INDUSTRY PROFILE
1.1 History
The Indian pharmaceutical sector has come a long way, being almost non-existent before
1970 to a prominent provider of healthcare products, meeting almost 95% of the countrys
pharmaceutical needs .The industry today is in the front rank of Indias science based industries
with wide ranging capabilities in the complex field of drug manufacture and technology. The
pharmaceutical industry in India is the world's third-largest in terms of volume.
Playing a key role in promoting and sustaining development in the vital field of
medicines, Indian pharma industry boasts of quality of producers and many units approved by
regulatory authorities in USA and UK. The industry has a market share of $14 billion in the
United States. According to the India Brand Equity Foundation, the Indian pharmaceutical
market is likely to grow at a compound annual growth rate (CAGR) of 14-17 per cent in between
2012-16. India is now among the top five pharmaceutical emerging markets of the world. In
2013, there were 4,655 pharmaceutical manufacturing plants in India, employing over 345
thousand workers.
The government began encouraging the growth of drug manufacturing by Indian
companies in the early 1960s, and with the Patents Act in 1970.This patent act removed
composition patents from foods and drugs, and though it kept process patents, these were
shortened to a period of five to seven years. The lack of patent protection made the Indian market
undesirable to the multinational companies that had dominated the market and as they left,
Indian companies carved a niche in both the Indian and world markets by reverse-engineering
new processes for manufacturing low-cost drugs. Although some of the larger companies have
taken baby steps towards drug innovation, the industry as a whole has not changed its business
model.
Key discoveries of the 1920s and 1930s, such as insulin and penicillin, became massmanufactured and distributed. Switzerland, Germany, Italy, UK, US, Belgium and Netherlands,
had strong industries as a result of introduction and success of penicillin in the early forties and
the relative success of the innovative drugs. Research and development (R&D) became a major
thrust area of the pharmaceutical industry. The industry expanded rapidly in the sixties,
benefiting from new discoveries. In the 1960s attempts were made by the U.S Food and Drug
Administration (FDA).
The increase regulation of pharmaceutical industries and to limit financial links between
companies and prescribing physician. In 1964, after the thalidomide tragedy (in which the use of
a new tranquilizer in pregnant women caused severe birth defects in the new born child), the
world medical association standards for clinical research. Pharmaceutical companies were
required to prove efficacy and safety of the drug in clinical trials before marketing them. Tighter
regulatory controls were introduced in the seventies. The new regulations revoked permanent
patents and established fixed periods on patent protection for branded products. As a result
industries flourished by producing generic products and them started earning huge profits,
because generic manufactures do not incur the cost of drug discovery.
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1.2 Growth
The dream of Indian pharmaceutical manufacturing companies for making their presence
known globally and competing with the pharmaceutical companies from the developed countries
like the United States, Europe, and Japan is now coming true. With new growth opportunities
emerging in the pharma world, the pharmaceutical industry has shown great interest in India
pharma sector due to its sustained economic growth, healthcare reforms and patent-related
legislation.
Indias population is growing rapidly, as is its economy creating a large middle class
with the resources to afford Western medicines. Further, Indias epidemiological profile is
changing, so demand is likely to increase for drugs for cardio-vascular problems, disorders of the
central nervous system and other chronic diseases. Together these factors mean that India
represents a promising potential market for global pharmaceutical manufacturers. More than that,
India has a growing pharmaceutical industry of its own. It is likely to become a competitor of
global pharma in some key areas, and a potential partner in others. India has considerable
manufacturing expertise; Indian companies are among the world leaders in the production of
generics and vaccines. As both of these areas become more important, Indian producers are
likely to take a large role on the world stage and potentially partner with global pharma
companies to market their wares outside of India.
Indian companies have also started entering into the realm of R&D; some of the leading
local producers have now started conducting original research. India has the worlds second
biggest pool of English speakers and a strong system of higher education, so it should be wellpositioned to serve as a source for research talent. A new patent regime provides better
protection of intellectual property rights, although some issues remain. Clinical trials can also be
conducted here much more cost effectively than in many developed nations, and some local
companies are beginning to develop the required expertise. All of these factors add up to a strong
case for partnering with Indian companies around R&D, including clinical testing.
Global players in the pharma industry cannot afford to ignore India. The country, many
predict, will be the most populous in the world by 2050. India will make its mark as a growing
market, potential competitor or partner in manufacturing and R&D, and as a location for clinical
trials.
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Eg: DRL has grown from a small firm into an international business with annual sales of more
than US$1.4 billion, about 84% of them outside India. The companys acquisition of Germanys
Betapharm positioned it as one of the largest generics companies in the world; it is currently one
of the largest suppliers of drugs to the US. It is also one of the largest active pharmaceutical
ingredient (API) manufacturers globally. Cipla is another company with revenues of over
US$1.1 billion, 56% of which come from outside India. It is one of the largest manufacturers of
antiretroviral drugs in the World. In 2007, an Avesta-Cipla joint venture acquired Siegfried
Biologics, a Switzerland based company, to manufacture US FDA and European Medicines
Agency (EMEA) compliant biopharmaceuticals for the global markets. Meanwhile, Lupin is the
biggest producer of Lisinopril, an API used in the treatment of hypertension.Lupins acquisition
of Multicare Pharmaceuticals of Philippines has propelled it into position as a top generics player
in the Phillipines.The deal represented Lupins sixth acquisition since 2008.
Contract manufacturing is a strong segment of the domestic market. Indian firms have
several advantages over their Western rivals. The expertise gained in manufacturing generics
through reverse engineering has helped some companies streamline the process for getting
manufacturing up and running. Costs are very competitive; indeed, they are only two-fifths of
those involved in setting up and running a new manufacturing facility in the West.61 They can
operate on significantly lower margins, given their low development and labor costs.
Currently their key area of strength in outsourcing is the manufacture of APIs.Some
Indian pharma companies could probably benefit significantly by moving towards specialty APIs
in the future. The Indian contract manufacturing segment was worth around US$605 million in
2008 and is expected to reach around US$916 million in 2010. The US FDA has already
approved over 100 manufacturing sites more than in any country except the US . Among six
offices that the US FDA has overseas, two are located in India, in Delhi and Mumbai. All
domestic producers are also obliged to comply with Indias Good Manufacturing Practices,
under Schedule M of the Drugs and Cosmetics Act, 1940.
120
>100
100
80
56
60
40
28
24
20
10
Taiwan
Israel
Hungary
0
India
Italy
China
Spain
Fig 1.1 India has more US FDA-approved manufacturing plants than any country except the US
Page 4 of 62
examples of patent-related exchanges out of court are: informing the generic competitor of its
patent right, demanding that the generic product is withheld from the market etc.,.Whether the
generic firm accepts not to enter the market or whether the originator realizes that there is no
infringement then originator firm will not continue the dispute. Nonetheless it can happen that
the two parties can end up in court. The originator wants the court find an infringement in the
behavior of the generic company and, on the other hand, the generic party wants the court to
state
that
it
does
not
infringe
any
patents.
In the 54% of the cases, are originator companies that sue generic companies, but they win only
51% of the cases. At European level, the average duration of a litigation is 2, 8 years (Italy over
six years). However one third of the cases end with a settlement. A solution to temporarily
interrupt generic undertakings from selling a litigated product is the interim injunction.
Whether the product is already in the market, it can forbid the marketing of it.
Generic companies have the right to oppose to the originator companys patent in order to
get legal verification on it, and if it is so they can enter the market without any problem. Anyhow
they can oppose only within a certain period of time. In the 59, 6% of the cases, oppositions and
appeal have total success and in the 15, 4% they manage to reduce the scope of the patent.
Generic and originator companies can reach an agreement with each other in order to resolve
disputes, litigations and oppositions on patent-related problems. In doing so, they can save
money and time and reach a compromise that can satisfy both of them. In fact, more than a half
(53%) of the originator companies has reached an agreement with generic companies. In spite
the fact that each case is examined individually, there are some factors that are taken into
account in almost all the settlement agreements. From the originator side, one of them is the
probability of winning the litigation and from the generic side is the cost of the court case. An
example of settlement agreement could be a payment (in terms of money, license or distribution
agreement etc) to the generic company by the originator company. The battle between
originator and generic companies is very tough because, on one hand, there is the right to protect
originator companies inventions that are research incentives and, on the other hand, there is the
consumers benefit in terms of having lower price medicines.
Price competition among branded drugs usually occurs at the level of insurers and PBMs.
These entities commonly use drug formularies to drive purchasing behavior. A drug formulary is
simply a list of approved prescription drugs that will be reimbursed the patient and/or pharmacy.
Three-tier formularies are commonly used in the industry, where drugs in Tier 1 have the lowest
co-payments and drugs in Tier 3 the highest co-payments. Branded drug manufacturers compete
on the prices paid by patients and their insurers by offering rebate to insurers in exchange for
more favorable formulary placement, i.e., insurers and PBMs create price competition among
various drug by exploiting their ability to shift demand based on formulary placement. Thus,
rebates given to insurers and PBMs are an aspect of price competition in the pharmaceutical
industry. A 1998 study conducted by the Congressional Budget Office suggests that
manufacturer rebates to insurers increase with the number of branded drugs with in the
therapeutic category.
In addition to competing by offering rebates to insurers and PBMs, branded drugs also
compete through promotions that take a variety of forms. Because physicians decide which drug
to prescribe, sales representatives of branded drug manufacturers provide information to
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physicians about new drugs and treatment options. Such information may be valuable and may
enhance the quality of medical care received by patients. Branded drug manufacturers also
provide free samples of their drugs to physicians, which are then passed on to patients. Free
samples effectively act as a price discount for both insurers and patients. Finally, branded drug
manufacturers also promote their drugs directly to patients.
9%
19%
72%
Generic Drugs
OTC Drugs
Patent Drugs
S.NO
Porters Force
LOW/HIGH
Potential Of New
Entrants
Into
Industry
LOW
EXPLANATION
There are many barriers that can be created to
prevent new entrants or to show down their arrival.
In the pharmaceutical industry, a new entrant may
be faced with various hurdles erected by established
businesses, such as:
Economies of scale
Distribution product differentiation
Capital requirements and financial resources
Access to distribution channels
Regulatory policy
Switching costs
Power Of Suppliers
LOW
Power
customers
of
HIGH
Page 8 of 62
Porters Force
S.NO
LOW/HIGH
Threat Of Substitute
Products
HIGH
Rivalry
Between
Competitors
HIGH
EXPLANATION
Generic companies do not require colossal
costs associated with research and
development of new medicines
This is how they can sell their products for
cheaper prices
It became a common practice among
medical professionals switching to generic
drugs and using branded drugs only if
generics are unsuccessful in their
performance
the competitive threat is coming from
emerging markets
top10 generic companies represented nearly
half of the global market
2. Cipla
Cipla Limited is an Indian pharma company. Its headquarters are located in Mumbai,
India. It was founded in 1935 by Dr. K. A. Hamied. It was originally name as 'The Chemical,
Industrial & Pharmaceutical Laboratories' and later condensed as Cipla in 1984 from the initials
of each word in the name. It has 34 manufacturing units in India and a global presence spanning
170 countries. The company offers over 2000 products in around 65 therapeutic categories, in
more than 40 dosage forms. Cipla also has a hospice called the 'Cipla Palliative Care and
Training Centre' located in Pune, for terminally ill cancer patients.
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3. Aurobindo Pharma
Aurobindo Pharma Limited is an Indian pharma and manufacturing company. Its
headquarters are located in Hyderabad, India with a market base of over 125 countries. It
manufactures generic pharmaceuticals and active pharmaceutical ingredients (APIs) mainly for
six major therapeutic/product areas: antibiotics, gastroenterologicals, anti-retrovirals,
cardiovascular products, anti-allergics and central nervous system products. The company also
has a presence in the manufacture of anti-diabetics and cephalosporins. Aurobindo Pharma
started with a single unit manufacturing Semi-Synthetic Penicillin (SSP) at Pondicherry, in in
1988-89 and is the market leader in Semi-Synthetic Penicillin today. Some of the products are
Raloxifene, Atazanavir, Aliskiren, Fumerate, Montelukast and Amoxycillin Trihydrate.
4. Cadila Healthcare
Cadila Healthcare is an Indian pharma company. Its headquarters are located at
Ahmedabad, Gujarat, India. Cadila Laboratories was founded by Ramanbhai Patel and Shri
Indravadan Modi in 1952. The company has employee strength of over 11000 across the world.
In 1995 Cadila Healthcare came under the Patel family and Cadila Pharmaceuticals Ltd. came
under the Modi family, following the split of the two families. The company develops and
manufactures pharmaceutical as well as diagnostic products, skin care products, herbal products,
and other OTC products. The various therapeutic segments covered by Cadila Healthcare are
Anti-Infective,
Anti-Allergic,
Anti-Epileptic,
Anti-Osteoporosis,
Anti-Depressant,
Gastrointestinals, Sedative, Womens Healthcare, Anti-Rheumatic, Tranquilizers, Anti-Diabetic,
Anti-Psychotic, Pain Management and Tadalafil. The blockbuster drugs are Oflin OD, Clodus,
Zoldac, NeoLoridin, Ven-OD, Isbis, Bonmax, Mexate, Cartup, Zyqin, Oxeptal, Zytonin, Cefinar,
Zycolchin, Vageston, Xet, Espra, Aldren, Serlin, Epsolin, Euglim, Olandus, Divalpro, Topiram,
Cytolog, Stilnite, Mifegest, Dactive, Linid, Mosadac, Salazar, Lamidus, and Zydalis.
Page 10 of 62
CHAPTER 2
COMPANY PROFILE
Page 11 of 62
Company Name
CEO
Type
Private
Industry
Headquarters
Produts
Number of Employees
Pharmaceuticals
Hyderabad,Telangana
Drugs
Over 12000
Area served
World wide
Website
www.heterodrugs.com
Address
Role
DR.B.Parthasaradhi Reddy
Director- Production
Director
Director
Director R&D
Director Finance
C. Gopala Krishna
M V Narayana Reddy
Secretary
Charted Accountants
A V N S Nageswara Rao
Cost Accountant
Page 12 of 62
2.3.2 Mission
Mission is to be a globally acclaimed pharmaceutical company. Meeting the requirements
of healthcare imbibing the philosophy of both commercial and social concerns, driven by
research and manufacturing capabilities.
Page 13 of 62
2.5 PRODUCTS
Hetero drugs Ltd., produces three types of products. Those are,
APIs
Generics
Oncology
APIs products
HETERO have more than 20 years of experience in developing Active Pharmaceutical
Ingredients (API's). HETERO bring in their rich chemistry experience, quality, manufacturing
capabilities and regulatory & IP capabilities. They offer products in every therapeutic category
and work towards providing API's to help our customers bring first time generics across the
world.
Table:2.1 APIs Products Of Hetero Drugs Ltd.,
S.NO
Name
Category
Abacavir base
Antiretrovirals
Acydovir
Antiretrovirals
Bexarotene
Antineoplastics
Bortezomib
Antineoplastics
Cisplatin
Antineoplastics
Didanosine
Antiretrovirals
Donepezil Hcl
Anti-alzhemers
Entecavir
Antiretrovirals
Page 14 of 62
Escitalopram oxalate
Antidepressants
10
Famcidovir
Antivirals
11
Gefitinib
Antineoplastics
12
Glimepiride
Antidiabetics
13
Hydralazine
Antihypertensives
14
Letrozole
Antineoplastics
15
Lisinopril
Antihypertensive
16
Milnacipran Hcl
Antipsychotics
17
Metaxalone
Musde relaxant
18
Nevirapine
Antiretrovirals
19
Oxaliplatin
Antineoplastics
20
Plerixafor
Antineoplastics
21
Pralatrexate
Antineoplastic
22
Roflumilast
Antiasthamatics
Page 15 of 62
Generics:
HETERO is committed in bringing affordable and global quality generics all over the
world. HETERO provide products in multiple dosage forms, catering to patient needs in various
therapies. Hetero is one of the world leaders in developing and manufacturing a wide range of
branded/non-branded generics with a portfolio of more than 200 marketed products and 150
ANDAs filed across most therapeutic areas. The company is the largest supplier of anti-retroviral
drugsHetero's range of generics includes solid and liquid oral dosages, pre-filled syringes,
injectables, soft gelatin capsules, controlled-release multi-layered tablets, topicals, and inhalers.
Additionally, Hetero supports production of US DEA Schedule II controlled substance
formulations..
Table:2.2 Generics Of Hetero Drugs Ltd.,
S.NO
Name
Category
Abacavir (Base)
Antiretrovirals (NRTI)
Abacavir Sulfate
Antiretrovirals (NRTI)
Abacavir Sulfate
Antiretrovirals (NRTI)
Antiretrovirals (NRTI)
Antiretrovirals (NRTI)
Acyclovir
Antivirals
Alfuzosin HCl
Urinary Incontinence/BPH
Amlodipine Besylate
Antihypertensives / Antihyperlipoproteinemics
9
10
Aripiprazole
Artemether + Lumefantrine
11
12
13
Atomoxetine Hydrochloride
Atorvastatin Calcium
14
Antimalarial
Page 16 of 62
Oncology:
Hetero is building a global franchise of oncology products both in API's and finished
dosages. We offer the below range and continue to add new products constantly for global
markets.
Table:4.3 Oncology Products Of Hetero Drugs Ltd.,
S.NO
Product
Abiraterone Acetate
Anastrozole
Aprepitant
Axitinib
Azacitidine
Bendamustine HCl
Bortezomib
10
Cabazitaxel
11
Capecitabine
12
Carboplatin
13
Cisplatin
14
Cyclophosphamide
15
Docetaxel
16
17
Fosaprepitant Dimeglumine
18
Gefitinib
19
Gemcitabine HCl
20
21
Irinotecan HCl
22
Lapatinib Ditosylate
23
Lenalidomide
24
Letrozole
25
Nilotinib HCl
2.6. SERVICES
CRAMS
Hetero initiated customer-centric division that will provide Custom Research And
Manufacturing Services (CRAMS) for large, mid-sized and emerging biotech and
pharmaceutical entities globally. Hetero will partner with these companies and cultivate
opportunities to research, manufacture and develop compounds across the entire drug life cycle.
This division will deliver fully-consolidated or customized manufacturing solutions for APIs,
intermediate chemicals, pre-formulations and formulations across each stage of the
pharmaceutical life cycle. Hetero provides premium solutions for product life cycle management
including life cycle extensions and line extensions.
Drug Discovery
Hetero started discovery research with the focus on developing NCEs in selected
therapeutic areas. Our business strategy is to out licence early stage discovery molecules and to
explore early stage discovery collaborations to maximize the potential of our discovery projects.
Scientists at Drug Discovery Division are working on the following projects.
ANTI-HIV Research
ANTI-HCV Research
Diabetes Research
Manufacturing
Hetero consider manufacturing as their core strength. They continuously strive for
excellence in key areas of infrastructure and technology. HETERO manufacturing facilities are
regulatory compliant and have been audited by several agencies like US FDA, WHO-Geneva,
TGA-Australia, Spanish, ANVISA-Brazil, and IDA-Netherlands.HETERO have around 18
manufacturing facilities spread across globally. These manufacture APIs, Intermediates and
generics.
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2.7 CUSTOMERS
Indian Market
International Market
Page 19 of 62
STRENGTHS
WEAKNESS
OPPORTUNITIES
THREATS
Page 20 of 62
2.10 BALANCESHEETS:
BALANCE SHEET AS AT 31ST MARCH 2013
Particulars
I.EQUITY AND LIABILITIES
As at 31-Mar-2013
(Rupees in Mn.)
As at 31-Mar-2012
Shareholders funds
Share capital
34.50
34.50
7,232.33
7,266.83
6,756.17
6,790.67
1,132.62
1,970.63
846.05
603.13
82.50
82.50
Long-term provisions
31.95
2,093.12
.29.18
2,685.44
3,211.33
3,520.31
Trade payables
18,12.19
701.22
1,702.11
1,245.54
Short-term provisions
42.89
6768.52
16,128.47
19.12
5486.19
14,962.30
Tangible assets
56,73.04
5,233.33
Intangible assets
228.71
250.20
Capital work-in-progress
804.83
809.97
Non-current Liabilities
Current Liabilities
TOTAL
II.ASSETS
Non-current assets
Fixed assets
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Non-current investments
788.86
316.86
601.22
1,030.28
8,096.66
7,640.64
Inventories
3,206.21
2,223.29
Trade receivables
4,027.56
4,413.78
72.43
85.72
162.28
165.90
563.33
8,031.81
432.97
7,321.66
16,128.47
14,962.30
Current assets
TOTAL
Page 22 of 62
As at 31-Mar-2014
(Rupees in Mn.)
As at 31-Mar-2013
Shareholders funds
Share capital
34.50
34.50
8,171.08
8,205.58
7,232.33
7,266.83
739.23
1,132.62
919.28
846.05
82.50
82.50
Long-term provisions
40.78
1,781.79
31.95
2,093.12
3,642.89
3,211.33
Trade payables
1,309.37
1,812.19
1,273.41
1,702.11
Short-term provisions
39.01
6,264.68
16,252.05
42.89
6,768.52
16,128.47
Tangible assets
5,755.14
56,73.04
Intangible assets
206.87
228.71
Capital work-in-progress
1,027.11
804.83
837.48
788.86
Non-current Liabilities
Current Liabilities
TOTAL
II.ASSETS
Non-current assets
Fixed assets
Non-current investments
Page 23 of 62
495.18
601.22
8,321.77
8,096.66
Inventories
3,405.30
3,206.21
Trade receivables
3,485.05
4,027.56
201.37
72.43
232.42
162.28
606.14
563.33
7,930.28
16,252.05
8,031.81
16,128.47
Current assets
TOTAL
Page 24 of 62
As at 31-Mar-2012
(in lakhs)
As at 31-Mar-2011
Shareholders funds
Share capital
345.00
345.00
67561.66
67906.66
65315.23
65660.23
19715.50
17805.28
6031.32
4731.80
825.00
500.00
Long-term provisions
291.84
26863.66
274.43
23311.51
31378.53
33539.89
Trade payables
10836.73
6809.18
12586.07
13188.98
Short-term provisions
945.46
55746.79
150517.11
544.00
54082.05
143053.79
Tangible assets
52333.35
38733.03
Intangible assets
2502.03
2421.18
Capital work-in-progress
8099.70
15617.87
5190.35
4555.14
Non-current Liabilities
Current Liabilities
TOTAL
II.ASSETS
Non-current assets
Fixed assets
Non-current investments
Page 25 of 62
8280.98
76406.41
8424.23
69751.45
Inventories
22232.86
23781.92
Trade receivables
44137.76
39486.86
857.21
3842.14
1659.14
1196.30
5223.73
4995.13
74110.7
150517.11
73302.35
143053.79
Current assets
TOTAL
Page 26 of 62
CHAPTER 3
TASKS ACCOMPLISHED DURING INTERNSHIP
Internship gave me an insight into the working of real corporate world. The company
where I have done my internship is named Hetero Drugs Ltd., and it is a pharmaceutical
company. Before my internship began, my guide had a talk with me and described what kind of
an internship it is going to be and he guided me for the whole 8 weeks of my internship. I did my
internship on working capital management. It helped me to know how the analysis is being done
by comparing the balance sheets of 3 subsequent years. One needs to really know what finance is all
about and how much it is important for the companys smooth functioning.
In the 1st week of my internship I had gone through the introduction about the company,
it includes the company vision, mission and organizational structure of the company
I learned about book keeping procedure and preparation of financial statements
I got to know about how finance department has relationship with other departments
Study of how Working capital Management helps in taking the Financial decisions of the
company
Preparation of statement changes in the working capital management of the company
from the past 3 years
Computerization of the manual record
Page 27 of 62
As an intern the contribution to organization is that I studied the funds requirement of the
company and suggested that the company can issue the shares to the public, so they can
raise money at lower cost.
I prepared and submitted a documentation to the organization based on my observation,
in that documentation I had given suggestions to the organization regarding to their
current assets and current liabilities
3.4 LEARNINGS
I have got clear idea about various aspects of working capital management
In pharmaceutical industry how they handle current assets and current liabilities
Internship gave me an insight into the working of real corporate world
I got an opportunity to apply my theoretical knowledge in the practical world
Page 28 of 62
CHAPTER 4
ANALYSIS OF THE RESEARCH UNDERTAKEN
Working capital may be regarded as life and blood of business. Working capital is needed
to meet the day-to-day requirement of the business unit. The exploitation of working capital
assets is possible only by efficient working capital management. Working capital management
not only shows the financial efficiency of business, but also its credit worthiness, which has
gained importance in these days of credit squeeze. Working capital management is significant in
financial management. It plays a vital role in keeping the wheel of the business running. Every
business requires capital, without it, it cant be promoted. Investment decisions are concerned
with investment in current assets and fixed assets. Working capital plays a key role in a business
enterprise just as the role of heart in human body. It acts as grease to run the wheels of fixed
assets. Its effective provision can ensure the success of business, while its inefficient
management can lead not only to loss but also to the ultimate downfall of what otherwise might
be considered as a promising concern. Efficiency of a business enterprise depends largely on its
ability to its working capital. Working capital management is one of the important facts of
affirms overall financial management.
Page 29 of 62
Primary sources
Secondary sources
Primary Data
The primary data is that data which is collected fresh or first hand, and for first time
which is original in nature. In this study the Primary data has been collected from Personal
Interaction with Finance manager and my own observation during the internship.
Secondary Data
The secondary data are those which have already collected and stored. We get this data
from records, annual reports of the company etc. It will save the time, money and efforts to
collect the data. The major source of data for this project was collected through annual reports,
profit and loss account and balance sheet of 3 year period from 2012-2014 & some more
information collected from internet and text sources.
Page 30 of 62
Page 31 of 62
At its inception and during the formative period of its operations a company must have
enough cash fund to meet its obligations. The need for initial working capital is for every
company to consolidate its position.
b) Regular working capital
Regular working capital refers to the minimum amount of liquid capital required to keep
up the circulation of the capital from the cash inventories to accounts receivable and from
account receivables to back again cash. It consists of adequate cash balance on hand and at bank,
adequate stock of raw materials and finished goods and amount of receivables.
Temporary / Fluctuating Working Capital
Temporary / Fluctuating working capital is the working capital needed to meet seasonal
as well as unforeseen requirements. It may be divided into two types
.
a) Seasonal Working Capital
There are many lines of business where the volume of operations are different and hence
the amount of working capital vary with the seasons. The capital required to meet the seasonal
needs of the enterprise is known as seasonal Working capital.
Page 32 of 62
Cash management
Receivable management
Inventory management
A) Cash management
Transaction Motive
The firm must and should keep the funds for transactions like purchase, sales etc. These
activities, which are not known in advance, are not considered while preparing a cash budget
Precautionary motive
The firm also keeps funds for the safeguard against uncertainties, which are an integral
part of business operations.
Speculative Motive
To tap profits from opportunities arising from fluctuations in commodity prices, security
prices, interest rates etc. The company with surplus cash is in a better position to exploit such
situations.
B) RECEIVABLES MANAGEMENT
Receivable represents amounts owed to the firm as a result of sale of goods or services on
the ordinary course of business. These are claims of the firm against its customers and form part
of its current assets. These receivables are carried for the customers. The period of credit and
extent of receivables depends upon the credit policy followed by the firm. The main purpose of
maintaining or investing in receivables is to meet competitors, to increase sales, and to maintain
a cordial relationship with the clients
Page 33 of 62
C) INVENTORY MANAGEMENT
Every enterprise needs inventory for smooth running of its activities. It serves as a link
between production and distribution process. There is, generally a time lag between the
recognition of a need and its fulfillment. The greater the time lag, the higher the requirements for
inventory. The unforeseen fluctuations in demand and supply of goods necessitate the need for
inventory. Moreover, it provides a cushion for future price fluctuations.
Inventory is the list of raw materials, work-in-process, or finished goods have been
waiting to be consumed in production or to be sold. Inventory management involves the control
of the current assets, namely raw materials; work in process and finished goods. The main
objective of inventory management is to minimize the total cost- both direct and indirect, which
are associated with holding the inventories. A reduction in the excessive inventories has a
favorable impact on the companys profitability.
4.2.1.3 ESTIMATION OF WORKING CAPITAL REQIUREMENTS
Managing the working capital is a matter of balance. The firms must have sufficient
funds on hand to meet its immediate needs. The manufacturing oriented organizations are the
following aspects have to be taken into consideration while estimating the working capital
requirements.
They are:
To meet the cost of inventories including total of raw materials purchased parts, operating
supplies, work in progress, finished goods.
To pay wages, salaries, for indirect labor, clerical staff, managerial and supervision staff.
To meet overhead costs, including those of maintenance services activities, fuel, power
charges, taxes and general expenses administration.
Page 34 of 62
Page 35 of 62
Conventional approach
Conservative approach
Aggressive approach
A) Conventional approach
As per this approach, the duration of requirement of funds should be matched with the
duration of the resources financing. That is the fixed assets must be financed by long term
sources of finance and the temporary current assets alone should be financed by short term
sources of funds.
Page 36 of 62
B) Conservative approach:
This approach favors maximum reliance on long-term sources of financing. That is the
fixed assets, permanent current assets and temporary current assets are financed by long term
sources of funds.
C) Aggressive approach:
Aggressive approach to working capital financing favors maximum reliance on shortterm sources for working capital financing. The working capital financing policy of a firm is said
to be aggressive if it finances a part of its permanent working capital requirements from short
term sources.
Page 37 of 62
31-mar-2013
(in Mn.,)
31-mar-2014
(In Mn.,)
3206.21
4027.56
3405.30
3485.05
199.09
72.43
201.37
128.94
162.28
232.42
70.14
563.33
606.14
42.81
Gross Working
Capital
(A)
2.Current Liabilities
Short term borrowings
8031.81
7930.28
3211.33
3642.89
Trade payables
1812.19
1309.37
502.82
1702.11
42.89
1273.41
39.01
428.70
3.88
Total current
liabilities
(B)
Net working capital
(A-B)
Increase/decrease in
working capital
Total
6768.52
6264.68
1263.29
1665.60
1.Current Assets
Inventories
Trade receivables
431.56
402.31
402.31
1665.60
1665.60
1376.38
1376.38
Analysis:
There is a significant increase in net working capital, which amounts to 402.31 million.
There is a noticeable increase in net working capital due to increase in cash& bank balances and
inventories. The increase in cash amounts to 128.94 million and inventories amounts to
199.09million. A positive growth is observed in loans and advances and other current assets. The
net affect of the above changes has brought about the increase in working capital.
Page 38 of 62
Table 4.2: Computation of working capital management of hetero drugs limited from
2012-13
Particulars
31-mar-2012
(In Mn.,)
31-mar-2013
(In Mn.,)
2223.29
4413.78
3206.21
4027.56
85.72
72.43
13.29
165.90
162.28
3.62
432.97
563.33
Gross working
capital
(A)
2.current liabilities
Short term
borrowings
Trade payables
Other current
liabilities
Short term provisions
7321.66
8031.81
3520.31
3211.33
701.22
1245.54
1812.19
1702.11
1110.97
456.57
19.12
42.89
23.77
Total current
liabilities
(B)
Net working capital
(A-B)
Increase/decrease
working capital
Total
5486.19
6768.52
1835.47
1263.29
1.current assets
Inventories
Trade receivables
Cash and bank
balance
Short term loans and
advances
1835.47
130.36
308.98
572.18
572.18
1835.47
1994.44
1994.44
Analysis:
There is a significant decrease in net working capital, which amounts to 572.18 million.
There is a noticeable decrease in net working capital due to decrease in cash & bank balances.
The decrease in cash amounts to 13.29 million and increase in trade payables amounts to
1110.97million which leads to increase current liabilities. A negative growth is observed in loans
and advances and positive growth on other current assets. The net affect of the above changes
has brought about the decrease in working capital.
Page 39 of 62
Table: 4.3 Computation of working capital management of hetero drugs limited from 201112
Particulars
31-mar-2011
(In lakhs)
31-mar-2012
(In lakhs)
23,781.92
39,486.86
22232.86
44137.76
3842.14
857.21
1196.30
1659.14
462.84
4995.13
5223.73
228.6
Gross working
capital
2.current liabilities
Short term
borrowings
Trade payables
Other current
liabilities
Short term provisions
73,302.35
74110.70
33,539.89
31378.53
6809.18
13188.98
10836.73
12586.07
544
945.46
Total current
liabilities
Net working capital
54082.05
55746.79
19220.30
18363.91
1.current assets
Inventories
Trade receivables
Increase in working
capital
Total
19220.30
2161.36
4027.55
602.91
401.46
856.39
856.39
19220.30
8963
8963
Analysis:
There is a significant increase in net working capital, which amounts to 856.39 lakhs.
There is a noticeable increase in trade payables which amounts to 4650.90 lakhs and noticeable
decrease in trade payables which amounts to 4027.55 lakhs. The decrease in inventories amounts
to 1549.06.A positive growth is observed on loans and advances and current assets.
Page 40 of 62
2011-12
2012-13
2013-14
1.current assets
Inventories
22232.86
3206.21
3405.30
Trade receivables
44137.76
4027.56
3485.05
857.21
72.43
201.37
1659.14
162.28
232.42
5223.73
563.33
606.14
Gross working
capital
(A)
2.current liabilities
74110.70
8031.81
7930.28
Short term
borrowings
Trade payables
31378.53
3211.33
3642.89
10836.73
1812.19
1309.37
Other current
liabilities
12586.07
1702.11
1273.41
945.46
42.89
39.01
Total current
liabilities
(B)
Net working capital
(A-B)
55746.79
6768.52
6264.68
18363.91
1263.29
Page 41 of 62
18363.91
20000
2013
2014
12632.9
16656
18363.91
18000
16656
16000
14000
12632.9
12000
10000
8000
6000
4000
2000
0
2012
2013
2014
Years
Fig: 4.1 Net Working Capital
Interpretation:
Positive working capital means that the company is able to pay of its short-term
liabilities. By analyzing the above three years data, there is decrease in working capital in 201213 & sudden growth in 2014, which seems to be there is a fluctuation in working capital.
Therefore it affects the growth of the company.
Page 42 of 62
74119.70
81000
2013
2014
80318.1
79302.8
80318.1
80000
79302.8
79000
78000
77000
76000
75000
74119.7
74000
73000
72000
71000
2012
2013
2014
Years
Fig: 4.2 Gross working capital
Interpretation:
By observing above three years data, there is a sudden increase in gross working capital
in the year 2012-13 and gradually decrease in 2014. The Company is maintaining gross working
capital higher than the liabilities so the company is able to pay off its liabilities and it maintains
positive networking capital
Page 43 of 62
Inventory Analysis
Inventory means stock of three things:1. Raw materials
2. Semi-finished goods.
3. Finished goods.
22232.86
2013
2014
32062.1
34053
40000
35000
32062.1
34053
30000
25000
22232.86
20000
15000
10000
5000
0
2012
2013
2014
Years
Fig: 4.3 Inventory Analysis
Interpretation:
By observing above three years data, there is a continuous increase in inventory. It can be
seen that inventories are increased from 22232.86lakhs to 34053lakhs from the year 2012-14. By
seeing these pattern we can say that the company is managing the inventories according to sales.
The company have great demand for drugs in 2014 but amount is blocked in inventories.
Page 44 of 62
Trade Receivables
Trade receivable is an important component of working capital and fall under current
assets. Trade receivables will arise only when credit sales are made.
Table: 4.8 Trade Receivables
Year
2012
Trade receivables
(in lakhs)
44137.76
50000
45000
2013
2014
40275.6
34850.5
44137.76
40275.6
40000
34850.5
35000
30000
25000
20000
15000
10000
5000
0
2012
2013
2014
Years
Fig: 4.4 Trade Receivables
Interpretation:
From the above data, there is significant decrease in trade receivables from the year
2012-14.by seeing the above data we can say that they were made the cash sales, so company has
equity cash as there is a decrease in debtors.
Page 45 of 62
2013
724.3
2014
2013.7
2500
2013.7
Cash and
bank balance(in lakhs)
2000
1500
1000
857.21
724.3
500
0
2012
2013
2014
Years
Fig: 4.5 Cash and Bank Balances
Interpretation:
From the above three years there is a slight decrease in cash from the year 2012-13 and
the cash increased from 724.3 lakhs to 2013.7 lakhs from the year 2013-14. The company has
liquidity cash.
Page 46 of 62
2500
2014
2324.2
2324.2
2000
1659.14
1622.8
2012
2013
1500
1000
500
0
2014
Years
Fig: 4.6 Short Term Loans and Advances
Interpretation:
If we analyze the table and the chart we can see that the rate of giving loans has increased
from 2012-2014. The increasing pattern shows that company is giving advances for the raw
materials, expansion of plants and machinery which is good sign for better production. Although
companys cash is blocked.
Page 47 of 62
2012
5223.73
2013
5633.3
6200
2014
6061.4
6061.4
6000
5800
5633.3
5600
5400
5223.73
5200
5000
4800
2012
2013
2014
Years
Interpretation:
From the above there is increase in other current assets i.e. 2012-14. Other current assets
means advance rent or advance tax which is beneficial and these can be deducted when we are
paying actuals.
Page 48 of 62
Current Labilities:
Current abilities are any liabilities that are incurred by the firm on a short term basis or
current liabilities that has to be paid by the firm with in one year.
Table: 4.12 current liabilities
Year
2012
2013
2014
31378.53
32113.3
36428.9
Trade payables
Other current
liabilities
Short term borrowings
10836.73
12586.07
18121.9
17021.1
13093.7
12734.1
945.46
428.9
390.1
Total
55746.79
67685.2
62646.8
80000
67685.2
70000
60000
62646.8
55746.79
50000
40000
30000
20000
10000
0
2012
2013
2014
Years
Fig: 4.8 Current Liabilities
Interpretation:
From the above data, there is an increase in current liabilities in the year 2012-13 and
slight decrease in 2014. It affects companys growth due to sudden increase in liabilities. The
decrease in current liabilities create good will in the market and it indicates that the company has
liquidity cash
Page 49 of 62
2013
32113.3
2014
36428.9
36428.9
32113.3
31378.53
2012
2013
2014
Years
Fig: 4.9 Short Term Borrowings
Interpretation:
From the above data there is increase in short term borrowings from 31378.53lakhs to
36428.9 lakhs from the year 2012-14. The company liabilities also increasing due to increase in
short term borrowings.
Page 50 of 62
Trade Payables
Creditors or trade payable is an important component of working capital and fall under
Current liability. Trade payable will arise only when credit purchases are made.
20000
2013
18121.9
2014
13093.7
18121.9
18000
16000
13093.7
14000
12000
10836.73
10000
8000
6000
4000
2000
0
2012
2013
2014
Years
Fig: 4.10 Trade payables
Interpretation:
From the above data there is sudden increase in trade payables (creditors) from the year
2012-2013 and sudden decrease in 2014. A simple logic is that creditors increase only when
credit purchase increase and if purchase increase on credit is not good for company. Decrease in
trade payables is a good sign for growth.
Page 51 of 62
2013
17021.1
2014
12734.1
17021.1
18000
16000
14000
12734.1
12586.07
12000
10000
8000
6000
4000
2000
0
2012
2013
2014
Years
Fig: 4.11 Other Current Liabilities
Interpretation:
By observing the above data there is increase in other current liabilities i.e... Outstanding
expenses in the year 2012-2013 and decrease in 2014. This leads to companys liabilities
increases which affects the growth of the company.
Page 52 of 62
1000
2013
428.9
2014
390.1
945.46
900
800
700
600
500
428.9
400
390.1
300
200
100
0
2012
2013
2014
Years
Fig: 4.12 Short Term Provisions
Interpretation:
From the above table we can see that provision shows a decreasing trend and the huge
amount is being diverted from these provisions to other facilities. Though the profits of the
company are increased income tax is also increased, yet the advance payments of taxes has been
reduced, other provisions are for the benefit of employees and public.
Page 53 of 62
Page 54 of 62
CURRENT RATIO
The current ratio of a unit measures firms short term solvency, which reflects firms ability
to meet short term obligations. The higher the current ratio is, greater the business units ability to
meet current obligation. By convention 2:1 is considered as good i.e. current assets double the
current liabilities is considered as satisfactory.
CURRENT RATIO = CURRENT ASSETS /CURRENT LIABILITIES
Current Liabilities
(in lakhs)
55746.79
67685.2
62646.8
Ratio
1.33
1.18
1.26
1
0.99
0.99
0.98
Ratio
0.97
0.97
0.96
0.95
0.95
0.94
0.93
2012
2013
2014
Years
Fig: 4.13 current ratio
Interpretation:
This ratio indicates higher the current ratio the larger amount of rupees available per
rupee of liability. The company current ratio is not satisfactory because there is a less amount in
current asset than the standard firm.becuase the company does not reaches the standard current
ratio.
Page 55 of 62
QUICK RATIO:
Quick ratio is concerned with the relationship between quick assets and quick liabilities.
It is intended to supplement the information furnished by a current ratio. A Raito of 1:1 is
considered as an ideal one. It shows a measure the firms ability to pay off short term obligations
without relying on sale of inventories.
Quick Ratio or Acid Test Ratio = QUICK ASSETS /QUICK LIABILITIES
QUICK ASSETS: - Current assets-Inventories.
QUICK LIABILITIES: - Current liabilities-Bank Over Draft
Current liabilities
Ratio
55746.79
67685.2
62646.8
0.81
0.71
0.82
0.84
0.82
0.82
0.81
0.8
0.78
0.76
Ratio
0.74
0.71
0.72
0.7
0.68
0.66
0.64
2012
2013
2014
Years
Fig: 4.14 Quick Ratio
Interpretation:
The company is not maintain standard quick ratio and there is a flections in the ratio. Its
a bad sign for Partners and investors. This indicates that the company is spending its liquid assets
in paying liabilities.
Page 56 of 62
4
3.5
3.3
3.32
2012
2013
Ratio
3
2.5
2
1.5
1
0.5
0
2014
Years
Fig: 4.15 inventory turnover ratio
Interpretation:
In case of the inventory turnover ratio the higher the ratio the more efficiently the
inventory is said to be managed.
Page 57 of 62
Ratio
0.97
0.99
0.95
1
0.99
0.99
0.98
Ratio
0.97
0.97
0.96
0.95
0.95
0.94
0.93
2012
2013
2014
Years
Fig: 4.16 current assets to fixed assets ratio
Interpretation:
By observing the above data we can say that the ratio is flexible. Higher rate implies
greater liquidity and lower risk. Lower rate indicates higher risk and poor liquidity.
Page 58 of 62
Sales
2012
18792.10
127900
Working
capital
turnover ratio
6.80
2013
2014
15493.8
14644.45
107200
119900
6.91
8.1
8.5
8.1
Ratio
8
7.5
7
6.8
6.91
6.5
6
2012
2013
2014
Years
Fig: 4.17 working capital turnover ratio
Interpretation:
There is a continuous increase in working capital ratio. It indicates the firms ability to
generate sales per rupee of working capital. In general higher the ratio, the more efficient the
management and utilization of working capital
Page 59 of 62
4.3 FINDINGS
4.4 SUGGESTIONS
Page 60 of 62
4.5 OBSERVATIONS
Table: 4.22 Observations
Particulars
2011-12
2012-13
2013-14
Sales
Decreased by 25.55%
Decreased by 4.45%
Decreased by31.17%
Increased by 31.84%
Increased by 11.02%
Decreased by 6.51%
Increased by 9.69%
Increased by 44.21%
Decreased by 1.26%
Increased by 6.20%
Trade receivables
Increased by 11.77%
Decreased by 8.75%
Decreased by 13.46%
Decreased by 77.68%
Decreased by 2.18%
Increased by 43.22%
Increased by 30.10%
Increased by 7.59%
Current liabilities
Increased by 3.07%
Increased by 23.37%
Decreased by 7.44%
Decreased by 6.44%
Decreased by 8.77%
increased by 13.43%
Trade payables
Increased by 59.14%
Decreased by 4.57%
Increased
by Decreased by 27.74%
158.43%
Increased by 36.65% Decreased by 25.18%
Increased by 73.79%
Increased
124.32%
by Decreased by 9.04%
Page 61 of 62
4.6 Conclusion:
The study on working capital management conducted in Hetero Drugs Ltd., to analyze
the final position of the company. The company financial position is analyzed by using the
annual reports of the company from 2011-12 to 2013-14.
When I analyzed the financial performance of the company the firms commitment to
meet short term obligations is good i.e liquidity position is good.
In the last year the inventory turnover ratio has increased, this is the good sign for the
company. From the above analysis we can say that the company is increasing its financial
position, but the company has to increase its investment in current assets and reduce the current
liabilities.
Page 62 of 62