Fundamental analysis of Pharma sector An Empirical Analysis

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Fundamental analysis is a method of finding out the future price of a stock which an investor wishes to buy It relates to the examination of the intrinsic worth of a company to find out whether the current market price is fair or not whether it is overpriced or under priced It believes that analysing the economy strategy management product financial status and other related information

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IOSR Journal of Business and Management IOSR JBM,e ISSN 2278 487X p ISSN 2319 7668. www iosrjournals org, the renowned dividend discount model developed by Gordon 1962 However the dividend discount model. valuation involves the forecast of future dividend payment which is difficult due to the changes in firm s. dividend policy Thus the subsequent studies along this line of literature searched for the cash flow that is. unaffected by the dividend policy and can be obtained from the financial statements Ou and Penman 1989 use. financial statement analysis of income statement and balance sheet ratios to forecast future earnings The. primary motivation for this research is to identify mispriced securities However these authors demonstrate that. the information in the earnings prediction signals is helpful in generating abnormal stock returns Fama and. French 1992 show that value stocks high book market significantly outperform growth stocks low. book market The average return of the highest book market decile is reported to be one per cent per month. higher than the average return for the lowest book market decile Jagadeesh and Titman 1993 document that. over a horizon of three to twelve months past winners on an average continue to outperform past losers by. about one percent per month Lev and Thiagarajan 1993 use conceptual arguments to study their ratios They. demonstrate that the earnings prediction signals in variables like growth in accounts receivables relative to sales. growth and gross marginrate are incrementally associated with contemporaneous stock returns and are. significant in predicting future earnings Joseph D Piotroski 2000 examines whether a simple accounting. based Fundamental Analysis strategy when applied to a broad portfolio of high Book to Market firms can shift. the distribution of returns earned by an investor The research shows that the mean returns earned by a high. Book to Market investor can be increased by at least 7 5 annually through the selection of financially strong. high Book to Market firms Pascal Nguyen 2003 constructs a simple financial score designed to capture short. term changes in firm operating efficiency profitability and financial policy The scores exhibit a strong. correlation with market adjusted returns in the Current fiscal period and the same continues in the following. period also,Fundamental analysis involves,i Economic Analysis. ii Industry Analysis,iii Company Analysis,Scope Of The Study. The scope of the study is limited to only five companies in the Pharmaceutical sector viz Sun Pharma. Lupin Ranbaxy Cipla Dr reddys,Objectives Of The Study.
The study has undertaken with the following objectives. To analyse the nature and performance of selected five stocks in Indian Pharmaceutical Industry. To understand the value of the five selected stocks in Pharmaceutical sector. To identify most favourable stock for investment,To help the investors in decision making process. III Research Methodology, This study is partially descriptive in nature and partially analysis The main purpose of the descriptive. research is the description of the state of affairs as it exists in the present The main characteristic of the. descriptive research is that the researcher has no control over the variables This Methodology is most suitable. for study of fundamental analysis Analysis is conducted for valuation of shares. a Data Source,Secondary Source, Data was collected from secondary source The data was mostly collected from the annual reports of. companies some selected websites and company brochures. b Sampling Plan,Sampling size, A total of five companies are selected from the Pharmaceutical sector which is listed in BSE and NSE. tor last 5 years from 1st April 2009 to 31st March 2013. Sampling Procedure, Convenience sampling is administrated by the researcher Under this method the researcher selected a.
total of Eve companies from the Pharmaceutical sector. International Conference on Emerging Trends in Engineering Management 29 Page. ICETEM 2016,IOSR Journal of Business and Management IOSR JBM. e ISSN 2278 487X p ISSN 2319 7668,www iosrjournals org. IV Tools For The Analysis, For fundamental analysis Ratio Analysis is used Percentage analysis is taken for analysing primary. data Tables and charts are also used for analysis Ratios are calculated from current year numbers and are then. compared to previous years,Ratio Analysis,Current Ratio. Current ratio is the most common ratio for measuring liquidity It represents the ratio of current assets and. current liabilities It is also called working capital ratio It is calculated by dividing current assets by current. liabilities,Company Current Ratio Rs in Cr,2013 2012 2011 2010 2009.
Sun Pharma 2 31 2 68 3 09 2 14 2 53,DrReddys Labs 1 62 1 70 1 66 1 49 1 85. Lupin 1 59 1 19 1 10 0 96 0 83,Cipla 1 95 3 18 2 59 2 17 1 81. Ranbaxy laboratories 0 81 0 76 1 40 1 18 1 16,Source Secondary Data. Interpretation, All companies haven t been maintaining ideal current ratio except Sunpharma Cipla has showed. highest current ratio in 2012 Sunpharma has recorded thei highest current ratio in 2011. Quick Ratio, This ratio is sometimes known as Acid Test or Liquidity Ratio lt is the Relation between quick asset.
and quick liability It is determined by quick asset by quick liability The term quick asset refers to current assets. which can be converted into cash immediately Quick ratio is a true test for finding business solvency. Company Quick Ratio Rs in Cr,2013 2012 2011 2010 2009. Sun Pharma 1 82 2 33 2 74 1 52 2 17,DrReddys Labs 2 02 1 84 1 91 1 45 2 13. Lupin 1 69 1 59 1 75 1 68 1 02,Cipla 1 68 1 95 2 06 1 57 1 93. Ranbaxy laboratories 0 95 0 84 1 60 0 89 0 86,Source Secondary Data. Interpretation, All the above companies have been maintaining their liquid asset position above the standard limit.
except Ranbaxy Laboratories Quick ratio of sun pharma has showed highest quick ratio in the year 2011 Lupin. labs has been showing almost constant quick ratio for the last four years. Debt Equity Ratio, The relation between borrowed funds and owners capital is a popular measure of the long term. financial solvency of the firm This relationship is shown by the debt equity ratio This ratio indicates the. relative proportion of debt and equity in financing the assets of the film. International Conference on Emerging Trends in Engineering Management 30 Page. ICETEM 2016,IOSR Journal of Business and Management IOSR JBM. e ISSN 2278 487X p ISSN 2319 7668,www iosrjournals org. Company Debt Equity Ratio Rs in Cr,2013 2012 2011 2010 2009. Sun Pharma 0 01 0 01 0 01 0 01,DrReddys Labs 0 20 0 23 0 24 0 10 0 12.
Lupin 0 11 0 27 0 31 0 36 0 69,Cipla 0 11 0 07 0 22. Ranbaxy laboratories 2 48 2 02 0 83 0 85 1 05,Source Secondary Data. Interpretation, No companies have been maintaining the standard Debt Equity Ratio for the last five years Ranbaxy. Laboratories has recorded highest Debt Equity ratio for the last two years Sunpharma has showed very low. Debt Equity ratio that means they can go for more debt financing. Earnings Before Interest And Tax EBIT, An indicator of a company s profitability calculated as revenue minus expenses excluding tax and. interest EBIT is also referred to as operating earnings operating profit and operating income as you can. re arrange the formula to be calculated as follows. EBIT Revenue Operating Expenses, Also known as Profit before Interest and Taxes PBIT and equals Net Income with interest and taxes.
added back to it,Company Earnings Before Interest And Tax Rs in Cr. 2013 2012 2011 2010 2009,Sun Pharma 834 67 1877 27 1582 44 1086 97 1415 9. DrReddys Labs 2 440 20 1 970 90 1 584 40 1 564 90 1 163 80. Lupin 2 057 37 1 164 78 1 079 30 908 56 653 66, Cipla 2 651 30 2 012 23 1 660 37 1 671 89 1 257 12. Ranbaxy laboratories 505 01 2201 51 2061 83 1286 5 1177. Source Secondary Data,Interpretation, The EBIT of Cipla Lupin and Dr Reddys have been showed an increasing trend for the last five years. The highest EBIT has been showed by Cipla in the last year The second highest EBIT has been recorded by Dr. Reddys lab EBIT performance of Ranbaxy was very poor Sun pharma s EBIT was showing an inconsistent. Interest Coverage Ratio, This ratio expresses the relation between Earnings Before Interest And Tax EBIT and fixed interest.
charges This ratio shows how many times the interest charges are covered Earnings before interest and tax. Higher the ratio better the position of the long term creditors. International Conference on Emerging Trends in Engineering Management 31 Page. ICETEM 2016,IOSR Journal of Business and Management IOSR JBM. e ISSN 2278 487X p ISSN 2319 7668,www iosrjournals org. Company Interest Coverage Ratio,2013 2012 2011 2010 2009. Sun Pharma 2 228 18 459 14,DrReddys Labs 29 55 25 22 220 90 250 76 53 32. Lupin 52 80 31 41 31 58 27 25 12 32,Cipla 61 27 54 38 90 12 57 08 35 92.
Ranbaxy laboratories 1 73 3 42 22 22 15 24 1 29,Source Secondary Data. Interpretation, This ratio shows how efficiently the companies are covering their interest with their EBIT Sunpharma. was more efficient in managing their interest charges with available EBIT Ranbaxy was not much efficient in. managing their interest with available EBIT It is because of large amount of interest charges. Asset Turnover Ratio, This ratio indicates the extents to which the investments in assets contribute towards the sales The. ratio is calculated as follows,Asset Turnover Ratio. Company Asset Turnover Ratio,2013 2012 2011 2010 2009.
Sun Pharma 0 31 0 55 0 50 0 34 0 59,DrReddys Labs 0 96 0 85 0 74 0 71 0 72. Lupin 1 41 1 22 1 19 1 28 1 28,Cipla 0 94 0 95 0 98 1 00 1 09. Ranbaxy laboratories 1 01 1 03 0 67 0 64 0 69,Interpretation. Lupin gives the highest Asset Turnover Ratio overall in five years and almost consistent Cipla is the. second performer on the basis of Asset Turnover Ratio and gives an average of0 992 Sun Pharma shows an. inconsistent trend whereas DrReddys Labs show a growing trend in the last five years. Return On Total Asset, Profitability can be measured in terms of relationship between net profit and total assets This ratio is. also known as return on gross capital employed It measures the profitability of investment. Company Return On Total Assets,2013 2012 2011 2010 2009.
Sun Pharma 75 21 76 07 64 51 276 08 248 72,DrReddys Labs 458 29 396 19 355 69 350 30 312 17. Lupin 108 30 83 61 70 66 284 51 166 06,Cipla 110 47 94 04 82 36 73 66 55 97. Ranbaxy laboratories 45 42 45 60 121 74 94 16 84 24. Source Secondary Data, International Conference on Emerging Trends in Engineering Management 32 Page. ICETEM 2016,IOSR Journal of Business and Management IOSR JBM. e ISSN 2278 487X p ISSN 2319 7668,www iosrjournals org.
Interpretation, DrReddys Labs gives the highest Return on Asset an all years and has an increasing trend The second. highest performer isCipla which maintain consistency in all year Lupin gives the third highest performer on the. basis of Return on Asset Though Sun Pharma has performed well in 2009 2010 and after that there is a huge. dip in Return on Asset The least performer is Ranbaxy laboratories which gives the lowest Return on Asset. Return On Net Worth, Return on Net worth is used in finance as a measure of a company s profitability lt reveals how much. profit a company generates with the money that the equity shareholders have invested This ratio is useful for. comparing the profitability of a company to that of other firm in the same industry. Company Return On Net worth,2013 2012 2011 2010 2009. Sun Pharma 6 63 25 35 20 71 16 25 24 05,DrReddys Labs 16 25 17 42 14 81 13 07 11 37. Lupin 26 00 17 99 25 67 26 74 29 60,Cipla 16 99 14 88 14 52 17 57 23 17.
Ranbaxy laboratories 11 39 37 43 14 33 1 84 17 40,Source Secondary Data. Interpretation, Lupin gives the highest Return on Net Worth in all years except 2012 which shows the efficiency of. the company Cipla gives the second highest Return on Net Worth Ranbaxy laboratories show a fluctuating. trend in Return on Net Worth Sun Pharma has the lowest Return on Net Worth in the year 2013. Dividend Per Share, The sum of declared dividends for every ordinary share issued Dividend Per share DPS is the total. dividends paid out over an entire year including interim dividends but not including special dividends divided. by the number of outstanding ordinary shares issued. Company Dividend Per Share,2013 2012 2011 2010 2009. Sun Pharma 5 00 4 25 3 50 13 75 13 75,DrReddys Labs 15 00 13 75 11 25 11 25 6 25.
Lupin 4 00 3 20 3 00 13 50 12 50,Cipla 2 00 2 00 2 80 2 00 2 00. Ranbaxy laboratories 0 00 0 00 2 00 0 00 0 00,Source Secondary Data. Interpretation, The following inferences are drawn from the Table DrReddys Labs has the highest DPS in all the. years Sun Pharmagives the second highest DPS Lupin ensures the 3rd highest DPS followed byCipla Ranbaxy. laboratories have the least DPS in all the years, International Conference on Emerging Trends in Engineering Management 33 Page. ICETEM 2016,IOSR Journal of Business and Management IOSR JBM.
e ISSN 2278 487X p ISSN 2319 7668,www iosrjournals org. Dividend pay out Ratio, The percentage of earnings paid to shareholders in dividends The dividend pay out ratio provides an. idea of how earnings support the dividend payments More mature companies tend to have a higher pay out. Company Dividend Payout Ratio,2013 2012 2011 2010 2009. Sun Pharma 100 24 25 92 26 19 31 69 22 50,DrReddys Labs 20 13 29 69 34 20 26 19 21 94. Lupin 16 61 20 65 19 21 21 60 29 04,Cipla 12 46 16 60 27 23 17 31 23 41.
Ranbaxy laboratories 8 54,Source Secondary Data,Interpretation. Sun Pharma has the highest Dividend pay out Ratio in the financial year 2013 2014 and seems to be. an increasing trend in the future also DrReddys Labs gives the second highest Dividend pay out Ratio with a. tremendous growth in the year 2011 and thereafter it declines Lupin grabs the third highest Dividend pay out. Ratio and shows fluctuating trend The least performer is Ranbaxy laboratories which gives the lowest Dividend. pay out Ratio in all the five years,Earnings Per Share. The portion of a company s profit allocated to each outstanding share of common stock Earnings per. share serve as an indicator of a company s profitability This ratio helps in the assessment of the profitability of. the firm from the stand point of equity share holders This measures the profit available to the equity share. holders per share,Company Earnings Per Share,2013 2012 2011 2010 2009. Sun Pharma 4 99 16 39 13 36 43 39 61 09,DrReddys Labs 74 51 53 81 52 78 50 11 33 29. Lupin 28 16 18 01 18 15 72 96 50 35,Cipla 18 77 14 00 11 96 13 47 9 99.
Ranbaxy laboratories 3 84 72 32 27 28 13 61 24 85,Source Secondary Data. Interpretation, DrReddys Labs has the highest EPS in all the five years It shows that the profitability of the company. is very much consistent Cipla has showed a consistent growth over the last five years Lupin has showed a. fluctuating trend in their EPS but last year it was satisfactory Sun Pharma has showed a declining trend in their. EPS The least performer is Ranbaxy laboratories on the basis of EPS in all the five years. Net Profit Margin, Net profit divided by net revenues often expressed as a percentage This number is an indication of. how effective a company is at cost control The higher the net profit margin is the more effective the company is. International Conference on Emerging Trends in Engineering Management 34 Page. ICETEM 2016,IOSR Journal of Business and Management IOSR JBM. e ISSN 2278 487X p ISSN 2319 7668,www iosrjournals org.
at converting revenue into actual profit The net profit margin is a good way of comparing companies in the. same industry since such companies are generally subject to similar business conditions. Company Net profit Margin,2013 2012 2011 2010 2009. Sun Pharma 19 35 38 94 41 91 33 99 31 43,DrReddys Labs 14 75 13 51 16 84 18 48 13 20. Lupin 17 63 14 92 17 95 17 52 14 09,Cipla 17 87 15 77 14 95 18 97 14 58. Ranbaxy laboratories 2 47 38 04 19 74 11 72 22 02,Source Secondary Data. Interpretation, Sun Pharma has the highest NPM in all the years The profit margin of the company showed an increasing.
trend till 2012 Cipla stands the second position in terms of NPM with a highest margin of18 97 in. 2010 Though Lupin remains in the 3rd position their profit margin shows a fluctuating trend in all the. year DrReddys Labs stands in the 4th position with a profit margin of14 75 in 2013 Ranbaxy laboratories. profit margin remains very poor in all time,Price Earnings Ratio. The price earnings ratio P E is the best known of the investment valuation indicators The P E ratio. has its imperfections but it is nevertheless the most widely reported and used valuation by investment. professionals and the investing public The financial reporting of both companies and investment research. services use a basic earnings per share EPS figure divided into the current stock price to calculate the P E. Company Price Earnings Ratio,2013 2012 2011 2010 2009. Sun Pharma 197 7 36 3 34 5 43 5 18 9,DrReddys Labs 24 5 34 1 32 1 26 5 15 2. Lupin 22 9 30 3 23 5 23 0 14 3,Cipla 20 6 22 3 27 9 25 7 22 8. Ranbaxy laboratories 0 0 0 0 22 2 38 1 0 0,Source Secondary Data.
Interpretation, Sun Pharma has the highest P E ratio in 2013 and also performed well in 2010 and 2012 DrReddys. Labs has their highest P E ratio in 2013 and was showing a fluctuating trend throughout all the year Lupin was. showing a fluctuating trend throughout all the year The least performer isRanbaxy laboratories But Cipla was. showing a fluctuating trend throughout all the year. Company Intrinsic Value,Sun Pharma 365 97,DrReddys Labs 1786 50. International Conference on Emerging Trends in Engineering Management 35 Page. ICETEM 2016,IOSR Journal of Business and Management IOSR JBM. e ISSN 2278 487X p ISSN 2319 7668,www iosrjournals org. Cipla 510 6,Ranbaxy laboratories 52 60,Ranking Of Companies Based On Different Variable.
Company Total,DPS ROE P E EPS Intrinsic,Sun Pharma 8 6 10 6 4 34. DrReddys Labs 10 4 8 10 10 42,Lupin 6 10 4 8 8 36,Cipla 4 8 6 4 6 30. Ranbaxy laboratories 2 2 2 2 2 10,Rank 1 10 Rank 2 8 Rank 3 6 Rank 4 4 Rank 5 2. V Findings Of Fundamental Analysis, All companies have not been maintaining standard current ratio exceptSun Pharma Cipla has shown. highest current ratio in 2012 All companies have been maintaining standard liquidity ratio except Ranbaxy. laboratories Quick ratio of sun pharma has reported highest quick ratio in2011 No companies have been. maintaining the ideal debt equity ratio in the last two years The EBIT of Dr Reddy s laboratories Cipla Lupin. are showing a increasing trend Cipla has reported the highest EBIT in the year2013 Interest coverage ratios of. all companies are satisfying except Ranbaxy laboratories Sunpharma has recorded the highest interest coverage. ratio in the year 2010 Lupin Lab has been showing a highest and constant asset turnover ratio throughout the. whole five years Dr reddy and Cipla have been showing a consistent growth their return on total asset. throughout the all five years All companies REO is satisfactory except Ranbaxy Laboratories Ranbaxy lab. showed highest ROE in 2012 Dr Reddy lab has reported a gradual growth in their DPS Dividend Pay out Ratio. of SunPharma is good and reported DPOR in 2013 EPS of Dr reddy has been showed a gradual increase and. recorded highest in 2013 All companies have been showing a good net profit margin except Ranbaxy Lab and. Sun Pharma has been showing a highest N P margin throughout the whole period All companies have reported. good P e ratio except Ranbaxy lab The shares of Sun Pharma Ranbaxy laboratories are over priced. VI Suggestions, Every investor is suggested to make a detailed analysis of the share market about the company and.
industry before making investment decisions, Investing in one security alone is not recommended as returns may not be favourable always Investing. in multiple and diversified securities reduces the risk and provides a stable returns. It is suggested to buy and hold the undervalued stocks i e DrReddys Labs Lupin Cipla as their. shares prices have a tendency to increase in the future. Stock market fluctuates from time to time therefore it is advised to check the market conditions each. time before investing, For long term investors investments inDrReddys Labs Lupin Cipla will fetch them good returns and. capital appraisal, Investing in share market using borrowed funds should be avoided as far as possible. Every person should have his own strategy for investments in the share market and his decisions should. not be influenced by others, It is always better to hold good stocks than to engage in rapid fire trading for quick returns. VII Conclusion, As we all know India is one of the fastest growing economies in the world For the past few years the.
Indian Pharmaceutical Industry is performing very well The varied functions such as contract research and. manufacturing clinical research research and development pertaining to vaccines are the strengths of the. Pharma Industry in India Multinational pharmaceutical corporations outsource these activities and help the. growth of the sector The Indian Pharmaceutical Industry has a bright future. International Conference on Emerging Trends in Engineering Management 36 Page. ICETEM 2016,IOSR Journal of Business and Management IOSR JBM. e ISSN 2278 487X p ISSN 2319 7668,www iosrjournals org. Fundamental Analysis insists that no one should purchase or sell a share on the basis of tips and rumours The. fundamental approach calls upon the investor to make his buy or sell decision on the basis of a detailed analysis. of the information about the company the industry to which the company belongs and the economy. Bibliography, 1 Kevin S Securities Analysis and Portfolio Management New Delhi PHI Learning Private Limited 2010. 2 Singh Preeti Investment Management Mumbai Himalaya Publishing House. 3 Chandra Prasanna Investment Analysis and Portfolio Management New Delhi Tata McGraw Hill Publishing Company Limited. 4 Shashi K Gupta Advanced Corporate Finance, 5 SengDyna Hancock Jason R Fundamental Analysis and Prediction of Earnings International Journal of Business and. Management Vol 7 No 3 February 2012 33, 6 Venkates C K MadhuTyagi Ganesh L Fundamental analysis and stock returns An Indian evidence Global Advanced Research.
Journal of Economics Accounting and Finance Vol 1 2 December 2012 pp 34 36. 7 Jeffery S Abarbanell and Brian J Bushee Fundamental Analysis Future Earnings and Stock Prices Journal of Accounting. Research Vol 35 No 1 1997, 8 Jim Graham Bring Fundamental Analysis into your Trading www discoveroptions com. 9 Fundamentals of Investing www betterinvesting com. 10 Venkates C K MadhuTyagi Ganesh L Fundamental analysis and stock returns An Indian evidence Global Advanced Research. Journal of Economics Accounting and Finance Vol 1 2 December 2012 pp 34 36. 11 Jeffery S Abarbanell and Brian J Bushee Fundamental Analysis Future Earnings and Stock Prices Journal of Accounting. Research Vol 35 No 1 1997, 12 Jim Graham Bring Fundamental Analysis into your Trading www discoveroptions com. 13 Ryan C Fuhrmann Equity Valuation The Comparables Approach. 14 www investopedia com August 2013, 15 Miranda Marquit Fundamental Analysis for Beginners www money usnews oom January 2013. International Conference on Emerging Trends in Engineering Management 37 Page.

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