reort

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CHAPTER 1

INDUSTRY PROFILE

1.1 History

The Indian pharmaceutical sector has come a long way, being almost non-existent before

1970 to a prominent provider of healthcare products, meeting almost 95% of the countrys pharmaceutical needs .The industry today is in the front rank of Indias science based industries with wide ranging capabilities in the complex field of drug manufacture and technology. The

pharmaceutical industry in India is the world's third-largest in terms of volume.

Playing a key role in promoting and sustaining development in the vital field of

medicines, Indian pharma industry boasts of quality of producers and many units approved by

regulatory authorities in USA and UK. The industry has a market share of $14 billion in the

United States. According to the India Brand Equity Foundation, the Indian pharmaceutical

market is likely to grow at a compound annual growth rate (CAGR) of 14-17 per cent in between

2012-16. India is now among the top five pharmaceutical emerging markets of the world. In

2013, there were 4,655 pharmaceutical manufacturing plants in India, employing over 345

thousand workers.

The government began encouraging the growth of drug manufacturing by Indian

companies in the early 1960s, and with the Patents Act in 1970.This patent act removed

composition patents from foods and drugs, and though it kept process patents, these were

shortened to a period of five to seven years. The lack of patent protection made the Indian market

undesirable to the multinational companies that had dominated the market and as they left,

Indian companies carved a niche in both the Indian and world markets by reverse-engineering

new processes for manufacturing low-cost drugs. Although some of the larger companies have

taken baby steps towards drug innovation, the industry as a whole has not changed its business

model.

Key discoveries of the 1920s and 1930s, such as insulin and penicillin, became mass-

manufactured and distributed. Switzerland, Germany, Italy, UK, US, Belgium and Netherlands,

had strong industries as a result of introduction and success of penicillin in the early forties and

the relative success of the innovative drugs. Research and development (R&D) became a major

thrust area of the pharmaceutical industry. The industry expanded rapidly in the sixties,

benefiting from new discoveries. In the 1960s attempts were made by the U.S Food and Drug

Administration (FDA).

The increase regulation of pharmaceutical industries and to limit financial links between

companies and prescribing physician. In 1964, after the thalidomide tragedy (in which the use of

a new tranquilizer in pregnant women caused severe birth defects in the new born child), the

world medical association standards for clinical research. Pharmaceutical companies were

required to prove efficacy and safety of the drug in clinical trials before marketing them. Tighter

regulatory controls were introduced in the seventies. The new regulations revoked permanent

patents and established fixed periods on patent protection for branded products. As a result

industries flourished by producing generic products and them started earning huge profits,

because generic manufactures do not incur the cost of drug discovery.

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From 1978, India took over as the primary center of pharmaceutical

production of bulk drugs and products without patent protection. The industry remained

relatively small scale until the 1970s when it began to expand at a greater rate. Drugs for heart

disease and for AIDS were a feature of the 1980s, and the US FDA started approving

such drugs quickly keeping in view the nature of the disease.

1.2 Growth

The dream of Indian pharmaceutical manufacturing companies for making their presence

known globally and competing with the pharmaceutical companies from the developed countries

like the United States, Europe, and Japan is now coming true. With new growth opportunities

emerging in the pharma world, the pharmaceutical industry has shown great interest in India

pharma sector due to its sustained economic growth, healthcare reforms and patent-related

legislation.

Indias population is growing rapidly, as is its economy creating a large middle class with the resources to afford Western medicines. Further, Indias epidemiological profile is changing, so demand is likely to increase for drugs for cardio-vascular problems, disorders of the

central nervous system and other chronic diseases. Together these factors mean that India

represents a promising potential market for global pharmaceutical manufacturers. More than that,

India has a growing pharmaceutical industry of its own. It is likely to become a competitor of

global pharma in some key areas, and a potential partner in others. India has considerable

manufacturing expertise; Indian companies are among the world leaders in the production of

generics and vaccines. As both of these areas become more important, Indian producers are

likely to take a large role on the world stage and potentially partner with global pharma companies to market their wares outside of India.

Indian companies have also started entering into the realm of R&D; some of the leading

local producers have now started conducting original research. India has the worlds second biggest pool of English speakers and a strong system of higher education, so it should be well-

positioned to serve as a source for research talent. A new patent regime provides better

protection of intellectual property rights, although some issues remain. Clinical trials can also be

conducted here much more cost effectively than in many developed nations, and some local

companies are beginning to develop the required expertise. All of these factors add up to a strong

case for partnering with Indian companies around R&D, including clinical testing.

Global players in the pharma industry cannot afford to ignore India. The country, many

predict, will be the most populous in the world by 2050. India will make its mark as a growing

market, potential competitor or partner in manufacturing and R&D, and as a location for clinical

trials.

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1.2.1 An Expanding Pharmaceuticals Market

Indias pharmaceuticals industry looks set for a solid long-term growth. It already ranks fourteenth in the global league table, with sales of almost US$19 billion in March

2009.However, PwC estimates that it will rise to approximately US$50 billion by 2020 a 163% in the space of eleven years. This growth will be driven by the expanding economy and

increasing per capita GDP. In 2008, Indias middle class constituted 13% of the population, according to the National Council of Applied Economic research. While this remains a fairly

small proportion of the total population, it represents a substantial increase from a mere 3% in

1995. If the economy continues to grow faster than those of the developed world and the literacy

rate keeps rising, around a third of the population (34%) is expected to join the middle class in

the near future. While these consumers still earn substantially less than their US or European

counterparts, they are rapidly acquiring the buying power necessary to afford modern healthcare,

particularly if purchasing power parity is considered.

One source estimates that at least 60 million Indians a market as big as the UK can already afford to buy Western medicines. Aggressive pricing strategies will be necessary,

however, to make in-roads into Indias price sensitive market. Some multinational pharma companies are already taking measures to reach a larger patient population by reducing drug

prices and increasing affordability.

1.2.2 Domestic Market Overview

Indias domestic pharmaceutical industry was worth around US$11 billion in March 2009 and PwC estimates it will rise to approximately US$30 billion by 2020.The domestic market is

very fragmented; more than 10,000 firms collectively control about 70% of the market. Many of

the local players are generics producers specializing in anti- infective. In 1972, the federal

Government passed a law allowing local producers to manufacture drugs that were still under

patent, as long as they used different processes.45 the lack of a patent system that conformed to

international standards helped spawn a domestic industry that excelled in reverse engineering

novel drugs and launching copycat versions at home and in other emerging markets. Wholesale

marketing of generic versions of drugs patented since 1995 and still under patent has not been

permitted since 2005, so market strategies are changing and some generics producers are looking

further afield for new markets.

Indias manufacturing clout has made it a massive threat to established generics firms India now produces more than 20% of the worlds generics. Moreover, around US$70 billion worth of drugs are expected to go off patent in the US over the next three years, and India is

well-positioned to take a substantial share of the resulting new generics markets. Indian

companies today account for 35% of the Abbreviated New Drug Application (ANDA) approvals

granted by the US Food and Drug Administration (FDA) until February 2009.Indias generic houses are now entering into strategic alliances with global pharma companies to strengthen their

generic portfolio and jointly market these drugs globally. Indias pharmaceutical exports totaled around US$8 billion in 2009 and PwC estimates they will rise to approximately US$20 billion by

2020.Over the past several years companies such as DRL, Cipla and Lupin have grown

internationally in their own right as well. Other Indian pharma companies like Glenmark

Pharma, Orchid and Aurobindo also have wholly owned subsidiaries in different parts of the

globe.

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Eg: DRL has grown from a small firm into an international business with annual sales of more

than US$1.4 billion, about 84% of them outside India. The companys acquisition of Germanys Betapharm positioned it as one of the largest generics companies in the world; it is currently one

of the largest suppliers of drugs to the US. It is also one of the largest active pharmaceutical

ingredient (API) manufacturers globally. Cipla is another company with revenues of over

US$1.1 billion, 56% of which come from outside India. It is one of the largest manufacturers of

antiretroviral drugs in the World. In 2007, an Avesta-Cipla joint venture acquired Siegfried

Biologics, a Switzerland based company, to manufacture US FDA and European Medicines

Agency (EMEA) compliant biopharmaceuticals for the global markets. Meanwhile, Lupin is the

biggest producer of Lisinopril, an API used in the treatment of hypertension.Lupins acquisition of Multicare Pharmaceuticals of Philippines has propelled it into position as a top generics player

in the Phillipines.The deal represented Lupins sixth acquisition since 2008.

Contract manufacturing is a strong segment of the domestic market. Indian firms have

several advantages over their Western rivals. The expertise gained in manufacturing generics

through reverse engineering has helped some companies streamline the process for getting

manufacturing up and running. Costs are very competitive; indeed, they are only two-fifths of

those involved in setting up and running a new manufacturing facility in the West.61 They can

operate on significantly lower margins, given their low development and labor costs.

Currently their key area of strength in outsourcing is the manufacture of APIs.Some

Indian pharma companies could probably benefit significantly by moving towards specialty APIs

in the future. The Indian contract manufacturing segment was worth around US$605 million in

2008 and is expected to reach around US$916 million in 2010. The US FDA has already

approved over 100 manufacturing sites more than in any country except the US . Among six offices that the US FDA has overseas, two are located in India, in Delhi and Mumbai. All

domestic producers are also obliged to comply with Indias Good Manufacturing Practices, under Schedule M of the Drugs and Cosmetics Act, 1940.

Fig 1.1 India has more US FDA-approved manufacturing plants than any country except the US

>100

56

2824

10 8 5

0

20

40

60

80

100

120

India Italy China Spain Taiwan Israel Hungary

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1.3 Competition in the Industry

In the pharmaceutical environment there are two types of companies acting, the

originator companies and the generic companies. The former produce and sell products that they

discover and develop, the latter produce products using originator companies ideas. The new medicinal sector is strongly tied to the research and the development of new medicines, with the

aim to put new products, capable of curing new diseases or those which still do not have a cure

on the market.

Research and development department is very costly and complicated because firms

compete each other on the market by launching always new medicines. Originator firms have to

cover the costs by selling their products with higher price than the generic companies because

the latter do not have any R&D plan. Having lower prices, generic companies can erode market share from other companies with higher costs. For all the reasons, originator companies

need to protect their market position avoiding that generic companies can have access to the use

of their findings. The main tools they have at hand to obtain this are so-called patents, which are used to avoid abuse from the competitors. However it can happen that generic companies can

find a way to enter the market without infringing other companies patents. For example whether the patents is invalid or whether it is annulled before its expiry date. According to the paper there

are many ways to delay or block the entry of generic competitors, and these are: Patent strategies

of originator companies, Patent-related contacts, disputes and litigation, opposition and appeals,

etcEg: Teva pharmaceutical industries Ltd., launched more than 250 generics in 2012. In 2013 it has announced plans to launch generic versions of Synbyax, Opana, Diprivan, Maxalt,

Carbatrol ER, Gabitril and TriCor.

There are some strategies to protect the property rights, and the purpose of them is to extend and to broaden the protection for these rights. Originator companies tend to file plenty of

patents (on process, reformulation, etc) on their inventions besides the base patent. This is called patent cluster and it is useful to protect both against invalidation challenges and to maintain a protection of the product even though the base patent is expired, in fact when this is

no longer effective the generic companies cannot entry the markets because of the other patents.

But a problem arises because the larger is the number of patents application the weaker they are

and then many of them are easily revoked by the EPO (European Patent Office). However 36 out

of 43 companies use this kind of strategy. Another strategy is the use of the divisional patent applications that consists in patenting some part of the product. These parts are not related to the parent patent (the main invention), this means that they would be still pending whether the parent patent has been revoked. Nevertheless they have the same duration of the principal patent.

The goal of the divisional patent is to avoid that generic companies can reproduce products

during the patent examination, even if the parent patent has been refused, because they do not

know what they are allow to imitate. Summing up, patent strategies are aimed to create legal

uncertainty and to create barriers in the market towards generic companies. Since litigations are

costly and time-consuming, it would be better try to avoid them. To do so, there can be some

tools called patent-related exchanges such as contacts and disputes (out of the court). These can be very important between the companies as they can affect the launch of a product from the

generic firms. Usually originator companies start the contacts and disputes (91%) as a strategy to

protect themselves when they know that a generic company is entering the market. Some

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examples of patent-related exchanges out of court are: informing the generic competitor of its

patent right, demanding that the generic product is withheld from the market etc.,.Whether the

generic firm accepts not to enter the market or whether the originator realizes that there is no

infringement then originator firm will not continue the dispute. Nonetheless it can happen that

the two parties can end up in court. The originator wants the court find an infringement in the

behavior of the generic company and, on the other hand, the generic party wants the court to

state that it does not infringe any patents.

In the 54% of the cases, are originator companies that sue generic companies, but they win only

51% of the cases. At European level, the average duration of a litigation is 2, 8 years (Italy over

six years). However one third of the cases end with a settlement. A solution to temporarily

interrupt generic undertakings from selling a litigated product is the interim injunction. Whether the product is already in the market, it can forbid the marketing of it.

Generic companies have the right to oppose to the originator companys patent in order to get legal verification on it, and if it is so they can enter the market without any problem. Anyhow

they can oppose only within a certain period of time. In the 59, 6% of the cases, oppositions and

appeal have total success and in the 15, 4% they manage to reduce the scope of the patent.

Generic and originator companies can reach an agreement with each other in order to resolve

disputes, litigations and oppositions on patent-related problems. In doing so, they can save

money and time and reach a compromise that can satisfy both of them. In fact, more than a half

(53%) of the originator companies has reached an agreement with generic companies. In spite

the fact that each case is examined individually, there are some factors that are taken into

account in almost all the settlement agreements. From the originator side, one of them is the

probability of winning the litigation and from the generic side is the cost of the court case. An

example of settlement agreement could be a payment (in terms of money, license or distribution

agreement etc) to the generic company by the originator company. The battle between originator and generic companies is very tough because, on one hand, there is the right to protect

originator companies inventions that are research incentives and, on the other hand, there is the consumers benefit in terms of having lower price medicines.

Price competition among branded drugs usually occurs at the level of insurers and PBMs.

These entities commonly use drug formularies to drive purchasing behavior. A drug formulary is

simply a list of approved prescription drugs that will be reimbursed the patient and/or pharmacy.

Three-tier formularies are commonly used in the industry, where drugs in Tier 1 have the lowest

co-payments and drugs in Tier 3 the highest co-payments. Branded drug manufacturers compete

on the prices paid by patients and their insurers by offering rebate to insurers in exchange for

more favorable formulary placement, i.e., insurers and PBMs create price competition among

various drug by exploiting their ability to shift demand based on formulary placement. Thus,

rebates given to insurers and PBMs are an aspect of price competition in the pharmaceutical

industry. A 1998 study conducted by the Congressional Budget Office suggests that

manufacturer rebates to insurers increase with the number of branded drugs with in the

therapeutic category.

In addition to competing by offering rebates to insurers and PBMs, branded drugs also

compete through promotions that take a variety of forms. Because physicians decide which drug

to prescribe, sales representatives of branded drug manufacturers provide information to

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physicians about new drugs and treatment options. Such information may be valuable and may

enhance the quality of medical care received by patients. Branded drug manufacturers also

provide free samples of their drugs to physicians, which are then passed on to patients. Free

samples effectively act as a price discount for both insurers and patients. Finally, branded drug

manufacturers also promote their drugs directly to patients.

Fig 1.2 Revenue share of Indian pharmaceutical sub segments

1.4 Porters Five Forces Analysis

Fig: 1.3 porters five force analysis

72%

19%

9%

Generic Drugs OTC Drugs Patent Drugs

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S.NO Porters Force LOW/HIGH EXPLANATION

1

Potential Of New

Entrants Into

Industry

LOW

There are many barriers that can be created to

prevent new entrants or to show down their arrival.

In the pharmaceutical industry, a new entrant may

be faced with various hurdles erected by established

businesses, such as:

Economies of scale

Distribution product differentiation

Capital requirements and financial resources

Access to distribution channels

Regulatory policy

Switching costs

2

Power Of Suppliers

LOW

The industry suppliers are providers of raw materials, the manufacturing plants, labour,

chemical industry etc.

The chemicals used in the pharma industry are largely a commodity.

and the companies in the pharma industry can switch from their suppliers without

incurring a very high cost.

However, what can happen is that the supplier can go for forward integration to

become a pharma company

3

Power of

customers

HIGH

In the pharmaceutical industry the buyers are the hospitals, the tender boards,

the pharmacies and the patients

In some countries the government is the largest buyer. This powerful model makes it

easier for the governments to control pricing

and reimbursement of drugs

A buyer is a powerful in the following situations

a. when they buy your products from other suppliers because they are

standardized

b. When they are knowledgeable and make demands on this knowledge

c. when they purchase large volumes,

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S.NO Porters Force LOW/HIGH EXPLANATION

4

Threat Of Substitute

Products

HIGH

Generic companies do not require colossal costs associated with research and

development of new medicines

This is how they can sell their products for cheaper prices

It became a common practice among medical professionals switching to generic

drugs and using branded drugs only if

generics are unsuccessful in their

performance

5

Rivalry Between

Competitors

HIGH

the competitive threat is coming from emerging markets

top10 generic companies represented nearly half of the global market

1.5 Major Players In India

1. Dr. Reddys Labs

Dr. Reddy's Laboratories Ltd. is an Indian pharma company. Its headquarters are located

in Andhra Pradesh, India. Dr. Reddys Labs was founded by Anji Reddy. The company produces and sells pharmaceuticals in the form of over 190 medications and 60 APIs in India and

overseas. It has employee strength of 16,300 worldwide. Some of the major APIs of Dr.Reddys are Ibuprofen, Naproxen, Sparfloxacin etc. Some of the major brands of drugs of the company

are Mintop, Atocor, Stamlo and Reclimet .

2. Cipla

Cipla Limited is an Indian pharma company. Its headquarters are located in Mumbai,

India. It was founded in 1935 by Dr. K. A. Hamied. It was originally name as 'The Chemical,

Industrial & Pharmaceutical Laboratories' and later condensed as Cipla in 1984 from the initials

of each word in the name. It has 34 manufacturing units in India and a global presence spanning

170 countries. The company offers over 2000 products in around 65 therapeutic categories, in

more than 40 dosage forms. Cipla also has a hospice called the 'Cipla Palliative Care and

Training Centre' located in Pune, for terminally ill cancer patients.

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3. Aurobindo Pharma

Aurobindo Pharma Limited is an Indian pharma and manufacturing company. Its

headquarters are located in Hyderabad, India with a market base of over 125 countries. It

manufactures generic pharmaceuticals and active pharmaceutical ingredients (APIs) mainly for

six major therapeutic/product areas: antibiotics, gastroenterologicals, anti-retrovirals,

cardiovascular products, anti-allergics and central nervous system products. The company also

has a presence in the manufacture of anti-diabetics and cephalosporins. Aurobindo Pharma

started with a single unit manufacturing Semi-Synthetic Penicillin (SSP) at Pondicherry, in in

1988-89 and is the market leader in Semi-Synthetic Penicillin today. Some of the products are

Raloxifene, Atazanavir, Aliskiren, Fumerate, Montelukast and Amoxycillin Trihydrate.

4. Cadila Healthcare

Cadila Healthcare is an Indian pharma company. Its headquarters are located at

Ahmedabad, Gujarat, India. Cadila Laboratories was founded by Ramanbhai Patel and Shri

Indravadan Modi in 1952. The company has employee strength of over 11000 across the world.

In 1995 Cadila Healthcare came under the Patel family and Cadila Pharmaceuticals Ltd. came

under the Modi family, following the split of the two families. The company develops and

manufactures pharmaceutical as well as diagnostic products, skin care products, herbal products,

and other OTC products. The various therapeutic segments covered by Cadila Healthcare are

Anti-Infective, Anti-Allergic, Anti-Epileptic, Anti-Osteoporosis, Anti-Depressant,

Gastrointestinals, Sedative, Womens Healthcare, Anti-Rheumatic, Tranquilizers, Anti-Diabetic, Anti-Psychotic, Pain Management and Tadalafil. The blockbuster drugs are Oflin OD, Clodus,

Zoldac, NeoLoridin, Ven-OD, Isbis, Bonmax, Mexate, Cartup, Zyqin, Oxeptal, Zytonin, Cefinar,

Zycolchin, Vageston, Xet, Espra, Aldren, Serlin, Epsolin, Euglim, Olandus, Divalpro, Topiram,

Cytolog, Stilnite, Mifegest, Dactive, Linid, Mosadac, Salazar, Lamidus, and Zydalis.

5. Jubilant Life Sciences

Jubilant Life Sciences Limited is an Indian pharmaceutical and life sciences company. The

company was incorporated as Vam Organic Chemicals Ltd. in 1978. It has a presence in over

100 countries with ground presence in India, North America, Europe and China. It has an

employee base of around 6200. Jubilant Life Sciences manufactures and supplies APIs, Solid

Dosage Formulations, Radiopharmaceuticals, Allergy Therapy Products and Life Science

Ingredients, and provides services in Contract Manufacturing of Sterile Injectables and Drug

Discovery and Development.

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CHAPTER 2

COMPANY PROFILE

2.1ABOUT HETERO DRUGS LTD.,

Hetero is one of Indias leading generic pharmaceutical companies and is the worlds largest global producer of anti-retroviral drugs for the treatment of HIV/AIDS. Founded in 1993

by Dr BPS Reddy, Hetero has grown rapidly in over two decades, based on a tradition of

excellence, a strong-minded focus on cost-effective integration and with a deep sense of

commitment towards making life-saving medicines accessible to patients worldwide.

Hetero, a research-driven pharmaceutical company, is committed to the development,

manufacturing and marketing of active pharmaceutical ingredients (APIs), intermediates and

finished dosages. Today, Hetero is recognized as a world leader in process chemistry, API

manufacturing, formulation development, manufacturing and commercialization.

Hetero has around 18 state-of-the-art manufacturing facilities, which are cGMP

compliant and have been approved by various Ministries of Health and regulatory authorities like

US FDA, WHO, MCC - South Africa, MHRA-UK, TGA Australia, PMDA Japan, KFDA (Korea) among others. The company has a rich manufacturing product portfolio of over 200

products across a wide range of therapeutic categories. Hetero has a strong global presence in

over 120 countries and has been offering APIs and generic formulations to partners across the globe.

While Hetero is committed towards leveraging its expertise in the area of

pharmaceuticals, it is also focusing on Biotechnology and also on developing New Chemical

Entities (NCEs) in select therapeutic areas.

Hetero, a privately-owned company, is recognized as one of the top 10 companies in the

Indian pharmaceutical industry with an annual turnover of US$ 1.2 billion. With a dedication and

support of its over 12,000 employees, Hetero continues its commitment to manufacture high-quality drugs and save millions of lives across the world.

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Company Name Hetero Drugs Ltd.,

CEO DR.B Partha Saradhi Reddy

Type Private

Industry Pharmaceuticals

Headquarters Hyderabad,Telangana

Produts Drugs

Number of Employees Over 12000

Area served World wide

Website www.heterodrugs.com

Address 7-2-A2, Hetero Corporate Industrial Estates.

Sanath Nagar Hyderabad - 500 018.

Telangana, India

040 - 23704923 - 25 ,040 - 23714250 / 2370

4926

2.2 KEY PEOPLE IN THE COMPANY:

Name Role

DR.B.Parthasaradhi Reddy Chairman and Managing Director

Mr. A V Narasa Reddy Director Corp. Tech.

Mr.C Bhaskar Reddy Director Quality Control

Mr.J Sambi Reddy Director- Production

Mr.M Srinivas Reddy Director

Mr.B Vamsi Reddy Director

Dr.K Ratnakar Reddy Director R&D

Mr. K V Bhaskar Reddy Director Finance

C. Gopala Krishna Secretary

M V Narayana Reddy Charted Accountants

A V N S Nageswara Rao Cost Accountant

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2.3. VISION, VALUES AND MISSION

2.3.1 Vision and Values

A vision is to be recognized as an aggressive company that combines its strength of R&D

and manufacturing with definite advantages in terms of cost and chemistry with a strong

emphasis on Quality of the products.

The company values the concepts of having social responsibilities in the course of its

assent to greater heights. It strongly believes in focusing on customer requirements and

delivering the products at the right place.

Hetero considers its human resources as the core of all its capabilities and believes in

tapping and honing the talents of its members to reach the zenith of success.

It believes in continuous evaluation and improvement in all the factors that contribute in

transforming the organization into a global force to reckon with.

Hetero takes due cognizance to the fact that the processes that it develops should be all

eco-friendly and should not result in any consequence that harms the ecological harmony.

2.3.2 Mission

Mission is to be a globally acclaimed pharmaceutical company. Meeting the requirements

of healthcare imbibing the philosophy of both commercial and social concerns, driven by

research and manufacturing capabilities.

2.4. QUALITY POLICY

Hetero manufacturing facilities are cGMP compliant and have received approvals from

stringent regulatory authorities. Hetero believe in providing one quality standard. All the

activities at Hetero right from receipt of raw materials to dispatch of the finished product are

carried out in accordance to a well oiled quality management system. The importance of

having a strong quality based system has been recognized by organization due to which every

individual in each department understands his/her responsibilities and carries out them with

utmost care avoiding any confusion, thus delivering the best results.

In addition, talking about quality of the product itself, the company has evolved the

systems to implement GMPs in the manufacture of the product to protect the safety, quality and integrity. The approval of Heteros API Facility by USFDA and Finished Dosage Facility by WHO bear a testimony to this fact

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2.5 PRODUCTS

Hetero drugs Ltd., produces three types of products. Those are,

APIs

Generics

Oncology

APIs products

HETERO have more than 20 years of experience in developing Active Pharmaceutical

Ingredients (API's). HETERO bring in their rich chemistry experience, quality, manufacturing

capabilities and regulatory & IP capabilities. They offer products in every therapeutic category

and work towards providing API's to help our customers bring first time generics across the

world.

Table:2.1 APIs Products Of Hetero Drugs Ltd.,

S.NO

Name Category

1 Abacavir base

Antiretrovirals

2 Acydovir

Antiretrovirals

3 Bexarotene

Antineoplastics

4 Bortezomib

Antineoplastics

5 Cisplatin

Antineoplastics

6 Didanosine

Antiretrovirals

7 Donepezil Hcl

Anti-alzhemers

8 Entecavir

Antiretrovirals

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9 Escitalopram oxalate

Antidepressants

10 Famcidovir

Antivirals

11 Gefitinib

Antineoplastics

12 Glimepiride

Antidiabetics

13 Hydralazine

Antihypertensives

14 Letrozole

Antineoplastics

15 Lisinopril

Antihypertensive

16 Milnacipran Hcl

Antipsychotics

17 Metaxalone

Musde relaxant

18 Nevirapine

Antiretrovirals

19 Oxaliplatin

Antineoplastics

20 Plerixafor

Antineoplastics

21 Pralatrexate

Antineoplastic

22 Roflumilast

Antiasthamatics

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Generics:

HETERO is committed in bringing affordable and global quality generics all over the

world. HETERO provide products in multiple dosage forms, catering to patient needs in various

therapies. Hetero is one of the world leaders in developing and manufacturing a wide range of

branded/non-branded generics with a portfolio of more than 200 marketed products and 150

ANDAs filed across most therapeutic areas. The company is the largest supplier of anti-retroviral

drugsHetero's range of generics includes solid and liquid oral dosages, pre-filled syringes,

injectables, soft gelatin capsules, controlled-release multi-layered tablets, topicals, and inhalers.

Additionally, Hetero supports production of US DEA Schedule II controlled substance

formulations..

Table:2.2 Generics Of Hetero Drugs Ltd.,

S.NO Name

Category

1 Abacavir (Base)

Antiretrovirals (NRTI)

2 Abacavir Sulfate


3 Abacavir Sulfate


4 Abacavir Sulfate + Lamivudine


5 Abacavir Sulfate + Lamivudine +

Zidovudine


6 Acyclovir

Antivirals

7 Alfuzosin HCl

Urinary Incontinence/BPH

8 Amlodipine Besylate

Antihypertensives / Antihyperlipoproteinemics

9 Aripiprazole Antidepressants / Antipsychotics / Antiepileptics

10 Artemether + Lumefantrine

Antimalarial

11 Atazanavir Sulfate + Ritonavir

Fixed Dose Combinations

12 Atomoxetine Hydrochloride Antidepressants / Antipsychotics / Antiepileptics

13 Atorvastatin Calcium

Antihypertensives / Antihyperlipoproteinemics

14 Atovaquone + Proguanil HCl

Antimalarial

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Oncology:

Hetero is building a global franchise of oncology products both in API's and finished

dosages. We offer the below range and continue to add new products constantly for global

markets.

Table:4.3 Oncology Products Of Hetero Drugs Ltd.,

S.NO Product

1 Abiraterone Acetate

2 Anastrozole

3 Aprepitant

4 Axitinib

5 Azacitidine

6 Bendamustine HCl

9 Bortezomib

10 Cabazitaxel

11 Capecitabine

12 Carboplatin

13 Cisplatin

14 Cyclophosphamide

15 Docetaxel

16 Erlotinib HCl Form A

17 Fosaprepitant Dimeglumine

18 Gefitinib

19 Gemcitabine HCl

20 Imatinib Mesylate Amorphous/ a

Form/ b Form

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21 Irinotecan HCl

22 Lapatinib Ditosylate

23 Lenalidomide

24 Letrozole

25 Nilotinib HCl

2.6. SERVICES

CRAMS

Hetero initiated customer-centric division that will provide Custom Research And

Manufacturing Services (CRAMS) for large, mid-sized and emerging biotech and

pharmaceutical entities globally. Hetero will partner with these companies and cultivate

opportunities to research, manufacture and develop compounds across the entire drug life cycle.

This division will deliver fully-consolidated or customized manufacturing solutions for APIs,

intermediate chemicals, pre-formulations and formulations across each stage of the

pharmaceutical life cycle. Hetero provides premium solutions for product life cycle management

including life cycle extensions and line extensions.

Drug Discovery

Hetero started discovery research with the focus on developing NCEs in selected

therapeutic areas. Our business strategy is to out licence early stage discovery molecules and to

explore early stage discovery collaborations to maximize the potential of our discovery projects.

Scientists at Drug Discovery Division are working on the following projects.

ANTI-HIV Research

ANTI-HCV Research

Diabetes Research

Manufacturing

Hetero consider manufacturing as their core strength. They continuously strive for

excellence in key areas of infrastructure and technology. HETERO manufacturing facilities are

regulatory compliant and have been audited by several agencies like US FDA, WHO-Geneva,

TGA-Australia, Spanish, ANVISA-Brazil, and IDA-Netherlands.HETERO have around 18

manufacturing facilities spread across globally. These manufacture APIs, Intermediates and generics.

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Research & Development

Hereros emphasis has always been on Research and Development. The emphasis was to ensure that the processes being adopted for the products are cost effective, safe to handle and

with optimum advantage in terms of yield and quality. Having laid solid foundation towards the

end Hereros R&D approach has also taken cognizance of the present scenario where stringent patent regime is under implementation. Hereros team of scientists has been and is involved in developing non-infringing processes for its products. With its ability to explore high and achieve

the best, Hetero has been able to file patents for several of its processes.

From an organization, which was concentrating on developing processes for APIs Hetero, has now a full-fledged R&D Facility for formulation development. Hetero research

capabilities have been proven with its ability to carry out a wide range of reactions, which are

difficult to carry out. Given its research capabilities Hetero has today has initiated contact

research. Towards the end, the company has already evolved its strategies and is into discussions

with renowned companies for carrying out the Contract Research. Custom synthesis is one area

where the company has been concentrating on and has initiating work on several projects. In

addition to the above, the Company is now on the threshold of commencing basic research

activities to develop and screening new chemical entities for different therapeutic categorized.

2.7 CUSTOMERS

Indian Market

M/s LAKEM LABORATORIES LTD, MUMBAI.

M/s CIPLA LTD, MUMBAI.

M/s BLUE CROSS LABORATORIES LTD, MUMBAI.

M/s KOPRAN LTD, MUMBAI.

M/s MERIND LTD, MUMBAI.

M/s SUN PHARMACETUCIAL INDUSTRIES, BARODA.

M/s CADILA LABORATORIES LTD, AHMEDABAD.

M/s ALEMBIC CHEMICAL WORKS Co. LTD, BARODA.

International Market

M/s BORAL QUMICA, BARCELONA, SPAIN

M/s RHENOCHEM LTS, SWITZERLAND

M/s RESFAR SRL, ITALY

M/s REMIDICA LTD, CYPRUS

M/s BEEPHARMA, UNITED KINGDOM

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2.8. MAJOR COMPETITORS

Ranbaxy Laboratories Ltd.,

Dr Reddys Laboratories

Aurobindo

2.9 SWOT ANALYSIS

STRENGTHS

Strong R&D and manufacturing capabilities

Over 2000 people are employed with the organization

Strong player in API and Finished Dosages

WEAKNESS

Strong competition from international and domestic giants means limited market share

Discovery of drug is highly unpredictable business

OPPORTUNITIES

They can increase their presence in contract manufacturing

It can manufacture generic drugs, because about $92 billion worth patented drugs are expected to go off

patent.

THREATS

There is a growing competition in generic market

Strong patent regulations

Price wars and substitute products

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2.10 BALANCESHEETS:

BALANCE SHEET AS AT 31ST MARCH 2013 (Rupees in Mn.)

Particulars As at 31-Mar-2013 As at 31-Mar-2012

I.EQUITY AND LIABILITIES

Shareholders funds

Share capital

Reserves and surplus

34.50

7,232.33

34.50

6,756.17

7,266.83 6,790.67

Non-current Liabilities

Long term borrowings

Deferred tax liability(Net)

Other long term liabilities

Long-term provisions

1,132.62

846.05

82.50

31.95

1,970.63

603.13

82.50

.29.18

2,093.12 2,685.44

Current Liabilities

Short term borrowings

Trade payables

Other current liabilities

Short-term provisions

3,211.33

18,12.19

1,702.11

42.89

3,520.31

701.22

1,245.54

19.12

6768.52 5486.19

TOTAL 16,128.47 14,962.30

II.ASSETS

Non-current assets

Fixed assets

Tangible assets

Intangible assets

Capital work-in-progress

56,73.04

228.71

804.83

5,233.33

250.20

809.97

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Non-current investments

Long-term loans and advances

788.86

601.22

316.86

1,030.28

8,096.66 7,640.64

Current assets

Inventories

Trade receivables

Cash and bank balances

Short-term loans and advances

Other current assets

3,206.21

4,027.56

72.43

162.28

563.33

2,223.29

4,413.78

85.72

165.90

432.97

8,031.81 7,321.66

TOTAL 16,128.47 14,962.30

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BALANCE SHEET AS AT 31ST MARCH 2014 (Rupees in Mn.)



Shareholders funds

Share capital


34.50

8,171.08

34.50

7,232.33

8,205.58 7,266.83






739.23

919.28

82.50

40.78

1,132.62

846.05

82.50

31.95

1,781.79 2,093.12

Current Liabilities


Trade payables



3,642.89

1,309.37

1,273.41

39.01

3,211.33

1,812.19

1,702.11

42.89

6,264.68 6,768.52

TOTAL 16,252.05 16,128.47

II.ASSETS

Non-current assets

Fixed assets

Tangible assets

Intangible assets



5,755.14

206.87

1,027.11

837.48

56,73.04

228.71

804.83

788.86

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495.18

601.22

8,321.77 8,096.66

Current assets

Inventories

Trade receivables




3,405.30

3,485.05

201.37

232.42

606.14

3,206.21

4,027.56

72.43

162.28

563.33

7,930.28 8,031.81

TOTAL 16,252.05 16,128.47

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BALANCE SHEET AS AT 31ST MARCH 2012 (in lakhs)



Shareholders funds

Share capital


345.00

67561.66

345.00

65315.23

67906.66 65660.23






19715.50

6031.32

825.00

291.84

17805.28

4731.80

500.00

274.43

26863.66 23311.51

Current Liabilities


Trade payables



31378.53

10836.73

12586.07

945.46

33539.89

6809.18

13188.98

544.00

55746.79 54082.05

TOTAL 150517.11 143053.79

II.ASSETS

Non-current assets

Fixed assets

Tangible assets

Intangible assets



52333.35

2502.03

8099.70

5190.35

38733.03

2421.18

15617.87

4555.14

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8280.98

8424.23

76406.41 69751.45

Current assets

Inventories

Trade receivables




22232.86

44137.76

857.21

1659.14

5223.73

23781.92

39486.86

3842.14

1196.30

4995.13

74110.7 73302.35

TOTAL 150517.11 143053.79

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CHAPTER 3

TASKS ACCOMPLISHED DURING INTERNSHIP

Internship gave me an insight into the working of real corporate world. The company

where I have done my internship is named Hetero Drugs Ltd., and it is a pharmaceutical

company. Before my internship began, my guide had a talk with me and described what kind of

an internship it is going to be and he guided me for the whole 8 weeks of my internship. I did my

internship on working capital management. It helped me to know how the analysis is being done

by comparing the balance sheets of 3 subsequent years. One needs to really know what finance is all

about and how much it is important for the companys smooth functioning.

3.1. ROLES AND RESPONSIBILITIES:

3.1.1 Co-coordinating with the guide

3.1.2 Collecting information related to my project

3.1.3 During the period of internship, I was supposed to thoroughly go through the financial

statements of the company and understand the aspects and concepts involved in it

3.1.4 Asking questions to the staff to get know more about the company, how the company is

going on and how they are setting prices

3.1.5 It was my duty and responsibility for completing the assigned work accurately and in

the given time

3.2. TASK HANDLED:

I did my internship in working capital management. My main aim was to collect all the requisite

information that are essential for this project for that I had gone through some basic steps.

In the 1st week of my internship I had gone through the introduction about the company, it includes the company vision, mission and organizational structure of the company

I learned about book keeping procedure and preparation of financial statements

I got to know about how finance department has relationship with other departments

Study of how Working capital Management helps in taking the Financial decisions of the company

Preparation of statement changes in the working capital management of the company from the past 3 years

Computerization of the manual record

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3.3. CONTRIBUTION TO THE ORGANIZATION

As an intern the contribution to organization is that I studied the funds requirement of the company and suggested that the company can issue the shares to the public, so they can

raise money at lower cost.

I prepared and submitted a documentation to the organization based on my observation, in that documentation I had given suggestions to the organization regarding to their

current assets and current liabilities

3.4 LEARNINGS

I have got clear idea about various aspects of working capital management

In pharmaceutical industry how they handle current assets and current liabilities

Internship gave me an insight into the working of real corporate world

I got an opportunity to apply my theoretical knowledge in the practical world

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CHAPTER 4

ANALYSIS OF THE RESEARCH UNDERTAKEN

Working capital may be regarded as life and blood of business. Working capital is needed

to meet the day-to-day requirement of the business unit. The exploitation of working capital

assets is possible only by efficient working capital management. Working capital management

not only shows the financial efficiency of business, but also its credit worthiness, which has

gained importance in these days of credit squeeze. Working capital management is significant in

financial management. It plays a vital role in keeping the wheel of the business running. Every

business requires capital, without it, it cant be promoted. Investment decisions are concerned with investment in current assets and fixed assets. Working capital plays a key role in a business

enterprise just as the role of heart in human body. It acts as grease to run the wheels of fixed

assets. Its effective provision can ensure the success of business, while its inefficient

management can lead not only to loss but also to the ultimate downfall of what otherwise might

be considered as a promising concern. Efficiency of a business enterprise depends largely on its

ability to its working capital. Working capital management is one of the important facts of

affirms overall financial management.

4.1 RESEARCH DESIGN:

4.1.1 STATEMENT OF THE PROBLEM

The study had been taken in the organization for the purpose to know the Working

Capital Management of the company for three years.

4.1.2 OBJECTIVES OF THE STUDY

To understand the working capital management of the Hetero Drugs Ltd.

To study the movement of current assets and current liabilities of the company.

To know the liquidity position of the company by the help of ratio analysis.

To study the sources and uses of the working capital.

4.1.3 SCOPE OF THE STUDY

The training helps in gaining practical knowledge of the functional department of the

organization.

It helps in knowing the real organizational environment.

Training helps the individual to have brief idea of an organization.

It helps to know how they handle or manage the finance.

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4.1.4 METHODOLOGY FOR THE STUDY

The methodology of data collection pertains to how the data is collected i.e. either from

primary sources or secondary sources. It explains the methods utilized and the instruments used

in data collection.

SOURCES OF DATA

The sources of data can be classified in two categories:

Primary sources

Secondary sources

Primary Data

The primary data is that data which is collected fresh or first hand, and for first time

which is original in nature. In this study the Primary data has been collected from Personal

Interaction with Finance manager and my own observation during the internship.

Secondary Data

The secondary data are those which have already collected and stored. We get this data

from records, annual reports of the company etc. It will save the time, money and efforts to

collect the data. The major source of data for this project was collected through annual reports,

profit and loss account and balance sheet of 3 year period from 2012-2014 & some more

information collected from internet and text sources.

4.1.5 LIMITATIONS OF THE STUDY

Primary data is limited.

The study is confined only to period of 3 years.

Time constraint of 8 weeks

The most important limitation of the study is that the study depends on the secondary data

It is difficult to obtain confidential data from the department with a viewpoint of secrecy that the company would like to maintain.

4.2 ANALYSIS OF DATA

4.2.1 WORKING CAPITAL MANAGEMENT

Working capital is the amount of funds necessary to the cost of operating the enterprise.

Pertaining expenses involve investment in current assets, payment towards overhead and

expenses. Investment made in these heads is classified as working capital.

WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITY

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4.2.1.1 CLASSIFICATION OF WORKING CAPITAL:

A) On The Basis of Concepts

Gross Working Capital

Gross working capital is the amount of funds invested in various components of current

assets. Current assets are those assets which are easily / immediately converted into cash within a

short period of time say, an accounting year. Current assets includes Cash in hand and cash at

bank, Inventories, Bills receivables, Sundry debtors, short term loans and advances.

This concept has the following advantages

Financial managers are profoundly concerned with the current assets.

Gross working capital provides the correct amount of working capital at the right time

It enable a firm to realize the greatest return on investment

It helps the fixation of various areas of financial responsibility

It enables a firm to plan and control funds and to maximize the return on investment For these advantages, gross working capital has become a more acceptable concept in financial

management.

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Net Working Capital

This is the difference between current assets and current liabilities. Current liabilities are

those that are expected to mature within an accounting year and include creditors, bills payable

and outstanding expenses.

Working Capital Management is no doubt significant for all firms, but its significance is

enhanced in cases of small firms. A small firm has more investment in current assets than fixed

assets and therefore current assets should be efficiently managed. The working capital needs

increase as the firm grows. As sales grow, the firm needs to invest more in debtors and

inventories. The finance manager should be aware of such needs and finance them quickly.

B) On The Basis of time

Permanent / Fixed Working Capital

Permanent or fixed working capital is minimum amount which is required to ensure

effective utilization of fixed facilities and for maintaining the circulation of current assets. Every

firm has to maintain a minimum level of raw material, work- in-process, finished goods and cash

balance. This minimum level of current assets is called permanent or fixed working capital as

this part of working is permanently blocked in current assets. As the business grow the

requirements of working capital also increases due to increase in current assets.

a) Reserve working capital

At its inception and during the formative period of its operations a company must have

enough cash fund to meet its obligations. The need for initial working capital is for every

company to consolidate its position.

b) Regular working capital

Regular working capital refers to the minimum amount of liquid capital required to keep

up the circulation of the capital from the cash inventories to accounts receivable and from

account receivables to back again cash. It consists of adequate cash balance on hand and at bank,

adequate stock of raw materials and finished goods and amount of receivables.

Temporary / Fluctuating Working Capital

Temporary / Fluctuating working capital is the working capital needed to meet seasonal

as well as unforeseen requirements. It may be divided into two types

.

a) Seasonal Working Capital

There are many lines of business where the volume of operations are different and hence

the amount of working capital vary with the seasons. The capital required to meet the seasonal

needs of the enterprise is known as seasonal Working capital.

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b) Special Working Capital

The Capital required to meet any special operations such as experiments with new

products or new techniques of production and making interior advertising campaign etc., are also

known as special Working Capital.

4.2.1.2 COMPONENTS OF WORKING CAPITAL

The components of working capital are:

Cash management

Receivable management

Inventory management

A) Cash management

Transaction Motive

The firm must and should keep the funds for transactions like purchase, sales etc. These

activities, which are not known in advance, are not considered while preparing a cash budget

Precautionary motive

The firm also keeps funds for the safeguard against uncertainties, which are an integral

part of business operations.

Speculative Motive

To tap profits from opportunities arising from fluctuations in commodity prices, security

prices, interest rates etc. The company with surplus cash is in a better position to exploit such

situations.

B) RECEIVABLES MANAGEMENT

Receivable represents amounts owed to the firm as a result of sale of goods or services on

the ordinary course of business. These are claims of the firm against its customers and form part

of its current assets. These receivables are carried for the customers. The period of credit and

extent of receivables depends upon the credit policy followed by the firm. The main purpose of

maintaining or investing in receivables is to meet competitors, to increase sales, and to maintain

a cordial relationship with the clients

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C) INVENTORY MANAGEMENT

Every enterprise needs inventory for smooth running of its activities. It serves as a link

between production and distribution process. There is, generally a time lag between the

recognition of a need and its fulfillment. The greater the time lag, the higher the requirements for

inventory. The unforeseen fluctuations in demand and supply of goods necessitate the need for

inventory. Moreover, it provides a cushion for future price fluctuations.

Inventory is the list of raw materials, work-in-process, or finished goods have been

waiting to be consumed in production or to be sold. Inventory management involves the control

of the current assets, namely raw materials; work in process and finished goods. The main

objective of inventory management is to minimize the total cost- both direct and indirect, which

are associated with holding the inventories. A reduction in the excessive inventories has a

favorable impact on the companys profitability.

4.2.1.3 ESTIMATION OF WORKING CAPITAL REQIUREMENTS

Managing the working capital is a matter of balance. The firms must have sufficient

funds on hand to meet its immediate needs. The manufacturing oriented organizations are the

following aspects have to be taken into consideration while estimating the working capital

requirements.

They are:

Total cost incurred on material, wages and overheads.

The length of time for which raw material are to remain in store before

The length of production cycle or work in progress, i.e., the time taken for conversion of raw material into finished goods

The length of sales cycle during which finished goods to be kept waiting for sales

The average period of credit allowed to customers

The amount of cash required to day to day expenses of the business

The average amount of cash required to make advance payments

The time lag in the payment of wages and other expenses

4.2.1.4 NEED FOR WORKING CAPITAL

The needs for the working capital cannot be once emphasized. Every business need some

amount of working capital. The need for working capital arises due to the time gap between

production and realization of cash form sales. Therefore Working Capital required for:

To meet the cost of inventories including total of raw materials purchased parts, operating supplies, work in progress, finished goods.

To pay wages, salaries, for indirect labor, clerical staff, managerial and supervision staff.

To meet overhead costs, including those of maintenance services activities, fuel, power charges, taxes and general expenses administration.

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4.2.1.5 IMPORTANCE OF WORKING CAPITAL

Solvency of the business: Adequate working capital helps in maintain the solvency of the

business by providing uninterrupted of production.

Good will: Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the good will.

Easy loans: Adequate working capital leads to high solvency and credit standing can arrange

loans from banks and other on easy and favorable terms.

Cash discounts: Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost.

Regular supply of raw materials: Sufficient working capital ensures regular supply of raw

material and continuous production

.

Regular payment of salaries, wages and other day to day commitments: It leads to the

satisfaction of the employees and raises the morale of its employees, increases their efficiency,

reduce wastages and costs and enhances production and profits

Exploitation of favorable market conditions: If a firm is having adequate working capital then

it can exploit the favorable market conditions such as purchasing its requirements in bulk when

the prices are lower and holdings its inventories of higher prices.

4.2.1.6 ADEQUACY OF WORKING CAPITAL

Working capital should be adequate so as to protect a business from the adverse effects of

shrinkage in the values of current assets. It ensures to a greater extent the maintenance of a

companys credit standing and provides for such emergencies as strikes, floods, fire etc. It permits the carrying of inventories at a level that would enable a business to serve satisfactorily

the needs of its customers. It enables a company to operate its business more efficiently because

there is no delay in obtaining materials etc.; because of credit difficulties.

4.2.1.7 INADEQUATE OF WORKING CAPITAL

When working capital is inadequate, a company faces many problems. It stagnates the

growth and it becomes difficult for the firm to undertake profitable projects for non-availability

of working capital funds. Difficulty in implementing operating plans and achieving the firms profit targets. Operating inefficiencies creep in when it becomes difficult even to meet day-to-

day commitments. Fixed assets are not utilized efficiently thus the firms profitability would deteriorate. Paucity of working capital funds renders the firm unable to avail attractive credit

opportunities. The firm loses its reputation when it is not in a position to honor it short-term

obligations thereby leading to tight credit terms.

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4.2.1.8 DANGERS OF EXCESSIVE WORKING CAPITAL

Too much working capital is as dangerous as too little of it. Excessive working capital raises

problems.

It results in unnecessary accumulation of inventories. Thus chances of inventory mishandling, waste, theft and losses increase.

Indication of defective credit policy and slack collection period. Consequently, it results in higher incidence of bad debts, adversely affecting profits, Makes the management

complacent which degenerates in to managerial inefficiency.

The tendencies of accumulating inventories to make a speculative profit, which tends to liberalize the dividend policy, make it difficult for the concern to cope in the future when

it is not able to make speculative profits.

4.2.1.9 WORKING CAPITAL FINANCING POLICIES

The financing of working capital is very crucial to management of working capital as it

makes a significant impact on the firms profitability and liquid position. There can be three possible approaches to working capital financing.

Conventional approach

Conservative approach

Aggressive approach

A) Conventional approach

As per this approach, the duration of requirement of funds should be matched with the

duration of the resources financing. That is the fixed assets must be financed by long term

sources of finance and the temporary current assets alone should be financed by short term

sources of funds.

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B) Conservative approach:

This approach favors maximum reliance on long-term sources of financing. That is the

fixed assets, permanent current assets and temporary current assets are financed by long term

sources of funds.

C) Aggressive approach:

Aggressive approach to working capital financing favors maximum reliance on short-

term sources for working capital financing. The working capital financing policy of a firm is said

to be aggressive if it finances a part of its permanent working capital requirements from short

term sources.

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4.2.1.10 COMPUTATION OF WORKING CAPITAL FOR 3 YEARS

Table 4.1: Computation of working capital management of hetero drugs limited from 2013-

14

Particulars 31-mar-2013

(in Mn.,)

31-mar-2014

(In Mn.,)

Change in working capital

(In Mn.,)

1.Current Assets Increase Decrease

Inventories 3206.21 3405.30 199.09

Trade receivables 4027.56 3485.05 542.51

Cash and bank balance 72.43 201.37 128.94

Short term loans and

advances

162.28 232.42 70.14

Other current assets 563.33 606.14 42.81

Gross Working

Capital (A)

8031.81 7930.28

2.Current Liabilities

Short term borrowings 3211.33 3642.89 431.56

Trade payables 1812.19 1309.37 502.82

Other current liabilities 1702.11 1273.41 428.70

Short term provisions 42.89 39.01 3.88

Total current

liabilities (B)

6768.52 6264.68

Net working capital

(A-B)

1263.29 1665.60

Increase/decrease in

working capital

402.31 402.31

Total

1665.60 1665.60 1376.38 1376.38

Analysis:

There is a significant increase in net working capital, which amounts to 402.31 million.

There is a noticeable increase in net working capital due to increase in cash& bank balances and

inventories. The increase in cash amounts to 128.94 million and inventories amounts to

199.09million. A positive growth is observed in loans and advances and other current assets. The

net affect of the above changes has brought about the increase in working capital.

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Table 4.2: Computation of working capital management of hetero drugs limited from

2012-13


(In Mn.,)

31-mar-2013

(In Mn.,)


(In Mn.,)

1.current assets Increase Decrease

Inventories 2223.29 3206.21 982.92


Cash and bank

balance

85.72 72.43 13.29


advances

165.90 162.28 3.62


Gross working

capital (A)

7321.66 8031.81

2.current liabilities

Short term

borrowings

3520.31 3211.33 308.98

Trade payables 701.22 1812.19 1110.97

Other current

liabilities

1245.54 1702.11 456.57


Total current

liabilities (B)

5486.19 6768.52

Net working capital

(A-B)

1835.47 1263.29

Increase/decrease

working capital

572.18 572.18

Total

1835.47 1835.47 1994.44 1994.44

Analysis:

There is a significant decrease in net working capital, which amounts to 572.18 million.

There is a noticeable decrease in net working capital due to decrease in cash & bank balances.

The decrease in cash amounts to 13.29 million and increase in trade payables amounts to

1110.97million which leads to increase current liabilities. A negative growth is observed in loans

and advances and positive growth on other current assets. The net affect of the above changes

has brought about the decrease in working capital.

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Table: 4.3 Computation of working capital management of hetero drugs limited from 2011-

12


(In lakhs)

31-mar-2012

(In lakhs)


(In lakhs)

1.current assets Increase Decrease

Inventories 23,781.92 22232.86 1549.06

Trade receivables 39,486.86 44137.76 4650.90

Cash and bank

balance

3842.14 857.21 2984.93


advances

1196.30 1659.14 462.84


Gross working

capital

73,302.35 74110.70


Short term

borrowings

33,539.89 31378.53 2161.36

Trade payables 6809.18 10836.73 4027.55

Other current

liabilities

13188.98 12586.07 602.91

Short term provisions 544 945.46 401.46

Total current

liabilities

54082.05 55746.79

Net working capital 19220.30 18363.91

Increase in working

capital

856.39 856.39

Total 19220.30 19220.30 8963 8963

Analysis:

There is a significant increase in net working capital, which amounts to 856.39 lakhs.

There is a noticeable increase in trade payables which amounts to 4650.90 lakhs and noticeable

decrease in trade payables which amounts to 4027.55 lakhs. The decrease in inventories amounts

to 1549.06.A positive growth is observed on loans and advances and current assets.

of 62

Table: 4.4 Working capital of hetero drugs of various years in lakhs

Particulars 2011-12 2012-13 2013-14

1.current assets

Inventories 22232.86 3206.21 3405.30


Cash and bank

balance

857.21 72.43 201.37


advances

1659.14 162.28 232.42


Gross working

capital (A)

74110.70 8031.81 7930.28


Short term

borrowings

31378.53 3211.33 3642.89

Trade payables 10836.73 1812.19 1309.37

Other current

liabilities

12586.07 1702.11 1273.41


Total current

liabilities (B)

55746.79 6768.52 6264.68

Net working capital

(A-B)

18363.91 1263.29

of 62

4.2.1.10 GRAPHICAL REPRESENTATION OF DATA

NET WORKING CAPITAL OF HETERO DRUGS LIMITED 2012-14

Table: 4.5 Net Working Capital

Year 2012 2013 2014

Working capital

(in lakhs)

18363.91 12632.9 16656

Fig: 4.1 Net Working Capital

Interpretation:

Positive working capital means that the company is able to pay of its short-term

liabilities. By analyzing the above three years data, there is decrease in working capital in 2012-

13 & sudden growth in 2014, which seems to be there is a fluctuation in working capital.

Therefore it affects the growth of the company.

18363.91

12632.9

16656

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2012 2013 2014

Net

wo

rkin

g c

ap

ita

l(in

lak

hs)

Years

of 62

Gross Working Capital:

Table: 4.6 Gross Working Capital

Year 2012 2013 2014

Gross working

capital (in lakhs)

74119.70 80318.1 79302.8

Fig: 4.2 Gross working capital

Interpretation:

By observing above three years data, there is a sudden increase in gross working capital

in the year 2012-13 and gradually decrease in 2014. The Company is maintaining gross working

capital higher than the liabilities so the company is able to pay off its liabilities and it maintains

positive networking capital

74119.7

80318.1

79302.8

71000

72000

73000

74000

75000

76000

77000

78000

79000

80000

81000

2012 2013 2014

Gro

ss w

ork

ing

cap

ital

(in

lak

hs)

Years

of 62

Inventory Analysis

Inventory means stock of three things:-

1. Raw materials

2. Semi-finished goods.

3. Finished goods.

Table: 4.7 Inventory Analysis

Year 2012 2013 2014

Inventory (in lakhs) 22232.86 32062.1 34053

Fig: 4.3 Inventory Analysis

Interpretation:

By observing above three years data, there is a continuous increase in inventory. It can be

seen that inventories are increased from 22232.86lakhs to 34053lakhs from the year 2012-14. By

seeing these pattern we can say that the company is managing the inventories according to sales.

The company have great demand for drugs in 2014 but amount is blocked in inventories.

22232.86

32062.134053

0

5000

10000

15000

20000

25000

30000

35000

40000

2012 2013 2014

Inv

ento

ry (

in l

ak

hs)

Years

of 62

Trade Receivables

Trade receivable is an important component of working capital and fall under current

assets. Trade receivables will arise only when credit sales are made.

Table: 4.8 Trade Receivables

Year 2012 2013 2014

Trade receivables

(in lakhs)

44137.76 40275.6 34850.5

Fig: 4.4 Trade Receivables

Interpretation:

From the above data, there is significant decrease in trade receivables from the year

2012-14.by seeing the above data we can say that they were made the cash sales, so company has

equity cash as there is a decrease in debtors.

44137.76

40275.6

34850.5

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

2012 2013 2014

Tra

de

Rec

eivab

les(

in l

ak

hs)

Years

of 62

Cash and Bank Balances:

Cash is called the most liquid asset a vital current assets, it is an important component of

working capital. In a narrow sense, cash includes notes, bank draft, cheque etc. while in a

broader sense it includes near cash assets such as marketable securities and time deposits with

bank.

Table: 4.9 Cash and Bank Balances

Year 2012 2013 2014

Cash and bank

balances (in lakhs)

857.21 724.3 2013.7

Fig: 4.5 Cash and Bank Balances

Interpretation:

From the above three years there is a slight decrease in cash from the year 2012-13 and

the cash increased from 724.3 lakhs to 2013.7 lakhs from the year 2013-14. The company has

liquidity cash.

857.21724.3

2013.7

0

500

1000

1500

2000

2500

2012 2013 2014

Ca

sh a

nd

ba

nk

ba

lan

ce(i

n l

ak

hs)

Years

of 62

Short Term Loans and Advances:

Loans and Advances here refers to any to amount given to different parties, company,

employees for a specific period of time and in return they will be liable to make timely

repayment of that amount in addition to interest on that loan.

Table: 4.10 Short Term Loans and Advances

Year 2012 2013 2014


advances (in lakhs)

1659.14 1622.8 2324.2

Fig: 4.6 Short Term Loans and Advances

Interpretation:

If we analyze the table and the chart we can see that the rate of giving loans has increased

from 2012-2014. The increasing pattern shows that company is giving advances for the raw

materials, expansion of plants and machinery which is good sign for better production. Although

companys cash is blocked.

1659.14 1622.8

2324.2

0

500

1000

1500

2000

2500

2012 2013 2014

sho

rt t

erm

lo

ans

and

adv

ance

s(in

lak

hs)

Years

of 62

Other Current Assets:

Other current assets is a default classification of "current asset" general ledger accounts

that does not include the following major current assets: Cash, Marketable securities, Accounts

receivable, Inventory, Prepaid expenses

Ex: Cash surrender value of life insurance policies, Advances paid to suppliers, Advances paid to

employees

Table: 4.11 other current assets

Year 2012 2013 2014

Other current

assets(in lakhs)

5223.73 5633.3 6061.4

Fig: 4.7 Other Current Assets

Interpretation:

From the above there is increase in other current assets i.e. 2012-14. Other current assets

means advance rent or advance tax which is beneficial and these can be deducted when we are

paying actuals.

5223.73

5633.3

6061.4

4800

5000

5200

5400

5600

5800

6000

6200

2012 2013 2014

Oth

er c

urr

ent

ass

ets(

in l

ak

hs)

Years

of 62

Current Labilities:

Current abilities are any liabilities that are incurred by the firm on a short term basis or

current liabilities that has to be paid by the firm with in one year.

Table: 4.12 current liabilities

Year 2012 2013 2014


Trade payables 10836.73 18121.9 13093.7

Other current

liabilities

12586.07 17021.1 12734.1


Total

55746.79 67685.2 62646.8

Fig: 4.8 Current Liabilities

Interpretation:

From the above data, there is an increase in current liabilities in the year 2012-13 and

slight decrease in 2014. It affects companys growth due to sudden increase in liabilities. The decrease in current liabilities create good will in the market and it indicates that the company has

liquidity cash

55746.79

67685.262646.8

0

10000

20000

30000

40000

50000

60000

70000

80000

2012 2013 2014

Cu

rren

t la

ibil

itie

s(in

la

kh

s)

Years

of 62

Short Term Borrowings

This account is comprised of any debt incurred by a company that is due within one year.

The debt in this account is usually made up of short-term bank loans taken out by a company.

Table: 4.13 Short Term Borrowings

Year 2012 2013 2014

Short term

borrowings (in

lakhs)

31378.53 32113.3 36428.9

Fig: 4.9 Short Term Borrowings

Interpretation:

From the above data there is increase in short term borrowings from 31378.53lakhs to

36428.9 lakhs from the year 2012-14. The company liabilities also increasing due to increase in

short term borrowings.

31378.5332113.3

36428.9

28000

29000

30000

31000

32000

33000

34000

35000

36000

37000

2012 2013 2014

Sh

ort

ter

m b

orr

ow

ing

s

(in

la

kh

s)

Years

of 62

Trade Payables

Creditors or trade payable is an important component of working capital and fall under

Current liability. Trade payable will arise only when credit purchases are made.

Table: 4.14 Trade Payables

Year 2012 2013 2014

Trade payables (in

lakhs)

10836.73 18121.9 13093.7

Fig: 4.10 Trade payables

Interpretation:

From the above data there is sudden increase in trade payables (creditors) from the year

2012-2013 and sudden decrease in 2014. A simple logic is that creditors increase only when

credit purchase increase and if purchase increase on credit is not good for company. Decrease in

trade payables is a good sign for growth.

10836.73

18121.9

13093.7

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2012 2013 2014

Tra

de

Pa

ya

ble

s(in

la

kh

s)

Years

of 62

Other Current Liabilities

Other current liabilities reported on the balance sheet are sales tax, income tax, payroll,

and customer advances

Table: 4.15 Other Current Liabilities

Year 2012 2013 2014

Other current

liabilities (in lakhs)

12586.07 17021.1 12734.1

Fig: 4.11 Other Current Liabilities

Interpretation:

By observing the above data there is increase in other current liabilities i.e... Outstanding

expenses in the year 2012-2013 and decrease in 2014. This leads to companys liabilities increases which affects the growth of the company.

12586.07

17021.1

12734.1

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2012 2013 2014

Oth

er c

urr

ent

lia

bil

itie

s(in

lak

hs)

Years

of 62

Short Term Provisions

In financial accounting, a provision is an account which records a present liability of an

entity. The recording of the liability in the entity's balance sheet is matched to an appropriate

expense account in the entity's income statement.

Table: 4.16 Short Term Provisions

Year 2012 2013 2014

Short term

provisions

945.46 428.9 390.1

Fig: 4.12 Short Term Provisions

Interpretation:

From the above table we can see that provision shows a decreasing trend and the huge

amount is being diverted from these provisions to other facilities. Though the profits of the

company are increased income tax is also increased, yet the advance payments of taxes has been

reduced, other provisions are for the benefit of employees and public.

945.46

428.9390.1

0

100

200

300

400

500

600

700

800

900

1000

2012 2013 2014

Sh

ort

ter

m p

rovis

ion

s(in

lak

hs)

Years

of 62

4.2.2 RATIO ANALYSIS:

The financial statement of a company contains a lot of information about the financial

performance of the company. Financial statements mainly consist of the Balance Sheet and Profit and

Loss Accounts. These statements give the overall picture of the company, but to analyses each aspect

of business extensively, financial ratios are used. The Balance Sheet and the Statement of Income are

essential, but they are only the starting point for successful financial management. Financial Ratio

Analysis derived from Financial Statements analyses the success, failure, and progress of business.

Ratio Analysis is a very powerful analytical tool useful for measuring the performance of an

organization. The ratio analysis concentrates on the interrelationship among the figures appearing in

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