CHAPTER-II OBJECTIVES & METHODOLOGY - …shodhganga.inflibnet.ac.in/bitstream/10603/8359/9/09... ·  · 2015-12-04CHAPTER-II OBJECTIVES & METHODOLOGY ... RBI, Financial Statistics

CHAPTER-IIOBJECTIVES & METHODOLOGY

The main aim of this Chapter is to define the objectives of the study;

outline the methodology employed for carrying out the research project; elucidate

various concepts related to the problem; look into the policy implications of the

study; and review the existing literature on the Changes in Structure of finance in

Pharmaceutical industry with specific reference to the studies made both in public

and private sectors.

NEED FOR STUDY:Till now public attention in this country has been focused so much on the

profitability and liquidity of corporate finances. Further more, no studies were

made on Pharmaceutical industry in connection with examining the relationships

between liquidity, profitability and financing. However, the Indian Pharmaceutical

Industry has been contributing to the social well being of the country by playing a

multi-faceted role of discovering, developing, and manufacturing and also

distributing quality medicines. As a result, the average life expectancy, a leading

health and economic indicator, improved in India form 41.32 years in the 1960s to

62.9 years in 1998-99 and the mortality rates declined from 146 per thousand

births in 1960-61 to 69 per thousand births in 1998-99 (Swain etc, al., 2002, p.5).

The signing of GATT (now WTO) has included a series of changes in the industry

and continues to guide the growth and development of the industry. Thus, to know

about the Indian pharmaceutical industry, we have taken Pharmaceuticals

companies as base and they have been selected in the present study.

RESEARCH OBJECTIVES:

The existing literature indicates the main hypothesis of study related

changes in structure of finance in pharmaceutical industry in India. The collaries

that flow from the main are:

To examine the trends in the profits of the pharmaceutical industry in India and

identifying the reasons for the low profits

To study the changes in structure of finance and to know how far the low

profitability and high pay out ratios are responsible for the fall of internal

sources and raise of external sources

To study about the impact of capital structure on profitability and liquidity and

identify the reasons for the inadequate liquidity and high equity of the

pharmaceutical industry

APPROACHES OF THE STUDY:

In the study an attempt is made to examine the changes in structure of

finance in Pharmaceutical Industry in India during 1976 to 2006. The principle

approaches of the study are:

i. Analyzing the growth and working of the Pharmaceutical Industry in India

with a special reference to the comparison of Large and medium selected

companies in terms of production, productivity, investment, profitability

employment generation, contribution to exchequer etc;

ii. Examining the trends in the profits of the Pharmaceutical industry in India

and identifying the reasons for the low profits of the industry;

iii. Analyzing the financial performance of the Pharmaceutical Companies due

to the structural changes in Finance.

iv. Analyzing the sources of finance in Pharmaceutical Industry and studying

how far the low profitability and high pay-out ratios are responsible for the

fall of internal sources;

v. Studying the capital structure of the Pharmaceutical industry and its impact

on the profitability and liquidity and finally,

vi. Suggesting suitable measures for the efficient and effective functioning of

Pharmaceuticals in general and selected companies in particular with

special reference to problems of Profitability, Liquidity and Finance.

ANALYSIS AND PRESENTATION OF DATA:

Methodology: The way of using the methods to present the data in research is

Scope of the Study:

The present study covers the structural changes in finance of

Pharmaceutical industry. Many important financial variables like profitability,

financial controls are covered in the study, in order to find out the broad problem

areas and overall trends in finance function of the companies. Further, the other

non-financial problems, even though, having impact on the profitability and

finances of the concern were not included in the study. As such, the study does not

cover the issues related to industrial strikes, absenteeism industrial relations, labor

productivity, political interference etc.,

Selection of Samples:

a) The criterion adopted for the selection of companies in the studies is the size of

their paid-up capital, as it is the only characteristic for which information is

available at the population level. The objective is to have maximum coverage,

industry-wise, in terms of paid-up capital and to include as many representative

units as possible from various industries consistent with the twin parameters of

time and resources. The list of selected companies is revised constantly with a

view to improving the paid-up capital coverage and the representative

character of the selected companies.

TABLE 2.1 NUMBER AND PAID-UP CAPITAL OF PHARMACEUTICAL

AND M&LP COMPANIES IN INDIA DURING THE YEARS 1976-1977 To

2005-2006

Source: RBI, Financial Statistics of Joint stock companies in India

YEARSNO.OF COMPANIES

SELECTEDPAID-UP CAPITAL (Rs in

Lakhs)

Pharmaceuticals M&LP Pharmaceuticals M&LP1976-1977 52 1720 5750 2030681977-1978 52 1720 6344 2130681978-1979 51 1720 6703 2244501979-1980 52 1720 7456 2358031980-1981 52 1720 8231 2485151981-1982 55 1651 11340 2885821982-1983 55 1651 12035 3057881983-1984 64 1838 15615 3477641984-1985 66 1838 16747 3637921985-1986 66 1942 17364 4150501986-1987 66 1942 18654 4559791987-1988 66 1908 20179 5562401988-1989 76 1908 20924 6095301989-1990 76 1908 24281 6705401990-1991 71 1802 28537 7671001991-1992 71 1802 26711 8680001992-1993 76 1802 30664 10516001993-1994 76 1730 39235 12311001994-1995 61 1730 48362 15066001995-1996 61 1730 55009 17086001996-1997 67 1948 58212 21552001997-1998 67 1948 72205 23596001998-1999 67 1914 84518 29693001999-2000 79 1914 84837 32226002000-2001 103 1927 97015 33707002001-2002 103 2024 99890 37712002002-2003 103 2031 99093 37470002003-2004 114 2730 136572 54518002004-2005 147 2730 232528 58025002005-2006 147 2730 254378 6241400

b) The study covers the Medium and large public limited companies having paid-

up capital more than Rs 5 Lakhs in the Pharmaceutical industry in India. The

data for the study period 1976-2006 are taken from RBI’s studies and the

sample number of selected companies along with their paid-up capital in

Pharmaceutical and M&LP companies were presented in Table 2.1.

Statistical Tools:

While analyzing the data, simple quinquennial averages have been used and

computed. Statistical tools like multiple regression analysis, R-Test and T-test are

used in the study. Abbreviations are used for certain terms, which are repeated

number of times.

Period of the Study:

The overall performance of the Pharmaceutical Companies in India has

been studied for 30 years starting from 1976-1977 to 2005-2006. Thirty periods is

taken so that the study would be meaningful in focusing the attention on the

structural changes of finance in the pharmaceutical industry.

Limitations of the Study:

Since the study has been based upon the secondary data, all the limitations

inherent to the secondary data will also be applicable to this study. The following

are the limitations study:

a. Efforts were made to secure as much information as possible from various

sources. Since the companies follow different approaches in computing the

data and defining the concepts, there may be certain discrepancies in the

interpretation of data

b. While calculating the liquidity, profitability and solvency ratios of the

organization theoretical approach is adopted. Hence there may be some

discrepancies between ratios of research scholar and the data furnished in

the reports.

c. Lastly the study extends over a long period of 30 years from 1975-2005

during which inflation has obviously taken a heavy toll of the ‘real value of

the rupee’.

CONCEPTS AND DEFINITIONS:

In order to make the study clear and meaningful, an attempt is made to

define and limit the meaning and scope of certain concepts used in different senses

from time to time. Some of the concepts like capital employed, capital invested,

net assets etc., have been discussed below.

BALANCE SHEET:

Capital and Liabilities:Share capital: Share capital includes paid-up capital and forfeited shares. The

break-up of paid-up capital by class of shares, viz., ordinary shares and preference

shares, together with their sub-classification is also presented.

Paid-up capital ordinary: This comprises capital paid-up on all shares which are

not preference shares. ‘Bonus shares’ are included.

Paid-up capital preference: This includes all types of preference shares including

the component of bonus share.

Forfeited shares: This relates to the amount received on forfeited shares.

Reserves and surplus:Capital reserves: This comprises capital reserves, profit/loss on sale of fixed

assets and/or investments, profits realised on purchase of company’s own

debentures, profits on re-issue of forfeited shares, surplus arising out of acquisition

of subsidiary, capital redemption reserves, reserves arising out of revaluation of

fixed assets and premium on shares. Premium on shares is shown separately.

Investment allowance reserves: This item comprises all reserves set apart in

terms of Income Tax Act, 1961 and is available from 1975-76 onwards.

Sinking funds: Funds created for redemption of debentures or other loans are

included in this item. Prior to 1975-76, this item was included in ‘Other reserves’.

Other reserves: All reserves other than Capital Reserves, Investment Allowance

Reserves and Sinking Funds are included under this head.

Borrowings:The presentation of the constituent items under borrowings has undergone changes

over a period of time to reflect the availability of details. Details of borrowings

according to credit agencies, Government and semi-Government bodies etc., are

presented.

Debentures: This includes funds raised through public issue of debentures and/or

privately placed debentures with financial institutions.

Loans and advances:

Borrowings from banks: All borrowings by the corporate from banks including

loans against mortgages and advances against debentures lodged with banks as

security are included in this item.

Borrowings from other Indian financial institutions: These include borrowings

from development finance institutions, insurance institutions and others.

Borrowings from foreign institutional agencies: Borrowings from eligible

foreign institutional agencies are included here.

Borrowings from Government/ semi-Government bodies:

Borrowings from the Central and State Governments, semi-Government bodies

such as municipal corporations, port trusts etc., are included under this item.

Borrowings from companies: These are inter-corporate borrowings from Indian

as well as foreign companies.

Borrowings from others: These include borrowings from sources other than

those mentioned above.

Deferred payments: All borrowings on deferred payment basis such as deferred

payment credit, hire purchase liabilities etc., are included.

Public deposits: All deposits from public, directors, employees, selling agents,

etc., whether secured or unsecured, are included here.

Debt: Comprises (a) all borrowings from Government and semi-Government

bodies, financial institutions other than banks, and from foreign institutional

agencies, (b) borrowings from banks against mortgages and long-term securities,

(c) borrowings from companies and others against mortgages and other long-term

securities and (d) debentures, deferred payment liabilities and public deposits.

Trade dues and other current liabilities:

Sundry creditors: These include sundry creditors and liabilities for (i) goods

supplied, (ii) expenses and (iii) other finances.

Acceptances: Bills payable whether shown as acceptances or notes payable are

included in this item.

Liabilities to companies: Liabilities to companies including subsidiary and

holding companies are included in this item.

Advances/deposits from customers, agents, etc.: Outstanding payments against

orders as also advances received in the case of construction companies are

included here. Trade and sundry deposits, deposits from agents, business

advances, earnest money deposits, government securities held on behalf of

stockists, contractors, other parties, consumer or service deposits in the case of

electricity companies, etc., are included under this item.

Interest accrued on loans: This item includes interest accrued whether due or

not, and unclaimed interest.

Others: These include trade dues and other current liabilities other than those

classified above.

Provisions:

Taxation provision: This item includes provision for income tax, wealth tax,

capital gains tax, etc. Advance of income tax is netted out on either side of the

balance sheet as the case may be.

Provision for dividends: All amounts set aside by the companies for dividend

distribution are included in this item.

Other current provisions: This item includes other current provisions for

purposes such as bonus to staff, employees’ welfare, repairs, contingencies and

provision for part obsolescence.

Non-current provisions: This item includes provisions for gratuity, pension and

superannuation benefits to employees and other non-current provisions.

Miscellaneous non-current liabilities: All non-current liabilities not elsewhere

included are covered here.

ASSETS

Gross fixed assets: The gross value of fixed assets, i.e., gross of depreciation is

shown in this item. Fixed assets are classified into land, buildings, plant and

machinery, capital work-in-progress, 'furniture, fixtures and office equipments'

and others.

Land: This is the gross value of freehold and leasehold land, mines, quarries,

collieries mining rights, forest rights, prospecting rights (i.e. rights of utilisation of

natural resources), development expenses on land or nurseries of plantation

companies. Land held by way of investment is included as immovable property.

Buildings: Factory buildings, office buildings, staff and workers’ quarters,

godowns, hospital for staff, creche, canteen, library, recreation centre, etc. are

included under this item. Buildings and other structures held by way of

investments are grouped under 'immovable properties'. However, in the case of

land and estate companies since the main income is derived from investments in

immovable properties, these are treated as fixed assets and not as immovable

properties.

Plant and machinery: This item includes all types of plant and machinery used in

the production process, e.g. engines, generators, motors, transformers, spindles,

looms, humidifiers, sprinklers, furnaces, boilers, foundries, electrical installations,

etc. Vehicles used for passenger and freight transport in case of transport

companies, ships and boats of shipping companies and other water transport

companies, moulds for ceramic and rubber manufacturing companies, ovens and

earth-moving equipments in case of mining companies, condensers of salt

manufacturing companies and types in respect of printing companies are included

in this item.

Capital work-in-progress: This includes items such as machinery awaiting

installation, machinery under erection, payments on account of steamers under

construction, as also machinery on which erection work is going on.

Furniture, fixtures and office equipments: These include furniture, air-

conditioning plant, typewriters, calculating machines, computers and any other

item which can be identified as office fixture/equipment.

Other fixed assets: The fixed assets which are not included in land, buildings,

plant and machinery, capital work-in-progress and ‘furniture, fixtures and office

equipments’ are classified as other fixed assets.

Depreciation provision: This represents accumulated depreciation provided on

various fixed assets including extra/multiple shift allowances. Special depreciation

reserve or initial depreciation reserve is not included under this head.

Net fixed assets: This is a derived item and is computed by deducting

accumulated depreciation provision from total gross fixed assets.

Inventories:

Raw materials, components, etc.: This includes stocks of all types of raw

materials and components used in the manufacture of the final product / products

of the company.

Finished goods: Stocks of all types of finished goods of the company are included

in this item. This item also includes goods in agents’ custody, in showrooms or at

branches. The stock-in-trade i.e., goods meant for re-sale by trading companies

and the stocks of shares, debentures, etc., acquired for trading in the case of a

company regularly trading in securities are included under this item.

Work-in-progress: This item includes work-in-progress, goods-in-process, semi-

finished goods, etc.

Stores and spares: This item includes stocks of stores and spares used by the

company for maintenance of its plant, machinery, buildings, transport equipment,

etc.

Other inventories: Miscellaneous items of inventory which are not classified

under the above mentioned heads are included here. This item includes foodstuffs

for canteen run for the benefit of the employees, building materials lying on the

site, stock of office stationery items, goods in transit and stock of fuel materials

such as coal, gas, oil, etc.

Loans and advances and other debtor balances:

Sundry debtors: This item is taken net of provision for bad debts.

Loans and advances to subsidiaries and companies under the same

management: Loans and advances to subsidiaries and companies under the same

management also include debit balances in current accounts with these companies.

Loans and advances to others: Loans and advances to companies other than

subsidiaries and companies under the same management, and to others are covered

here. Loans on deferred payments basis are also included in this item.

Interest accrued on loans and advances: This item includes interest accrued on

loans and advances, whether due or not.

Deposits/ balances with Government/ others: This includes amounts of cash

lodged as security deposits, earnest money, etc., with Government and statutory

authorities such as Telephones, Port Trusts, Railways, Excise, Customs, Postal

authorities, Electricity and Gas companies, as also security deposits with the

companies by the stockiest, contractors, etc. Deposits made by companies under

Companies Deposits Schemes, etc., are also included here.

Others: All other loans and advances and debtor balances which are not classified

elsewhere are shown under this item.

Investments: Investments in Indian securities and foreign securities are

presented as distinct items. Quoted investments including those in shares and

debentures of subsidiary companies are also separately presented under

investments.

Foreign: Investments in foreign securities include foreign government securities

and other foreign securities. Investments in foreign subsidiaries of Indian

companies are included in ‘foreign securities’.

Indian: Indian securities are further classified into Government/semi-

Government, securities of financial institutions, industrial securities, shares and

debentures of subsidiaries and others.

Government/semi-Government securities: These include all Government

(Indian) securities, Treasury Savings Deposits Certificates, Prize Bonds, National

Savings Certificates, Development Bonds, Promissory notes of Central and State

Governments, etc. Securities of semi-Government bodies like municipalities, port

trusts, local bodies, bonds of electricity boards, etc., are also included here.

Securities of financial institutions: The securities issued by IDBI, SIDBI, IFCI,

SFCs, SIDCs, NHB, EXIM Bank, ICICI, HDFC, UTI, Mutual Funds, etc., are

included under this item.

Industrial securities: Investments in shares and debentures of Indian companies

(excluding subsidiary companies) are included here.

Shares and debentures of subsidiaries: Investments of holding companies in the

shares and debentures of their subsidiary companies are included in this item.

Others: Investments in shares of co-operatives, partnership and proprietary

concerns and investments in employees’ co-operative societies are included here.

Advance of income-tax: This item relates to both, agricultural as well as non-

agricultural income-tax and includes tax deducted at source, tax paid under

protest/ under dispute or subject to appeal, tax payments pending adjustments, etc.

Other assets: These are sub-divided into (i) Immovable property, (ii) Intangible

assets and (iii) Miscellaneous non-current assets.

Immovable property: Investment in immovable properties not used directly or

indirectly for production purposes, are included here. However, in the case of land

and estate companies, such investments in immovable property are treated as fixed

assets.

Intangible assets: This item includes goodwill, patents, trade marks, capitalised

expenses including preliminary expenses, technical know-how, under-writing and

share selling commission, brokerage and discount on issue of shares and

debentures, deferred revenue expenditure, promotional expenditure on

advertisement, prospecting expenses, etc., and any other items of expenditure not

representing tangible assets which are to be written off over a period of time.

Miscellaneous non-current assets: These include assets earmarked for

employees’ provident fund and gratuity, etc., investments and deposits with non-

profit making institutions, dues from concerns under liquidation, investments in

shares of companies under liquidation, assets under dispute in foreign countries

and also those in the custody of custodian of enemy property, etc.

Cash and bank balances:

Fixed deposits with banks: All fixed deposits with banks are shown in this item.

This includes term deposits as well as other deposits such as, recurring deposits,

etc.

Other bank balances: All balances other than fixed deposits with banks are

classified in this item. Post Office savings bank deposits are also included in this

item.

Cash-in-hand: This includes cash in transit, petty cash (including postal stamps)

in the custody of directors, managers, etc., and cheques in the course of realisation.

INCOME, EXPENDITURE AND APPROPRIATION ACCOUNT

Income and Value of Production:

Sales: All receipts from sale of finished goods and services of the company

including sale of by-products, waste and scrap are included in this item. Sales are

net of 'rebates and discounts' and 'excise duty and cess’. In case of companies

exclusively engaged in Trading, the sale of all items traded is included in sales.

Sales duty, vendors’ fee, etc. and other similar type of cess and duty.

Increase (+) or decrease (-) in value of stock of finished goods and work-in-

progress: This item is arrived at by subtracting opening stock from the closing

stock of finished goods and work-in-progress.

Value of production: This is arrived at by addition of 'Sales' and 'Increase or

decrease in value of stock of finished goods and work-in-progress'.

Other income: This includes income from interest, dividends, rent, and incentive

schemes such as export incentives and from other items which are not derived

from the main activity of the company.

Non-operating surplus (+) /deficit (-): It comprises (a) profit/loss on account

of (i) sale of fixed assets, investments, etc., and (ii) revaluation/devaluation of

foreign currencies, (b) provisions no longer required which are written back,

(c) Insurance claims realised and (d) income or expenditure relating to the

previous years and such other items of non-current nature.

EXPENDITURE AND APPROPRIATIONS:Raw materials, components, etc., consumed: This item includes the cost of raw

materials and components actually consumed by the manufacturing companies

during the period and includes carriage inwards, excise duty, customs duty, octroi

and town duty, cess, commission and sales tax paid on raw materials, purchases,

etc. Purchase of goods for re-sale by trading companies and purchase of

electricity for re-sale by Electricity Company are included in this item.

Stores and spares consumed: This item includes stores and spares consumed by

the company for maintenance of plant and machinery, buildings, transport

equipments, etc., moulds, castings, dies, etc., written off and packing materials.

'Repairs to buildings' and 'Repairs to machinery' are separately presented.

Power and fuel: This item relates to consumption of electricity, coal, gas and

other fuel and water for manufacturing process.

Salaries, wages and bonus: All salaries, wages and bonus (including provisions)

relating to the accounting year, but excluding arrears of bonus relating to previous

years are included here. Dearness allowance, rent allowance and also other

benefits (such as leave wages), whether paid in cash or kind, are included in this

item.

Provident fund: Employer's contributions towards provident fund are included

here.

Employees' welfare expenses: This item includes amounts paid as gratuity,

pension, expenses on employees' state insurance, superannuation funds, leave

passages to staff, recreation and medical benefits, creche and canteen, loss

incurred on food-grain shops for employees, free fuel and other welfare expenses.

Managerial remuneration: All remuneration paid to Directors, Managing

Directors, Managers etc., including sitting fees for attending Board or Committee

meetings, as well as perquisites provided to them by the company, are included

here.

Royalty: This item includes royalties paid to the collaborators in the projects of

the companies, royalties paid for acquiring the rights to use patents, trade names,

processing formulae etc., and also rights for mining, prospecting and exploring,

etc.

Repairs to buildings/ machinery: Total expenditure on the repairs to buildings

and machinery, including the amount of stores consumed and wages paid on such

repairs is included under these heads.

Bad debts: This item includes bad debts written off as also provisions for bad and

doubtful debts.

Selling commission: This comprises selling commission, brokerage, sole selling

agents' commission, etc.

Rent: This item includes rent paid. It also includes lease rent and hire charges

paid.

Rates and taxes: This item includes local taxes other than octroi.

Advertisement expenses: This includes expenditure on advertisement in

newspapers, journals, on radio and T.V. and other types of publicity, propaganda

and such expenses for promotion of sales.

Research and development: Expenditure incurred by the companies on the

research and development undertaken by them and also contributions made by the

companies to research organisations/associations are included in this item.

Other expenses: Items not elsewhere classified are covered under 'other

expenses.'

Depreciation provision: This relates to depreciation provision on fixed assets

made during the year, whether for current year or earlier years and includes extra

and multiple shift allowances.

Other provisions: This item includes all types of provisions other than

depreciation and tax provisions. It includes provision for obsolescence, gratuity,

contingencies, etc., which are not actual expenses incurred during the year.

Gross profits: It relates to profits after charging the depreciation but before

payment of interest and taxation.

Interest: Gross interest paid on all borrowings, debentures, income-tax arrears,

etc., is shown here.

Operating profits: Operating profits is the profit generated out of the normal

activities of the company. It thus excludes non-operating surplus/deficit. This can

be derived by subtracting interest from gross profits.

Profits before tax: This item represents the total of tax provision, dividends

distributed and profits retained.

Tax provision: This is the provision towards corporate tax liability and includes

amounts set aside for meeting liability of income tax (both agricultural and non-

agricultural) and taxes paid during the year but excludes sales tax, cess and other

duties. It also includes tax deducted at source in respect of interest and dividends

received by the company.

Profits after tax: This is the difference between profits before tax and tax

provision. It is the profit net of all expenses and tax provision and represents the

amount available for transfer to reserves and for distribution of dividends to

shareholders.

Dividends: The total amount distributed/declared as dividends on ordinary and

preference shares declared/paid during the year, is included here. Preference

dividend includes accumulated preference dividend for earlier years, declared

during the year under review.

Profits retained: This comprises profits retained in business in the form of

transfers to various reserves (other than taxation and depreciation) and the balance

of profit/loss carried to balance sheet.

Liquidity: Liquidity is used in a limited sense in the study to mean short-term

debt repaying capacity of the undertakings. In other words, it is taken as the

liability of the firm to meet the claims of suppliers of short-term capital used for

building-up of current assets.

Current Ratio: The current ratio is calculated by dividing Current assets and

Current liabilities. The current ratio greater than one means that firm has more

current assets than current claims against them.

Quick Ratio: Quick Ratio establishes a relation ship between quick, or liquid,

assets and current liabilities. An asset is liquid if it can be converted into cash

immediately or reasonably soon without a loss of value. Cash is the most liquid

asset. Inventories are considered to be less liquid. The quick ratio is found out by

dividing quick assets by current liabilities. Its ratio is 1:1

Long- term Liabilities: Long- term Liabilities are the obligations or debts

payable in a period of time greater than the accounting period. Long-term

liabilities usually represent borrowing for a long period of time. They include

debentures, bonds, and secured long-term loans from financial institutions.

Short –Term Liabilities: Short-term liabilities include borrowings from banks

secured against hypothecation of current assets, short-term borrowings from

financial institutions, Government and others including interest accrued.

Capital Employed: Capital Employed represents paid-up capital plus long-term

plus free reserves at the close of the year.

Net Worth: Net worth consists of equity paid-up capital and reserves and surplus.

This is identical to equity in debt-equity ratio.

Equity: This is the aggregate of paid-up capital (ordinary, preference, and

deferred, etc., shares), forfeited shares and all reserves.

Survey of Literature:

An attempt is made to review the literature on the structural changes of

Finance in order to identify the gaps that exist in the field of research on

Pharmaceutical Industry. For the purpose of review, the relevant studies that have

a bearing on the present study have been divided into two groups:

1. General Studies

2. Studies on Pharmaceuticals

1. General Studies: Before stepping into the empirical study, a quick look

through the existing literature on the Changes in Structure of finance seems

desirable. Some of the studies are connected with the evaluation of financial

changes. The following paragraph provides very brief explanation of some of the

studies so far carried out in India on the issue.

Mishra1 studied on problems of working capital with special reference to

undertakings in India, has covered several specific problems and offered valuable

suggestions for improving their financial performance.

Rajeswara Rao2 has made an outstanding contribution on “Working

Capital problems of Public enterprises in India”. He discussed the problems of

working, the impact of key managerial factors on different components of working

capital in public enterprises. The important highlights of Rajeswara Rao’s working

include an extension discussion of methods of determining of working capital,

preparing working capital budgets, selecting sources of financing of working

capital, and effective utilization of funds invested there in. He offered many

suggestions, which are very useful to the public enterprises, in improving the

system of Working Capital Management.

One more study is by Viyyanna Rao3 on “Management of Working

Capital with reference to selected enterprises in Andhra Pradesh”. In his

study Rao has identified several problems of inventory, receivables and cash

management in selected Public enterprises. He has given suggestions for the

effective management of working capital with a view to improve the profitability

or the rate of return on investments of the undertaking.

Another attempt made by the National Council of Applied Economic

Research (NAER)4 to study the structure of working capital in Indian

Economy with special reference to three types of industries, namely,

Fertilizers, Cement and Sugar. The main objectives of this study were to analyze

the extent to which the volume of working capital in these industries had been

effectively and efficiently utilized. The study had demonstrated that working

capital locked up in most of these industries had been excessive and there was an

enormous scope for economy in the use of working capital. It also revealed that

there was an urgent necessity of the establishment of a good accounting & Cost

system in each company and of the adoption of the techniques of inventory

management.

Nalini Ambeagaonkannar5, studied the growth of inventory in relation

to the growth of output in the Indian processing and manufacturing industries and

the availability of bank credit for financing the working capital needs of the

industries during 16 years period ending 1965-1966.

Dr. Bhariavh Desai6 attempted a study on “Working Capital Financing

by Public Sector Banks. Hence the study to find out the levels of maximum

permissible bank borrowings and the level of under/excess financing by banks

with references to all the cotton textile units at present managed by the National

Textile Corporation (NTC) of Gujarat during the period of five years i.e. 1979-80

to 1983-84.

Dr. Nageswara Rao & Omjee Gupta7 attempted a literature on “Working

Capital Management in Public enterprises”. This paper proposes to analyze the

net working capital position of public enterprises. The study also segregated in the

utilization, liquidity and structural health in enterprises.

Not only on working capital there are also some literatures on the

components of working capital. The literature made on “Inventory Management

in the Public Corporations” by Dr.S.Akram8. The study is firstly to analyze

critically the working of Inventory Management of Public Corporations in Bihar

as well as its overall position and problems and secondly to explore the

potentialities and possibilities of improvements in it.

Another study by Dr.B.L.Mathur9 is on Financial Management in

Public enterprises. He studied all the enterprises of managing finance.

On Working Management another study by Hrishikes Battacharya10 is

“Working Capital Management Strategies & Techniques”. Here in this study

he covered all aspects of working capital components of using different techniques

and strategies.

Also another literature by Prof.G.D.Roy & S.S.K. Battacharya11 is

“Depreciation Provision –A cheap Source of Financing Working Capital”.

The attempt made in this paper to study the source and associated the cost of

financing, a required stature of working capital which may contribute towards the

growth of the firm through reduction.

Another study made by Uma Subramanyan12 on Working Capital

Analysis of State Road Transport Undertaking in Tamilnadu. The objective of

this study is to test the velocity of policy of decentralization in financial terms.

The results of the study have indicated that bifurcation has not resulted in

significant improvement in the financial performance with particular reference.

Another literature by Chabi Majmdar13 on “Borrowing as a Source of

Financing Working Capital in the Corporate Sector in India: An Empirical

Analysis. In the process of the studies we have seen that the working capital of

each firm is constituted by several types of sources like bank borrowings, public

deposits, trade credit, long-term borrowings, Equity Capital. Hence at the outset,

they have tried to find out the reasons behind utilizing several sources instead of

relying upon one or two best-suited sources.

Mrs.S.Poornima & R.Shanmugam14 given literature on the “Working

Capital is still most crucial”. This study was undertaken by them to study the

Working Capital Management systems and procedures adopted by manufacturing

firms. To find out the importance of effecting factors of working capital

requirements, also to find out the sources of financing adopted by the firms.

Chakraborty (1976)15 who examined the association between working

capital turn over and profitability in Indian cement, sugar and fertilizer

industries, reported a positive relationship.

Banerjee (1982)16 carried out a study on the relationship between

liquidity and profitability in which Gentry’s hypothesis (1976)* was tested in

the context of the Indian corporate Sector. The study accepted the hypothesis and

concluded that the working capital has a bearing on profitability.

Sarkar and Saha (1987)17 made an attempt to assess the relationship

between profitability crisis and working capital management in Indian public

sector. The study revealed that owing to poor management of working capital the

profitability of the selected public enterprises suffered.

An identical study on this issue was also conducted by Mukherjee(1988)18

in which twenty central public sector undertakings were selected following non-

profitability sampling technique. In eleven enterprises out of the selected twenty,

liquidity and profitability were found to be adversely correlated while in the rest

the positive correlation between these two variables was observed. This study

however concluded that as a whole the liquidity and profitability were adversely

correlated.

Pandey and Satapathy (1988)19 carried out a research study regarding the

effects of working capital on profitability in Indian Cement Industry. This study

revealed that the positive influence of working capital on profitability of the

selected companies was highly significant.

Vijayakumar & Venkatachalam (1995) 20 an empirical study on inter-

relationship between working capital management and profitability. In this study

thirty-one sugar companies in TamilNadu were selected. This study showed that

the liquidity was negatively associated with profitability while the inventory turns

over and debtors turn over had positive influence on profitability.

Mallik and Sur (1996)21was made an attempt to analyze the impact of

working capital management on profitability of Indian tea industry using relevant

statistical tools and techniques. The study on the interrelation between the nine

selected ratios in the area of working capital management and the selected

profitability measure revealed both negative and positive associations. Out of the

nine ratios in the area of working capital management, five ratios registered

negative correlation with the profitability indicator and while the remaining for

ratios witnessed positive association.

Rao and Rao(1999)22 undertook a similar type of research work in which

ten ratios relating to working capital management were selected. Out of the ten

indicators, only in three a positive association with profitability was noticed.

Mallik and Sur (1999) 23 in another study on the working capital

management of a leading fast-moving consumer goods company observed a very

high degree of positive relationship between liquidity and profitability.

A study carried out by Sur, Biswas and Ganguly (2001)24 showed also a

very significant positive association between liquidity and profitability in Indian

primary aluminium producing industry in the private sector. Ghosh and

Maji(2003)25made an empirical study on the relationship between utilization of

current assets and operating profitability in Indian cement and Tea industries.

This study based on tweny-two companies (11 selected from each othe two

industries) concluded that the degree of utilization of current was positively

associated with the operating profitability of all the companies under study

associated with the operating profitability of all the companies under the study.

Narware(2004)26 in his study found that out of nine indicators representing

working capital management selected for the study, three variables were

negatively associated with the selected profitability measure where as the

remaining ones recorded positive association with the profitability. A study on the

liquidity management in a Navaratna steel manufacturing public sector enterprise

conducted by Bardia (2004)27 reported a favourable influence of the liquidity of

the company in Profitability.

Several researches find Indian firms rely much more heavily on external

debt as a source o finance, than do firms in advanced countries. This runs contrary

to the “pecking order hypothesis” of Myers (1984) and Myers and Majluf

(1984)28. One may recall here that this theory suggests that firms prefer internal to

external finance and if they had to resort to external funds they would issue debt

first and issue equity only as a last resort.

Sahu et al. (1997) 29 study debt financing in the Indian corporate sector for

170 companies from 1979-19820 to 1990-1991 and report that, in the case of the

total sample in 11 out of 12 years under study, the quantum of debt funds

exceeded the volume of net worth. Besides on an average debt funds constituted

71.5% of total sources of sample companies during 1979-1991. Thus, heavy

reliance by the total sample companies on debt funds is observed through out the

period under study.

Singh et al. (1992) 30 find that Indian Companies finance their growth from

internal sources, i.e. retentions to a smaller degree when compared with Anglo-

Saxon firms, the Indian companies seem to rely relatively much more on external

equity finance for their growth. They examine the financing patterns of the top 50

listed manufacturing corporations in nine developing countries in the 1980’s.

These countries are India, Republic of Korea, Jordan, Pakistan, Thailand, Mexico,

Malaysia, Turkey, and Zimbabwe.

Pal (2001)31studies the corporate financing pattern of Indian firms for the

period 1989-1998. He states that in India, borrowing in the form of debentures and

other forms of debt have remained the major source of finance for the corporate

sector. The desired funds are mobilized through debentures, bonds, fixed deposits,

and borrowings as ‘external debt’.

Besides the above research there have been other notable studies, in the

recent years. Testing for the impact of the agency-theoretic explanation of capital

structure, information asymmetries and taxes, for instance, Deb(1995)32 has

analyzed 196 companies-143 domestic and 53 foreign controlled companies-for

the period 1981-1990 with an agency theoretic perspective and concludes that the

funding pattern was broadly found to agree with the pecking order hypothesis and

the agency theoretic explanation was not vindicated.

Babu and Jain (1999)33 point out that historically Indian Corporate firms

have shown a marked inclination towards debt. This they say was primarily due to

certain factors. One such factor was that Indian promoters were capital starved.

But with liberalization underlying factors have changed, prompting finance

managers to redesign their capital structures. Financial Institutions that had

followed debt-equity norms of 2:1 and more in early 1990’s are now enforcing a

debt-equity norm of 1.5:1 and even lower.

An efforts were made by Subarna Sarkar34 to analyze the impact of

capital structure on the productivity of capital in Industrial enterprise.

Another study attempted by M.Gunasekharan35 to know the major factors

influencing the capital structure in Indian Industries are collateral values of assets

and liquid assets in aluminium industry, corporate size, liquid assets and business

risk in automobile industry, growth rate and liquid assets in cement industry,

profitability and trading on equity in chemical industry, business risk and debt

service capacity in electronics industry, trading on equity asset structure and

corporate size in I.T industry, collateral values of assets in leather industry, liquid

assets and assets structure in paper industry, assets structure, profitability and

corporate taxes in pharmaceuticals industry profitability, trading on equity and

assets structure in steel industry and trading on equity, liquid assets and asset

structure in sugar industry.

Ravinder Vinayak & Ravi Kumar Gupta 36 has attempted a study on

“Determinants of Capital Structure of Corporate Giants in India”. As their

studies reavealed the existence of wide variations in capital structure within a

given firm over a period of time and widely across similar firms at a given point of

time. None of the theoretical or empirical evidence has been able to provide

satisfactory explaination as to what factors effect the capital structure decisions.

This paper attempts to develop and test a theory on capital structure of giants in

India by analyzing short-term , long-term and total debt of firms and to extent to

which different from specific factors could explain variations in the corporate debt

ratios.

The other studies made on different aspects of working capital include the

one by “Venkata Janardan Rao37”, “Ramesh Chandra Chowdary.G38”, “

Satyanarayana Murthy39”, “Balarami Reddy40”, “Kiran Kumar41”.

Studies on Pharmaceuticals:

The studies under this group include the studies of Pharmaceutical industry

in Domestic and International wide.

Chauduri, Goldberg, and Das (2002)42 estimated the welfare losses to the

Indian economy if drugs, specifically anti-bacterial drugs composed of the

fluoroquinolone compound, had been under patent in India and companies had to

comply strictly with patent regulations. It specifically estimates what the prices,

profits of both domestic and multinational corporations, and consumer welfare

loss would have been. The estimated welfare loss with any price regulation from

the withdrawal of fluoroquinolone drugs would be $713 million. The lost profits to

domestic producers would be about $50million. The majority of the welfare loss is

therefore due to consumer loss. The profit gains of MNCs are about $57 million

per year, an insignificant portion of total profits.

Cheri Grace43 the author has reviewed a literature on the Effect of

Changing Intellectual Property on Pharmaceutical Industry Prospects in

India and China: Considerations for Access to Medicines. This study

highlights the impact of intellectual property on foreign direct investment, trade

and firm strategy, with inevitable consequences for industrial development, this

study is not primarily about the pharmaceutical sector’s role in economic

development in India and China. A wide literature5 exists debating the positives

and negatives of the introduction of patent laws on the development of the

pharmaceutical industry, technological development, and economic development

in emerging markets. This study is primarily about what will happen to important

sources of low-cost quality medicines coming from India and China, an analysis

which requires looking at the probable strategic scenarios and options available to

firms in these countries (with inevitable implications for the industries as a whole,

and for economic development).It must be recognized that the paper’s focus on

pharmaceutical supply and pricing is only one part of a multi-faceted system

determining levels of access to medicines. For example, WHO advises that

rational selection, sustainable financing, reliable systems and finally, affordable

pricing are all necessary components in achieving better access to medicines.

Dr. Guido Oelkers & Dr. Barry Elsey44 has done the survey on The

Economic Effects on the International Pharmaceutical Industry of the Trade-

Related Aspects on Intellectual Property Rights (TRIPS) Agreement on

Patent Protection in Indonesia. They aims to provide further conceptual

understanding of the role of IPR, notably in terms of economic effects. It examines

the perceived relationship between patent protection (as a key element of IPR) and

economic effects from the perspective of leaders and decision-makers (CEOs and

other senior managers) in the international pharmaceutical industry located in

Indonesia.

Lalitha.N (2002)45 did a study on the Indian Pharmaceutical industry in

the WTO Regime-a SWOT Analysis. According to this analysis of the Indian

Pharmaceutical Industry (IPI) that the much acclaimed IPI’s expertise in process

development skills were made possible by the amendments made to the Indian

Patents Act 1970. This strength should be utilized maximum to benefit from

opportunities that arise from vertical disintegration of research, clinical trials and

manufacturing by the multinationals. The weakness however lies in the fact that

such opportunities will be limited to a few firms in this sector. IPI faces threats in

the form of competition form the other Asian giants particularly China which has

similar expertise in process development and reverse engineering. This paper

argues that the IPI should adopt various strategies like producing off-patented

products, new patented multinationals not only in R&D and manufacturing but

alos in marketing new patented products and improving the standards of

production to widen the export market.

“TRIPS and Pharmaceutical Industry; Issues of Strategic Importance”

was also studied by Lalitha .N46. According to this, the Trade Related

Intellectual Property Rights (TRIPS) brings in the standards of intellectual

property rights among the member countries of the WTO irrespective of their

developmental status. While this is expected to result in free flow of technology

and investment among the member countries, yet the extent to which the benefits

will accrue depend on the domestic industry and the developmental status of the

country that is undertaking the reform measures. Viewed from this angle, India

with its fairly developed pharmaceutical industry can benefit by suitably

modifying its patent law. Further, the industry by strengthening its R&D, besides

focusing on new product development can also benefit as a contract researcher and

manufacturer.

Lanjouw (1998)47 details the benefits of patents in a single-country world,

as increased innovation and thus R&D investment, sharing of technologies

through licensing, and disclosure of technologies in patent applications. In 1970,

the national pharmaceutical sector made up only 25% of domestic pharmaceutical

market. The Patent Acts of 1970 were put in place to move India towards self-

sufficiency in medicines. This resulted in a large decrease in patent applications,

both by Indian inventors, and even more so by foreign inventors.

Lee and Mansfield48 made study on Indian Policy towards MNC’s for

R&D spill over. They concluded that India’s pharmaceutical policy towards

MNC’s had reduced incentives to import and develop world-class technology in

India. Indeed, MNC’s in India pharmaceutical sector have faced a generally

hostile an duncertain policy environment. As a result, there was considerable there

was considerable local sharing of information among this group of firms

facilitated by the cohesive (MNC) trade associate-the organization of

pharmaceutical producers of Indian. Rather than developing the intended linkage

between domestic firms and MNCs, the policy environment created two different

groups of firms in the same industry.

Mallikarjunappa.T and Carmelita Goveas 49 have made an attempt to

test the important determinants of the capital structure of companies. Taking

profitability, collateral value of assets, growth, debt service capacity, size, tax rate,

non-debt tax shield, liquidity, uniqueness, and business risk as the determinants

and the Debt-Equity Ratio as the dependent variable, multiple regression models is

used for the pooled data of pharmaceutical companies in India. The period of the

study is from 1993-2002. The results indicate that the regression is a good fit and

the independent variables together determine the capital structure of companies.

Further, the results show that the profitability, collateral value of assets, growth

size, tax rate and uniqueness do not have significant coefficients and therefore, are

not the significant determinants of the capital structure of companies. The

coefficient of the variables, debt service capacity, non-debt tax shield, liquidity

and business risk are significant and therefore, these variables are the important

determinants of the capital structure of pharmaceutical companies in India.

Mohan, (1990)50 conducted a study on Research and Development (R&D)

spillover in the countries where strong intellectual property protection is given. In

his study he concluded that R&D spill over were significant across many different

countries and manufacturing industries.

Mohinder N. Karva and C.S.Balasubramanian (1982)51 studied about

the interfirm comparison of financial performance of selected drugs and

pharmaceutical companies in India. His study also dealt with liquidity,

profitability and financial structure showed the presence of a mixed trend of

performance of selected drugs and pharmaceutical companies in India. His study

also dealt with liquidity, profitability and financial structure showed the presence

of a mixed trend of performance. An oscillating trend of profitability affected the

liquidity. Drug units faced under-utilization of a capacity because of lack of proper

information system for anticipating shortages of raw materials and packaging

material.

Another literature done by Mukund S. Chorghade, Veena M.

Chorghade, Natick, MA and Mukund K. Gurjar52, on Pharmaceutical

Industry in India Promise and Potential of the Pharmaceutical Sector in

India: Opportunities and Challenges for Strategic Collaboration. They have

reviewed that what are opportunities and what type of challenges were taking by

the companies in Pharmaceutical Sector.

Muneeswari.K(2000)53 analyzed the performance of Drugs and

Pharmaceutical Industry in India during the period between 1988-89. She found

that the drugs and pharmaceutical industry continued to maintain steady growth in

terms of production and found that during 1998-1999, several proposals for

foreign collaboration, joint venture, research and development, establishing new

undertakings, expansion of existing units had been received. The value of exports

to UK had increased nearly three times during the period of study and exports to

Spain and Switzerland increased 4 times during the same period. India’s region

wise exports of drugs and pharmaceuticals revealed that the highest share of

29.6% was to West Europe followed by 22.06% to West Asia and 8.32% to South

Asia.

Ransur Alex Wendt54 analyzed the Indian Pharmaceutical Industry in

India during the year 2000. He described the economic and structural

development of the pharmaceutical industry in India in order to show how the

1970 patent legislation had influenced the development of industries. The statistics

on the number of companies, value of production, proportion between

formulations and bulk drugs and import-export presented by him clearly indicate

the importance of patent legislation for pharmaceutical industry enacted in

1970.for the multinational pharmaceutical companies working in India, the 1970

patent legislation had been a serious impediment for growth and they had

traditionally opposed the Indian Patent Law. Their commercial interests can be

explained research and making valuable scientific discoveries for which they need

protection from domestic competitors in order to reap the reward for their research

cost. Another factor is the increasing interest in strategic alliances with foreign

companies, which depends upon stronger IPR in India.

Sheena Reddy55 reviewed a literature on The Costs to India of

Complying with World Intellectual Property Rights Effects on the

Pharmaceutical Industry and Access to Drugs. This paper brings together

different sides and theories on how stronger intellectual property rights legislation

will affect the supply and demand for drugs in India and takes a closer look at

research and development growth trends for the Indian pharmaceutical industry.

Much debate arose when the Agreement on Trade Related, Aspects of Intellectual

Property Rights, TRIPS, were enacted on developing and the least developed

countries.

Singh (1992)56 compared indigenous and foreign owned firms in the

pharmaceutical industry and analyzed the profitability on import and export

intensity and found that the foreign owned firms in general performed better than

indigenous firms. Among the foreign owned firms, the firms with majority foreign

ownership have fared well when compared with those with minority foreign

ownership.

Another survey by SjaakvanderGeest57 on Anthropology and

Pharmaceuticals in Developing Countries. In the past few years we have seen

the publication of spate of books and articles denouncing the sale of

pharmaceutical products to Third World Countries. The Authors are economists,

pharmacologists, physicians, and journalists. Remarkably, medical anthropologists

have been virtually absent from this high topical discussion. In this regard they

want to briefly summarize some of the most important publication on the topic and

to discuss why anthropologists remained passive and what their future role could

be.

An attempt was made by Subhash Chander and Priyanka Aggrawal 58 to

identify the determinants of growth of select companies in drugs and

pharmaceutical industry in India. It is based on a sample of 50 companies drawn

form the list of companies in drugs and pharmaceutical industry given in the

prowness database developed by CMIE. It covers a period of ten years i.e. from

1995-1996 to 2004-2005.The results reveals that size, advertising expenditure, age

efficiency ratio, profitability and research and development are statistically

significant in determining the growth of firms in drugs and pharmaceutical

industry.

Sumit K.Majumdhar(1994)59 while assessing firm’s capabilities in Indian

Pharamceutical Industry has revealed the specific areas of operations in which

firms are able to utilize their resources better. The pharmaceutical companies are

found to be more adopt at day-to-day transaction management. Their working

capital management skills seem to be intrinsically superior to skills in utilizing

physical assets. Though complex production capabilities and the propensities to

use research based high-technology items are conducive to success in this

industry, the firms studied do not seem to possess skills in these areas. Similarly,

there are short-falls in utilizing human capital. If all the employees can be fully

utilized, then, there can be substantial augmentation of output in these firms.

Susan Feinberg 60, Assistant Professor of International Business (Robert

H.Smith School of Business), University of Maryland and Sumit K. Majumdhar,

Professor of Strategic Management studied technology spillovers from foreign

direct investment into Indian pharmaceutical industry for the period from 1980 to

1994 in May 2001. in this paper, they examined whether the knowledge generated

by MNC’s that undertake local R & D activities spilled over and benefited

domestic firms. In their study, they found technology exchange only occurred

among the MNC’s as a group. Spill overs between MNC’s and Indian firms, or

vice versa, did not occur. Neither did spill over between Indian firms as a group.

Professor J.W.M. van der Meer61 organised the symposium ‘Cooperation

between universities and the pharmaceutical industry. New opportunities for drug

research?’ to debate whether cooperation as it stands at present in the

Netherlands’s sufficiently geared towards future developments within drug

research. All phases of the development process are concerned, but particularly the

drug and target discovery phase and the clinical development phase. The first part

of these symposium proceedings comprises summaries of the papers presented.

The second part is a recap of the workshop discussions, which primarily explored

the current situation in the Netherlands and are therefore in Dutch.

Amit k.Mallik, Debasish Sur and DebDas Rakshit62 deal of great

controversy has always been persisting over whether the working capital of a firm

affects its profitability. Even the findings of the studies so far made in India on this

issue are conflicting in nature. Infact, there are much intricacies in evaluating the

impact of working capital on the profitability of the firm. In this back drop, the

research paper seeks to examine the relationship between working capital and

profitability of some selected companies in Indian Pharmaceutical industry during

the study period 1990-1991 to 2001-2002. The issue has been tackled using

relevant statistical tools and techniques.

Anita Kumari,63 has attempted to identify the factors determining

technology imports for firms in the Indian Pharmaceutical industry, the most-

vibrant knowledge based industry. The study is based on firm level data from

1995, the year when liberalization actually trickled down to the pharmaceutical

industry. The study found that firms capability has been very important for

motivating technology imports to take advantage of liberalization policies and face

challenges under TRIPS. It is revealed that firms larger in size tend to import more

technology. Also older firms have been found to be importing more technology.

Profits are not found to be significant determinant of technology imports. Firms

with foreign equity participation have been found to have more technology

imports as compared to their domestic counter part. A complementary relationship

has been found between technology imports and research and development

expenditure.

Puja Padhi 64 measure of variability that is based on past prices that

conforms to the present variability has been conceptualized as volatility in

financial market. Thus, volatility as a concept can be treated as synonymous with

variability in general or variance in particular. In this paper an attempt has been

made to examine the volatility at the level of specific industries or companies in an

industry. For this study the stock price data has been taken from PROWESS.

Computer Software and Drugs & Pharmaceuticals industry have been taken. From

the analysis we found that Computer industry is highly volatile while the drugs is a

stable one.

Gautam Kumra , Palash Mitra and Chandrika Pasricha65 states that

India may overtake Brazil, Mexico and Turkey to rank among the world's 10

largest pharmaceutical markets by 2015 as rising incomes and a diabetes epidemic

spur demand for drugs. India's pharmaceutical market may expand by more than

12 percent a year, reaching $20 billion by 2015 from $6.3 billion a decade earlier.

Preshth Bhardwaj66attempted to correlate the various up coming trends

and practices with the learning and innovations by both domestic and

multinational players; and assessing Indian Pharmaceutical market as an

outsourcing destination.

Another study by M.K.Patel & Bhuvana. K.Iyer deals with “ HRD General

Practices in Drugs and Pharmaceutical Industry”67. This study is based on primary

data collected from 125 respondents in eight pharmaceutical companies in Gujarat

State of India. The General environment about the HRD Practices in the

Pharmaceutical industry presents a good picture indicating that a good amount of

importance is given to human resources both at the policy level and practice level.

The other studies made on different aspects of Pharmaceuticals include the

one by “Saradindu Bhaduri68”, “Chataway, Joanna1; Kale, Dinar1; Wield,

David69”, Bower and Sulej (2005)70 “Halemane, M. D., & Dongen, B. (2003)”70

Madanmohan, T. R., & Krishnan, K. T. (2003)71 ,OPPI. (2001)72, Kshirsagar,

Rajiv73,Singh, PradeepK 74,Sharma, Ashok B.75,Rennm Mike76, Garg, Rajesh

Kurma, Gautam, Padhi Asutosh and Puri, Anupu77,, Ghaswall, Amrita Nair78,

Agarwal, M79, Coe,Jennifer80, Bhardwaj, Preshth81,

Another review by Kalpana Chaturvedi82 (un Published Thesis) on

Strategic integration of knowledge in Indian pharmaceutical firms: creating

competencies for innovation. This research coincides with a period of rapid

restructuring in the regulatory framework, patent laws and market dynamics across

the globe. The principal objective of this paper is to look at the effects of TRIPs on

the research and innovation strategies of Indian pharmaceutical firms.

P.Palanichamy 83 has reviewed a study on Impact Of Globalization On

the Indian Industries ( With reference to Pharmaceutical Industry) an (Un

Published Thesis). The study is to analyse the impact of Globalization on the

Indian Industries in terms of growth, performance, its capacity to increase exports,

employment, income etc., so as to find out whether the Globalization has created

favourable effects, has caused any harm to it, so that, based on this, the remedial

measures were suggested.

PLAN OF STUDY:

Chapter I attempts to introduce the concept of structure of finance in

Corporate Sector –its merits and demerits –the context in which it has been

dealing in finance – Profit Maximization Vs Wealth Maximization – Corporate

finance in India.

Chapter –II attempts to introduce the methods through which the Changes

in Structure of Finance has been introduced in Pharmaceutical industry –

Objectives of the Study- Need for the Study –Scope of the Study- Review the

earlier studies of General Studies related to Finance- Studies related to

Pharmaceutical Industries- Plan of Study.

Chapter III deals with the analysis of Profitability of Pharmaceutical

industry with reference to Large & Public Limited companies with reference to

various parameters like the Tax burden, Total Cost, Interest comparing with the

Profits of the Company.

Chapter IV deals with the analysis of Changes in Structure of Finance in

Pharma Industry to evaluate the financial performance.

Chapter V discusses about the capital structure of the Pharmaceutical

industry and its impact on Profitability and liquidity.

Chapter VI attempts to summarize the whole analysis, brings to light the

major findings, and attempts to offer suggestions on the basis of the findings if

any.

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