Description
Financial Analysis: Biocon & Panacea Biotech
Management Accounting
Biotechnology Sector Companies - Biocon & Panacea Biotech
1/31/2013
1
Biotech Sector Introduction
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Moderate performance in the recent past Rising raw material cost and competition Chinese production Currency fluctuations
2
?
?
?
1/31/2013
Industry Sales Growth over years
Industry growth - Sales
2,500.00 2,043.70 2,000.00 1,500.00 1,000.00 500.00 0.00 2007 2006 2005 2004 2003 2002 2001 2000 1,515.58 1,270.82 995.52 715.76 536.19 286.92 220.62
1/31/2013
3
Market Share of Biotech Companies
1/31/2013
4
Co. A - Biocon
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?
?
?
Incorporated in 1978 as a JV between Biocon Biochemicals of Italy and Kiran Mazumdar Shaw. Business model spans entire drug value chain from pre clinical discovery to clinical development. Subsidiaries abroad namely – Syngene International Ltd. And Clinigene International Ltd. Listed on the exchange in April 2003.
5
1/31/2013
Co. B – Panacea Biotech Ltd.
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?
? ?
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Incorporated in February 1984. Became a public limited company in July 1993 Engaged in manufacturing, marketing and export of formulations and viral vaccines Radicura & Co Ltd and Best On Health Ltd are its subsidiaries 2 plants in New Delhi, 1 each in Punjab and Himachal Pradesh
6
1/31/2013
Sales Turnover
Sales Turnover
1000 800 600 400 200 0 M ar 07 M ar 06 M ar 05 M ar 04 M ar 03 B i ocon P anacea B i ot ech
1/31/2013
7
Analysis of Financials
1. 2. 3. 4. 5. Short term Investment Long term Investment Short term Lending Long term Lending Management
Note: Analysis based on data upto FY 2007.
1/31/2013 8
Short term Investment Perspective
Ratios considered : a) P/E Ratio b) PEG Ratio c) Beta d) Price to Book Value
1/31/2013
9
a) P/E Ratio
? ? ?
?
?
Valuation of the Company compared to its peers Average P/E Ratio of Industry – 40 Both have P/E less than industry average Both are relatively undervalued Panacea has lower P/E which has fallen sharply, implying higher chances of increase in share prices in the short term.
Mar 07 Biocon Panacea Biotech 31.67 19.07
Mar 06 34.32 39.69
Mar 05 23.79 28.61
Mar 04 16.37
Mar 03 7.68
EPS 40 30 20 10 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Panacea Biotech Biocon
1/31/2013
10
b) PEG Ratio
Mar 07
Biocon Panacea Biotech 26.85 8.49
Mar 06
45.30 17.10
Mar 05
17.11 17.73
Mar 04
22.06
Mar 03
92.68
?
? ? ? ?
Better indicator of Stock Rating as it not only considers tha P/e ratio, but also the growth rate of the EPS. When P/e value is lower, stock is undervalued and means that there is a high probability of short term increase in valuation Higher the growth rate of EPS, better are the short term prospects of the stock In either case, a lower value of PEG ratio signifies better short term prospects of the stock. Panacea’s PEG ratio has recently dipped heavily, hence making it a good short term prospect for high gains assuming a high risk appetite.
11
1/31/2013
c) Beta
?
?
?
Measures volatility in the price of a share with respect to the market index Higher beta value implies a greater volatility and higher chance of profits. Panacea Biotech has a higher Beta so it has a better potential to generate higher returns
Beta Biocon Panacea biotech Ltd.
Share Price
600 500 400 300 200 100 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biotech
0.5249 0.6513
1/31/2013
12
d) Price to book value
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?
?
Compares market price to the value of a share as per the books of Accounts of the Company Indicator of Stock valuation. Higher the ratio signifies more the stock is overvalued. Biocon has a stable ratio but Panacea had a high ratio in March 06.
Mar 07
Mar 06 5.56 13.73
Mar 05 5.88 5.47
Mar 04
Mar 03
Biocon
Panacea Biotech
5.16 5.07
2.21
1.52
Book V alue
200
150 Panacea Bi otech 100 Bi ocon 50
0 M ar 07 M ar 06 M ar 05 M ar 04 M ar 03
1/31/2013
13
Conclusion (Short term Investment Perspective)
Parameter P/E Ratio Better Prospect Panacea Biotech Ltd.
PEG Ratio Beta
Price to Book Value Overall
1/31/2013
Panacea Biotech Ltd. Panacea Biotech Ltd.
Panacea Biotech Ltd. Panacea Biotech Ltd.
14
Long term Investment Perspective
Parameters considered :
1. Risk ? Long term debt-equity Ratio ? Interest coverage ratio 2. Returns ? Return on Equity ? Return on Capital Employed ? Dividend payout Ratio 3. Performance
1/31/2013
15
1 a) Long term debt-equity Ratio
Mar 07 Biocon Panacea Biotech 0.05 0.87 Mar 06 0.04 1.13 Mar 05 0.04 0.27 Mar 04 0.09 0.38 Mar 03 0.37 0.57
? ? ? ?
?
Measure of Financial leverage Lower the better, signifies a low risk company Capacity to raise funds by debt Lower debt signifies lower financial charges Biocon far lower debt equity as compared to Panacea Biotech
16
1/31/2013
1 b) Interest Coverage Ratio
? ?
?
?
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Measure of Interest paying capacity Higher the better, signifies a low risk to invest in High Capacity to raise funds by debt Ideally should be more than 1.5 Biocon has better ICR as compared to Panacea Biotech
Mar 07
Biocon Panacea Biotech 21.96 13.26
Mar 06
65.86 8.51
Mar 05
71.08 4.76
Mar 04
60.95 2.56
Mar 03
10.45 3.36
Interest Coverage Ratio
80 70 60 50 40 30 20 10 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biotech
1/31/2013
17
2 a) Return on Equity
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?
?
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Measure of Return generated from shareholders wealth Higher the better, signifies a better return Tells how well the shareholders wealth is being utilized Panacea Biotech produces better returns as compared to Biocon
Mar 07 Biocon 18.18 Panacea Biotech
Mar 06 17.84
Mar 05 28.25
Mar 04 37.5
Mar 03 34.11
41.4
39.87
21.89
14.88
22.22
Shareholders Funds 1000 800 600 400 200 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biotech
1/31/2013
18
2 b) Return on Capital Employed
Mar 07 Biocon Panacea Biotech 18.34 28.47 Mar 06 19.47 18.73 Mar 05 27.8 14.55 Mar 04 37.57 11.76 Mar 03 30.56 22.04
?
? ? ?
Measure of Return generated out of Capital Employed How well the company is utilizing its fixed assets Higher the better, signifies a better use of resources Panacea Biotech produces better returns as compared to Biocon signifies better utilization of Capital
1/31/2013
19
2 c) Dividend Payout Ratio
Measures how well earnings support payment of dividends to shareholders ? Calculated by dividing DPS by EPS ? Tells what part of earnings are being distributed and retained ? Depends on the business model of the Company ? High retention signifies increase in reserves 1/31/2013
?
Mar 07 Biocon 0.20 Panacea Biotech 0.05 0.10 0.36 0.39 0.29 0.19 0.12 Mar 06 Mar 05 Mar 04 Mar 03
Equity Dividend
160 140 120 100 80 60 40 20 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biot ech
20
3) Performance
Fixed Assets turnover Ratio Biocon Panacea Biotech 2.84
?
Mar 07
1.51
Mar 06
2.49 2.96
Mar 05
2.99 2.22
Mar 04
3.1 2.45
Mar 03
1.99 3.86
? ? ? ?
Measures revenue generated per each unit of capital invested in fixed assets Measure of productivity of a firm Tells how efficiently the fixed assets are being utilized Higher ratio signifies better utilization of fixed assets Panacea biotech has a better Performance
21
1/31/2013
Conclusion (Long term Investment Perspective)
Parameter Long term debt equity ratio Interest coverage ratio Return on Equity Better Prospect Biocon Biocon Panacea Biotech Ltd.
Return on Capital Employed Panacea Biotech Ltd.
Dividend Payout Ratio
Fixed Asset turnover ratio Overall
1/31/2013
Biocon
Panacea Biotech Ltd. Biocon
22
Short term Lending Perspective
Parameters considered :
a) b) c) d)
Current Ratio Quick Ratio Interest Coverage Ratio Operating Cycle
1/31/2013
23
a) Current Ratio
?
?
?
?
Measures Company’s ability to pay short term obligations Measure of how well the current liabilities can be paid out of current assets Ideally should be above 1. Higher the better. Biocon has a lower Current Ratio. It can be viewed that Panacea Biotech might not need funds in the short term.
Mar 07 Biocon Panacea Biotech 1.33 2.39
Mar 06 0.97 2.21
Mar 05 1.64 1.74
Mar 04 2.25 1.69
Mar 03 1.18 1.46
Total Current Assets
900 800 700 600 500 400 300 200 100 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biot ech
1/31/2013
24
b) Quick Ratio
Mar 07 Biocon Panacea Biotech 1.67 1.65 Mar 06 1.03 3.95 Mar 05 0.85 1.65 Mar 04 3.61 2.61 Mar 03 1.37 0.71
?
? ?
? ?
Excludes inventory from current assets Better measure of liquidity of a Company Inventory excluded because at times it is very difficult for companies to convert inventory into cash quickly Almost same for both. Comparing current ratio and quick ratio we can find that Panacea Biotech has higher amount of inventory
25
1/31/2013
c) Interest Coverage Ratio
Mar 07 Biocon Panacea Biotech 21.96 13.26 Mar 06 65.86 8.51 Mar 05 71.08 4.76 Mar 04 60.95 2.56 Mar 03 10.45 3.36
?
? ? ?
Measures the ease with which the company can pay interest on borrowed funds Lower ratio signifies company is more burdened by debt Both the companies have a high ICR Biocon has better ratio as compared to Panacea Biotech
1/31/2013
26
d) Operating Cycle
Mar 07 Biocon Panacea Biotech 5 -15 Mar 06 -25 39 Mar 05 -85 156 Mar 04 -41 195 Mar 03 -38 87
?
?
?
?
Measures the efficiency with which the company manages its funds for production Considers raw material, debtors and creditors turnover in days Negative operating cycle suggests cash for additional days Improving for Panacea Biotech and worsening for Biocon
27
1/31/2013
Conclusion (Short term Lending Perspective)
Parameter Current Ratio Better Prospect Biocon
Quick Ratio Interest Coverage Ratio
Operating Cycle Overall
1/31/2013
Biocon
Biocon Biocon
28
Long term Lending Perspective
Parameters considered :
a) b) c) d)
e)
Expansion Plans Capital Structure Growth Model Interest Coverage Ratio Cash flow from Operations
1/31/2013
29
a) Expansion Plans
Mar 07 Biocon Panacea Biotech 746.09 401.05 Mar 06 684.24 233.71 Mar 05 514.83 137.68 Mar 04 198.42 105.46 Mar 03 129.97 96.3
?
? ?
Growth in Net Block + Capital Work in progress Continuous increase implies expansion Biocon investing more in Fixed Assets as compared to Panacea Biotech
1/31/2013
30
b) Capital Structure
Mar 07 Biocon Panacea Biotech 0.05 0.87 Mar 06 0.04 1.13 Mar 05 0.04 0.27 Mar 04 0.09 0.38 Mar 03 0.37 0.57
?
? ? ? ?
Measure of Financial leverage Lower the better, signifies a low risk company Capacity to raise funds by debt Lower debt signifies lower financial charges Biocon far lower debt equity ratio as compared to Panacea Biotech
31
1/31/2013
c) Growth Model
Net worth Mar 07 Biocon Panacea Biotech 891.64 532.51 Mar 06 753.04 154.6 Mar 05 645.94 119.24 Mar 04 491.63 103.9 Mar 03 124.87 94.81
? ?
?
Increase in reserves Dividend payment and retention Expansion Plans
RESERVES
1000 800 600 400 200 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biotech
1/31/2013
32
d) Interest Coverage Ratio
Mar 07 Biocon Panacea Biotech 21.96 13.26 Mar 06 65.86 8.51 Mar 05 71.08 4.76 Mar 04 60.95 2.56 Mar 03 10.45 3.36
?
? ? ?
Measures the ease with which the company can pay interest on borrowed funds Lower ratio signifies company is more burdened by debt Both the companies have a high ICR Biocon has better ratio as compared to Panacea Biotech
1/31/2013
33
e) Cash flow from Operations
Mar 07 Biocon 116.81 155.63 Mar 06 42.07 163.74 Mar 05 155.76 29.77 Mar 04 105.81 -36.41 Mar 03 38.09 -18.18
Panacea Biotech
?
?
?
Measures the actual cash inflow from the operating activities of the Company Higher the Cash flow from operations, the better it is for the company Panacea has better inflows from operations
1/31/2013
34
Conclusion (Long term Lending Perspective)
Parameter Better Prospect
Expansion Plans Capital Structure Growth Model Interest Coverage Ratio
Cash flow from Operations
Biocon Biocon Biocon Biocon
Panacea Biotech
Overall
1/31/2013
Biocon
35
Management (Managerial Efficiency) Perspective
Parameters considered :
a) b)
c) d) e)
Shareholder wealth maximisation Cash flow from investing and financing activities Forex Earnings Research and Development Mergers and Acquisition opportunities
36
1/31/2013
a) Shareholder wealth maximisation
Share Price Mar 07 485.45 415.5 Mar 07 60 100 Mar 06 446.1 384.95 Mar 06 50 100 Mar 05 408.2 119.6 Mar 05 40 150 Mar 04 Mar 03
Biocon
Panacea Biotech Dividend % Biocon Panacea Biotech
? ?
42.4 Mar 04 100
26.8 Mar 03 100
?
Biocon - Stable Share price and increasing dividend Panacea Biotech – High growth in share price and a constant dividend payout Shareholders need wealth appreciation as well as returns by way of dividends
37
1/31/2013
b) Cash flow from investing and financing activities
Financing Cash Biocon Panacea Biotech Investing Cash Biocon Panacea Biotech Mar 07 -32.42 -236.19 Mar 07 -78.79 173.03 Mar 06 4.74 381.82 Mar 06 -48.3 -527.49 Mar 05 -1.84 -35.28 Mar 05 -468.01 -50.48 Mar 04 294.35 112.85 Mar 04 -83.67 -19.35 Mar 03 -2.92 4.14 Mar 03 -34.25 -16.14
?
?
Biocon – Financing cash high in Mar 04 because of IPO and Investing outflow signifies addition in fixed assets Panacea Biotech – High Financing inflow in Mar 06 and outflow in Mar 07 because of raising and payment of unsecured loans. Company’s unsecured loans increasing and secured loans decreasing.
38
1/31/2013
Loans ( Secured vs Unsecured) for Panacea Biotech
500 400 300 200 100 0 Mar 07
1/31/2013
Secured Loans Unsecured Loans
Mar 06
Mar 05
Mar 04
Mar 03
39
c) Forex earnings
Mar 07 Biocon 476.33 681.65 Mar 06 358.95 415.45 Mar 05 378.04 228.48 Mar 04 300.57 162.19 Mar 03 108.53 151.64
Panacea Biotech
?
?
Biocon – has been increasing over the years Panacea Biotech – has been increasing highly which suggests that their focus is more towards foreign markets
40
1/31/2013
d) Research & development
Biocon : Forms a very crucial part in the biotechnology industry Focus on R & D and diversifying into new and related areas Biocon has proposed to set up a R & D centre in Punjab with an investment of Rs. 100 crores. Biocon has many patents suggesting strong R&D
1/31/2013
41
e) Merger and acquisition opportunities
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? ?
Look for synergies in the domestic as well as international markets Biocon can go for leveraged buyout Panacea Biotech can raise funds through equity as it is giving good returns on equity
1/31/2013
42
Thank You
1/31/2013
43
doc_345474461.pptx
Financial Analysis: Biocon & Panacea Biotech
Management Accounting
Biotechnology Sector Companies - Biocon & Panacea Biotech
1/31/2013
1
Biotech Sector Introduction
?
Moderate performance in the recent past Rising raw material cost and competition Chinese production Currency fluctuations
2
?
?
?
1/31/2013
Industry Sales Growth over years
Industry growth - Sales
2,500.00 2,043.70 2,000.00 1,500.00 1,000.00 500.00 0.00 2007 2006 2005 2004 2003 2002 2001 2000 1,515.58 1,270.82 995.52 715.76 536.19 286.92 220.62
1/31/2013
3
Market Share of Biotech Companies
1/31/2013
4
Co. A - Biocon
?
?
?
?
Incorporated in 1978 as a JV between Biocon Biochemicals of Italy and Kiran Mazumdar Shaw. Business model spans entire drug value chain from pre clinical discovery to clinical development. Subsidiaries abroad namely – Syngene International Ltd. And Clinigene International Ltd. Listed on the exchange in April 2003.
5
1/31/2013
Co. B – Panacea Biotech Ltd.
?
?
? ?
?
Incorporated in February 1984. Became a public limited company in July 1993 Engaged in manufacturing, marketing and export of formulations and viral vaccines Radicura & Co Ltd and Best On Health Ltd are its subsidiaries 2 plants in New Delhi, 1 each in Punjab and Himachal Pradesh
6
1/31/2013
Sales Turnover
Sales Turnover
1000 800 600 400 200 0 M ar 07 M ar 06 M ar 05 M ar 04 M ar 03 B i ocon P anacea B i ot ech
1/31/2013
7
Analysis of Financials
1. 2. 3. 4. 5. Short term Investment Long term Investment Short term Lending Long term Lending Management
Note: Analysis based on data upto FY 2007.
1/31/2013 8
Short term Investment Perspective
Ratios considered : a) P/E Ratio b) PEG Ratio c) Beta d) Price to Book Value
1/31/2013
9
a) P/E Ratio
? ? ?
?
?
Valuation of the Company compared to its peers Average P/E Ratio of Industry – 40 Both have P/E less than industry average Both are relatively undervalued Panacea has lower P/E which has fallen sharply, implying higher chances of increase in share prices in the short term.
Mar 07 Biocon Panacea Biotech 31.67 19.07
Mar 06 34.32 39.69
Mar 05 23.79 28.61
Mar 04 16.37
Mar 03 7.68
EPS 40 30 20 10 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Panacea Biotech Biocon
1/31/2013
10
b) PEG Ratio
Mar 07
Biocon Panacea Biotech 26.85 8.49
Mar 06
45.30 17.10
Mar 05
17.11 17.73
Mar 04
22.06
Mar 03
92.68
?
? ? ? ?
Better indicator of Stock Rating as it not only considers tha P/e ratio, but also the growth rate of the EPS. When P/e value is lower, stock is undervalued and means that there is a high probability of short term increase in valuation Higher the growth rate of EPS, better are the short term prospects of the stock In either case, a lower value of PEG ratio signifies better short term prospects of the stock. Panacea’s PEG ratio has recently dipped heavily, hence making it a good short term prospect for high gains assuming a high risk appetite.
11
1/31/2013
c) Beta
?
?
?
Measures volatility in the price of a share with respect to the market index Higher beta value implies a greater volatility and higher chance of profits. Panacea Biotech has a higher Beta so it has a better potential to generate higher returns
Beta Biocon Panacea biotech Ltd.
Share Price
600 500 400 300 200 100 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biotech
0.5249 0.6513
1/31/2013
12
d) Price to book value
?
?
?
Compares market price to the value of a share as per the books of Accounts of the Company Indicator of Stock valuation. Higher the ratio signifies more the stock is overvalued. Biocon has a stable ratio but Panacea had a high ratio in March 06.
Mar 07
Mar 06 5.56 13.73
Mar 05 5.88 5.47
Mar 04
Mar 03
Biocon
Panacea Biotech
5.16 5.07
2.21
1.52
Book V alue
200
150 Panacea Bi otech 100 Bi ocon 50
0 M ar 07 M ar 06 M ar 05 M ar 04 M ar 03
1/31/2013
13
Conclusion (Short term Investment Perspective)
Parameter P/E Ratio Better Prospect Panacea Biotech Ltd.
PEG Ratio Beta
Price to Book Value Overall
1/31/2013
Panacea Biotech Ltd. Panacea Biotech Ltd.
Panacea Biotech Ltd. Panacea Biotech Ltd.
14
Long term Investment Perspective
Parameters considered :
1. Risk ? Long term debt-equity Ratio ? Interest coverage ratio 2. Returns ? Return on Equity ? Return on Capital Employed ? Dividend payout Ratio 3. Performance
1/31/2013
15
1 a) Long term debt-equity Ratio
Mar 07 Biocon Panacea Biotech 0.05 0.87 Mar 06 0.04 1.13 Mar 05 0.04 0.27 Mar 04 0.09 0.38 Mar 03 0.37 0.57
? ? ? ?
?
Measure of Financial leverage Lower the better, signifies a low risk company Capacity to raise funds by debt Lower debt signifies lower financial charges Biocon far lower debt equity as compared to Panacea Biotech
16
1/31/2013
1 b) Interest Coverage Ratio
? ?
?
?
?
Measure of Interest paying capacity Higher the better, signifies a low risk to invest in High Capacity to raise funds by debt Ideally should be more than 1.5 Biocon has better ICR as compared to Panacea Biotech
Mar 07
Biocon Panacea Biotech 21.96 13.26
Mar 06
65.86 8.51
Mar 05
71.08 4.76
Mar 04
60.95 2.56
Mar 03
10.45 3.36
Interest Coverage Ratio
80 70 60 50 40 30 20 10 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biotech
1/31/2013
17
2 a) Return on Equity
?
?
?
?
Measure of Return generated from shareholders wealth Higher the better, signifies a better return Tells how well the shareholders wealth is being utilized Panacea Biotech produces better returns as compared to Biocon
Mar 07 Biocon 18.18 Panacea Biotech
Mar 06 17.84
Mar 05 28.25
Mar 04 37.5
Mar 03 34.11
41.4
39.87
21.89
14.88
22.22
Shareholders Funds 1000 800 600 400 200 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biotech
1/31/2013
18
2 b) Return on Capital Employed
Mar 07 Biocon Panacea Biotech 18.34 28.47 Mar 06 19.47 18.73 Mar 05 27.8 14.55 Mar 04 37.57 11.76 Mar 03 30.56 22.04
?
? ? ?
Measure of Return generated out of Capital Employed How well the company is utilizing its fixed assets Higher the better, signifies a better use of resources Panacea Biotech produces better returns as compared to Biocon signifies better utilization of Capital
1/31/2013
19
2 c) Dividend Payout Ratio
Measures how well earnings support payment of dividends to shareholders ? Calculated by dividing DPS by EPS ? Tells what part of earnings are being distributed and retained ? Depends on the business model of the Company ? High retention signifies increase in reserves 1/31/2013
?
Mar 07 Biocon 0.20 Panacea Biotech 0.05 0.10 0.36 0.39 0.29 0.19 0.12 Mar 06 Mar 05 Mar 04 Mar 03
Equity Dividend
160 140 120 100 80 60 40 20 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biot ech
20
3) Performance
Fixed Assets turnover Ratio Biocon Panacea Biotech 2.84
?
Mar 07
1.51
Mar 06
2.49 2.96
Mar 05
2.99 2.22
Mar 04
3.1 2.45
Mar 03
1.99 3.86
? ? ? ?
Measures revenue generated per each unit of capital invested in fixed assets Measure of productivity of a firm Tells how efficiently the fixed assets are being utilized Higher ratio signifies better utilization of fixed assets Panacea biotech has a better Performance
21
1/31/2013
Conclusion (Long term Investment Perspective)
Parameter Long term debt equity ratio Interest coverage ratio Return on Equity Better Prospect Biocon Biocon Panacea Biotech Ltd.
Return on Capital Employed Panacea Biotech Ltd.
Dividend Payout Ratio
Fixed Asset turnover ratio Overall
1/31/2013
Biocon
Panacea Biotech Ltd. Biocon
22
Short term Lending Perspective
Parameters considered :
a) b) c) d)
Current Ratio Quick Ratio Interest Coverage Ratio Operating Cycle
1/31/2013
23
a) Current Ratio
?
?
?
?
Measures Company’s ability to pay short term obligations Measure of how well the current liabilities can be paid out of current assets Ideally should be above 1. Higher the better. Biocon has a lower Current Ratio. It can be viewed that Panacea Biotech might not need funds in the short term.
Mar 07 Biocon Panacea Biotech 1.33 2.39
Mar 06 0.97 2.21
Mar 05 1.64 1.74
Mar 04 2.25 1.69
Mar 03 1.18 1.46
Total Current Assets
900 800 700 600 500 400 300 200 100 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biot ech
1/31/2013
24
b) Quick Ratio
Mar 07 Biocon Panacea Biotech 1.67 1.65 Mar 06 1.03 3.95 Mar 05 0.85 1.65 Mar 04 3.61 2.61 Mar 03 1.37 0.71
?
? ?
? ?
Excludes inventory from current assets Better measure of liquidity of a Company Inventory excluded because at times it is very difficult for companies to convert inventory into cash quickly Almost same for both. Comparing current ratio and quick ratio we can find that Panacea Biotech has higher amount of inventory
25
1/31/2013
c) Interest Coverage Ratio
Mar 07 Biocon Panacea Biotech 21.96 13.26 Mar 06 65.86 8.51 Mar 05 71.08 4.76 Mar 04 60.95 2.56 Mar 03 10.45 3.36
?
? ? ?
Measures the ease with which the company can pay interest on borrowed funds Lower ratio signifies company is more burdened by debt Both the companies have a high ICR Biocon has better ratio as compared to Panacea Biotech
1/31/2013
26
d) Operating Cycle
Mar 07 Biocon Panacea Biotech 5 -15 Mar 06 -25 39 Mar 05 -85 156 Mar 04 -41 195 Mar 03 -38 87
?
?
?
?
Measures the efficiency with which the company manages its funds for production Considers raw material, debtors and creditors turnover in days Negative operating cycle suggests cash for additional days Improving for Panacea Biotech and worsening for Biocon
27
1/31/2013
Conclusion (Short term Lending Perspective)
Parameter Current Ratio Better Prospect Biocon
Quick Ratio Interest Coverage Ratio
Operating Cycle Overall
1/31/2013
Biocon
Biocon Biocon
28
Long term Lending Perspective
Parameters considered :
a) b) c) d)
e)
Expansion Plans Capital Structure Growth Model Interest Coverage Ratio Cash flow from Operations
1/31/2013
29
a) Expansion Plans
Mar 07 Biocon Panacea Biotech 746.09 401.05 Mar 06 684.24 233.71 Mar 05 514.83 137.68 Mar 04 198.42 105.46 Mar 03 129.97 96.3
?
? ?
Growth in Net Block + Capital Work in progress Continuous increase implies expansion Biocon investing more in Fixed Assets as compared to Panacea Biotech
1/31/2013
30
b) Capital Structure
Mar 07 Biocon Panacea Biotech 0.05 0.87 Mar 06 0.04 1.13 Mar 05 0.04 0.27 Mar 04 0.09 0.38 Mar 03 0.37 0.57
?
? ? ? ?
Measure of Financial leverage Lower the better, signifies a low risk company Capacity to raise funds by debt Lower debt signifies lower financial charges Biocon far lower debt equity ratio as compared to Panacea Biotech
31
1/31/2013
c) Growth Model
Net worth Mar 07 Biocon Panacea Biotech 891.64 532.51 Mar 06 753.04 154.6 Mar 05 645.94 119.24 Mar 04 491.63 103.9 Mar 03 124.87 94.81
? ?
?
Increase in reserves Dividend payment and retention Expansion Plans
RESERVES
1000 800 600 400 200 0 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Biocon Panacea Biotech
1/31/2013
32
d) Interest Coverage Ratio
Mar 07 Biocon Panacea Biotech 21.96 13.26 Mar 06 65.86 8.51 Mar 05 71.08 4.76 Mar 04 60.95 2.56 Mar 03 10.45 3.36
?
? ? ?
Measures the ease with which the company can pay interest on borrowed funds Lower ratio signifies company is more burdened by debt Both the companies have a high ICR Biocon has better ratio as compared to Panacea Biotech
1/31/2013
33
e) Cash flow from Operations
Mar 07 Biocon 116.81 155.63 Mar 06 42.07 163.74 Mar 05 155.76 29.77 Mar 04 105.81 -36.41 Mar 03 38.09 -18.18
Panacea Biotech
?
?
?
Measures the actual cash inflow from the operating activities of the Company Higher the Cash flow from operations, the better it is for the company Panacea has better inflows from operations
1/31/2013
34
Conclusion (Long term Lending Perspective)
Parameter Better Prospect
Expansion Plans Capital Structure Growth Model Interest Coverage Ratio
Cash flow from Operations
Biocon Biocon Biocon Biocon
Panacea Biotech
Overall
1/31/2013
Biocon
35
Management (Managerial Efficiency) Perspective
Parameters considered :
a) b)
c) d) e)
Shareholder wealth maximisation Cash flow from investing and financing activities Forex Earnings Research and Development Mergers and Acquisition opportunities
36
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a) Shareholder wealth maximisation
Share Price Mar 07 485.45 415.5 Mar 07 60 100 Mar 06 446.1 384.95 Mar 06 50 100 Mar 05 408.2 119.6 Mar 05 40 150 Mar 04 Mar 03
Biocon
Panacea Biotech Dividend % Biocon Panacea Biotech
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42.4 Mar 04 100
26.8 Mar 03 100
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Biocon - Stable Share price and increasing dividend Panacea Biotech – High growth in share price and a constant dividend payout Shareholders need wealth appreciation as well as returns by way of dividends
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b) Cash flow from investing and financing activities
Financing Cash Biocon Panacea Biotech Investing Cash Biocon Panacea Biotech Mar 07 -32.42 -236.19 Mar 07 -78.79 173.03 Mar 06 4.74 381.82 Mar 06 -48.3 -527.49 Mar 05 -1.84 -35.28 Mar 05 -468.01 -50.48 Mar 04 294.35 112.85 Mar 04 -83.67 -19.35 Mar 03 -2.92 4.14 Mar 03 -34.25 -16.14
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Biocon – Financing cash high in Mar 04 because of IPO and Investing outflow signifies addition in fixed assets Panacea Biotech – High Financing inflow in Mar 06 and outflow in Mar 07 because of raising and payment of unsecured loans. Company’s unsecured loans increasing and secured loans decreasing.
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Loans ( Secured vs Unsecured) for Panacea Biotech
500 400 300 200 100 0 Mar 07
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Secured Loans Unsecured Loans
Mar 06
Mar 05
Mar 04
Mar 03
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c) Forex earnings
Mar 07 Biocon 476.33 681.65 Mar 06 358.95 415.45 Mar 05 378.04 228.48 Mar 04 300.57 162.19 Mar 03 108.53 151.64
Panacea Biotech
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Biocon – has been increasing over the years Panacea Biotech – has been increasing highly which suggests that their focus is more towards foreign markets
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d) Research & development
Biocon : Forms a very crucial part in the biotechnology industry Focus on R & D and diversifying into new and related areas Biocon has proposed to set up a R & D centre in Punjab with an investment of Rs. 100 crores. Biocon has many patents suggesting strong R&D
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e) Merger and acquisition opportunities
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Look for synergies in the domestic as well as international markets Biocon can go for leveraged buyout Panacea Biotech can raise funds through equity as it is giving good returns on equity
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Thank You
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doc_345474461.pptx