FINANCIAL PERFORMANCE OF INDIAN PHARMACEUTICAL …...combined score of 9 in the average composite...

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International Journal of Management (IJM) Volume 11, Issue 8, August 2020, pp. 923-936, Article ID: IJM_11_08_083 Available online at http://iaeme.com/Home/issue/IJM?Volume=11&Issue=8 ISSN Print: 0976-6502 and ISSN Online: 0976-6510 DOI 10.34218/IJM.11.8.2020.083 :

© IAEME Publication Indexed Scopus

FINANCIAL PERFORMANCE OF INDIAN PHARMACEUTICAL INDUSTRY BEFORE

OUTBREAK OF COVID 19: AN EMPIRICAL ANALYSIS

Dr. Kaushik Chakraborty Assistant Professor, Department of Commerce,

Netaji Mahavidyalaya. Arambagh, West Bengal, India

ABSTRACT Pharmaceutical industry is playing a vital role in development of the economy and

social wellbeing of any country. With a huge population Indian economy depends on pharmaceutical industry heavily especially during the period of COVID 19. Some of

Indian pharmaceutical companies have been able to adapt themselves to the new situation while the others are suffering. So, it is high time to measure the financial

performance of the industry. Over this background, present study seeks to make a comparison, particularly in respect of performance of different financial aspects,

between multinational and domestic companies in the Indian pharmaceutical industry during fifteen-year period from 2004-05 to 2018-19. The time-frame of the study is just before the world-wide outbreak of COVID 19. This is because, the study tries to

know how well-off the industry was in the aspect of financial performance before outbreak of COVID 19. This will help us to know the financial background in terms of

strengths and weaknesses of the industry to cope up with the adverse situation of COVID 19. The sample size of the study consists of twenty pharmaceutical

companies by taking ten companies from each of the multinational and domestic sectors. The issue has been tackled using appropriate statistical measures. Keywords: Pharmaceutical Industry, Financial Analysis, Multinational, Domestic, COVID 19

Cite this Article: Dr. Kaushik Chakraborty Financial Performance of Indian , Pharmaceutical Industry before Outbreak of Covid 19: An Empirical Analysis,

International Journal of Management, 11(8), 2020, pp. 923-936. http://iaeme.com/Home/issue/IJM?Volume=11&Issue=8

1. INTRODUCTION The pharmaceutical industry, which is a part of the healthcare industry, is an indispensable industry of any country. With a huge population Indian economy depends on pharmaceutical industry heavily especially during the period of COVID 19. Some of Indian pharmaceutical

Financial Performance of Indian Pharmaceutical Industry before Outbreak of Covid 19: An Empirical Analysis


companies have been able to adapt themselves to the new situation while the others are suffering. So, it is high time to measure the financial performance of the industry. Over this background, present study seeks to make a comparison, particularly in respect of performance of different financial aspects, between multinational and domestic companies in the Indian pharmaceutical industry during fifteen-year period from 2004-05 to 2018-19. The time-frame of the study is just before the world-wide outbreak of COVID 19. This is because, the study

tries to know how well-off the industry was in the aspect of financial performance before outbreak of COVID 19. This will help us to know the financial background in terms of

strengths and weaknesses of the industry to cope up with the adverse situation of COVID 19. The sample size of the study consists of twenty pharmaceutical companies by taking ten

companies from each of the multinational and domestic sectors. The issue has been tackled using appropriate statistical measures.

2. OBJECTIVES AND SCOPE OF THE STUDY To make a comparison between the selected multinational and domestic companies in

respect of their short-term solvency. To compare the earning capability of the selected multinational companies with that of

the selected domestic ones. To make a comparison between the selected multinational and domestic companies

based on their expertise. To examine whether the overall financial performance of the selected multinational

companies is better as compared to that of the domestic companies under study.

3. RESEARCH METHODOLOGY The study is based on twenty companies in Indian pharmaceutical industry by taking ten

leading companies from each of the multinational and domestic sectors. While making this selection, market capitalization was considered as the selection criteria. The list of the

companies displayed in Appendix. The data of the ten selected multinational companies and ten selected domestic companies in the Indian pharmaceutical industry for the period 2004- 05to 2018-19, used in this study were collected from secondary source i.e. Capitaline Corporate Database of Capital Market Publishers (I) Ltd. Mumbai. Other secondary sources used in this

study were CMIE reports, books, magazines, journals and research reports. The ratios representing the short-term solvency management which were used in this study are: Current ratio (CR), Quick ratio (QR) and Defensive interval ratio (DIR). The ratios relating to the

measurement of earning capability which were used in this study are: Return on capital employed (ROCE), Return on net worth (RONW) and Profit before interest and tax (PBIT). In order to assess the expertise of managing different assets of the selected companies, expertise indicators like, Fixed assets turnover ratio (FATR), Debtors turnover ratio (DTR) and Inventory turnover ratio (ITR) were used. In order to compare the selected multinational companies with the selected domestic companies in Indian pharmaceutical sector in respect of

their financial performance more precisely, a comprehensive rank test considering both average and consistency of different financial aspects such as short-term solvency, earning capability and expertise was applied. While making such comparison a composite score for each of the selected companies was ascertained by considering the final short-term solvency

rank, final earning capability rank and final expertise rank. The findings of the paper are divided into four parts such as A, B, C and D. Part A presents a comparison between the

short-term solvency aspect of the ten selected multinational companies and that of the ten selected domestic pharmaceutical companies. Part B deals with such comparison based on

Dr. Kaushik Chakraborty


their earning capability. Part C is concerned with similar comparison made in respect of their expertise. Finally, in Part D an effort was done in order to make a comparison between the

selected multinational and domestic companies considering their overall financial performance.

4. RESULTS AND DISCUSSION Part A: In this Part of the paper, the selected multinational pharmaceutical companies were compared with the selected domestic pharmaceutical companies in respect of their short-term solvency during the study period. For measuring the short-term solvency status of the selected

multinational as well as domestic companies more precisely a comprehensive rank test considering both average and consistency aspects was applied. While making such analysis three steps were undertaken.

Table 1 Computation of Ultimate Rank Based on the Average Values of the Selected Short-term solvency Measures of the Selected Companies

Med

ian

of

Cur

rent

Rat

io

(CR

) R

ank

Med

ian

of

Qui

ck

Rat

io(Q

R)

Ran

k

Med

ian

of

Def

ensi

ve

Inte

rval

Rat

io

(DIR

) R

ank

Sum

of R

anks

Ulti

mat

e R

ank

Mul

tinat

iona

l Com

pani

es Abbott 1.02 20 0.61 20 58.94 20 60 20

Astrazeneca 2.31 8 1.74 16 180.32 11 35 11 Fulford 2.47 5 1.24 18 74.46 19 42 18 Glaxosmithkline 1.77 12 1.17 19 365.93 1 32 10 Merck 2.13 10 1.89 14 163.74 14 38 16 Novartis 2.42 6 2.22 10 231.12 4 20 4 Organon 4.18 1 3.21 3 121.32 18 22 5 Pfizer 2.20 9 1.82 15 225.27 6 30 9 Sanofi 2.34 7 1.58 17 172.62 13 37 14 Wyeth 2.90 2 2.09 12 365.63 2 16 3

Dom

estic

Com

pani

es Aurobindo 1.68 13 2.84 5 212.70 9 27 6

Cadila 1.25 19 1.94 13 133.45 16 48 19 Cipla 1.98 11 2.50 7 199.71 10 28 7.5 Dr Reddy’s 2.49 4 3.54 2 292.42 3 9 1.5 Ipca 1.54 16 2.51 6 130.78 17 39 17 Lupin 1.53 17 2.97 4 224.01 7 28 7.5 Piramal 1.55 15 2.23 9 177.02 12 36 12 Ranbaxy 1.35 18 2.19 11 213.37 8 37 14 Sun 2.73 3 3.85 1 228.93 5 9 1.5 Wockhardt 1.66 14 2.42 8 155.42 15 37 14

Source: Compiled and computed from Capitaline Corporate Database, Capital Market Publishers (India) Ltd. Mumbai.

In the first step, a comprehensive rank test considering the average values of all the

selected short-term solvency measures was made. In this test, a process of ranking was used to arrive at a more comprehensive measure of short-term solvency in which median values of the selected three short-term solvency ratios, namely, CR, QR and DIR were combined in a point

score. A high value of selected short-term solvency measures indicates greater short-term solvency and ranking was done in that order. Ultimate ranking was done on the basis of the principle that the lower the aggregate of individual ranks the more favourable is the short-



term solvency position and vice versa. Table 1 depicts that both Dr. Reddy’s and Sun had a combined score of 9 in the average composite ranking of short-term solvency. Hence, both the companies occupied highest average short-term solvency during the study period. Similarly, Wyeth had a combined score of 16, Novartis 20, Organon 22, Aurobindo 27, Cipla & Lupin

28, Pfizer 30, Glaxosmithkline 32, Astrazeneca 35, Piramal 36, Sanofi, Ranbaxy & Wockhardth 37, Merck 38, Ipca39, Fulford 42, Cadila 19 and Abbott 60. According to the combined score based on the median values of the selected short-term solvency measures Dr. Reddy and Sun captured the highest rank, followed by Wyeth, Novartis, Organon, Aurobindo,

Cipla & Lupin, Pfizer, Glaxosmithkline , Astrazeneca, Piramal, Sanofi, Ranbaxy & Wockhardth, Merck, Ipca, Fulford, Cadila and Abbott respectively in that order. Based on the composite scores ascertained by using the median values of the selected short-term solvency measures, three multinational and two domestic companies were placed in the first five positions.

Table 2 Computation of Ultimate Rank Based on the Consistency of the Selected Short-term solvency Measures of the Selected Companies

Con

sist

ency

(C.C

.)

in C

urre

nt R

atio

(C

R)

Ran

k

Con

sist

ency

(C.C

.) in

Qui

ck R

atio

(Q

R)

Ran

k

Def

ensi

ve In

terv

al

Rat

io (D

IR)

Ran

k

Sum

of R

anks

Ulti

mat

e R

ank

Mul

tinat

iona

l Com

pani

es Abbott 1.13 20 0.84 20 1.70 13 53 19

Astrazeneca 9.41 2 3.97 3 2.33 8 13 3.5 Fulford 2.39 12 1.07 18 0.73 12 42 14.5 Glaxosmithkline 2.33 13 1.53 14 2.08 9 36 10 Merck 2.00 15 1.72 12 1.76 11 38 11.5 Novartis 1.81 18 1.65 13 1.64 14 45 16 Organon 2.87 9 1.76 11 1.12 18 38 11.5 Pfizer 1.33 19 0.95 19 1.40 17 55 20 Sanofi 2.55 11 2.00 9 1.85 10 30 9 Wyeth 5.86 5 3.09 6 2.43 7 18 6

Dom

estic

Com

pani

es

Aurobindo 6.75 4 3.19 5 3.04 4 13 3.5 Cadila 1.91 17 1.84 10 1.48 15 42 14.5 Cipla 6.99 3 4.42 2 6.07 2 7 2 Dr Reddy’s 2.69 10 2.62 8 3.36 3 21 8 Ipca 16.46 1 5.26 1 7.92 1 3 1 Lupin 4.53 6 2.89 7 2.54 6 19 7 Piramal 2.18 14 1.46 15 0.48 20 49 17 Ranbaxy 3.25 7 3.30 4 2.90 5 16 5 Sun 2.93 8 1.25 17 1.45 16 41 13 Wockhardt 1.92 16 1.42 16 0.96 19 51 18

Source: Compiled and computed from Capitaline Corporate Database, Capital Market Publishers (India) Ltd. Mumbai. In the second step, the consistency in respect of overall short-term solvency of the selected

multinational and domestic companies was assessed by using the comprehensive rank test considering consistency coefficient (C.C.) of all the selected short-term solvency ratios of



each company during the study period. A high value of C.C. of each selected short-term solvency measure implies a more consistency as well as favourable position in terms of short-term solvency and thus ranking was done in that order. Ultimate ranking was done on the principle that the lower the aggregate of individual ranks the more favourable is the short-term solvency position and vice versa. Table 2 reveals that Ipca which ranked first according

to the C.C. of CR, QR and DIR, had a combined score of 3 in the composite ranking. Similarly, Cipla had a combined score of 7, Astrazeneca & Aurobindo 13, Ranbaxy 16,

Wyeth 18, Lupin 19, Dr. Reddy 21, Sanofi 30, Glaxosmithkline 36, Merck & Organon 38, Sun 41, Fulford & Cadila 42, Novartis 45, Piramol 49, Wockhardt 51, Abbott 53 and Pfizer

55. According to the composite score based on the consistency in respect of short-term solvency measured by the C.C. of the selected short-term solvency indicators, Ipca captured

the top most position and it was followed by Cipla, Astrazeneca & Aurobindo, Ranbaxy, Wyeth, Lupin, Dr. Reddy, Sanofi, Glaxosmithkline, Merck & Organon, Sun, Fulford &

Cadila, Novartis, Piramol, Wockhardt, Abbott and Pfizer respectively in that order. On the basis of the sum of scores computed by using the C.C.s of the selected short-term solvency indicators, four domestic companies were placed in the first five positions whereas only one multinational company was able to enter into the same category.

Table 3 Computation of Final Short-term solvency Rank Considering Both the Average and Consistency Parameters of the Selected Short-term solvency Measures of the Selected Companies

Company Ultimate Rank based on average

Ultimate Rank based

on consistency

Sum of Ranks

Final Short-term solvency Rank (FLR)

Mul

tinat

iona

l Com

pani

es Abbott 20 19 39 20

Astrazeneca 11 3.5 14.5 6 Fulford 18 14.5 32.5 18 Glaxosmithkline 10 10 20 11.5 Merck 16 11.5 27.5 14 Novartis 4 16 20 11.5 Organon 5 11.5 16.5 8 Pfizer 9 20 29 15.5 Sanofi 14 9 23 13 Wyeth 3 6 9 1

Dom

estic

Com

pani

es Aurobindo 6 3.5 9.5 3

Cadila 19 14.5 33.5 19 Cipla 7.5 2 9.5 3 Dr Reddy’s 1.5 8 9.5 3 Ipca 17 1 18 9 Lupin 7.5 7 14.5 6 Piramal 12 17 29 15.5 Ranbaxy 14 5 19 10 Sun 1.5 13 14.5 6 Wockhardt 14 18 32 17


In the third step, ‘rank based on average’ and ‘rank based on consistency’ assigned to each

of the selected companies (both multinational and domestic) were combined to arrive at its sum of ranks which was ultimately used to ascertain its final short-term solvency rank. Final short-term solvency ranking was done on the principle that the lower the aggregate of ‘rank



based on average’ and ‘rank based on consistency’, the more favourable is the short-term solvency position and vice versa. Table 3 discloses that Wyeth which ranked third according

to ‘average’ and sixth according to ‘consistency’ had a combined score of 9 in the sum of ranks. Similarly, Aurobindo, Cipla and Dr. Reddy’s had a combined score of 9.5,

Astrazeneca, Lupin and Sun 14.5, Organon 16.5, Ipca 18, Ranbaxy 19, Glaxosmithkline & Novartis 20, Sanofi 23, Merck 27.5, Pfizer & Piramal 29, Wockhardth 32, Fulford 32.5,

Cadila 33.5 and Abbott 39. Based on the combined score considering both the average and consistency parameters, Wyeth captured the top most position and it was followed by

Aurobindo, Cipla & Dr. Reddy’s, Astrazeneca, Lupin & Sun, Organon, Ipca, Ranbaxy,

Glaxosmithkline & Novartis, Sanofi , Merck, Pfizer & Piramal, Wockhardth , Fulford, Cadila and Abbott respectively in that order. According to the final short-term solvency rank arrived

at by combining the ‘rank based on average’ and ‘rank based on consistency’, three multinational companies and seven domestic companies found place in the first ten positions.

Part B: In Part B the overall earning capability status of the selected multinational pharmaceutical companies was compared with that of the selected domestic pharmaceutical companies during the study period. For measuring the earning capability status of the selected

multinational as well as domestic companies more precisely a comprehensive rank test considering both average and consistency aspects was applied. While making such analysis three steps were undertaken.

Table 4 Computation of Ultimate Rank Based on the Average Values of the Selected Earning capability Measures of the Selected Companies

Med

ian

of R

OC

E (%

)

Ran

k

Med

ian

of R

ON

W

(%)

Ran

k

Med

ian

of P

BID

TM

Ran

k

Sum

of R

anks

Ulti

mat

e R

ank

Mul

tinat

iona

l Com

pani

es Abbott 42.51 3 31.46 2 16.91 17 22 5.5

Astrazeneca 47.89 1 31.65 21 23.36 6 8 2 Fulford 16.48 19 10.03 20 8.35 20 59 20 Glaxosmithkline 45.15 2 30.71 3 31.34 1 6 1 Merck 33.95 8 23.11 13 21.39 10 31 9.5 Novartis 36.02 5 23.23 12 23.28 7 24 8 Organon 30.83 9 21.67 17 13.58 19 45 18 Pfizer 34.98 6 22.66 14 20.89 13 33 11 Sanofi 34.73 7 22.50 15 23.19 9 31 9.5 Wyeth 40.80 4 28.36 6 24.85 3 13 3

Dom

estic

Com

pani

es

Aurobindo 19.67 17 24.97 9 15.04 18 44 16.5 Cadila 20.32 16 24.42 10 21.22 11 37 13 Cipla 30.66 10 25.70 8 24.42 4 22 5.5 Dr Reddy’s 16.63 18 14.73 18 23.27 8 44 16.5 Ipca 23.58 12 24.19 11 18.27 16 39 14 Lupin 20.86 14 27.89 7 20.59 14 35 12 Piramal 20.57 15 21.89 16 21.14 12 43 15 Ranbaxy 14.99 20 13.73 19 18.51 15 54 19 Sun 27.01 11 30.47 4 31.04 2 17 4 Wockhardt 21.34 13 30.38 5 23.97 5 23 7




In the first step, a comprehensive rank test considering the median values of all the selected earning capability measures was made. In this test, a process of ranking was used to arrive at a more comprehensive measure of earning capability in which median values of the selected three ratios, namely, ROCE, RONW and PBIT were combined in a point score. A high value of all selected earning capability indicators indicates greater earning capability and ranking was done in that order. Ultimate ranking was done on the basis of the principle that

the lower the aggregate of individual ranks the more favourable is the earning capability position and vice versa. Table 4 depicts that Glaxosmithkline which ranked first according to

the average (median) PBIT, second according to the average(median) ROCE, and third according to the median RONW had a combined score of 6 in the composite ranking.

Similarly, Astrazeneca had a combined score of 8, Wyeth 13, Sun 17, Abbott & Cipla 22, Wockhardth 23, Novartis 24, Merck & Sanofi 31, Pfizer 33, Lupin 35, Cadila 37, Ipca 39,

Piramal 43, Aurobindo & Dr. Reddy’s 44, Organon 45, Ranbaxy 54 and Fulford 59. According to the combined score based on the median values of the selected earning

capability measures Glaxosmithkline captured the highest rank and was followed by Astrazeneca, Wyeth, Sun, Abbott & Cipla, Wockhardth, Novartis, Merck & Sanofi, Pfizer,

Lupin, Cadila, Ipca, Piramal, Aurobindo & Dr. Reddy’s, Organon, Ranbaxy and Fulford

respectively in that order. Based on the composite scores ascertained by using the median values of the selected earning capability measures, four multinational companies found place in the first ten positions.

Table 5 Computation of Ultimate Rank Based on the Consistency of the Selected Earning capability Measures of the Selected Companies

Con

sist

ency

(C

.C.)

in R

OC

E

Ran

k

Con

sist

ency

i(C

.C.)

in R

ON

W

Ran

k

Con

sist

ency

in

PBID

TM

Ran

k

Sum

of R

anks

Ulti

mat

e R

ank

Mul

tinat

iona

l Com

pani

es Abbott

4.88

2 4.11

4 5.70

2 8

1

Astrazeneca 3.30 11 2.82 13 3.54 12 36 13 Fulford 0.65 20 0.50 19 1.24 20 59 20 Glaxosmithkline 4.00 9 4.37 3 2.68 17 29 10.5 Merck 3.19 12 3.21 11 4.28 6 29 10.5 Novartis 5.40 1 3.66 7 4.60 4 12 3 Organon 4.49 5 3.40 9 3.56 11 25 7 Pfizer 2.71 13 3.29 10 3.99 7 30 12 Sanofi 2.68 14 2.48 14 3.45 14 42 14 Wyeth 4.24 7 3.94 5 2.89 16 28 8.5

Dom

estic

Com

pani

es Aurobindo 1.77 16 1.79 15 3.46 13 44 15

Cadila 4.45 6 2.91 12 3.66 10 28 8.5 Cipla 4.09 8 4.52 2 10.55 1 11 2 Dr Reddy’s 1.59 18 1.32 17 3.24 15 50 17.5 Ipca 4.53 4 3.71 6 5.34 3 13 4 Lupin 4.81 3 3.41 8 4.54 5 16 5 Piramal 2.16 15 1.48 16 2.01 19 50 17.5 Ranbaxy 1.10 19 1.17 18 2.34 18 55 19 Sun 3.64 10 5.24 1 3.77 8 19 6 Wockhardt 1.74 17 0.47 20 3.72 9 46 16




In the second step, the consistency in respect of overall earning capability of the selected multinational and domestic companies was assessed by using the comprehensive rank test

considering C.C. of all the selected earning capability ratios of each company during the study period. A high value of C.C. of each selected earning capability measure implies a more

consistency as well as favourable position in terms of earning capability and thus ranking was done in that order. Ultimate ranking was done on the principle that the lower the aggregate of individual ranks the more favourable is the earning capability position and vice versa. Table 5 reveals that Abbott which ranked second according to the C.C. of ROCE and PBIT, fourth

according to the C.C. of RONW had a combined score of 8 in the composite ranking. Similarly, Cipla had a combined score of 11, Novartis 12, Ipca 13, Lupin 16, Sun 16, Organon 25, Wyeth & Cadila 28, Glaxosmithkline & Merck 29, Pfizer 30, Astrazeneca 36, Sanofi 42, Aurobindo 44, Wockhardt 46, Dr. Reddy’s & Piramal 50, Ranbaxy 55 and Fulford 59. According to the composite score based on the consistency in respect of earning capability measured by the C.C. of the selected earning capability indicators, Abbott captured the top

most position and was followed by Cipla, Novartis, Ipca, Lupin, Sun, Organon, Wyeth & Cadila, Glaxosmithkline & Merck, Pfizer, Astrazeneca, Sanofi, Aurobindo, Wockhardt, Dr.

Reddy’s & Piramal, Ranbaxy and Fulford respectively in that order. According to the

composite scores calculated with the help of the C.C.s of the selected earning capability indicators two multinational companies and three domestic companies were placed in the first five positions.

Table 6 Computation of Final Earning capability Rank Considering Both the Average and Consistency Parameters of the Selected Short-term solvency Measures of the Selected Companies


Ultimate Rank based on

consistency

Sum of Ranks Final Earning capability

Rank (FLR)

Mul

tinat

iona

l Com

pani

es Abbott 5.5 1 6.5 1

Astrazeneca 2 13 15 7 Fulford 20 20 40 20 Glaxosmithkline 1 10.5 11.5 5.5 Merck 9.5 10.5 20 10 Novartis 8 3 11 4 Organon 18 7 25 15 Pfizer 11 12 23 12.5 Sanofi 9.5 14 23.5 14 Wyeth 3 8.5 11.5 5.5

Dom

estic

Com

pani

es

Aurobindo 16.5 15 31.5 16 Cadila 13 8.5 21.5 11 Cipla 5.5 2 7.5 2 Dr Reddy’s 16.5 17.5 34 18 Ipca 14 4 18 9 Lupin 12 5 17 8 Piramal 15 17.5 32.5 17 Ranbaxy 19 19 38 19 Sun 4 6 10 3 Wockhardt 7 16 23 12.5




In the third step, ‘rank based on average’ and ‘rank based on consistency’ for each of the selected companies (both multinational and domestic) were added to arrive at its sum of ranks

which was ultimately used to ascertain its final earning capability rank. Final earning capability ranking was done on the principle that the lower the aggregate of ‘rank based on

average’ and ‘rank based on consistency’, the more favourable is the earning capability position and vice versa. Table 6 discloses that Abbott which ranked five and half according to ‘average’ and first according to ‘consistency’ had a combined score of 6.5 in the sum of rank. Similarly, Cipla had a combined score of 7.5, Sun 10, Novartis 11, Glaxosmithkline & Wyeth

11.5, Astrazeneca 15, Lupin 17, Ipca 18, Merck 20, Cadila 21.5, Pfizer & Wockhardt 23, Sanofi 23.5, Organon 25, Aurodindo 31.5, Piramal 32.5, Dr. Reddy’s 34, Ranbaxy 38 and

Fulford 40. Based on the combined score considering both the ‘average’ and ‘consistency’ parameters, Abbott captured the top most position and was followed by Cipla, Sun, Novartis,

Glaxosmithkline & Wyeth, Astrazeneca, Lupin, Ipca, Merck, Cadila, Pfizer & Wockhardt, Sanofi,Organon, Aurodindo, Piramal, Dr. Reddy’s, Ranbaxy and respectively in that order.

Based on the fina earning capability l rank arrived at by adding the ‘rank based on average’

and ‘rank based on consistency’ four multinational companies found place in the first five positions.

Part C: In Part C of the paper, overall expertise of asset management of the selected multinational companies was compared with that of the selected domestic companies in the Indian pharmaceutical sector during the study period. For measuring the expertise status of

the selected multinational as well as domestic companies more precisely a comprehensive rank test considering both average and consistency aspects was applied. While making such analysis three steps were undertaken.

In the first step, a comprehensive rank test considering the average values of all the selected expertise measures was made. In this test, a process of ranking was used to arrive at a more comprehensive measure of expertise in which average values of the selected three ratios, namely, FATR, DTR and ITR were combined in a point score. High value of all selected expertise measures indicates greater expertise and ranking was done in that order. Ultimate ranking was done on the basis of the principle that the lower the aggregate of individual ranks

the more favourable is the expertise position and vice versa. Table 7 depicts that Abbott which ranked first according to the average (median) FATR and, second according to the

median DTR, and third according to the median ITR had a combined score of 6 in the composite ranking. Similarly, Fulford had a combined score of 17, Merck 18, Astrazeneca 19, Sanofi 22, Organon & Pfizer 24, Cadila 26, Novartis 27, Glaxosmithkline 28, Piramal 31, Sun

34, Ipca & Wockhardt 36, Wyeth 39, Cipla 46, Lupin 48, Ranbaxy 49, Aurobindo & Dr. Reddy’s 50. According to the combined score based on the median values of the selected

expertise measures Abbott captured the highest rank and was followed by Fulford, Merck, Astrazeneca, Sanofi, Organon & Pfizer, Cadila, Novartis, Glaxosmithkline, Piramal, Sun, Ipca & Wockhardt, Wyeth, Cipla, Lupin, Ranbaxy, Aurobindo & Dr. Reddy’s respectively in that

order. Therefore, it is evident from the composite scores computed by using the median values of the selected expertise indicators, five multinational companies found place in the first five positions.



Table 7 Computation of Ultimate Rank Based on the Average Values of the Selected Expertise Measures of the Selected Companies

Med

ian

of

FAT

R

Ran

k

Med

ian

of

DT

R

Ran

k

Med

ian

of

ITR

Ran

k

Sum

of R

anks

Ulti

mat

e R

ank

Mul

tinat

iona

l Com

pani

es Abbott 6.99 1 19.18 2 8.06 3 6 1

Astrazeneca 2.50 8 7.76 10 10.19 1 19 4 Fulford 4.66 2 12.12 5 6.38 10 17 2 Glaxosmithkline 1.25 20 21.97 1 7.09 7 28 10 Merck 2.78 6 9.15 8 7.39 4 18 3 Novartis 1.78 16 8.85 9 8.31 2 27 9 Organon 3.48 3 9.16 7 6 14 24 6.5 Pfizer 1.95 12 10.49 6 7.21 6 24 6.5 Sanofi 2.56 7 14.38 3 6.30 12 22 5 Wyeth 1.42 19 13.80 4 5.03 16 39 15

Dom

estic

Com

pani

es Aurobindo 1.98 11 3.21 20 4.24 19 50 19.5

Cadila 3.14 5 7.33 12 6.43 9 26 8 Cipla 2.17 10 4.63 16 3.82 20 46 16 Dr Reddy’s 1.54 18 3.66 19 6.16 13 50 19.5 Ipca 3.15 4 5.01 15 4.70 17 36 13.5 Lupin 1.82 15 4.21 18 5.95 15 48 17 Piramal 2.37 9 7.51 11 6.33 11 31 11 Ranbaxy 1.83 14 4.51 17 4.44 18 49 18 Sun 1.91 13 5.91 13 6.66 8 34 12 Wockhardt 1.76 17 5.56 14 7.31 5 36 13.5


In the second step, the consistency in respect of overall expertise of the selected multinational and domestic companies was assessed by using the comprehensive rank test

considering C.C. of all the selected expertise ratios of each company during the study period. A high value of C.C. of each selected expertise measure implies a more consistency as well as favourable position in terms of expertise and thus ranking was done in that order. Ultimate ranking was done on the principle that the lower the aggregate of individual ranks the more favourable is the expertise position and vice versa. Table 8 reveals that Ipca which ranked

first according to the C.C. of FATR, DTR and ITR, had a combined score of 3 in the composite ranking. Similarly, Dr. Reddy’s 14, Cadila 18, Ranbaxy 19, Organon & Cipla 24,

Pfizer 26, Sun 27, Merck 30, Abbott & Sanofi 32, Astrazeneca 35, Piramal 36, Wockhardt 40, Fulford and Lupin 42, Aurobindo 44, Glaxosmithkline 45, Wyeth 48 and Novartis 49.

According to the composite score based on the consistency in respect of expertise measured by the C.C. of the selected expertise indicators, Ipca captured the top most position and was followed by Dr. Reddy’s, Cadila, Ranbaxy, Organon & Cipla, Pfizer, Sun, Merck, Abbott & Sanofi, Astrazeneca, Piramal, Wockhardt, Fulford and Lupin, Aurobindo, Glaxosmithkline, Wyeth and Novartis respectively in that order. According to the sum of scores ascertained

with the help of C.C.s of the selected expertise measures, five domestic companies were placed in the first five positions.



Table 8 Computation of Ultimate Rank Based on the Consistency of the Selected Expertise Measures of the Selected Companies

Con

sist

ency

(C.C

.) in

FA

TR

Ran

k

Con

sist

ency

(C.C

.) in

DT

R

Ran

k

Con

sist

ency

(C.C

.) in

ITR

Ran

k

Sum

of R

anks

Ulti

mat

e R

ank

Mul

tinat

iona

l Com

pani

es Abbott 2.21 10 5.05 6 3.20 16 32 10.5

Astrazeneca 3.18 4 2.78 16 3.60 15 35 12 Fulford 1.91 13 3.07 15 3.77 14 42 15.5 Glaxosmithkline 0.73 20 1.87 19 7.79 6 45 18 Merck 1.51 16 7.66 2 3.95 12 30 9 Novartis 1.61 15 2.62 17 2.90 17 49 20 Organon 2.22 9 5.45 5 4.27 10 24 5.5 Pfizer 1.42 18 5.60 4 8.07 4 26 7 Sanofi 1.69 14 5.00 7 4.20 11 32 10.5 Wyeth 1.49 17 3.34 13 2.81 18 48 19

Dom

estic

Com

pani

es Aurobindo 2.77 7 2.53 18 2.35 19 44 17

Cadila 3.13 5 4.56 10 9.05 3 18 3 Cipla 5.62 2 1.51 20 12.39 2 24 5.5 Dr Reddy’s 3.92 3 7.07 3 4.98 8 14 2 Ipca 6.32 1 8.46 1 16.69 1 3 1 Lupin 2.63 8 3.31 14 1.98 20 42 15.5 Piramal 2.14 12 4.05 11 3.79 13 36 13 Ranbaxy 2.99 6 4.71 8 7.82 5 19 4 Sun 2.20 11 4.58 9 5.14 7 27 8 Wockhardt 1.29 19 3.66 12 4.45 9 40 14


In the third step, ‘rank based on average’ and ‘rank based on consistency’ for each of the selected companies (both multinational and domestic) were added to arrive at its sum of ranks which was ultimately used to ascertain its final expertise rank. Final expertise ranking was done on the principle that the lower the aggregate of ‘rank based on average’ and ‘rank based

on consistency’, the more favourable is the expertise position and vice versa. Table 9 discloses that Cadila which ranked eighth according to ‘average’ and third according to

‘consistency’ had a combined score of 11 in the sum of rank. Similarly, Abbott had a combined score of 11.5, Merck & Organon 12, Pfizer 13.5, Ipca 14.5, Sanofi 15.5,

Astrazeneca 16, Fulford 17.5, Sun 20, Cipla & Dr. Reddy’s 21.5, Ranbaxy 22, Piramal 24, Wockhardt 27.5, Glaxosmithkline 28, Novartis 29, Lupin 32.5, Wyeth 34 and Aurobindo

36.5. Based on the combined score considering both the ‘average’ and ‘consistency’

parameters, Cadila captured the top most position and was followed by Abbott, Merck & Organon, Pfizer, Ipca, Sanofi, Astrazeneca,Fulford, Sun, Cipla & Dr. Reddy’s, Ranbaxy,

Piramal, Wockhardt, Glaxosmithkline, Novartis, Lupin , Wyeth and Aurobindo respectively in that order. On the basis of the final expertise rank arrived at by adding the ‘rank based on

average’ and ‘rank based on consistency’ four multinational companies and one domestic company were placed in the first five positions.

Part D: In this Part of the study an attempt was made to compare the overall financial performance of the selected multinational pharmaceutical companies with that of the selected domestic pharmaceutical companies by using the final short-term solvency rank (ascertained

in Table 3), final earning capability rank (measured in Table 6) and final expertise rank (determined in Table 9). Considering final short-term solvency, earning capability and



expertise ranks a composite score for each of the selected companies was ascertained in Table 10. On the basis of such composite scores assigned to the selected multinational and domestic companies, their overall financial status was assessed more precisely. While ascertaining such

composite scores a comprehensive test based on the sum of scores of separate individual ranking under the above mentioned three criteria was undertaken. Ultimate ranking was done on the principle that the lower the aggregate of final short-term solvency rank (FLR), final

earning capability rank (FPR) and final expertise rank (FER), the better is the financial performance. Table 10 depicts that Cipla (which ranked second according to FPR, third

according to FLR and eleventh and half according to FER), had a combined score of 16.5 in the composite ranking. Similarly, Sun had a combined score of 19, Astrazeneca 21, Abbott 23, Ipca 24, Wyeth 25.5, Organon 26.5, Merck 27.5, Cadila 31, Lupin 32, Novartis & Dr. Reddy 32.5, Glaxosmithkline & Pfizer 33, Sanofi 34, Aurobindo 39, Ranbaxy 42, Wockhardt

44.5, Piramal 46.5 and Fulford 47. Based on the combined score considering both the ‘average’ and ‘consistency’ parameters of the selected financial performance indicators, Cipla captured the top most position while Sun was placed in the second position and was followed by Astrazeneca, Abbott, Ipca, Wyeth, Organon,Merck , Cadila, Lupin, Novartis & Dr. Reddy, Glaxosmithkline & Pfizer, Sanofi, Aurobindo, Ranbaxy, Wockhardt, Piramal and Fulford in

that order. Based on the composite scores computed by considering the final short-term solvency rank (ascertained in Table 3), final earning capability rank (measured in Table 6)

and final expertise rank (determined in Table 9) two multinational and three domestic companies were placed in the first five positions.

Table 9 Computation of Final Expertise Rank Considering Both the Average and Consistency Parameters of the Selected Expertise Measures of the Selected Companies


Ultimate Rank based

on consistency

Sum of Ranks

Final Rank of Overall Expertise of Asset Management

(FER)

Mul

tinat

iona

l Com

pani

es Abbott 1 10.5 11.5 2

Astrazeneca 4 12 16 8 Fulford 2 15.5 17.5 9 Glaxosmithkline 10 18 28 16 Merck 3 9 12 3.5 Novartis 9 20 29 17 Organon 6.5 5.5 12 3.5 Pfizer 6.5 7 13.5 5 Sanofi 5 10.5 15.5 7 Wyeth 15 19 34 19

Dom

estic

Com

pani

es

Aurobindo 19.5 17 36.5 20 Cadila 8 3 11 1 Cipla 16 5.5 21.5 11.5 Dr Reddy’s 19.5 2 21.5 11.5 Ipca 13.5 1 14.5 6 Lupin 17 15.5 32.5 18 Piramal 11 13 24 14 Ranbaxy 18 4 22 13 Sun 12 8 20 10 Wockhardt 13.5 14 27.5 15




Table 10 Statement of ranking of different measures of overall financial performance of the multinational and domestic pharmaceutical companies under study

Company Measures of overall financial performance Sum of

Ranks

Ultimate Ranks Final short-term

solvency rank (FLR) on the basis of both averages

and consistencies

Final earning capability rank

(FPR) on the basis of both averages and consistencies

Final expertise rank (FER)on the basis of both averages and

consistencies

Mul

tinat

iona

l Com

pani

es Abbott 20 1 2 23 4

Astrazeneca 6 7 8 21 3 Fulford 18 20 9 47 20 Glaxosmithkline 11.5 5.5 16 33 13.5 Merck 14 10 3.5 27.5 8 Novartis 11.5 4 17 32.5 11.5 Organon 8 15 3.5 26.5 7 Pfizer 15.5 12.5 5 33 13.5 Sanofi 13 14 7 34 15 Wyeth 1 5.5 19 25.5 6

Dom

estic

Com

pani

es Aurobindo 3 16 20 39 16

Cadila 19 11 1 31 9 Cipla 3 2 11.5 16.5 1 Dr Reddy’s 3 18 11.5 32.5 11.5 Ipca 9 9 6 24 5 Lupin 6 8 18 32 10 Piramal 15.5 17 14 46.5 19 Ranbaxy 10 19 13 42 17 Sun 6 3 10 19 2 Wockhardt 17 12.5 15 44.5 18


REFERENCES

[1] Kumar N (2003). Intellectual Property Rights, Technology and Economic Development: Experiences of Asian Countries. Economic and Political Weekly, January 18 : 209-226.

[2] Parasuraman Nr (2004). Working Capital Practices in Leading Pharmaceutical Companie s – A Vie of the Credit Policy and Earning Capability. :998- The Management Accountant, 39(12)1005.

[3] Mallik AK, Sur D and Rakshit D (2005). Working Capital and Earning capability: A Study on their Relationship with Reference to Selected Companies in Indian Pharmaceutical Industry. GITAM Journal of Management, 3(2):51-62.

[4] Chakraborty K (2008). Working Capital and Earning capability: An Empirical Analysis of their Relationship with Reference to Selected Companies in the Indian Pharmaceutical

Industry. The Icfain Journal of Management Research, VII(12): 41-59.

[5] Sur D and Chakraborty K (2012). Analysis of Financial Performance in Indian Pharmaceutical Sector: A Comparative Study of Multinational and Domestic Companies. Research Bulletin, XXXVI: 1-24.



APPENDIX List of Companies under Study

Multinational Companies

Abbott India Ltd. (Abbott) Astrazeneca Pharma India Ltd. (Astrazeneca) Fulford (India) Ltd. (Fulford) Glaxosmithkline Pharmaceuticals Ltd. (Glaxosmithkline) Merck Ltd. (Merck) Novartis India Ltd. (Novartis) Organon (India) Ltd. (Organon) Pfizer Ltd. (Pfizer) Sanofi India Ltd. (Sanofi) Wyeth Ltd. (Wyeth)

Domestic Companies

Aurobindo Pharma Ltd. (Aurobindo) Cadila Healthcare Ltd. (Cadila) Cipla Ltd. (Cipla) Dr. Reddy’s Laboratories Ltd. (Dr. Reddy) Ipca Laboratories Ltd. (Ipca) Lupin Ltd. (Lupin) Piramal Healthcare Ltd. ( Piramal) Ranbaxy Laboratories Ltd. (Ranbaxy) Sun Pharmaceuticals Industries Ltd. (Sun) Wockhardt Ltd. (Wockhardt)

FINANCIAL PERFORMANCE OF INDIAN PHARMACEUTICAL …...combined score of 9 in the average composite...

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