are key hurdles. * The hospital market is expected to become a meaningful opportunity. Pharma sales to hospitals are estimated to be at Rs. 25 billion.
Currently, around 250 companies are participating in this market. According to ORG IMS Research, long term prospects of India’s domestic market remain solid with the USD 8 billion market in 2008, expected to rise to USD 30 billion in 2020, implying a CAGR of 11. 6%. Growth shifting to pharmerging markets: The past decade has witnessed the industry scenario undergoing a transformation with the expansion by Big Pharma in India, China, Brazil, Russia and Latin America. Some of the challenges faced by Big Pharma in emerging countries, as well as some of the strategies that they’ve adopted to counter the challenges are as follows
Challenges: * Increasing competition in generic segment * Pricing issues * Declining research and development (R&D) productivity Strategies: * O? ering low-cost generic products * Cutting down costs * Contract manufacturing * Mergers & acquisitions * Partnerships & alliances Segment Analysis: Sun Pharma’s product portfolio consists of 4 main categories of products: 1.
India Branded Generics 2. US Generics 3. International Branded Generics 4. Active Pharmaceutical Ingredients (API) Indian generics: Segment identity: Sixth largest branded generics player in India by prescription share * Ranked 1st based on share of prescriptions in six classes of specialists: psychiatrists, neurologists, cardiologists, ophthalmologists, orthopedics and gastroenterologists. * Market leader in chronic segments * Over 50% of our brands feature among the top three brands for the molecule * Product basket includes 537 formulations * Marketing therapy-based products through 18 divisions and 2,700 sales representatives to 130,000 specialist doctors * We specialize in technically complex products and o? ring a complete therapy basket, enabling us to remain competitive in a challenging market environment Highlights of the year: * Revenues increased from 17,412 million in 2009-10 to 23,800 million in 2010- 11 * Market share at 4. 3% in 2010-11, according to AWACS * Launched 38 new products during the year * Strengthened our prescription share * Our top 10 brands contributed 15% to the domestic revenues * Our top 50 brands contributed 52% to the domestic revenues US Generics: The three formulation sites in India are approved for US generics, including a facility that holds approvals for injectibles and eye drops.
One of the US sites is designed to handle controlled substance formulations. Segment identity: * Successfully acquired Taro in September 2010 * From 1997 to 2005, acquired Caraco, the plants and business of the erstwhile Able Labs, a semisolids plant in Ohio, and an API plant in Tennessee from Valeant * Product basket includes a mix of generics with limited competition, and some with intensive competition * Launched technically complex products, such as Amifostine, Lupreolide, Octreotide and Vecuronium
Highlights of the year: * Grew revenues 104% from ` 11,069 million in 2009-10 to 22,537. 9 million in 2010-11 * Launched 18 new products during the year * Filed 25 ANDAs and received approvals on 18 ANDAs during the year * This takes the total to 377 ANDA ? led and 225 ANDA received, in all, across companies. International Branded Generics (EX-US): Segment identity: Over 1,578 registered products and more than 900 products in the pipeline Chronic therapy areas are expected to continue growing faster than the rest of the market – increased demand for medicines of metabolic syndrome, obesity, diabetes, neurology, and respiratory * More than 600 sales representatives including local personnel as part of the sales force; representatives make doctor calls, build a prescription- pull. Events and CMEs focused on creating lasting relationships through academic means in much the same way as we do in India * The ? ing of products from the facilities at Mexico and Brazil has commenced * We had initiated generic exports to select markets in Europe last year, which has continued this year as well, with approvals such as Docefrez and Gemcitabine Highlights of the year: * Received registration for our drugs in the Philippines, Taiwan, Hong Kong and Australia * At the close of the year, entered into an agreement with Merck to create a joint venture to market branded generics with a delivery system advantage, which would use our product development capability and their regulatory/market strength.
The ? rst of these products is at least three years from market. The joint venture does not include current registrations by either company. API: Segment identity: * Backward integration to specialty API has helped us compete against global competitors for our formulations. We internally source API for most of our key products.
* Presence in over 56 countries, sales primarily to large companies or innovator companies. Dominant player in products like Pentoxifylline, Clomipramine and Mesalazine * Manufacture over 170 APIs; most of these complex APIs are used in the manufacture of specialty or chronic pharmaceuticals in-house * The Panoli and Ahmednagar facilities manufacture APIs for peptides, anticancers, steroids and sex hormones * World-class facilities, accredited ISO 14001 and ISO 9002 * Most of our plants have received approvals from USFDA and regulatory authorities of various developed countries * Implemented value engineering, which helped improve equipment productivity, reduced process steps, improved chemistry and optimized manufacturing costs * Plans to strengthen presence in Japan and China, and the API hubs of Germany and Italy * The Hungary unit manufactures controlled substances The Tennessee plant holds quotas for controlled substances API manufacture in the US * We scale up around 25 API processes annually15 DMF/ CEPs ? led in 2010-11 Highlights of the year: * Revenues declined from ` 5,427. 7 million in 2009-10 to ` 5212. 2 million in 2010-11 * Scaled up 28 new API during 2010-11 * Received DMF/ CEP approvals for 15 APIs from various regulatory authorities in 2010-11 Organization structure: Research and development: Research and development provides critical support for all our manufacturing and new product plans. It is undertaken at our state-of-the-art centers at Baroda and Mumbai.
Additionally, Taro has R;D centers in Israel and Canada. We have over 983 quali? d scientists. We are now well experienced in developing complex APIs as well as formulating complex, technology-intensive products, across dosage forms. Through our research and development activities, we are able to o? er complex products. This year, generic R;D spent is around 5% of net sales, partly on account of slowdown in development work related to generics at Cranbury and Caraco’s sites.
Our research team specializes in generics, ? nished dosage development, analytical development, biological support and chemistry or process development. Quality: The most important factor in a pharma company is to consistently maintain and improve quality.
We are focused on quality-conscious regulated markets, and hence our products abide by the highest quality standards. Our Quality Management Team worldwide comprises over 1200 members. Nearly all our facilities have received quality accreditations from some of the world’s most demanding regulatory bodies. At Sun Pharma , we are committed to ensure that every product we manufacture and distribute meets with and conforms over its shelf life to internationally accepted standards of quality, purity, e? cacy and safety.
System and procedures are in place to ensure that each batch of the product manufactured by Sun Pharma is of right quality. In order to maintain quality consistently each plant has well de? ed procedures and systems in compliance with GMP requirements that meet demanding regulatory requirements such as that of the USFDA, EMEA, MHRA, TGA, etc. Intellectual capital: We have largely been successful in attracting and retaining talent and creating opportunities for them to develop their technical skills as well as soft skills. One of the powerful drivers of our growth is the human resources team. Although one of the key challenges lies in retaining the junior level employees operating in R;D, manufacturing and on the ? eld. At Sun Pharma, we try to o? er a congenial environment for our people to help them to perform, lead and grow the organization.
We have implemented n institutionalized system of promotions, known as Career Progression Program (CPP) which helps us choose our leaders from within the organization. Internal controls: Sun Pharma’s de? ned organizational structure, documented policy guidelines and adequate internal controls ensure e? ciency of operations, compliance with internal policies, applicable laws and regulations, protection of resources and assets, and accurate reporting of ? nancial transactions. Moreover, the Company continuously upgrades these systems in line with the best available practices. The internal control system is supplemented by extensive internal audits, conducted by independent ? ms of Chartered Accountants to cover various operations on a continuous basis. The Company regularly upgrades its systems in line with the best available practices. Human resources: Human Resource development continues to be a key focus area at Sun Pharma and your Company takes great pride in the commitment, competence and vigor shown by its workforce in all realms of business.
You have a dedicated team of over 11200 employees at various locations across our corporate o? ce, various R;D Centers ; 19 plant locations (including associate companies) spread across three continents. The Company continues to take new initiatives to further align its HR policies to meet the growing needs of its business.
A transparent work culture, quality of work and supportive environment induces discretionary behavior among employees which gives them the opportunity to personally succeed in a way that leads to collective organizational success. Corporate social responsibility: At the close of a relatively event-free, disaster-free year, your Company persisted with participation in activities at the local, grassroots level across health and education. In the past, support has been o? ered towards disaster relief as well as participation in the facilitation of civic utilities around the plants/research centers. Your Company remains interested in these contributions.
Key performance indicators: Ten year Financial highlights: Balance sheet (as at March,2011) Income statement ( as at March,2011) Cash flow statement (as at march,2011)