+ 44 20 8144 3706Abstract:
Sun Pharma is one of the fastest growing pharmaceutical companies in the world. Every year it makes investment in millions. In the capital structure debt has very less portion and due to this reason cost of finance is very high for the firm. Moreover, corporate finance strategy of the firm is also not properly prepared due to which less profit is gained on business and the firm is not able to make effective use of cash in its business. Liquidity position of the firm is good and equity is fairly valued in the market.
Introduction:
Sun Pharma is one of the India’s largest pharmaceutical company and 5th largest company in the world in specialty generic segment. Firm produce high quality, affordable medicine and sell them in 150 countries of the world. Currently, the firm has a team of 2000 scientists and 7% of revenue is spent on R&D. The firm has 48 production facilities across the globe. Mentioned firm business can be classified into four categories, namely Active Pharmaceutical Ingredients (API), International Branded Generics, Indian Branded Generics and US Generics. It can be said that firm is operating its business at large scale.
In the report, deep analysis of Sun Pharma Financials is done and in this regard literature review is done. In this section, a firm annual report is reviewed and varied, relevant theories are discussed in detail. In the middle part of the report, trend analysis is done and ratio analysis is performed. Further, equity valuation is done and comments are made on the same. At the end of the report, conclusion and recommendation section is prepared.
Literature review:
In the year 2019 Sun Pharma tops leadership make multiple decisions to improve business performance. Before discussing decisions they take it is essential to understand major problem the mentioned firm face in its business operations (Belkhir, Maghyereh, & Awartani, 2016). The pharmaceutical industry has consistently faced resistance from the Governments over the elevation of the price of medicines. Thus, considering this problem top leadership develops a consensus that there is need to innovate product lines and business process so that cost of production of varied medicines can be reduced sharply. This will create long term benefits for the stakeholders of the company.
In the year 2019 firm make heavy investment in its business activity in order to innovate products and process in the business. By developing innovativeness firm try to reduce cost of production and other expenses of the business. This assists firm to offer generic and specialty drugs at affordable price to the people and avoiding resistance from the Government side (Öztekin, 2015). Sun Pharma’s significant investments in building a global specialty business and efforts made for cost control in it is an important step in this direction.
Sun Pharma observed that demand of some of its products is very low in the market and due to this reason it decide to stop producing those drugs. This is because production cost was high but the demand was less due to which firm face loss in its business. By stopping production of relevant drug firm control cost in its business.
Currently, the firm is focusing on specialty medicines that are used to treat patients that have cancer or any other chronic disease. In the year 2019 firm allocated significant amount of resources in this segment of business (Zafar, 2016). Firm spends huge amount of clinical trials of specialty medicines and develop requisite front end capabilities. Majority of specialty drugs are now in commercialization phase in the current time period.
Recommendation:
It is recommended that firm must consistently make huge expenditure on R&D but it must not increase its property, plant and equipment at a growth rate of 12%. Sun Pharma must slightly elevate CAPEX. This is because it is not able to make effective utilization of cash in its business. A firm must prepare a plan about ways in which it can effectively utilize capital and assets that it have on its business. By doing so, more profit can be earned and effective utilization of cash can be done in the business.
It is also recommended that firm must try to receive payment from debtors as soon as possible and immediately make partial payment to creditors. By doing so trustworthy relationship can be kept with suppliers and payment issues can be avoided in the business.
It is also recommended that firm must further focus on innovating its production process so that cost cutting can be done in the business. A firm must identify new suppliers who can supply raw items at low cost. By doing so economies of scale can be generated in the business and profitability can be enhanced at a rapid pace.
Reference
Books and Journals
Anthony, P., and et.al., 2019. Financial performance evaluation of seven Indian chemical companies. Decision Making: Applications in Management and Engineering. 2(2). 81-99.
Arkan, T. 2016. The importance of financial ratios in predicting stock price trends: A case study in emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia. 79(1). 13-26.
Baker, M., & Wurgler, J. 2015. Do strict capital requirements raise the cost of capital? Bank regulation, capital structure, and the low-risk anomaly. American Economic Review. 105(5). 315-20.
Belkhir, M., Maghyereh, A., & Awartani, B. 2016. Institutions and corporate capital structure in the MENA region. Emerging Markets Review. 26. 99-129.
Devos, E., Rahman, S., & Tsang, D. 2017. Debt covenants and the speed of capital structure adjustment. Journal of Corporate Finance. 45. 1-18.
Doorasamy, M. 2016. Using DuPont analysis to assess the financial performance of the top 3 JSE listed companies in the food industry. Investment management and financial innovations, (13, Iss. 2). 29-44.
Graham, J. R., Leary, M. T., & Roberts, M. R. 2015. A century of capital structure: The leveraging of corporate America. Journal of Financial Economics. 118(3). 658-683.
Jordan, B. D., Miller, T. W., & Dolvin, S. D. 2015. Fundamentals of investments: valuation and management. McGraw-Hill Education.
Lakshmi, T. M., Martin, A., & Venkatesan, V. P. 2015. A genetic bankrupt ratio analysis tool using a genetic algorithm to identify influencing financial ratios. IEEE Transactions on Evolutionary Computation. 20(1). 38-51.
Öztekin, Ö. 2015. Capital structure decisions around the world: which factors are reliably important?. Journal of Financial and Quantitative Analysis. 50(3). 301-323.
Setiawan, H., & Amboningtyas, D. 2018. FINANCIAL RATIO ANALYSIS FOR PREDICTING FINANCIAL DISTRESS CONDITIONS (Study on Telecommunication Companies Listed In Indonesia Stock Exchange Period 2010-2016). Journal of Management. 4(4).
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