Business Analysis and Valuation Inter Company Analysis Assignment

Business Analysis and Valuation Inter Company Analysis Assignment Words: 2259

WAC is used for discounting of cash flows and is expected rate of return in a way. Using WAC and historical financial, we have projected the cash flows for next 7 years. And ultimately both firms have been valued using DC and relative valuation approaches using all the multiples. Finally, triangulation approach has been used to calculate intrinsic value of both the companies. Industry Overview Pharmaceutical Industry Global pharmaceutical markets are in the midst of major discontinuities. While growth in developed markets will slow down, emerging markets will become increasingly important in the coming decade.

The Indian pharmaceutical market, along with the markets of China, Brazil and Russia, will spearhead growth within these markets. – McKinney&Company Regulations have helped Indian players to acquire process chemistry skills to develop low-cost generic drugs. The evolution of the Indian pharmaceutical industry can be broadly divided into two periods, the pre-patent regime and post-patent regime. In the pre-patent regime (before 2005), India recognized only process patents, which helped built the basis of a strong and competitive domestic industry.

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In 2005, India entered the product patent regime which marked the end of a protected era and signaled a new phase in the integration of India players into the global market. The Indian pharmaceutical industry, sized at USED 32 billion in 2012-13, has remained on a strong growth trajectory, over the past few years. The industry is marked with high fragmentation and relatively low drug prices, as compared with the regulated markets. Compliance with camp is a must to manufacture and distribute drugs in India.

It is very important for players to maintain high standards in the pharmaceutical industry, as it concerns the lives of people. Regulatory bodies impose isolations to ensure that drugs meet the safety and quality standards. Regulatory bodies not only ensure that pharmaceutical companies meet the set quality standards, but also ensure that the pharmaceutical companies do not charge unreasonable prices from consumers. If we review the Indian Pharmaceutical market, we can say that the acute ailments are prominent in India, but chronic drugs drive the formulation sales.

Due to poor sanitation 31 Page Indian Institute Of Management, conditions, infectious (acute) diseases are predominant in India. However, the incidence of chronic ailments, characterized by prolonged exposure, has been increasing with the emergence of lifestyle diseases in India, due to changing work pattern of the working population, higher stress levels, and unhealthy eating habits. If we review the global pharmaceutical market, we can say that regulated markets have continued to lag, due to patent expires and slower pace of new drug launches.

Several blockbuster and large-sized drugs losing patents, coupled with severe erosion in prices of generic drugs on the face of increasing competition, has caused a decline in the growth trajectory of major regulated markets, such as the US and Europe. Certain emerging markets such as Latin America, Asia, Africa (semi-regulated markets) have, however, witnessed healthy growth rates, which could be attributed to the growth in penetration of healthcare in these markets. The pharmaceutical industry trends are changing. A buoyant growth in exports has been seen across different players.

Exports, which contribute about 60% to the Indian pharmaceutical industry, have been the key growth driver for revenues of Indian formulation and bulk drugs players. Within export markets, regulated markets offer players better realizations, but also require higher investments. Large players, which garner larger proportion of sales from regulated markets, accordingly enjoy better profitability and returns. The Exports have yield higher revenues for Indian formulators. Sustained focus on exports has helped Indian formulators generate higher revenues over the past five years.

Large players typically enjoy better profitability as compared to medium and small players, owing to their wider presence in regulated markets. However, share of exports in total revenues has been on a steady rise for medium-sized players, as compared to larger and small-sized entities. Indian bulk drugs players capitalist on the growing export opportunities. Large-sized players are increasingly focusing on ‘contract manufacturing opportunities’ and providing services such as custom synthesis and manufacturing bulk drugs for both off-patent and on-patent drugs to generic players and innovators, respectively.

Accordingly, bulk drugs exports have continued to maintain their robust growth rate. Sluggish domestic performance has resulted into limiting revenue growth in IQ 2013-14. Aggregate revenues of the pharmaceutical sector have grown by 3. 7 per cent (y-o-y). The 41 Page Indian Institute Of Management, Rotator 0-Gag-2 marginal growth was due to higher finance charges and absence of fore gains earned in the previous year. EBITDA margins have dipped by nearly 500 BSP, driven by as Bison’s operating profits fell sharply. Semi-regulated markets to continue to be important export destinations for Indian players.

Traditionally, semi-regulated markets (SRAM) such as Africa, Asia, CICS and Latin America have been favored export destination for Indian players. However, as significant generic opportunities opened- up in regulated markets (ARM) of US and Europe, larger players shifted focus and increased the proportion of exports to these markets. While it was expected that this substantial increase in exports to ARM would reduce the share of exports to SRAM, the increase in exports to SRAM by medium and small-sized players ensured that the change in export mix towards ARM was gradual.

Region-wise comparison of semi- regulated markets indicates CICS to be a lucrative market. The assessment of parameters such as, competition, pricing pressure, regulatory challenges and market size in individual SRAM indicates that there is considerable under-penetration in CICS and Latin America. It is believed that Indian players are well-positioned to tap these arrest in addition to gradually enhancing their presence in Africa and Asia. The future of Indian pharmacy lies beyond generics. The R productivity crisis faced by large global innovator companies is likely to impact the generics space in the long- term.

Fewer drugs going off-patent and increasing competition will mean that Indian players will have to look at other avenues for growth. While presence in generics has been the backbone of the industry over the last few decades, CRISIS Research believes that Indian players will be forced to focus on new drug development, CRAMS and biotechnology to garner incremental growth in the long-term. The debate area now is on the M strategy of Indian players. Is M the next engine of growth for Indian players? There is a need for inorganic growth. Indian pharmaceutical players have been less active on the M front compared to global peers.

However, with fewer blockbusters going off-patent and intensifying competition, Indian players will have to enhance focus on mergers and acquisitions to maintain growth momentum. And US will remain a key region of interest for M. Indian players are likely to utilize the M route to add niche and complex generics to their existing portfolios. It’s leveled that players will continue to focus on regulated markets, especially the US, for mergers and acquisitions. In semi-regulated regions, Indian companies are likely to opt for marketing alliances with global players.

The scope of inbound deals will continue be limited amid regulatory hurdles. After a string of big-ticket acquisitions of Indian companies by global pharmaceutical players, the pace of inbound deals has moderated significantly. In view of the persisting uncertainties related to pricing and patents, it is believed that Macs will remain cautious while chalking out their M&A trainees for India. 5 Page sects on-A, Group-4 Key Sector Data Market Cap (RSI Core) Market Cap (USED Million) PIE P/BE Debt/Equity ROAR ROE Swales EVE/EBITDA source:capitalize 40473668599 24. 1 4. 0. 5 11. 0 17. 1 3. 2 13. 8 Industry Analysis Porter’s five forces Model Porter’s model looks at the competitive arena in which businesses operates and describes five basic competitive forces that directly impact on how successfully a business unit operates. The Porter’s five forces analysis is carried out for the Indian Pharmaceutical Industry to analyze the industry attractiveness. The following are the main observations. 1 . Bargaining Power of Buyers Specific to pharmaceutical industry, the end user of the product is different from the influencer (e. G. Doctor).

So the consumer has no choice but to buy what the doctor says. The buyers are scattered and they as such do not wield much power in the pricing of the products. For the big ethical companies, the customers are large and have significant leverage because of high volume purchases. The individual buyers have little bargaining power. The generic companies are following big ethical companies. The bigger the brand, the lesser the buyer’s power to bargain. There is also a technological shift leading to higher information access. We can say the buyers have high to medium bargaining power depending on circumstances. . Bargaining Power of Suppliers It’s known that pharmaceutical industry depends upon several organic chemicals. And chemicals are largely a commodity. Since it’s a very competitive and fragmented industry so suppliers have very low bargaining power. There are third party suppliers available anywhere along the supply chain, so pharmaceutical companies can easily switch from their suppliers without incurring a very high cost. So the bargaining power of the suppliers can be considered as low. 61 Page Indian Institute Of Management, Rotator 3.

Rivalry among existing competitors Pharmaceutical industry is one of the most competitive industries in the country with as many as ten thousand different players. There is a high competition amongst competitors. There are many competitive pneumatically Inaugurates Walt various players Ana ten null gar town Ana low Telex cost requirement and high working capital raise the competition. There is high rivalry between the top big ethical companies. There is not much room for error. The wave of mergers and acquisitions is overlapping. The Biotech and Generics have smaller markets share for Ethical.

The generic companies also have a high rivalry. There is a constant pressure and drive to innovation as being competing with shadow economy in the global market. 4. Availability of Substitutes This is one of the great advantages of the pharmaceutical industry as demand for pharmaceutical continues and the industry continues to thrive. The key reasons for high competitiveness is that as an on-going concern. There are no substitutes for expensive and unique medications. Though there are softer medication alternatives available shifting to healthy lifestyle. It can be considered as Medium to low depending on circumstances. . Threat of new entrants The treat of new entrants can be considered as Medium due to the financial requirements to buy licenses, preferred arrangements for access to distribution channels, that is as long as the formula of the drug is identical with other companies it is necessary to have good relationships with customers who choose the supplier based on other aspects than formula itself. So creating brand awareness and franchisee amongst doctors is the key for long-term survival. Quality regulation by the government may put some hindrance for establishing new manufacturing operations.

Impeding new patent regime is also a barrier to entry. Company Overview Capital Ltd. Capital was established in 1935 and is an independent public company listed on the Bombay Stock Exchange, National Stock Exchange and Luxembourg Stock Exchange. The company is known for its work in producing low-cost anti-Lads medicines for HIVE- positive patients. The company is solely involved in healthcare, including research regarding drug delivery, formulation and devices. The company also provides revise such as consulting, commissioning, plant engineering and technical support.

The company has a massive presence across the world, and is amongst the leading exporters of pharmaceuticals and formulation products to more than 170 countries, including the US, Latin America, the Middle East and Europe. It has strong national and regional coverage, and its products are readily available at all chemists/ pharmacies in the country. In February 2013 Capital acquired a 100% stake of the ordinary shares in South African company Capital Modern South 71 Page Indian Institute Of Management, Rotator Africa Ltd, at IIS$512 million.

With this acquisition the company successfully moved towards expanding its business across the world. The company has three maturating plants In IANAL, In Ago, Bangor Ana Skim. Nine company Is amongst the pioneers in the country in manufacturing prescription drugs at cheaper prices, making them available for the masses. The company does not have any third party contracts, either under license or private label for large-scale retail groups. Capital held a negligible value share in consumer health in 2012, and ranked 56th.

Its presence in consumer health is low, as the company is primarily involved in restriction medicines. The company’s value sales witnessed growth in 2012, reaching Errs million, increasing from Errs million in 2011. This growth was because the company is one of the only ones which manufacture ETC motion sickness remedies in India. The company is in an emerging category in consumer health, as its product is one of its kind in the Indian market, and ETC motion sickness remedies is still a niche category in the country. In consumer health the company has a narrow product portfolio.

However, in prescription medicines the company has a massive portfolio. The company offers economically priced consumer health products and prescription medicines in order to provide quality healthcare to the masses at low prices. The company is an innovator, and consistently comes up with new drugs, especially in prescription medicines. From a strategic direction angle, In 2012 Capital continued to work towards expanding its operations at a global level, along with offering continued support to cancer patients by slashing drug prices during the year.

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