NATCO PHARMA

MANUFACTURING
AFFORDABLE MEDICINES
PRESENTED BY-
RIDHI GIRDHAR-BM-018256
RIDHIMA SINGHA-BM-018257
RITIK JAIN-BM-018258
RINU SHRI GARG-BM-018259
RISHABH MISHRA-BM-018260
RISHABH SHARMA-BM-018261
BACKGROUND

• Incorporated on September 19, 1981 and began

operations in 1984.
• Founded by Venkaiah Chowdary Nannapaneni.
• A vertically integrated pharmaceutical manufacturing
company with 7 production facilities and an advanced
R&D centre.
• Certified by WHO for its good manufacturing
practices.
First Product Cardicap

Major Revenue-Earning Brands Veenat, Erlonat, Geftinat, Lenalid and Sorafenat

Annual Turnover (each) Rs. 100 Million

No. of Oncology Products 26 (as of 2015)

Marketing Personnel in India 170+

Exports Rs. 2.87 Billion (as of 2015)

RESEARCH AND DEVELOPMENT

• Team of 240 highly qualified people.

• First company to launch Hepcinat, a medicine for
treatment of chronic hepatitis C virus.
• Spent Rs.1.81 Billion on R&D from 2010-15.
• It has 179 patents to its credit in India and abroad.
• Future growth will be driven by oncology segment,
hepatitis C products and generic drugs.
 FINANCIAL PERFORMANCE
Net Sales Rs. 7.16 Billion (FY 2014-15)

Profit Rs. 1.54 Billion (FY 2014-15)

CAGR 16.5%

Tangible Net Worth Rs. 8.79 Billion (as of Mar 31, 2015)

The company had been consistently paying dividends to its

shareholders and outperforming its peers in the industry. In
January 2015, the Investment Information and Credit Rating
Agency of India Limited (ICRA) assigned NPL a credit
rating of “A1+” for its short-term credit facilities and “AA–”
for its long-term credit facilities.
PROPOSAL OF DEBT
• REQUIREMENT- 3.41 Billion
• PURPOSE-Expansion & working capital
• SOURCES -
I. Retained Earnings
II. Loan @ 12%
III. Debenture Issue
IV. Public Deposits @ 13%
V. QIP.
PROPOSAL FOR QIP
• These are rights offering or seasoned equity offering.
• Beneficial for company’s image.
• Expected increase in share price, Rs.397.16 (2012-13) to Rs.2308.49
(2015-16) per share.
• Favourable market condition for QIB.
INDUSTRY OUTLOOK
• Players worldwide interested in cost cutting measures.
• Global requirements for generic drugs are on rise.
• 10 % share in Global Pharma Industry.
• Indian pharmaceutical industry is expected to rise from $20 Billion to
$55 Billion by 2020.
• Result of growth is due to the increasing exports.
CAPITAL STRUCTURE THEORIES

Net Operating Income

Net income Approach
Approach

Theories

MM Theory Traditional Approach

 NPL’S DILEMNA

Cheaper source of fund generation can be used as a measure to

decrease cost of capital.
After a certain point there comes a stage when low cost debt
cannot offset cost of equity.
Cost of capital is minimum and value of firm is maximum.
TRADITIONAL APPROCH

• The traditional approach to capital structure advocates that there is a

right combination of equity and debt in the capital structure, at which
the market value of a firm is maximum. As per this approach, debt
should exist in the capital structure only up to a specific point, beyond
which, any increase in leverage would result in the reduction in value
of the firm.
• It means that there exists an optimum value of debt to equity ratio at
which the WACC is the lowest and the market value of the firm is the
highest. Once the firm crosses that optimum value of debt to equity
ratio, the cost of equity rises to give a detrimental effect to the WACC.
Above the threshold, the WACC increases and market value of the
firm starts a downward movement.
ASSUMPTIONS

• The rate of interest on debt remains constant for a certain period and
thereafter with an increase in leverage, it increases.
• The expected rate by equity shareholders remains constant or increase
gradually. After that, the equity shareholders starts perceiving a
financial risk and then from the optimal point and the expected rate
increases speedily.
• As a result of the activity of rate of interest and expected rate of
return, the WACC first decreases and then increases. The lowest point
on the curve is optimal
capital structure
QUESTION-2
ANALYSE NPL’S PROPOSAL FOR MOBILIZING
FUNDS THROUGH DEBT VERSUS EQUITY
ROUTES.
Interest rate=12%
Tax rate=35%
Value of debt=Interest/Cost of debt
=301/12%
=2508.3 million
Value of equity=EBIT/Cost of equity
Therefore,cost of equity=2.05%
[EBIT=2270-425=1845 million]
Debt-Equity ratio=0.11
The debt-equity ratio was not very high even though
the funds were being mobilised through debt.
On calculating the interest coverage
ratio(EBIT/Interest expense),it comes out to be very
high i.e,6.13 which depicts that the company’s debt
burden is less and so is the possibility of its
bankruptcy.
QUESTION 3-

• A qualified institutional placement (QIP) is, at its core,

a way for listed companies to raise capital, without
having to submit legal paperwork to market regulators.
It is common in India and other southeast Asian
countries. The Securities and Exchange Board of India
(SEBI) created the rule to avoid the dependence of
companies on foreign capital resources
• NPL could raise ₹3.41 billion through a qualified
institutional placement (QIP).
• Natco Pharma’s board of directors or committee of
directors, may at its discretion, offer a discount of
more than 5% on the QIP floor price.
• NPL’s average stock price had been increasing
continuously, from ₹397.16 per share during FY 2012–
13 to ₹2,308.49 per share in August 2015.
• It had the view that the QIP would create value for the
existing NPL shareholders in terms of its size,
capacity, and growth prospects.
QUESTION 4- In the context of capital structure,
describe the role of R&D in NPL
• NPL had well-equipped R&D facilities in Hyderabad,
which were run by qualified scientists, chemists, and
pharmacists. The company had a strong research team
of more than 240 people, most of them well-
experienced and highly qualified personnel with
expertise in biotechnology.
NPL also had 179 patents to its credit in India and
abroad. The company had several new products in
development on account of its continuous focus on
research. The growth prospects of NPL would be driven
in the near future by its domestic oncology segment,
hepatitis C products, and generic drugs intended for the
U.S. markets
THANK YOU!