S N Juhi Final Project Report1

Internship Report on

STUDY ON WORKING CAPITAL MANAGEMENT

AT SHILPA MEDICARE LIMITED RAICHUR

BY

SOGRA NAVEED JUHI

3SL13MBA28

Submitted to

VISVESVARAYA TECHNOLOGICAL UNIVERSITY,BELGAUM

In partial fulfilment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Under the guidance of

INTERNAL GUIDE

Prof. BHGAYALAXMI RASTAPUR

Asst. Prof SLN college of Engineering.

EXTERNAL GUIDE

Mr. N C BHANDARI

Sr. Manager-FINANCEShilpa Medicare Limited

H.K.E Societys S.L.N.COLLEGE OFENGINEERING DEPARTMENT OF

MBAYeramarus Camp,RAICHUR-584 135(2013-2015 Batch)

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MBAYeramarus Camp,RAICHUR-584 135

CERTIFICATE

This is to certify that Mrs. SOGRA NAVEED JUHI bearing(USN: 3SL13MBA28) is a bonifide student of Master of Business Administration course of theInstitute (2013-2015) affiliated to Visvesvaraya Technological University, Belgaum. Internshipreport on STUDY ON WORKING CAPITAL MANAGEMENT is prepared by her underthe guidance of Prof. BHGAYALAXMI RASTAPUR, in partial fulfilment of the requirementsfor the award of the degree of Master of Business Administration of VisvesvarayaTechnological University, Belgaum Karnataka

Dr. C.H. Biradar

PRINCIPAL S.L.N.COLLEGE OFENGINEERING

2



CERTIFICATE


Prof. AMARESH PATIL

HOD DEPARTMENT OF MBAS.L.N.COLLEGE OF ENGINEERING

3



CERTIFICATE


Internal Guide

Prof. BHGAYALAXMI RASTAPUR

Asst. Professor, DEPARTMENT OF MBAS.L.N.COLLEGE OF ENGINEERING

4

Date: 13/02/2015

TO WHOM SO EVER IT MAY CONCERN

This is to certify that Mrs. Sogra Naveed Juhi bearing register number3SL13MBA28 student of Master of Business Administration from HKES S.L.N.College of Engineering. DEPARTMENT OF MBA, Yarmrus Camp,RAICHUR. has successfully completed her ORGANIZATION STUDY from

09.12.2014 to 13.02.2015

She took keen interest, in the work assigned to her. Her conduct and behavior wasfound good.

We wish her all success in her future endeavor

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DECLARATION

I, SOGRA NAVEED JUHI (USN: 3SL13MBA28), hereby declare that theInternship report entitled Working Capital Management with reference to Shilpa MedicareLimited, Raichur prepared by me under the guidance of Prof. BHGAYALAXMI RASTAPUR,faculty of M.B.A Department, SLN College of Engineering, Raichur and external assistance byMr. N C BHANDARI, Sr. Manager-FINANCE, Shilpa Medicare Ltd, Raichur.

I also declare that this Internship work is towards the partial fulfilment of theuniversity regulations for the award of degree of Master of Business Administration byVisvesvaraya Technological University, Belgaum.

I have undergone a summer project for a period of Twelve weeks. I further declarethat this project is based on the original study undertaken by me and has not been submittedfor the award of any degree/diploma from any other University/Institution.

Place:

Date:

Signature

SOGRA NAVEED JUHI

(USN: 3SL13MBA28)

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ACKNOWLEDGEMENT

It is my privilege to express a few words of gratitude and respect through this projectreport to all those who guided and inspired me in completing this project.

I express my deep gratitude to Visvesvaraya University, Belgaum, which gave me an

opportunity to undertake this project by including the summer project in its program of Masterof Business Administration.

I owe my utmost gratitude to Shri. C.H Biradar (Principal), Amaresh Patil (Head ofthe Dept.), my Internal Guide Prof. Bhgayalaxmi Rastapur and the faculty SLN college ofEngineering, Raichur, for their valuable guidance and useful suggestions.

I owe my sincere gratitude to Mr. Amrut Lahoti (Senior Manager), my External GuideMr. N C Bandhari, who always stood up to guide me and to resolve all my queries amidst their

busy schedule, and all the staff of Shilpa Medicare Limited, Raichur, who nurtured mydedication towards the work and continuous practice in the course of project.

My deep sense of gratitude and respect to my parents for their support andencouragement. Finally, I wish to sincerely acknowledge my gratitude to all the persons who

have helped me directly or indirectly in completing this project successfully.

Place:

Date:

Signature

SOGRA NAVEED JUHI

(USN: 3SL13MBA28)

7

TABLE OF CONTENTS

CHAPTER CONTENTS Page number

EXECUTIVE SUMMARY 11

1 INTRODUCTION 12 -21 Introduction about the Internship 13 Topic chosen for study 14 Need for the study 14 Objectives of the study 15 Scope of the study 15 Methodology adopted 15 Literature review and 16-21 Limitations of the study 21

2 INDUSTRY AND COMPANY PROFILE 22-38 Promoters 24 Vision, Mission &Quality Policy 25 Products / Services profile 25-26 Areas of Operation 27-28 Infrastructure facilities 29 Competitors information 29 SWOT analysis 30 Future growth and prospects and 31-33 Financial Statement 34-38

3 THEORETICAL BACKGROUND OF STUDY 39-48 Elaborative information on the subject chosen for

better understanding and usage in the analysis.

4 DATA ANALYSIS AND INTERPRETATION 49-57 Analysis and interpretation of the data Collected

with relevant tables and graphs.

5SUMMARY, FINDING ,SUGGESTIONS ANDCONCLUSIONS 58-59

BIBLIOGRAPHY 60

ANNEXURE 61-63

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LIST OF TABLES

TableNumber. Particulars

PageNumbers.

Table -1 ONCOLOGY APIS 26Table -2 UNDER DEVELOPMENT-ONCOLOGY APIS 26Table -3 NON-ONCOLOGY APIS

26NON-ONCOLOGY APIS UNDER DEVELOPMENT

Table -4 Ownership Pattern 28Table -5 SWOT ANALYSIS 30Table -6 Profit and Loss Account for the Year Ended 31st March

2014 35

Table -7 Balance Sheet for the Year Ended 31st March 2014 35-36Table -8 RATIO ANALYSIS 37-38Table -9 Table showing the inventory turnover ratio 49Table -9.1 Table showing the inventory conversion period 50Table -10 Table showing the Debtors turnover ratio 51Table -11 Table showing the current asset turnover ratio 52Table -12 Table showing the Working capital turnover ratio 53Table -13 Table showing the days of collectio12

n period 54

Table -14 Table showing the operating cycle 55Table -15 Table showing the current ratio 56Table -16 Table showing quick ratio 57

9

LIST OF FIGURES AND CHARTS

GraphNumber. Particulars

PageNumbers

Chart-1 Pie Diagram Ownership Pattern 28Graph-1 Graphical Representation of inventory turnover ratio 49Graph-1.1 Graphical Representation of inventory conversion period 50Graph-2 Graphical Representation of debtors turnover ratio 51Graph-3 Graphical Representation of current asset turnover ratio 52Graph-4 Graphical Representation of Working Capital Turnover

Ratio 53

Graph-5 Graphical Representation of average collection period 54Graph-6 Graphical Representation of operating cycle 55Graph-7 Graphical Representation of Current Ratio 56Graph-8 Graphical Representation of Quick Ratio 57

10

INTERNSHIP REPORT ON STUDY ON WORKING CAPITAL MANAGEMENT

H.K.E. SOCIETYS S.L.N. COLLEGE OF ENGINEERING DEPT OF MBA, RAICHUR 1111

EXECUTIVE SUMMARYEstablished in 1987, Shilpa Medicare Limited has carved a niche for itself in the

exceedingly competitive and quality-conscious sphere of pharmaceutical manufacturing. It

produce and export consistently high-quality active pharmaceutical ingredients fine

chemicals, intermediates, herbal products and specialty chemical products using

sophisticated technology, meticulously following international specifications. The

company has earned its spurs as a successful and reliable partner within the pharmaceutical

industry. Buyers within the country and from across the borders count on its fast track

integrated process development and finely honed expertise of its skilled and experienced

personnel.

The purpose of this study is to understand the management of working capital in

Shilpa Medicare Ltd., and to learn the concept of business decision-making. The goal of

working capital management is to ensure that the firm is able to continue its operation and

that it has sufficient cash flow to satisfy both maturing short term debt and upcoming

operational expenses. Working capital is used in Shilpa Medicare Ltd., for the following

purpose:-Raw material, work in progress, finished goods, inventories, sundry debtors, and

day today cash requirements. The Shilpa Medicare Ltd., keep certain funds which is

automatically available to finance the current assets requirements. The various information

regarding Working Capital Management such as classification, determinants, sources

have been discussed , Ratio Analysis has been Carried out using Financial Information for

last five accounting years i.e. from 2010 to 2014 Ratios like Working capital Turnover

Ratio, Quick Ratio, Current Ratio, Inventory Turnover Ratio, Debtor Turnover Ratio,Creditors turnover ratio have also been analyzed. A Statement of Changes in Working

Capital has also been analyzed. Main SWOT of the organization is postive, the Company

produces and exports consistently high-quality Pharmaceutical Products. Plant running

from past 21 yrs., there is no major break down because of close supervision andmaintenance. Various measures are taken to prevent the environmental hazard by the

organization to maintain ecological balance. Shilpa Medicare Ltd., is having a better

opportunity to setup a new plant in abroad since the export market for Shilpa Medicare

Ltd., products is very well established.

At Shilpa Medicare, the working capital management has shown increase in the

period of study. This shows working capital is managed effectively and all the other

departments are working in perfect co-ordination to ensure the progress of Shilpa Medicare,

but I have given some Suggestions & Conclusions on the basis of my Project study.



CHAPTER 1

INTRODUCTION

An organization in order to attain the objective has to satisfy itself before satisfyingthe customers. The organization generally comes into existence with the idea of attaining

their objectives through manufacturing products or rending service, to produce a very highquality products or service it require factors of production viz, land, labour, capital and

enterprise or organization. Of the four factors enterprise is the most important because it is

due to the enterprise or on organization the most appropriate blending of factors of

production take place, without it the other three have no significance as they complete

depend upon organization.

The successful organization has to take care of everything in the organization to

survive, exist, grew and develops by leaps and bounds.

Moreover the organization is foundation of management, the organization plane is

ill defined, management is rendered difficulty and ineffective. If on the other hand, it is

logically clear cut and streamlined to meet present day requirement, then the first requisite

of sound management has been achieved.



INTRODUCTION ABOUT THE INTERNSHIPAs a part of curriculum, every student studying MBA has to undertake a project on

a particular subject assigned to him/her. Accordingly I have chosen the project topic as Astudy of working capital management on Shilpa Medicare Ltd., Raichur.

I am thankful to have got the opportunity to do my project. Shilpa Medicare ltd,Raichur. This was like a dream come true as it is a leading company in a place like Raichur,

which is an industrially challenged area.

The organization culture is very good and it does create a homely atmosphere and

it motivates to learn. I learned how to apply theory into practical application. In corporate

world it is necessary to be patient and polite, this company has made me to incorporate this

important qualities in my life.

During the first week, it was totally a new experience entering into the organization.

On the first day of the training, factory manager detailed us very clearly about the company

& guidelines to be followed with respect to maintaining the discipline of the organization

and also informed the safety measures.

During the twelve weeks of the project in Shilpa Medicare Ltd I learnt about thevarious departments of the company and the way they function, way to deal and interact

with the clients and amongst the employees, gained practical knowledge about financial

transactions, learnt the importance of team spirit and unity at work to be successful.

Finally I would like to mention the name of Mr. N C Bhandari, who guided me

through everything I did during the project. Totally it was a highly useful training for mein the company. This has added value in my academic learning.



TOPIC CHOSEN FOR THE STUDYThe title of the project A study on working capital management of Shilpa

Medicare Ltd, Raichur. This study does not cause all the financial components of the firm

but includes analysis of working capital of the company

NEED FOR THE STUDYThe study has been conducted for gaining practical knowledge about Working

Capital Management & activities of Shilpa Medicare Ltd., The study is undertaken as a part

of the MBA curriculum in the form of in plant training for the fulfillment of the requirement

of MBA degree.

The study of working capital is needed as a supportive base for the business

operations. It is one of the areas of financial decision-making. The study is needed because,

the management must see that excessive investment in current assets should be minimized

and at the same time it should protect the company from the problem of stock outs. As the

working capital is necessary for meeting the day-to-day expenditure of the company like

wages, salaries, fuel charges and other expenditures, it is very necessary to manage the

working capital. The liquidity of firm depends on the current assets of the company.

As from the above discussion it is clear that the working capital is very important

part of a business. In other words we can say that the working capital is the heartbeat of the

company. As the fastness and slowness of the heartbeat, are not the indicators of the good

health. Same in case of working capital, the excess and shortage of working capital also

not good for a companys liquidity.

Hence, because of all of the above reasons one should know how to manage the

working capital of the company, so the present study is conducted in Shilpa Medicare Ltd,

for the purpose of knowing the management of working capital.



OBJECTIVES OF THE STUDYThis study has been taken up with the following major objectives.

To understand the working process of working capital management. To analyze better ways of managing Working Capital. To interpret the ratio of working capital. To understand the concept of operating cycle in the company. To understand the cash inflow and out flow of the company. To make suggestions based on the finding of the study

SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The mainscope

of the study was to combine the practical and the theoretical aspect of the study into real

lifework experience. The study of working capital is based on tools like Ratio Analysis

based on the study of last 5 years Annual Reports of Shilpa Medicare Ltd, to examine the

management of working capital and its efficiency.

METHODOLOGY ADOPTEDData CollectionSources of DataI have collected my information from the following sources, which helped me to make this

report. The sources have divided into two parts such as:

Primary Data:Primary data are the data collected directly by the officer of finance department because

they are not previously collected. Primary data is collected by interview certain managers

who were chosen on the basis of their in depth knowledge & work experience at Shilpa

Medicare Limited.

Secondary Data:Secondary data are those data, which are previously collected and compiled for other

purpose or further investigation. In this report the secondary data was collected by referring

to:

Annual reports

Balance sheet

Websites



LITERATURE REVIEW

AN OVER VIEW

A literature review is an essay or is part of the introduction to an essay, research report,

or thesis. It provides an overview and critical analysis of relevant published scholarly

articles, research reports, books, theses etc on the topic or issue to be investigated. A

detailed guide to the literature review is available on the Language and Learning services

website. Literature search: A systematic and exhaustive search for published material on a

specific topic.

It discusses published information in a particular subject area, andsometimes information in a particular subject area within a certain time period.It is a summary of research that has been published about a particular subject. Itprovides the reader with an idea about the current situation in terms of what has

been done, and what we know. Sometimes it includes suggestions about what

needs to be done to increase the knowledge and understanding of a particular

problem.

It gives an overview of what has been said, who the key writers are, what

are the prevailing theories and hypotheses, what questions are being asked, and

what methods and methodologies are appropriate and useful. As such, it is not

in itself primary research, but rather it reports on other findings. Literature

reviews can give you an overview or act as a stepping stone. It also provide a

solid background for a research paper's investigation.

A LITERATURE REVIEW MUST DO THESE THINGS:

be organized around and related directly to the thesis or research question youare developing

synthesize results into a summary of what is and is not known identify areas of controversy in the literature formulate questions that need further research



Structuring a literature review

It is often difficult to decide how to organize the huge amount of informationyou have collected.

The structure of each dissertation will be different but there are some generalprinciples and these are really the guidelines you should use for any piece of

academic writing.

Structuring a literature review

Introduction to the literature review Main part Conclusions

A literature review is a piece of discursive prose, not a list describing orsummarizing one piece of literature after another.

It's usually a bad sign to see every paragraph beginning with the name of aresearcher. Instead, organize the literature review into sections that present

themes or identify trends, including relevant theory.

ABSTRACT OF LITERATURE REVIEW

The current study contributes to the literature by examining impact of working

capital management on the operating performance and growth of new public companies.

The study also sheds light on the relationship of working capital with debt level, firm risk,

and industry. Using a sample of a manufacturing, the study finds a significant positive

association between higher levels of accounts receivable and operating performance. The

study further finds that maintaining control (i.e. lower amounts) over levels of cash andsecurities, inventory, fixed assets, and accounts payables appears to be associated with

higher operating performance, as well. We find that the firms which are experiencing

unusually high growth tend not to perform as well as those with low to moderate growth.

Further firms which are experiencing high growth tend to hold higher levels of cash and

securities, inventory, fixed assets, and accounts payables. These findings tend to suggest

that firms are willing to sacrifice performance (accept low or negative operating returns) toincrease their growth levels. The higher level of growth is also associated with higher

operating and financial risk. The findings of this study suggest that perhaps the firms should

stay more focused on their operating performance than on maintaining high growth levels.



INTRODUCTION AND LITERATURE REVIEW

Working capital policy refers to the firm's policies regarding 1) target levels foreach category of current operating assets and liabilities, and 2) how current assets will befinanced. Generally good working capital policy (i.e. under conditions of certainty) isconsidered to be one in which holdings of cash, securities, inventories, fixed assets, and

accounts payables are minimized.

The level of accounts receivables should be used as a means of stimulating sales

and other income. Previous literature on working capital management has found a negative

association, overall, between level of working capital and operating performance as

measured by operating returns and operating margins (Peterson and Rajan, 1997). Underconditions of certainty (i.e. sales, costs, lead times, payment periods, and so on, are known),firms have little reason to hold more working capital than a minimum level.

AN ANALYSIS OF WORKING CAPITAL MANAGEMENT RESULTS ACROSS INDUSTRIES :-

INTRODUCTION

The importance of efficient working capital management (WCM) is indisputable. Workingcapital is the difference between resources in cash or readily convertible into cash (CurrentAssets) and organizational commitments for which cash will soon be required (CurrentLiabilities). The objective of working capital management is to maintain the optimumbalance of each of the working capital components.

Business viability relies on the ability to effectively manage receivables, inventory, and

payables. Firms are able to reduce financing costs and/or increase the funds available for

expansion by minimizing the amount of funds tied up in current assets. Much managerial

effort is expended in bringing non-optimal levels of current assets and liabilities back

toward optimal levels. An optimal level would be one in which a balance is achieved

between risk and efficiency.

A recent example of business attempting to maximize working capital management

is the recurrent attention being given to the application of Six Sigma methodology. When

used to identify and rectify discrepancies, inefficiencies and erroneous transactions in the

financial supply chain, Six Sigma reduces Days Sales Outstanding (DSO), accelerates thepayment cycle, improves customer satisfaction and reduces the necessary amount and cost

of working capital needs. There appear to be many success stories, including Jennifer

Townes (2002) report of a 15 percent decrease in days that sales are outstanding, resulting



in an increased cash flow of approximately 2 million dollars at Thibodaux Regional

Medical Center. Furthermore, bad debts declined from 3.4 million dollar to o 600,000

dollar.

Even in a business using Six Sigma methodology, an optimal level of working

capital management needs to be identified. Industry factors may impact firm credit policy,

inventory management, and bill-paying activities. Some firms may be better suited to

minimize receivables and inventory, while others maximize payables. Another aspect of

optimal is the extent to which poor financial results can be tied to sub-optimal

performance. Fortunately, these issues are testable with data published by CFO magazine

(Mintz and Lazere 1997; Corman 1998; Mintz 1999; Myers 2000; Fink 2001), which claimsto be the source of tools and information for the financial executive, and are the subjectof this research.

The following section presents a brief literature review. Next, the research method is

described, including some information about the annual Working Capital Management

Survey published by CFO magazine. Findings are then presented and conclusions aredrawn.

MANY RESEARCHERS HAVE STUDIED WORKING CAPITAL FROMDIFFERENT VIEWS AND IN DIFFERENT ENVIRONMENTS. THE

FOLLOWING ARE SOME USEFUL RESEARCH:

RELATED LITERATURE

The importance of working capital management is not new to the finance literature.

Over twenty years ago, Largay and Stickney (1980) reported that the then-recentbankruptcy of W.T. Grant, a nationwide chain of department stores, should have been

anticipated because the corporation had been running a deficit cash flow from operations

for eight of the last ten years of its corporate life. As part of a study of the Fortune 500s

financial management practices. Following are the important views of scholars about

working capital management.



A. GILBERT AND REICHERT (1995) :Find that accounts receivable management models are used in 59 percent of these

firms to improve working capital projects, while inventory management models were usedin 60 percent of the companies. More recently, Farragher, Kleiman and Sahu (1999) findthat 55 percent of firms in the S&P Industrial index complete some form of a cash flow

assessment, but did not present insights regarding accounts receivable and inventory

management, or the variations of any current asset accounts or liability accounts across

industries. Thus, mixed evidence exists concerning the use of working capital management

techniques. Theoretical determination of optimal trade credit limits are the subject of manyarticles over the years (e.g., Schwartz 1974; Scherr 1996), with scant attention paid to actualaccounts receivable management. Across a limited sample,

B. WEINRAUB AND VISSCHER (1998) :Observe a tendency of firms with low levels of current ratios to also have low levels

of current liabilities. Simultaneously investigating accounts receivable and payable issues,

Hill, Sartoris, and Ferguson (1984) find differences in the way payment dates are defined.Payees define the date of payment as the date payment is received, while payers view

payment as the postmark date. Additional WCM insight across firms, industries, and time

can add to this body of research. Maness and Zietlow (2002, 51, 496) presents two modelsof value creation that incorporate effective short-term financial management activities.

However, these models are generic models and do not consider unique firm or industry

influences. Maness and Zietlow discuss industry influences in a short paragraph that

includes the observation that, An industry a company is located in may have more

influence on that companys fortunes than overall GNP (2002, 507).

C. ELJELLY, 2004 :

Elucidated that efficient liquidity management involves planning and controlling

current assets and current liabilities in such a manner that eliminates the risk of inability to

meet due short-term obligations and avoids excessive investment in these assets. The

relation between profitability and liquidity was examined, as measured by current ratio and

cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabiausing correlation and regression analysis.

The study found that the cash conversion cycle was of more importance as a measure of

liquidity than the current ratio that affects profitability. The size variable was found to have

significant effect on profitability at the industry level. The results were stable and had

important implications for liquidity management in various Saudi companies. First, it was



clear that there was a negative relationship between profitability and liquidity indicators

such as current ratio and cash gap in the Saudi sample examined. Second, the study also

revealed that there was great variation among industries with respect to the significant

measure of liquidity.

D. BERGAMI ROBERT (2007) :Analysis that that international trade transactions carry inherently more risk than

domestic trade transactions, because of differences in culture, business processes, laws and

regulations. It is therefore important for traders to ensure that payment is received for goods

dispatched and that the goods received and paid for comply with the contract of sale. One

effective way of managing these risks has been for traders to rely on the letter of credit as

a payment method. However for exporters in particular, the letter of credit has presented

difficulties in meeting the compliance requirements necessary for the payment to be

triggered.

The current rules that govern letter of credit transactions(UCP 500) have been underreview for the past three years and an updated set of rules (UCP 600) is expected to beintroduced on 1July 2007. This paper focuses on the changes mooted for 2007and compares

these main issues with the existing rules and other associated guidelines and regulations

governing this method of payment. This paper considers the implication to changes of letter

of credit transactions and the sharing of risk. Firstly the paper provides some background

to letters of credit, then comments on existing literature and models, and subsequently an

analysis of the most important changes to the existing rules, before reaching a conclusion.

The conclusion is that the UCP 600 have not paid enough consideration to traders and

service providers and are likely to engender an environment of uncertainty for exporters in

particular.

LIMITATIONS TO THE STUDY

The study was conducted only for 12 weeks, which was not sufficient to collect thecomplete information regarding the departments of the company

Limited interaction with the concerned heads due to their busy schedule. The analysis is limited to just five years of data study (from year 2010 to year 2014)

for financial analysis.

Analysis of this project report was again a big problem because some of the currentyear information was not fully available.



INDUSTRY PROFILECHAPTER 2

Global Indusry Overview:The global pharmaceutical industry is expected to be worth more than

$ 1 trillion in 2014, growing at the compound annual growth rate of 4-5% over the five yearperiod.

The global pharmaceutical industry is a multinational industry that is a

highly regulated, capital intensive, and which is driven by large research and development

expenditures. The industry is primarily privately owned and is technologically sophisticated.

The strong growth in the developed and emerging countries will help to boost sales over the

next five years.

Emerging markets such as China, South Korea, Brazil, Russia and

Turkey have been experienced double-digit growth signaling an important shift occurring

in the pharmaceutical industry. As growth in the mature markets is coming to flat, industry

attention is shifting to smaller, developing markets that are doing exceptionally well.

Pharmaceutical Industry in India-An Overview:

India is among the top five emerging pharma markets and has grown at an estimated

compound annual growth rate (CAGR) of 13 per cent during the period FY 20092013. TheIndian pharmaceuticals market grew at a CAGR of more than 15 percent in 2013. According

to the survey reports the Indian pharmaceutical market is poised to grow to US$ 55billion by 2020 from the current levels.

Indias pharma industry accounts for about 1.4 per cent of the global pharma

industry in value terms and 10 per cent in volume terms. Among the fastest growing pharma

industries in the world, Indias pharmaceutical sector is expected to expand at a compound

annual growth rate (CAGR) of 12.1 per cent during 20122020 and reach US$ 45 billion.By 2020, the country is expected to be within the top three pharmaceutical markets by

incremental growth and sixth largest market globally in absolute size.

A new cluster of countries is contributing to the growth of the pharma industry,

resulting in a robust jump in exports of drugs. Both domestic and export-led demandcontributed towards the robust performance of the sector. On improved utilisation of

manufacturing facilities, the domestic pharmaceutical market is likely to see high revenue

growth and profit margins.



Currently, Indian drugs are exported to more than 200 countries in the world, with

the US as the key market. It is responsible for about 40 per cent of the generic and over-the-

counter drugs consumed in the US. During the year 2013, Foreign Direct Investment (FDI)into the Indian pharmaceutical sector has more than doubled.

Substantial increase of expenditure by the Government of India and its states would

definitely create further demand to the pharmaceuticals. With 70 per cent of Indias

population residing in rural areas, pharma companies have immense opportunities to tap this

market. Demand for generic medicines in these regions has seen a sharp growth, and various

companies are investing in the distribution network in rural areas. The share of generic drugs

is expected to continue increasing. Oncology will be a key area of growth in Indias

healthcare sector. With increase in emphasis on health coverage both by central and state

governments, spending on coverage of medicines for oncology will see substantial rise

in next 3-5 years.

COMPANY PROFILEBackground and Inception of the Company

Established in 1987, Shilpa Medicare Limited has carved a niche for itself in the

exceedingly competitive and quality-conscious sphere of pharmaceutical manufacturing. It

produce and export consistently high-quality active pharmaceutical ingredients fine

chemicals, intermediates, herbal products and specialty chemical products using

sophisticated technology, meticulously following international specifications. The

company has earned its spurs as a successful and reliable partner within the pharmaceutical

industry. Buyers within the country and from across the borders count on its fast track

integrated process development and finely honed expertise of its skilled and experienced

personnel. The Company is already exporting to USA, Canada, Australia, Japan and

European Countries viz., Germany, Switzerland, Netherlands, Belgium, Spain, Greece,

Cyprus, Italy, United Kingdom etc., South American Countries like Mexico, Brazil,

Columbia etc., African Countries like Kenya, Nigeria and West Indies etc., Asian Countries

like Singapore, Taiwan, China, Malaysia, Thailand and closer to home to Iran, Egypt,

Pakistan and Bangladesh. Shilpa Medicare is synergizing strength through tie-ups for

manufacturing products and co-marketing rights, for it believes in working together and

sharing success. Being proactive in approach, the company continually seeks out enquiry's

for development of new products drawing from the extensive knowledge-base of its

qualified and experienced people as well as sophisticated facilities.



Nature of the business carriedReliable Partner for API's & Customs Synthesis; recognized by Govt. of India &

Export House. It is the largest Manufacturer and Exporters of Oncology API's from India

& Bulk Drugs. Products registered in Europe, Russia, Korea, Iran, Canada, Japan,

Australia, etc. With World class State of the art facility. WHO GMP Approved Plant.

Patents filed for non-infringing manufacturing process. Highly efficient & cost effective

technology & manufacturing process.

Name of the Company SHILPA MEDICARE PVT LTDAddress Plot No: 33-33A,Industrial Growth center,

Wadloor Road,Chicksugur Cross,Hyderabad Road, Chicksugur-584134

Incorporation Date 20/11/1987Area 20 Acres

10/80 1st Floor,Company Head Office Rajendragunj,

Raichur, Karnataka-584102Fax 91-08532-235876Phone 91-08532-235006/23570E-mail [email protected] http://www.vbshilpa.com

PROMOTERSBoard of Directors

Shri Omprakash Inani : Chairman

ShriVishnukant C Bhutada : Managing Director

Shri Ajeet Singh Karan : Independent DirectorCarlton Felix Pereira : Independent Director

Shri Pramod Kasat : Independent Director

Shri Rajendra Sunki Reddy : Independent DirectorShri N.PS Shinh : Independent Director

Shri Venugopal Loya : Independent Director

Board Committees :Audit CommitteeVenugopal Loya - ChairmanOmprakash Inani - MemberPramod Kasat - MemberRajender Sunki Reddy Member

AuditorsBohara Bhandari Bung And AssociatesChartered AccountantsAmar Complex, M.G. RoadRaichur 584 101



VISION, MISSION AND QUALITY POLICY VISION &MISSIONShilpa Medicare shall be part of a healthier and happier future for all kind of people

irrespective of their economic status. Every human being shall be cared for and we shall

provide them hope during the turbulent times of their lives. Our hard work, diligence,

sincerity, more than two decades of experience and honesty, backed by intelligent planning,

shall forge a synergy of thoughts and action. Shilpa Medicare shall maintain the best quality

by continuous improvement in the system to ensure regulatory compliance to meet the

international standards, simultaneously keeping in mind the environmental health. In

accomplishing our mission we shall stand by our values, which run in the very existence of

our organization

QUALITY POLICYShilpa Medicare provides consistent quality to the customers. Strict quality assurance is

inherent in every step of our process, from incoming raw materials, maintenance, and

manufacture to finally shipment of the finished product. Our manufacturing facilities and

procedures are standardized to provide the international quality attributes to the products

consistently for each batch through a well-documented, validated and audited system. The

quality assurance of our products is our responsibility and all the departments of the

company share this responsibility by following all the requisite measures and resources to

achieve these goals.

We follow strict quality standards to ensure that all the products being manufactured are

consistently safe, effective and bear good quality. We ensure that all our products comply

with required quality parameters, and consistently meet their specifications. We adhere to

the responsible care programme to ensure optimum customer satisfaction. Adherence to

cGMP norms is an integral part of our total quality management system. We shall always

strive to maintain our reputation for consistent quality, service and timely delivery.

PRODUCT/ SERVICE PROFILEShilpa Medicare Limited has carved a niche for itself in the exceedingly competitive and

quality-conscious sphere of pharmaceuticals manufacturing. It produce and export

consistently high-quality Active Pharmaceutical Ingredients Fine Chemicals,

intermediates, herbal products and specialty chemical products using sophisticated

technology, meticulously following international specifications.



TABLE 1 ONCOLOGY APIS AnastrozoleImatinibMesylate AzacitidineIrinotecan HCl Trihydrate BendamustineLenalidomide Bicalutamide LetrozoleBortezomib MelphalanBusulphan OxaliplatinCabazitaxel Amorphous PaclitaxelCapecitabine Pazopanib

Carboplatin Pemetrexed DisodiumHemipentahydrateCladribine Pemetrexed DiPotassiumClofarabine Sorafenib TosylateCyclophosphamide SunitinibCytarabine TemozolomideDasatinib Monohydrate ThalidomideDecitabine TopotecanHClDocetaxel VismodegibErlotinib Zoledronic acidGemcitabine HCl 5- Fluoro UracilHydroxyUrea

TABLE 2

TABLE 3

UNDER DEVELOPMENT-ONCOLOGY APISPRODUCTS UNDER DEVELOPMENT (Oncology)Abiraterone Acetate AxitinibBosutinib CrizotinibEnzalutamide EstramustineExemestane GefitinibLapatinibDitosylate NilotinibProcarbazine PralatrexateRegorafenib Temsirolimus

NON-ONCOLOGY APIS NON-ONCOLOGY APIS UNDERDEVELOPMENTAcebrophyllineAmbroxolHClEchothiophateFingolimod HClNifedipinePerfenidone

PrucaloprideSuccinateRivastigmineSildenafil CitrateUrsodeoxycholic acidValsartan

Dimethyl FumarateMethotrexatePirfenidoneVemurafenib

OdanacatibTofacitinib



AREA OF OPERATIONShilpa Medicare Ltd has global presence in its operations, the plants and offices of the

company have been established in the following countries.

Italy Germany China Japan Australia USA Turkey

Regulatory Approvals

Regulatory Authorities RaichurUnit IRaichur

Unit IIWHO-GMPKFDA - KoreaDSIR, Govt. of IndiaPMDA-JapanTGA-AustraliaBSG-HamburgAfssaps-FranceInfarmed-PortugalTPD-CanadaEDQM (CEP)USFDA (Inspected)

UNITS

I. Raichur UnitII. Jadcherla Unit

III. Hyderabad unit-Nu TherapeuticsIV. Shadnagar Unit



0%0

5%0%%% 2%1%

Ownership Pattern

TABLE 4HOLDER'S NAME NO OF SHARES % SHARE HOLDINGPromoter and Promoter Group 20453658 53.06 %Banks Mutual Funds 27120 0.07%Financial Institutions 3218 0.01%Foreign Institutions Investors 5695843 14.77%Bodies Corporate 2413453 6.27%Individual shareholders holdingnominal sharecapital up to Rs.l lakh.

3234988 9.65%

Individual shareholders holdingnominal share capital in excess ofRs.l lakh

1977029 5.13%

Directors 59250 0.15%Trusts 1250 0.00%F. C. B 3000000 7.78%Non-resident Indians 926661 2.45%HUF 209819 0.54%Clearing Members 42706 0.11%

Pie Diagram 1

Chart Title Promoter and PromoterGroup

Banks Mutual Funds

Financial Institutions

8 0%Foreign InstitutionsInvestors

Bodies Corporate

10%

6%

15%%

53%Individual shareholdersholding nominal sharecapitalup to Rs.l lakh.Individual shareholdersholding nominal sharecapital in excess of Rs.l lakhDirectors

Trusts

F. C. B



INFRASTRUCTURAL FACILITIESThe Company has state of the art facilities for the employees. It gives importance to the

environment and takes the utmost care of health of the workers. The company is situated

in the outskirts of the city and is away from the pollution causing due to vehicles. The

company has 20 acres. The space is also used for greenery concentrating on the

environment that creates a good working condition for the employees. The company

provides all the facilities to the employees, like:

Canteen Facility Quality assurance Planning Better Sales and services Wash rooms Drinking water Transport facility First Aid

COMPETITORS INFORMATION Anjaneya Life Care Ltd Aarey Drugs & Pharmaceutical Ltd Aarti Drugs Ltd Abbott India Ltd ABL Bio-Technologies Ltd Addlife Pharma Ltd Cipla Piramal Healthcare Ranbaxy Labs Dr Reddys Lab Sun Pharma



SWOT ANALYSIS

SWOT-Acronym for Strengths, Weaknesses, Opportunities, and Threats. It is aTechnique that is credited to Albert Humphrey who led a research project at StanfordUniversity in the 1960s and 1970s. It is a structured planning method used to evaluate thestrengths, weaknesses, opportunities and threats involved in a project or in a businessventure.

This section of the Report will focus on the SWOT Analysis of Shilpa MedicareLtd., and the below highlighted is the SWOT framework summary.

TABLE 5

STRENGTHS Cost competitiveness due to lower

labour cost and production cost

Strong marketing and distributionnetwork in domestic as well asinternational market

Superior management Talent.

Committed employees. Benefits provided by government

to 100% EOU Unit

WEAKNESS Company not getting quality man

power available in this region.

Lack of strong linkages betweenindustries and academia

Inadequate access to pool ofhighly trained and skilledscientists, both in India andabroad.

Modern machines andequipments are not installed inthe company.

OPPORTUNITIES Significant export potential to the

developing as well as developedcountries

Licensing deals and collaborationswith MNCs for New ChemicalEntitiesand New Drug Delivery Systems

Contract manufacturingarrangements with MNCs

Potential for developing thecompany as a center forInternational Clinical Trials

Drugs that address rising

multifactorial disorders such as

cancer as well as lifestyle disorders

such as obesity are also likely to

experience strong revenue growth

THREATS R & D efforts of Indian

pharmaceutical companieshampered by lack ofenabling regulatory requirement.For instance, restrictions onanimaltesting, outdated patent office, etc

Product patent regime posesserious challenges to domesticindustries unless it invests in R &D.

Drug (Pricing Control) Order putsunrealistic ceilings on productprices and profitability. andprevents pharmaceuticalcompanies from generatinginvestible surplus.

Exports effort hampered byprocedural hurdles in India as wellasnon-tariff barriers imposedabroad.



FUTURE GROWTH AND PROSPECTS

It is often said that the pharma sector has no cyclical factor attached to it.

Irrespective of whether the economy is in a downturn or in an upturn, the general belief is

that demand for drugs is likely to grow steadily over the long-term. Todays pharma

business indicates dynamic shift from the past decade owing to stringent IP driven needs

for the market.

As per 'Pharma Vision 2020', the Government of India aims to make India a global

leader in end-to-end drug manufacturing

Manufacturing costs in India are approximately 35-40 per cent of those in the USdue to low installation and manufacturing costs

The biologics market will grow to 3 billion USD by 2020. The projected humanresource requirement in the Indian pharma sector is estimated to be about 21,

50,000 by 2020 Industry Least affected by recession Due to increasing population and income levels, demand for high-end drugs is

expected to reach US$ 8 billion by 2015 Expenditure on pharmaceuticals is likely to increase to over 40 per cent of the

total spending on healthcare by households by 2015 from 28 per cent in 2007

With 70 per cent of India's population residing in rural markets, various pharmacompanies are investing in the distribution network in rural areas

Increased penetration of chemists, especially in the rural parts of the countrywould make OTC drugs easily available.

Number of drugs going off-patent in the developed countries offers a bigopportunity for the Indian companies to capture this market. Since generic drugs

are commodities by nature, Indian producers have the competitive advantage, as

they are the lowest cost producers of drugs in the world.

Opening up of health insurance sector and the expected growth in per capitaincome are key growth drivers from a long-term perspective. This leads to the

expansion of healthcare industry of which pharma industry is an integral part.

Being the lowest cost producer combined with FDA approved plants, Indiancompanies can become a global outsourcing hub for pharmaceutical products.

Government of India is poised to increase its spending on health care whichwould result more demand to pharmaceutical products.



In the above context, Shilpa Medicare is successfully striving for innovative

solutions that may help patients in one way or the other regarding their affordable

healthcare requirements.

As a growing organization, they are collaborating and working with a large number

of reputed partners and clients. They are foreseeing market opportunities, and backing them

up with quick decision making, so as to help in timely introduction of affordable generics

which shall reach patients as quickly as possible. With the relevant expertise and know-

how for the development and production of simple to complex products, ranging across

APIs, formulations and new drug delivery systems.

Taking the lead and outperforming competition shall ensure success in the coming years

and enable them to continuously invest in the future. With their sincere efforts they shall

be among the leaders in healthcare industry, providing affordable medicines to all the strata

of society

Future Expansion Plans at a Glance Shilpa Medicare is expecting to construct Raichem Medicare Pvt Ltd

opposite to Shilpa Medicare ltd

Constructing Raichem Life sciences Pvt Ltd (Formulation Unit). It has strong determination to expand its plant. The important plan of the company is to be the leader in the market or to be

in the leading position



AWARDS /ACHIEVEMENTS National Energy Conservation Award- 2012 Conferred by President of India Karnataka State Govt.''Best Entrepreneur Award''. Govt. of India''Best Entrepreneur Award''. ''Star Export House''Status from Ministry of Commerce and Industry, Govt. of

India.

''Best Export Award''from Visvesvaraya Industrial Trade Centre, Bangalore,Govt. of Karnataka, India.

''Outstanding Industrial Award''from Indian Junior Chamber. ''Registration with ''Russian Health Authority'' for AmbroxolHCl. ''Certificate of Suitability'' received from EDQM for AmbroxolHCl (R0-CEP

2004-201-Rev 00). ''Certificate of Suitability'' received from EDQM for TiclopidineHCl (R0-CEP

2005-004-Rev 00). ''Certificate of Suitability'' received from EDQM for Carboplatin (R0-CEP

2006-212-Rev 00). Patent application on IrinotecanHClTrihydrate "An improved process for the

preparation of IrinotecanHClTrihydrate" published as WO2006016203 on date

2006-02-16.

Patent file for Gemcitabine HCl and Anastrozole manufacturing process. Filed ASMF/EDMF of Gemcitabine HCl over 21 EU countries. Filed ASMF/EDMF of IrinotecanHClTrihydrateHCl over 27 EU countries. Filed ASMF/EDMF of OxaliplatinHCl over 11 EU countries. "Best District Export Award" received from FKCCI, Bangalore on 16.06.2007. Korean FDA Approved for Gemcitabine HCl&AmbroxolHCl. COS received from EDQM for BuflomedilHCl (R0-CEP 2006-080-Rev.00). COS received from EDQM for Oxaliplatin EP (R0-CEP 2006-201-Rev.00). "Best District Export Award" received from FKCCI, Bangalore on 20.06.2008. COS received from EDQM for Gemcitabine HCl EP (R0-CEP 2006-222-Re



FINANCIAL STATEMENT

TABLE 6

Profit and Loss Account for the Year Ended 31st March 2014(Rs. In Millions)

Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010YRCLess: Sales Returns 0 0 0 0 0Less: Excise 69.94 70.85 52.68 58.24 54.35Net Sales 5273.68 3281.96 2797.59 2575.44 2344.60EXPENDITURE :Increase/Decrease inStock -118.28 37.08 -170.12 88.40 -146.67Raw Materials Consumed 3168.60 2012.93 1915.66 1450.31 1427.59Power & Fuel Cost 155.48 88.32 76.35 56.50 45.19Employee Cost 374.36 227.61 169.41 128.47 101.30Other ManufacturingExpenses 228.00 132.84 101.97 78.35 46.13General andAdministration Expenses 110.99 76.75 64.50 40.19 30.37Selling and DistributionExpenses 72.23 41.12 30.25 28.42 55.61Miscellaneous Expenses 95.62 11.23 46.69 10.90 13.44Expenses Capitalised 0 0 0 0 0Total Expenditure 4086.99 2627.89 2234.71 1881.53 1572.96PBIDT (Excl OI) 1186.69 654.07 562.88 693.91 771.64Other Income 88.53 50.06 77.86 90.97 53.32Operating Profit 1275.22 704.14 640.74 784.88 824.96Interest 43.48 19.45 19.71 22.73 54.87PBDT 1231.74 684.69 621.03 762.14 770.09Depreciation 210.92 127.54 114.38 104.21 97.65Profit Before Taxation &Exceptional Items 1020.82 557.15 506.65 657.93 672.44Exceptional Income /Expenses 0 -1.04 6.27 0 0Profit Before Tax 1020.82 556.11 512.92 657.93 672.44Provision for Tax 212.25 96.52 115.45 149.11 212.31PAT 808.57 459.60 397.48 508.82 460.13Extraordinary Items 0 0 0 0 0Adj to Profit After Tax 0 0 0 0 1.07Profit Balance B/F 1821.52 1451.48 1132.15 714.79 321.63Appropriations 2630.09 1911.07 1529.63 1223.61 782.83Equity Dividend (%) 50.00 65.00 45.00 40.00 35.00Earnings Per Share (Rs.) 21.98 18.74 16.21 21.18 20.89Book Value (Rs.) 112.15 134.88 117.15 96.09 50.94



TABLE 7

Blanace Sheet for the Year Ended 31st March 2014

(Rs. In Millions)Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010Share Capital 73.57 49.05 49.05 48.05 44.05Share Warrants &Outstandings 0.00 0.00 0.00 43.75 0.00Total Reserves 4052.08 3258.81 2823.95 2260.31 1077.90Shareholder's Funds 4125.65 3307.86 2872.99 2352.11 1121.95Minority Interest 0 0 0 0 0Long-Term Borrowings 0 0 0 0 0Secured Loans 373.80 432.19 50.75 111.63 671.74Unsecured Loans 0 0 0 0 15.30Deferred Tax Assets /Liabilities 269.75 206.30 191.08 152.62 136.41Other Long TermLiabilities 0 0 0 0 0Long Term TradePayables 0 0 0 0 0Long Term Provisions 8.79 3.12 7.58 6.00 0Total Non-CurrentLiabilities 652.34 641.61 249.41 270.24 823.46Current Liabilities 0 0 0 0 0Trade Payables 866.12 477.38 531.35 239.96 375.66Other Current Liabilities 356.29 215.07 182.77 142.70 8.15Short Term Borrowings 220.22 389.23 357.32 278.59 0Short Term Provisions 47.79 38.00 26.00 22.41 92.77Total Current Liabilities 1490.42 1119.69 1097.43 683.66 476.58Total Liabilities 6268.40 5069.16 4219.83 3306.01 2421.98

Continued..



Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010ASSETS 0 0 0 0 0Non-Current Assets 0 0 0 0 0Gross Block 3387.32 2126.99 1881.79 1629.96 1559.63Less: AccumulatedDepreciation 810.71 601.44 473.38 359.01 280.24Less: Impairment ofAssets 0 0 0 0 0Net Block 2576.61 1525.56 1408.41 1270.95 1279.39Lease Adjustment A/c 0 0 0 0 0Capital Work in Progress 492.35 1141.79 552.66 12.55 30.58Intangible assets underdevelopment 0 0.93 0 0 0Pre-operative Expensespending 0 0 0 0 0Assets in transit 0 0 0 0 0Non-Current Investments 650.65 370.07 331.13 280.84 36.95Long Term Loans &Advances 300.60 199.92 171.76 24.56 0Other Non-Current Assets 4.64 3.99 3.44 3.00 0Total Non-CurrentAssets 4024.84 3242.25 2467.40 1591.90 1346.92Current Assets Loans &Advances 0 0 0 0 0Currents Investments 101.39 502.82 680.22 0 0Inventories 1089.50 661.30 598.70 374.44 436.46Sundry Debtors 603.09 318.77 331.87 336.34 314.86Cash and Bank 8.05 105.26 19.49 837.48 17.98Other Current Assets 173.84 112.13 65.06 60.75 48.51Short Term Loans andAdvances 267.69 126.65 57.10 105.10 257.25Total Current Assets 2243.56 1826.91 1752.43 1714.10 1075.06Net Current Assets(Including CurrentInvestments) 753.15 707.22 655.00 1030.45 598.49Total Current AssetsExcluding CurrentInvestments 2142.17 1324.09 1072.21 1714.10 1075.06Miscellaneous Expensesnot written off 0 0 0 0 0Total Assets 6268.40 5069.16 4219.83 3306.01 2421.98

Contingent Liabilities 430.02 400.69 559.08 266.72 217.35Total Debt 800.78 981.66 548.64 501.84 687.05Book Value 112.15 134.88 117.15 96.09 50.94Adjusted Book Value 112.15 89.92 78.10 64.06 33.96



TABLE 8

RATIO ANALYSIS

Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010Operational &Financial Ratios

Earnings Per Share ( ) 21.98 18.74 16.21 21.18 20.89CEPS( ) 27.71 15.96 13.91 17.01 16.88DPS( ) 1.00 1.30 0.90 0.80 0.70Book NAV/Share( ) 112.15 134.88 117.15 96.09 50.94Tax Rate (%) 20.79 17.36 22.51 22.66 31.57

Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010Margin Ratios

Core EBITDA Margin(%) 22.21 19.51 19.75 26.35 32.17

EBIT Margin (%) 19.92 17.17 18.69 25.84 30.32Pre Tax Margin (%) 19.10 16.59 18.00 24.98 28.03PAT Margin (%) 15.13 13.71 13.95 19.32 19.18Cash Profit Margin

(%) 19.08 17.51 17.96 23.28 23.25

Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010Performance Ratios

ROA (%) 14.26 9.90 10.56 17.77 20.77ROE (%) 21.75 14.87 15.34 29.67 51.11ROCE (%) 23.10 14.93 16.97 29.19 42.03Asset Turnover(x) 0.94 0.72 0.76 0.92 1.08Sales/Fixed Asset(x) 1.94 1.67 1.62 1.65 1.61Working

Capital/Sales(x) 7.10 4.74 4.35 2.56 4.01

Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010Efficiency Ratios

Fixed Capital/Sales(x) 0.52 0.60 0.62 0.61 0.62Receivable days 31.48 35.42 42.78 45.13 38.28Inventory Days 59.79 68.58 62.31 56.19 50.66Payable days 59.11 68.15 62.12 57.27 61.52



Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010Valuation Parameters

PER(x) 18.78 8.74 14.78 12.41 8.49PCE(x) 14.89 10.26 11.48 10.30 10.51Price/Book(x) 3.68 1.82 2.05 2.73 5.22Yield (%) 0.24 0.53 0.38 0.30 0.26EV/Net Sales(x) 3.03 2.10 2.29 2.32 2.78EV/Core EBITDA(x) 12.53 9.80 10.00 7.61 7.92EV/EBIT(x) 15.01 11.99 12.03 8.78 8.98EV/CE(x) 2.55 1.36 1.52 1.81 2.70M Cap / Sales 2.88 1.84 2.10 2.45 2.50

Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010Growth Ratio

Net Sales Growth (%) 60.69 17.31 8.63 9.85 72.45Core EBITDA

Growth (%) 81.10 9.89 -18.36 -4.86 200.89EBIT Growth (%) 84.91 8.06 -21.75 -6.41 240.28PAT Growth (%) 75.93 15.63 -21.88 10.58 520.37EPS Growth (%) 17.29 15.63 -23.48 1.38 520.36

Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010Financial StabilityRatios

Total Debt/Equity(x) 0.19 0.30 0.19 0.22 0.61Current Ratio(x) 1.51 1.63 1.60 2.51 2.26Quick Ratio(x) 0.81 1.05 1.06 1.98 1.34Interest Cover(x) 24.48 29.59 27.03 29.94 13.25Total Debt/M cap(x) 0.05 0.24 0.09 0.08 0.18

Few formulas used

1. Calculation of working capital: Current asset-Current liability2. Calculation of current ratio: Current asset/Current liability3. Calculation of quick Ratio: Current Asset Inventory

Current liability4. Calculation of cost benefit ratio: Profit

Capital



THEORETICAL BACKGROUND OF THE STUDY

WORKING CAPITAL MANAGEMENTA study of working capital management is of major importance to internal and

external analysis because of its close relationship with the day to day operations of a

business. Working capital is that portion of the assets of a business which are used in or

related to current operations and represented at any one time by the operating cycle of such

items as against receivables, inventories of raw material, stores, work in process and

finished goods, merchandise, notes or bills receivables and cash.

In accounting working capital is the difference between inflow and outflow of

funds. In other words, it is the net cash inflow. It is defined as the excess of current assets

over current liabilities and provisions. Working capital is often referred to as circulating

capital. The use of the term circulating capital instead of working capital indicates that its

flow is circular in nature. At the beginning of a business venture, cash is provided by owners

and lenders. A part of this cash is invested in tools, machinery, furniture, equipment,

building and other forms of fixed assets, which are not to be sold during the normal course

of business. The remaining cash is used as working capital to meet the current requirements

of a business enterprise such as purchase of service, raw material or merchandise. When a

firms products or finished goods are sold, it has what is known as cash or receivables.

When receivables are collected, more cash is available for the purchase of raw material or

merchandise and service. This flow of cash into production and so on, illustrates the circular

flow of working capital. The term circulating capital is frequently used to denote those

assets which are changed with relative rapidly from one form to another.

Working capital funds are different from working funds in a business. Working

funds are the total resource of a business. Working funds are the total resource of a business

concern and include internal and external equities, which are sunk in current fixed assets.

Working capital funds however are sunk only in current assets of a concern.

Business firms are established by investment in the form of assets that can be

classified on the basis of liquidity. Firms finance the total investment in assets with debt

and owners equity, the supply of which is limited. The principles of financial management

form the basis of managing investments and related financing with current debt, long term

debt, capital contribution or related earnings. The investment in current assets is a working

capital and the related financial management approach is working capital management.



Working capital management is defined here as a process of planning and

controlling he levels of investment and financing current assets as well as related operations

of purchasing and selling. It requires managers to decide on what levels of current assets

the firm will hold at any point in time and on how these current assets are to be financed.

Operations include activities related to purchase of material and the sales of finished

goods. Operating cycle determines a firms working capital investment and its financing

needs. The purchase and sales operations create cash inflow and outflows, which are both

unsynchronized and uncertain. They are unsynchronized because cash disbursements

usually take place before cash receipt.

Figure 1. The Working Capital Cycle

The cash conversion cycle:The cash conversion cycle is used to measure working capital management and it measures

companies liquid situation and how effective the working capital is managed. The outcome

will show the number of days in average it will take for the capital that is tied up in working

capital to convert to cash in the cycle. A shorter conversion cycle with a low or even

negative number of days is preferable for profit as the need for external financing is

reduced.



Average number of days inventory+

Cash conversion cycle = Average number of days accounts receivable

Average number of days accounts payable

Figure 2. The Operating and Cash conversion cycle

Types of Working Capital

Permanent working capitalIt means the minimum amount of investment in all current assets which is regarded at

all times to carry on minimum level of business activities. The operating cycle is a continuous

process and therefore, the need for current assets increases and decreases over time. There is

always a minimum level of current assets required at all time by the firm to carry on its business

operations. This minimum level of current assets is known as permanent working capital or

fixed working capital.

Temporary working capitalThis is also called the fluctuation or variable working capital. The amount of temporary

working capital keeps on changing depending upon the changes in production and sales.

Gross working capitalIt is the amount of funds invested in the various components of current assets.

Net working capitalIt is the difference between current assets and current liabilities. The concept net

working capital enables a firm to determine the exact amount available at its disposal for

operational requirements.

Negative working capitalWhen current liabilities exceed current assets negative working capital emerges. Such

a situation occurs when a firm is nearing a crisis of some magnitude.



Managing the components of working capitalThe components of working capital are:

Cash Management

Receivables Management

Inventory Management

A. CASH MANAGEMENTCash is the important current asset for the operation of the business. Cash is the

basic input needed to keep the business running on a continuous basis; it is also the ultimate

output expected to be realized by selling the service or product manufactured by the firm.

The firm should keep sufficient cash, neither more nor less.

Cash is the liquid form of an asset. It is the ready money available in the firm or

with the business, essential for its operations. A firm needs the cash for the following three

purposes:

a. The Transaction Motive:The firm should keep cash to conduct its business in the ordinary course. The firm

needs cash primarily to make payment for purchases, sales, wages and salaries etc.

b. The Precautionary Motive:The firm should keep cash to meet contingencies in future. It provides a cushion or

buffer to withstand some unexpected emergency.

c. The Speculative Motive:To tap profits from opportunities arising from fluctuations in commodity prices,

security prices, interest rates etc. the company with surplus cash is in a better

position to exploit such situations.

B. RECEIVABLES MANAGEMENTReceivable represents amounts owed to the firm as a result of sale of goods or

services on the ordinary course of business. These are claims of the firm against its

customers and form part of its current assets. These receivables are carried for the

customers. The period of credit and extent of receivables depends upon the credit policy

followed by the firm. The main purpose of maintaining or investing in receivables is to

meet competitors, to increase sales, and to maintain a cordial relationship with the clients.

Receivables management is the process of making decisions relating to investment

in trade debtors. However, at the same time, investment in this current asset involves cost

considerations also. Therefore there is always a risk of bad debts too.



C. INVENTORY MANAGEMENTBackground of the study of Inventory Management

Every enterprise needs inventory for smooth running of its activities. It serves as a

link between the production and the distribution processes. There is generally a time lag,

between the recognition of a need and its fulfillment. The greater the time lag, the higherthe requirements of inventory. It also provides a cushion for future price fluctuation.

The investment in inventories constitutes the most significant part of current

assets/working capital in most of the undertakings. Thus it is very essential to have a proper

control and management of inventories. The purpose of inventory is to ensure availability

of materials in sufficient quantity as and when required and also to minimize investment in

inventories.

Inventories represent the second largest asset category for manufacturing

companies. The proportion of inventories to total assets generally varies between 15 and

30%.Decisions relating to inventories are taken primarily by executives in production,

purchasing and marketing departments. Hence the importance of inventory management

cannot be overemphasized.

What are inventories?Every one, be it a firm, or an establishment or an individual, is familiar with the

word stock because each of these carry some items to meet their requirements. In trade and

industry, the word stock, is called inventories.

Objectives of scientific inventory control system: Service to the customers

Continuity of productive operations

Economy in purchasing

Reduction of risk of loss

Reduction of administrative workload

Administrative simplicity

A manufacturing firm generally carries following six major kinds of inventories: Raw materials

Work-in-progress

Finished goods

Tools

Supplies

Machinery spares



1. Raw materials:Raw materials form a major input into the organization. They are required to carry

out production activities uninterruptedly. The quantity of raw materials required will be

determined by the rate of consumption and the time required for replenishing the supplies.

The factors like availability of raw materials and Government regulations etc., too affect

the stock of raw materials.

2. Work-in-progress:The work-in-progress is the stage of stocks, which are in raw materials and finished

goods. The raw materials enter the process of manufacturing but they are yet to attain a

final shape of finished goods. The quantum of work-in-progress depends upon the time

taken in the manufacturing: the more will be the amount of work-in-progress.

3. Finished goods:These are the goods which are ready for the consumers. The stock of finished goods

provides a buffer between production and market. The purpose of maintaining inventory is

to ensure proper supply of goods to customers. In some concerns the production is

undertaken on order basis, in these concerns there will be need for finished goods. The need

for finished goods inventory will be more when production is undertaken in general without

waiting for specific orders.

4. Consumables:These are materials which are needed to smoothen the process of production These

materials do not directly enter production but they act as catalysts etc,. Consumables may

be classified according to their consumption and criticality, Generally, consumable stores

do not create any supply problem and form a small part of production. There can be

instances where these materials may account for much value than the raw materials. The

fuel oil may form a substantial part of cost.

5. Spares:The consumption pattern of raw materials, consumables, finished goods are

different from that of spares. The stocking policy of spares is different from industry to

industry. Some industries like transport will require more spares than order concerns. The

costly spare parts like engines: maintenance parts, etc,. are not discarded after use but rather

they are kept in ready position for future use. All decisions about spares are based on

financial cost of inventory on such spares and the cost that may arise due to their non-

availability.



Why do we have inventories? To gain economy in purchasing

To keep pace with changing market conditions

To satisfy demand during period of replenishment

To carry reserve stocks to avoid stock outs

To stabilize production

To prevent loss of sales

To satisfy other business constraints

Historical Perspective of Inventory Management:The management and control of Inventory is a challenge to all organization in any

sector of the economy. The problem of Inventory does not confine them to profit making

big firms. The same type of problem is encounter by social and non-profit organization too.

Inventory problems have been encountered by every society, but it was not until the

20th century that the analytical techniques were developed to study them. The initial impetus

for analysis expectedly cones from manufacturing sector. It was until after World War II that a

concerted effort an risk and uncertainly aspects of inventory has made. In theory, inventory is

an area of organized operation that is well developed.

Material is a very important factor of production. It includes physical commodities used

to manufacture the final end product. It is the starting point from which the first operation starts.

It is inventories and does not get waste and exhaust (unless it is deteriorated) with the passageof time as labor is wasted that it can be purchased on varying quantities according to the

requirements of firm where as often Clements of cost like labor and other services cannot be

easily varied once they are established. Materials account for nearly 60% of cost of production

as it is clear from an analysis of the financial statements of larger number of private and public

sector organization.

According to the Indian Association of material marketing 64 paisa in a rupee is spent

in materials by Indian Industries, 16 paisa on labor and the rest of one rupee on spent on

overheads, thus the importance of material control lies in the fact that any savings made in the

cost of materials will go a long way in reducing cost of the production and improving the

profitability of a concern.

Studies by experts in this field have highlighted the fact that if an organization can

affect 5% saving in material cost, it would be as good as the increasing the production or sales

by about 36%.

Proper control of materials is necessary from the time orders for purchase of materials

is placed with suppliers until they have been consumed. The object of material may be reducedin other words, efforts are to be made to reduce the cost material when it is purchased, stored

and used.



Meaning and Definition:Several authors have defined the term inventory. The more popular of them are, the

term inventory includes Raw-materials, work-in progress, finished products, spares and others

in order to meet an unexpected demand or distribution in the future.

It can be used to refer to the stock of raw materials unhand at particulars, goods in

process of manufacturing, finished products, merchandise, purchased for relate and others like

tangible assets measured and counted in connection with financial records and accounting

records, the reference may be the stock of goods owned by an enterprise at a particular time.

Yet another definition is that the term includes the following categories of times.

Production inventories, MRO inventories, in process inventories and finished goods

inventories.

Turnover/activity ratios of the companyIntroduction:

The assessment of asset usage is important as it helps us to understand the overall level

of efficiency at which a business is performing. Turnover ratios are employed to evaluate the

efficiency with which the firm manages and utilizes its assets. These ratios are called as activity

ratios. It is called as turnover ratio because they indicate the speed with which assets are being

converted or turnover into sales. Thus it involves the relationship between sales and assets. A

proper balance between sales and assets reflects the assets are managed well. Higher the rate

of rotation the greater will be the profitability.

Our basic ratios for this section are Stock turnover, debtors turnover and creditorsturnover help us to assess the liquidity position as well as giving us detailed information about

stock control and credit control of the company.

Different turnover ratios:i. Inventory or stock turnover ratio

ii. Debtors turnover ratio

iii. Creditors turnover ratio

iv. Current assets turnover ratio

v. Working capital turnover ratio

These Activity Ratios are also called the Turnover ratios or Performance ratios. A

turnover ratio or an Activity ratio is a measure of movement and indicates as to how frequently

an account has moved/turned over during a period it shows as to how efficiently and effectively

the assets of the firm are being utilized. The activities ratios measure the effectiveness with

which the firm uses its resources. These ratios are usually calculated with reference to sales/cost

of goods sold and are expressed in terms of rates or times.



Liquidity ratiosLiquidity ratio may be defined as financial ratio which throws light on short term

solvency of the firm. It measures the ability of the firm to meet its current obligations i.e.

working capital requirements.

A firm should ensure that it doesnt suffer from lack of liquidity and also see that

it doesnt have excess liquidity. Failure of a company is to not meet its obligations due to

lack of sufficient liquidity will result in a poor credit worthiness and loss of creditors

confidence. Therefore it is necessary to maintain a proper balance between high liquidity

and lack of liquidity. So liquidity ratio measures the ability of a firm to meet its short terms

obligations and reflects short-term financial strength of the firm.

Credit analysts, those interpreting the financial ratios from the prospects of a lender,

focus on the downside risk since they gain none of the upside from an

improvement in operations. They pay great attention to liquidity and leverage ratios to

ascertain a companys financial risk.

Liquidity ratio needs establishing a relationship between cash and other current

assets to current obligations to provide quick measures of liquidity. These ratios are also

termed as working capital ratio or short-term solvency ratio. An enterprise must have

adequate working capital to run its day-to-day operations.

Inadequacy of working capital may bring the entire business operation to a grinding halt

because of inability of the enterprise to pay for wages, materials and other regular expenses.

The liquidity refers to the maintenance of cash, bank balance and those assets which

are easily convertible into cash in order to meet the liabilities as and when arising. the

liquidity ratios study the firms short term solvency and its ability to payoff the liabilities.

It should be intuitive to observe that a firm, no matter how profitable it is, cannot continue

to exist unless it is able to meet its obligations as they arise. The day-to-day problems of

financial management consist of highly important task of finding sufficient cash to meet

current obligations. The short term liquidity risk, arises primarily from the need to finance

current operations. To the extent that the firm has to make payments to its suppliers before

it is paid for the goods and services it provides, a cash short fall has to be met usually

through the short term borrowings. Although this financing of working capital needs is

routinely done in most firms, the liquidity ratios have been devised to keep a track on the

extent of the firms exposure to the risk that it will not be able to meet its short term

obligations. Liquidity ratios as a group are intended to provide information about a firms

liquidity and the primary concern is the firms ability to pay its current liabilities.

Consequently , these ratios focus on current assets and current liabilities.



The liquidity ratios provide a quick measure of liquidity of the firm by establishing a

relationship between its current assets and its current liabilities. If a firm does not have

sufficient liquidity it may not be in a position to meet its credit worthiness. The liquidity ratios

may be called the Balance sheet ratios because the information required for the calculation of

liquidity ratios is available in the balance sheet only. Some of the common liquidity ratios are

which give a picture of a companys short term financial situation or solvency.

I. Current Ratio

II. Quick Ratio/liquid RatioIII. Absolute liquid/cash ratio

Operating CycleThe duration of time required to complete the following cycle of events in case of

a manufacturing firm is called the operating cycle.

a) Conversion of cash into raw material.b) Conversion of raw material into work in process.c) Conversion if work in process into finished goods.d) Conversion of finished goods into debtors and bills receivables through sales.e) Conversion of debtors and bills receivables into cash.



INV

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CHAPTER 4.DATA ANALYSIS AND INTERPRETAION1. Inventory turnover ratio

It signifies the liquidity of the inventory. A high inventory turnover indicates brisk

sales. The ratio is therefore a measure to discover the possible trouble in the form of

over stocking or over valuation.

Inventory turnover Cost of goods sold Or Sales (If there is noratio = Average inventory Closing Stock opening stock)

Avg. Inventory = Opening stock + Closing stock2Table 9: Table showing the inventory turnover ratio (Rs in millions)

Year Net Sales Inventories Inventory Turnover RatioMar 2010 2344.60 325.42 7.20Mar 2011 2575.44 396.48 6.50Mar 2012 2797.59 477.58 5.86Mar 2013 3281.96 616.65 5.32Mar 2014 5273.68 863.87 6.10

Graph 1:

8.007.006.005.004.003.002.001.000.00

Inventory Turnover Ratio

7.206.50

5.865.32

6.10

Mar2010

Mar2011

Mar2012

YEARS

Mar2013

Mar2014

Interpretation:The lower the ratio indicates the more efficiency in converting inventory into

accounts receivables through sales. The ratios computed clearly demonstrated that there

is efficiency in inventory management. The ratio can be still increased by following

inventory control techniques like Just in time, buffer stocks etc. These techniques avoid

necessary idle cost of storage on inventory management system.



DAY

S

Inventory conversion period

Inventory conversion period (ICP) refers to the length of time between purchase ofraw material, production of the goods or service, and the sale of the finished product.

Number of days in a yearInventory conversion period =

Inventory turnover ratio

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