Description
document compares Ranbaxy and Cipla on the basis of profitability analysis, liquidity analysis, solvency analysis and their business.
Competitor Comparison (Ranbaxy Vs Cipla ) Business Comparison
Daiichi-Sankyo-owned Ranbaxy Laboratories has been edged out by Cipla as the largest player in the domestic pharmaceutical market in the January-November period. Cipla regained its numero uno position in the Rs 33,000-crore domestic retail market with 5.32 per cent market share, marginally ahead of Ranbaxy, which had 5.08 per cent share. Currently, Cipla sells 1,085 brands for various diseases in India, way ahead of 729 drugs sold by Ranbaxy, according to informed trade sources. Cipla overtook Ranbaxy and GlaxoSmithKline India (GSK) to become the largest pharmaceutical company in the domestic market for the first time in May 2007.
CIPLA ASTHALIN SEROFLO NOVAMOX MT PILL AEROCORT Total
Rs.Cr 94.7 82.9 73.3 60.2 58.3 369.4
RANBAXY MOX REVITAL SPORIDEX CIFRAN STORVAS Total
Rs. cr 109.3 88 .0 82.1 76.9 72.8 429
Number of products, scale of operations with over 2,500 medical representatives, market reach and focus on high-value products help both companies dominate domestic drug sales. Both companies are aggressively marketing high-value drugs for lifestyle diseases as well as drugs for anti-infection. Both also have well spread out large marketing teams and systems. Neither Ranbaxy nor Cipla own any topselling drug brands in India and except for Ranbaxy’s Mox, none of their brands figure among the over Rs 100-crore turnover brands. Market reflections, cough and cold syrup Corex of Pfizer is the leader followed by Voveran — the flagship pain-killer drug of Novartis India. Generic pharmaceutical companies cannot afford to lose out on any specific segments and in this way both companies aggressively market their products, especially by year end to clear their inventories. Traditionally, Ranbaxy concentrates on selling new drug delivery systems such as once-a-daily dosages and have strength in anti-infectants. Similarly, Cipla has strength in anti-HIV drugs, respiratory disease drugs and contraceptives. Both companies also have a good portfolio of over the counter drugs, he noted. Chronic therapy drugs for diseases such as diabetes and heart diseases contribute almost one-fourths to Ranbaxy’s total sales. In the case of cardiovascular and anti-diabetics- drugs, Ranbaxy is growing at over 33 per cent and 24 per cent respectively, as against an industry average of 15 per cent and 16 per cent respectively. The company is also the market leader in anti-infection segment with over 11 per cent
market share. Further, five of its brands figure in the top-selling 30 drugs in the domestic market and 18 brands figure in the top 300. Among new launches, Ranbaxy has four products in the top 30 new introductions during the last one year. As against this, Cipla’s domestic sales stood at Rs 591.27 crore for the quarter ended September 2008, 16 per cent more than the figures for the corresponding previous year, and 44 per cent of the total sales for the quarter. In the 2007-08 period alone, the company introduced close to 25 drugs, more than double the number of drugs pharmaceutical companies usually launch in a year. This included the widely advertised women contraceptive, i-Pill.
Financial comparison
For financial comparison few key financial ratios of Ranbaxy, Cipla and the industry have been used as the parameters.
Profitability Analysis 1. Adjusted Profit after tax margin:
It is an indicative of the ability of the company to operate the business with sufficient success not only to recover from the revenues, the cost of merchandise, operating expenses and cost of borrowed funds but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. It expresses the cost – price effectiveness of the operation. The net profit margin of Ranbaxy is more than the industry average but less than that of Cipla. This indicates that it needs to make its operations more cost efficient. Industry Ranbaxy Cipla 10.87 13.79 17.16
2. Operating Margin:
Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as raw materials, wages, and sales and marketing costs. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt. The higher the margin, the better it is for the company as it indicates its operating efficiency. The figures show that Ranbaxy’s operational efficiency is well above the industry average and the competitors have almost equal operating margin. Industry 15.69 Ranbaxy 19.37 Cipla 20.95
3. Return on capital employed:
ROCE is an important tool to assess a company's potential to be a quality investment by determining how well the management is able to allocate capital into its operations for future growth. It provides a test of profitability related to sources of long term funds. The figures clearly show that Ranbaxy needs to make investments in project which yield higher to become the market leader. Industry 14.44 Ranbaxy 15 Cipla 22.31
Liquidity Analysis 1. Current ratio:
Current ratio measures the short term solvency of a company. The higher the current ratio the higher is the firm’s ability to meet its short term obligation. Ranbaxy has a better short term liquidity position compared to the industry and Cipla. Industry 1.58 Ranbaxy 0.98 Cipla 2.66
2. Inventory turnover ratio:
This ratio shows how fast the inventory is moving through the firm and generating sales. Ranbaxy has to improve its sales and distribution to increase its inventory turnover. Industry 5.02 Ranbaxy 4.64 Cipla 3.9
3.Debtors turnover ratio:
This ratio measures how rapidly receivables are collected. Higher the ratio better is the liquidity of the firm. Ranbaxy has a better debtor turnover than the industry and Cipla. Industry 4.53 Ranbaxy 4.72 Cipla 3.38
Solvency Analysis 1) Debt equity ratio:
This ratio reflects the relative claims of the creditors and shareholders against the assets of the firm. A highly leveraged business is the first to get hit during times of economic downturn, as companies have to consistently pay interest costs, despite lower profitability. A debt to equity ratio of greater than 1 is a high-risk proposition. Ranbaxy’s DE ratio is greater than one. Its more leveraged than the industry itself. It has do some capital restructuring to reduce its debt burden. Industry 0.98 Ranbaxy 1.37 Cipla 0.1
2) Interest coverage ratio:
It is used to determine how comfortably a company is placed in terms of payment of interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expense for a given period. The lower the ratio, the greater are the risks. Cipla has a very favorable Interest coverage ratio which shows that it manages its debt repayments very well. Ranbaxy is well above the industry average but lagging behind its competitor. So it should try to increase its ratio to improve its solvency position. Industry 5.82 Ranbaxy 9.29 Cipla 47.45
Recommendations
1) The company has to improve its profitability position vis a vis its competitor Cipla in order to become the market leader. 2) Liquidity position of the company is poor compared to that of its Cipla. Ranbaxy has to manage its short term obligations and receivables more efficiently. 3) A strong solvency position is necessary to increase the investors’ confidence in the company and to get more external investments for future projects. Ranbaxy has a weaker solvency position than Cipla. So it has to improve its solvency.
doc_642043961.docx
document compares Ranbaxy and Cipla on the basis of profitability analysis, liquidity analysis, solvency analysis and their business.
Competitor Comparison (Ranbaxy Vs Cipla ) Business Comparison
Daiichi-Sankyo-owned Ranbaxy Laboratories has been edged out by Cipla as the largest player in the domestic pharmaceutical market in the January-November period. Cipla regained its numero uno position in the Rs 33,000-crore domestic retail market with 5.32 per cent market share, marginally ahead of Ranbaxy, which had 5.08 per cent share. Currently, Cipla sells 1,085 brands for various diseases in India, way ahead of 729 drugs sold by Ranbaxy, according to informed trade sources. Cipla overtook Ranbaxy and GlaxoSmithKline India (GSK) to become the largest pharmaceutical company in the domestic market for the first time in May 2007.
CIPLA ASTHALIN SEROFLO NOVAMOX MT PILL AEROCORT Total
Rs.Cr 94.7 82.9 73.3 60.2 58.3 369.4
RANBAXY MOX REVITAL SPORIDEX CIFRAN STORVAS Total
Rs. cr 109.3 88 .0 82.1 76.9 72.8 429
Number of products, scale of operations with over 2,500 medical representatives, market reach and focus on high-value products help both companies dominate domestic drug sales. Both companies are aggressively marketing high-value drugs for lifestyle diseases as well as drugs for anti-infection. Both also have well spread out large marketing teams and systems. Neither Ranbaxy nor Cipla own any topselling drug brands in India and except for Ranbaxy’s Mox, none of their brands figure among the over Rs 100-crore turnover brands. Market reflections, cough and cold syrup Corex of Pfizer is the leader followed by Voveran — the flagship pain-killer drug of Novartis India. Generic pharmaceutical companies cannot afford to lose out on any specific segments and in this way both companies aggressively market their products, especially by year end to clear their inventories. Traditionally, Ranbaxy concentrates on selling new drug delivery systems such as once-a-daily dosages and have strength in anti-infectants. Similarly, Cipla has strength in anti-HIV drugs, respiratory disease drugs and contraceptives. Both companies also have a good portfolio of over the counter drugs, he noted. Chronic therapy drugs for diseases such as diabetes and heart diseases contribute almost one-fourths to Ranbaxy’s total sales. In the case of cardiovascular and anti-diabetics- drugs, Ranbaxy is growing at over 33 per cent and 24 per cent respectively, as against an industry average of 15 per cent and 16 per cent respectively. The company is also the market leader in anti-infection segment with over 11 per cent
market share. Further, five of its brands figure in the top-selling 30 drugs in the domestic market and 18 brands figure in the top 300. Among new launches, Ranbaxy has four products in the top 30 new introductions during the last one year. As against this, Cipla’s domestic sales stood at Rs 591.27 crore for the quarter ended September 2008, 16 per cent more than the figures for the corresponding previous year, and 44 per cent of the total sales for the quarter. In the 2007-08 period alone, the company introduced close to 25 drugs, more than double the number of drugs pharmaceutical companies usually launch in a year. This included the widely advertised women contraceptive, i-Pill.
Financial comparison
For financial comparison few key financial ratios of Ranbaxy, Cipla and the industry have been used as the parameters.
Profitability Analysis 1. Adjusted Profit after tax margin:
It is an indicative of the ability of the company to operate the business with sufficient success not only to recover from the revenues, the cost of merchandise, operating expenses and cost of borrowed funds but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. It expresses the cost – price effectiveness of the operation. The net profit margin of Ranbaxy is more than the industry average but less than that of Cipla. This indicates that it needs to make its operations more cost efficient. Industry Ranbaxy Cipla 10.87 13.79 17.16
2. Operating Margin:
Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as raw materials, wages, and sales and marketing costs. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt. The higher the margin, the better it is for the company as it indicates its operating efficiency. The figures show that Ranbaxy’s operational efficiency is well above the industry average and the competitors have almost equal operating margin. Industry 15.69 Ranbaxy 19.37 Cipla 20.95
3. Return on capital employed:
ROCE is an important tool to assess a company's potential to be a quality investment by determining how well the management is able to allocate capital into its operations for future growth. It provides a test of profitability related to sources of long term funds. The figures clearly show that Ranbaxy needs to make investments in project which yield higher to become the market leader. Industry 14.44 Ranbaxy 15 Cipla 22.31
Liquidity Analysis 1. Current ratio:
Current ratio measures the short term solvency of a company. The higher the current ratio the higher is the firm’s ability to meet its short term obligation. Ranbaxy has a better short term liquidity position compared to the industry and Cipla. Industry 1.58 Ranbaxy 0.98 Cipla 2.66
2. Inventory turnover ratio:
This ratio shows how fast the inventory is moving through the firm and generating sales. Ranbaxy has to improve its sales and distribution to increase its inventory turnover. Industry 5.02 Ranbaxy 4.64 Cipla 3.9
3.Debtors turnover ratio:
This ratio measures how rapidly receivables are collected. Higher the ratio better is the liquidity of the firm. Ranbaxy has a better debtor turnover than the industry and Cipla. Industry 4.53 Ranbaxy 4.72 Cipla 3.38
Solvency Analysis 1) Debt equity ratio:
This ratio reflects the relative claims of the creditors and shareholders against the assets of the firm. A highly leveraged business is the first to get hit during times of economic downturn, as companies have to consistently pay interest costs, despite lower profitability. A debt to equity ratio of greater than 1 is a high-risk proposition. Ranbaxy’s DE ratio is greater than one. Its more leveraged than the industry itself. It has do some capital restructuring to reduce its debt burden. Industry 0.98 Ranbaxy 1.37 Cipla 0.1
2) Interest coverage ratio:
It is used to determine how comfortably a company is placed in terms of payment of interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expense for a given period. The lower the ratio, the greater are the risks. Cipla has a very favorable Interest coverage ratio which shows that it manages its debt repayments very well. Ranbaxy is well above the industry average but lagging behind its competitor. So it should try to increase its ratio to improve its solvency position. Industry 5.82 Ranbaxy 9.29 Cipla 47.45
Recommendations
1) The company has to improve its profitability position vis a vis its competitor Cipla in order to become the market leader. 2) Liquidity position of the company is poor compared to that of its Cipla. Ranbaxy has to manage its short term obligations and receivables more efficiently. 3) A strong solvency position is necessary to increase the investors’ confidence in the company and to get more external investments for future projects. Ranbaxy has a weaker solvency position than Cipla. So it has to improve its solvency.
doc_642043961.docx