Corporate Finance Practices of Beximco Pharma

The Functions and Risk of a The Functions and Risk of a Corporate Financial Manager Corporate Financial Manager

Prepared By:Nur Mohammed

Jannatul FerdaousSyeda Sadia Tamanna

GSM Ahsan Ullah

A major company of the BEXIMCO Group.

A leading manufacturer of pharmaceutical formulations and Active Pharmaceutical Ingredients in Bangladesh.

The largest exporter of pharmaceuticals of Bangladesh over more than 25 countries.

The only Company of Bangladesh which enlisted to London Stock Exchange.

Year of Establishment :: 1976

Country of Incorporation :: Bangladesh

Commercial Production :: 1980

Status :: Public Limited Company

Business Lines :: Manufacturing and marketing of pharmaceutical

Finished Formulation Products, Large Volume Parenterals and Active Pharmaceutical Ingredients (APIs)

Main Country of operation :: Bangladesh

Authorized Capital (Taka) :: 9,100 million

Paid-up Capital (Taka) :: 1,824 million

Number of Shareholders :: Around 68,000

Stock Exchange Listings :: Dhaka and Chittagong Stock Exchanges of

Bangladesh and AIM of London Stock Exchange

Number of Employees :: 2,511

As we came to know the manager has to play a various role, all the responsibility can be divided into four broad categories:

Financing Decision

Investment Decision

Working Capital management

Dividend Decision

The manager always keep an eye to its Capital structure before taking any financing decision.

Risk: If capital structure does not make sense, the cost of capital will be increased and it will deteriorate the company profit.

Year Debt to Equity 2004 0.44 2005 0.36 2006 0.24 2007 0.26 2008 0.31

Major task of financing:� Maintaining liquidity

� Optimizing cash resources

� Establishing and maintaining access to short-term financing

� Managing risk

� Coordinating financial functions and sharing financial information

Revenue

Reserve fund

Short term borrowings

Others

BP manage their daily expenses from mostly revenue short term credit from bank. The most important thing they do consider in financing decision is BP always seeks for optimal capital structure. So that ultimately it helps to minimize the capital expenditure

Managing RiskManaging Risk

Bounced check: It creates a bad reputation about the firm. To overcome this problem the BP always follow-up to ensure minimum balance available.

To pay to its supplier they have more accounts in different banks so that shortage in one could backup by others.

Accounts receivables may remain uncollected. To overcome this, they do not make credit sale unless a trusted client.

Reserve fund is only used when there is a handsome payment to be made.

Short and medium expenses are paid by the revenues collected but in case of big disbursement needed.

Such as expenditures at Research and Development (R&D) department, purchasing a major asset etc. these disburse from are the internal source of fund.

Managing RiskManaging Risk

The risk involved using retained earnings as financial source is,

The retained earnings is a part of equity, it may create confusion at company’s balance sheet.

It takes a bit lengthy process and time to get the amount. Because to raise fund from retained earnings, BP need to take permission of corporate office.

Sometimes do borrow money from bank.

The major advantage of borrowing loan is it reduces the tax expenditures.

But as long as they want to keep the optimal capital structure, short term loan contributes to form a good capital mix.

Managing RiskManaging Risk

Short term loan has always risk of paying higher interest. But they deal this problem by very limited term borrowings.

They always maintain a certain maximum amount of credit so that the interest expense remain minimum.

Investment Decision making Investment Decision making

As Beximco Pharmaceuticals Ltd. is a leading edgepharmaceutical company so their investment area is so

vast.They handle their investment decision seriously.Their major areas of investment are Research & Development Raw materials (working capital) Plant and Machinery Investment in shares and short term investment

BP invests a handsome portion of their total investment at Research & Development department.

Thus the always emphasize on developing new products.

They want to innovate medicine for the treatment of some demise diseases.

Such as cancer, swine flu, Bird-flu, HIV etc. They have already invested massive amount of money to develop anti-medicine of these disease.

Managing RiskManaging Risk

The major risk in investing research and development is, there might not come any satisfactory result after a rigorous research.

And even they might fail to implement the newly innovated product.

To overcome this risk, BP does some feasibility test, estimated cash flow to measure NPV. The projected cash flow is hardly maintained.

How effective the total estimated expenditure is verified by producing in a small scale, just like to make pilot project.

As current asset does not generate income, we need to be very sensitive in investing at fixed asset, said the manager of BPL.

This is why another huge investment area of BPL is plant and machinery or fixed asset. Every time they get a new investment opportunity of developing a new product, BPL emphasizes most on it. They always try to keep around 80% of their of their total investment in fixed asset.

Managing RiskManaging Risk

Machinery may be less effective than estimated.

Maintenance cost may be high.

Import cost of Machinery may become costly.

BPL invests a certain portion of their retained earnings at share capital and some short term investment. It is really a good sign for a firm manager said. It ensures the money doesn’t treat as idle as well as it is a current asset so they can convert it as cash if they needed.

Managing RiskManaging Risk

Share market may decline badly.

Wrong security investment

The term working capital refers to the amount of capital which is readily available to an organization.

BPL’s components of WC are:

Liquid Assets (cash and bank deposits):

◦ Inventory◦ Receivables

Current Liabilities:◦ Bank Overdraft◦ Creditors and Payables◦ Other Short Term Liabilities

1. Acquire Materials

or Resources

2. Convert Materials & Resources to Goods

Services

3. Sell Goods

4. Collect Payment

for Goods

As the raw materials are 80% comes from outside of country, they needed a handsome amount of investment in this side.

BP always focuses on ensuring the quality, they make a very strong relationship with their suppliers.

In this case, they select a ultra reliable supplier who supplies quality product to deal with rather than purchasing raw material from different ways.

More efficient the WC management less the maintenance cost and more the turnover.

The manager said they do update the working capital day to day, it helps them to get the real idea how much should be their optimum level of WC.

As per their experiment study they keep inventory a stock of 2 months and finished product for one month.

Managing RiskManaging Risk

As they collect raw materials from single suppliers, there might be a chance of defective products.

There might be a crisis of raw materials if the demand rise suddenly.

Sudden decline in demand could cause the higher maintenance expense.

Thus they reduce Risk as they could still supply for at least one month even their production hampers.

Dividend is not our focus.

Priority to new investment opportunity.

Keep optimum retained earnings.

Surplus is distributed as dividend.

Keep on paying dividend continuously since last 10 years.

Enhance Brand & Positive image

Stuck on “A” Category

Goodwill

Shareholders may not be happy.

Wrong dividend decision could cause share price fall.

Reserve fund crisis.

Authorized capital may be fully raised (in case of stock dividend)

Such an Expense.

Beximco Pharmaceuticals started operations in 1980, now grown to become a leading pharmaceutical company in Bangladesh, and it supplies more than 10% of country's total medicinal needs.

BPL should also concentrate on local market with foreign export, because as they are focusing on foreign market last few years they lost high portion of market share at local market.

Social responsibilities are not satisfactory, BPL need to organize seminar, campaign free doctors or medicine facility and some other corporate social responsibilities.

This is it!This is it!