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INTRODUCTIONIntroduction to the study Value maximization is the central theme in financial management. Owners of corporate securities will hold management if they fail to enhance value. Hence all senior managers must understand what determines value and how to measure it. While valuation was regarded as an abstruse academic subject in the past, it is of considerable importance to managers now. In the wake of economic liberalization, companies are relying more on the capital market, acquisition and restructuring are becoming commonplace, strategic alliances are gaining popularity, employee stock option plans are proliferating, and regulatory bodies are struggling with tariff determination. In these exercises a crucial issue is: How should the value of a company or a division thereof be appraised? Need of the study The goal of such an appraisal is essentially to estimate a fair market value of a company. The most widely accepted the definition of fair market value was laid down by the Internal Revenue Service of the US. It defined fair market value as “the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.” When the asset being appraised is “a company”, the property the buyer and the seller are trading consists of the claims of all the investors of the company. This includes outstanding equity shares, preference shares, debentures, and loans. Valuation is the first step toward intelligent investing. When an Investor attempts todetermine the worth of her shares based on the fundamentals, she can make informed decisions about what stocks to buy or sell.Without fundamental value, one is set adrift in a sea of random short-term price movements and gut feelings.VALUING A BUSINESS Finding a value for a company is no easy task -- but doing so is an essential component of effective management. The reason: it's easy to destroy value with ill-judged acquisitions, investments or financing methods. This module will take participants through the process of valuing a company, starting with simple financial statements and the use of ratios, and going on to discounted free cash flow methods and beyond. How a business is valued depends on the purpose, so the second half of the day will be devoted to implementation of the methods in different contexts -- such as valuing an acquisition target, and valuing a company in distress, and using valuation in corporate restructuringOBJECTIVES OF THE STUDYTo Study about Corporate Valuation of firms.To Know the value of firms using Discounted Cash Flow Technique (DCF).To Calculate value of Dr Reddy’s Laboratories LTD and Aurobindo Pharmaceutical Ltd.,To Compare the values of the two firms.SCOPE OF THE STUDYThe study is conducted in the hyderabad city only in valuing the business we are considered Dr.Reddy labs & Aurobindo Pharmaceutical’s financial statements and the study period is only 45 days.SOURCES OF DATA AND METHODOLOGY The study is based on purely secondary data and the data is taken from the Annual Reports of the two companies for a period of four years ( 2006 – 09).The two companies taken for analysis are AUROBINDO PHARMACEUTICALS LTD and Dr. REDDY’S LABORATIRIES LTD.The methodology includes 1. Discounted Cash Flow (FCF) technique, used to calculate the value of the two firms. 2. Percentages3. Charts and GraphsLiMITATIONS OF THE STUDYConsidering only the last 4 years Balance Sheet and Profit and Loss Account to evaluate the value of the firm.This study has been conducted only based on two companies namely (Dr. Reddy’s Laboratories Limited, Aurobindo Pharmaceutical Limited), to examine the Financial pattern of the Companies, which covers a period of four years from 2006-2009.The major source of information being only through secondary source of data i.e. annual reports of the company. As the information presented in such report is subject to statutory obligation, business practices, accounting concepts and conventions and generally Accepted standards of disclosure in the interest of the company and such information may sometimes not reveal the correct Financial Positions of the company.Using only Discounted Cash Flow Approach to find Firm Value.Valuing a Firm using the Discounted Cash Flow Approach calls for forecasting Cash Flows over an indefinite period of time for an entity that is expected to grow. This is indeed a daunting proposition. Forecasting involves a good deal of Judgement and Experience.Continuing value formula of firm is based on assumptions.THEORITICAL ERSPECTIVECORPORATE VALUATION Value maximization is the central theme in financial management. Owners of corporate securities will hold management if they fail to enhance value. Hence all senior managers must understand what determines value and how to measure it. While valuation was regarded as an abstruse academic subject in the past, it is of considerable importance to managers now. In the wake of economic liberalization, companies are relying more on the capital market, acquisition and restructuring are becoming commonplace, strategic alliances are gaining popularity, employee stock option plans are proliferating, and regulatory bodies are struggling with tariff determination. In these exercises a crucial issue is: How should the value of a company or a division thereof be appraised? The goal of such an appraisal is essentially to estimate a fair market value of a company. The most widely accepted the definition of fair market value was laid down by the Internal Revenue Service of the US. It defined fair market value as “the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.” When the asset being appraised is “a company”, the property the buyer and the seller are trading consists of the claims of all the investors of the company. This includes outstanding equity shares, preference shares, debentures, and loans. There are four broad approaches to appraising the value of a company: Adjusted book value approach.Stock and debt approach.Direct comparision approach.Discounted cash flow approach. GUIDELINES FOR CORPORATE VALUATION Understand how the various approaches compare The discounted cash flow approach is ideally suited when (a) Fairly credible business plans and cash flow projections are available for the explicit forecast period of five to ten years or even more and (b) The firm is expected to reach a steady state at the end of the explicit forecast period.Use atleast two different approaches Every approach has its limitations. Hence exclusive reliance on a single approach may lead to biasis in valuation. Practical wisdom suggest that, in most real life valuations exercises, the appraiser must use atleast two different approaches. The final value indicator may be arrived at by taking a weighted average of the valuation figures produced by two or more different approaches. Weighting should be based on the judgement of the appraiser, not on a mechanical formula. Work with a value range Valuation is an inherently imprecise, inexact, and uncertain exercise. Given an inescapable indeterminateness characterising valuation, it is na?ve and foolhardy to attach great precision to any single value estimate. A more sensible approach would be to look at two to three plausible scenerios and define a value range, based on the value indicators for these scenerios, to take care of the imponderables.Go Behind Numbers As we have seen, there are several value drivers, viz., invested capital, return on invested capital, growth rate, and cost of capital. Often, appraisers have difficulty in getting a handle over return on invested capital is mainly a function of entry barriers, the appraiser must go behind the numbers and examine carefully entry barriers like economies of scale, product differentiation, technological edge, access to distribution channels, patent protection, and governmental license.Value Flexibility The discounted cash flow approach to valuation is based on cash flows forecasted on the basis of a current assessment of future prospects. This approach, in an important sense, is incomplete as it does not take it to account the value of flexibility. Remember that the management may change its policies in the light of future developments and can exercise a variety of options suited to the needs of the unfolding environment. Flexibility and options are quite valuable. To ignore them is to overlook an important source of value.Blend Theory with Judgement Valuing real companies calls for combining theory, judgement, and experience. As Milton Rock said: “In the end, even when armed with the results of various analyses such as DCF values, secondary market trading levels, a history of comparable transactions, and estimates of liquidation or replacement values, the evaluator moves from the arena of seeming precision and science to the realm of judgement and art.” Avoid Reverse Financial Engineering In valuation exercises, the appraiser may sometimes start with a given value estimates and then work backwards to specify the assumptions that produce the pre-determined value figure. This may be referred to as ‘reverse financial engineering’. Obviously this is an elaborate attempt to give a veneer of sophistication or provide pseudo-scientific justification for a foregone conclusion. At best it is futile and at worst it is highly misleading. A professionally honest appraiser should resist the temptation to do reverse financial engineering. DISCOUNTED CASH FLOW APPROACH Traditionally, the adjusted book value approach and the direct comparison approach were used more commonly. From the 1990’s however, the discounted cash flow approach has received greater attention, emphasis and acceptance. This is mainly because of its conceptual superiority and its string endorsement by leading consultancy organizations. Valuing a firm using the discounted cash flow approach is conceptually identical to valuing a capital project using the present value method. To sum up, valuing a firm using the discounted cash flow approach calls for forecasting cash flows over an indefinite period of time for an entity that is expected to grow. That indeed a daunting proposition. To tackle this task, the value of the firm is separated into two time periods. VALUE OF THE FIRM = present value of cash flow during an explicit forecast Period + Present value of cash flow after an explicit forecast Period The discounted cash flow approach to valuing a firm involves the following steps:Forecast the cash flow during explicit forecast period.Establish the cost of capital.Determine the continuing value at the end of the explicit forecast period.Calculate the firm value and interpret results.1. FORECAST THE CASH FLOW DURING EXPLICIT FORECAST PERIOD Calculating of free cash flow (FCF) is the post-tax cash flow generated from the operations of the firm after providing for the investments in fixed assets plus net working capital required for the operations of the firm.FCF = NOPLAT-Net InvestmentsFCF = (NOPLAT + Depreciation) – (Net Investment + Depreciation)Where Net Investment = Net Fixed Assets at the + Net Current Assets at the End of the year End of the year_ Net Fixed Assets at the + Net Current Assets at the Beginning of the year Beginning of the yearNOPLAT = EBIT – Taxes on EBIT2. COST OF CAPITALShareholders want to be suitably compensated for investing funds in the firm. The cost of capital reflects what they expect. It is the discount rate used for converting the expected FCF into its present value.Cost of Capital(K) = [(%Ke*Ke) + (%kd*Kd)] 3. CONTINUING VALUEIt is the value of FCF beyond the explicit forecast period. Typically, the terminal value is the dominant component in a company’s value. FCFt + 1CVt = ------------------ K - g So where CVt = Continuing value at the end of the year t K = Weighted average cost of capital g = Expected growth rate of FCF.4. FIRM VALUE The value of the firm is equal to the sum of the following components. Present value of the free cash flow during the explicit forecast period Present value of the continuing value Value of non operating assets (which were ignored in FCF analysis)Firm Value = PV (FCF) + PV (CV) + Non-operating assets. INDUSTRY PROFILEINTRODUCTION OF THE STOCK EXCHANGE Financial markets first came took prominence during the 17th century at the start of the industrial revolution. Business needed vast amount of capital to buy biggest premises and machinery. At the time of the industrial revolution there were few investors capable of supporting business on the vast scale it required. The financial markets arose as result of several small investors in industries. The first financial markets came about in Europe, to fund both the industrial revolution and the expansion of the British Empire. The most common location for the early financial markets was surprisingly in churches. As the need of the financial trading grew, so did the places of the trading, in London for example a lot of the London Stock Exchange. Financial markets today exist as a medium for processing financial transactions. The most common form of financial trading is usually done on stock exchange in the form of share dealing. Business generates extra investment capital by releasing share onto the stock exchanges. While investor in shares make money by selling share for a higher value than they are purchased for. The majority financial markets are based in the financial capitals of the world such as the London, New York and Stock Exchanges. Although the emergence of the interest has seen a rise in the number internet stock exchange such as NASDAQ, as well as several on-line stockbrokers.If we look at the London Stock Exchange (L.S.E) today, we can state the L.S.E is a market place, which deal in:Share ernment bonds.Debentures.Insurance-Shot and long modities The way the LSE used to operate involved “Jobbers” and “stockbrokers”. Jobbers run around the trading floor buying and selling shares for stockbrokers. The jobbers make money for themselves by the difference between what stockbrokers are prepared to pay for shares and the price at which they are actually bought and selling shares to the world at large. The system of the LSE was little changed from the 1800’s until the 1980’s. The LSE operated on a single capacity basis where it was there to provide information about share values, while the stockbrokers simply bought and sold. The system worked fine until the 1880’s where a result of increased public shares ownership meant a radical rethink of the stock exchange. The stock exchange needed to adopt a new approach. The statistics showed that during the 1960’s there were 30 institutions that held most of the shares on sold on the stock exchange. By 1981 the financial institutions held only 59% of shares. The growth in the disposable income of society meant the stock exchange had to deal with a much larger volume of transactions. The stock exchange decided to introduce dual capacity into the trading floors, this is where the jobbers can now buy and sell shares like stockbrokers while at the same time serving the stockbrokers. The function was designed to cope with all the increased transactions. The LSE is a private company, owned by its members, who are the stockbrokers who compete against each other in share trading, bizarre. India has well established securities market with a long history of organized trading. The earliest recorded capital market dealings in India were transaction in loan stocks of the east India Company towards the end of the 18th century. By 1830, wide ranges of bank and cotton mill securities were being traded in Bombay and Calcutta. Trading was concentrated in bank shares. The enhancement of the Co. Act 1850, which introduced in the concept of limited liability to India, served to stimulate activity in the securities markets. The first SE in India was asset up in1875 in Bombay known as “Native share and stock Brokers Association”. Now known as BSE. It was the first stock exchange set up in Asia. From 1956 to 1980, the Indian Stock market grew at affecting the securities market during the period was the enactment of the foreign exchange regulation Act. Under FERA, the Indian corporations with more than 40% foreign share holdings were generally required to reduce their foreign ownership. As a result, many such corporations offered equity to the Indian public. 1980-1999, Indian SE witnessed a total revamp; automation, mobilization and the trading and strict surveillance were the hall markets of this period.What is Stock Exchange? The SE is an organized market for purchase and sale of listed industrial and financial securities. The securities traded on stock exchanges include shares and debentures of public limited companies, govt. securities etc. According to securities contract (regulation) Act 1956 “ Stock Exchange is an association, organization or body of individuals, whether incorporated or act, established for the purchase of assisting, regulation and controlling business in buying, selling and dealing securitiesOrganization of Stock Exchanges: Stock Exchanges is formed under the norms of securities contracts (regulation) Act, 1956. Stock Exchange may be: -Voluntary non-profit making associations: - EX. Bombay, Indore.Public limited company:- Ex. Calcutta, Delhi, Banglore, (It is a joint stock co.’s)Company limited by guarantee: - Ex. Madras, Jaipur, Hyderabad & Pune. Central govt. prescribes & approves the rules, regulations and by laws of recognized stock exchanges. The term “Stock Exchange” implies is evident from the following features of exchange: -S: Securities provider for investors.T: Tax benefits, planning and exemptions. O: Optimum return on investments.C: Caution approach.K: Knowledge of market.E: Eligibility for accruals.X: Exchange of securities transacted.C: Cyclopedia of listed companies.H: High yield.A: Authentic informationN: New entrepreneurs encouraged.G: Guidance to investors & companiesE: Equity cult. Stock Exchanges in India: - At present in India 24 Stock Exchange duly recognized by the Govt. They are listed below in the order of year of their establishment.NAME OF EXCHANGEYEARBombay stock exchange.1875Ahmedabad share & stockbrokers association.1957Calcutta stock exchange association limited1957Delhi stock exchange.1957Madras stock exchange.1957Indore stock brokers association.1958Banglore stock e exchange.1963Hyderabad stock exchange.1963Cochin stock exchange.1978Pune stock exchange ltd.1982U.P. stock exchange association ltd. 1983Ludhiana stock exchange association ltd.1983Jaipur stock exchange ltd.1983-84Mangalore stock exchange ltd.1984Gauhati stock exchange ltd.1985Magadh stock exchange ltd. Patna1986Bhuvaneshwar stock exchange association ltd.1989Over the counter exchange of India Bombay1999Saurastra Kutch, stock exchange ltd.1990Vadodara stock exchange ltd.1991Coimbatore stock exchange ltd.1991The Meerut stock exchange ltd.1991National stock exchange ltd. 1994Integrated stock exchanges1999The Byelaws of the Stock Exchanges: Bargains – Spot/ hand/ special delivers/ margins. Clearing for settlement of bargains. Delivery of securities. Dealing by members. Brokerage and contract notes. Rights & liabilities of members and constituents. Arbitration between members. Defaults. Prohibition & penalties. HISTORY OF STOCK EXCHANGE The only stock exchanges operating in the 19th century were those of Bombay set up in 1875 and Ahmedabad set up in 1894. These were organized as voluntary non profit-making association of brokers to regulate and protect their interests. Before the control on securities trading became central subject under the constitution in 1950, it was a state subject and the Bombay securities contracts (control) Act of 1925 used to regulate trading in securities. Under this act, the Bombay stock exchange was recognized in 1927 and Ahmedabad in 1937. During the war boom, a number of stock exchanges were organized in Bombay, Ahmedabad and other centers, but they were not recognized. Soon after it became a central subject, central legislation was proposed and a committee headed by A.D. Gorwala went into the bill for securities regulation. On the basis of the committee’s recommendations and public discussion, the securities contracts (regulation) Act became law in 1956DEFINITION OF STOCK EXCHANGE“Stock exchange means any body or individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities”.It is an association of member brokers for the purpose of self-regulation and protecting the interests of its members.It can operate only if it is recognized by the Government under the securities contracts (regulation) Act, 1956. The recognition is granted under section 3 of the Act by the central government, Ministry of Finance.BYLAWSBesides the above act, the securities contracts (regulation) rules were also made in 1975 to regulative certain matters of trading on the stock exchanges. There are also bylaws of the exchanges, which are concerned with the following subjects.Opening / closing of the stock exchanges, timing of trading, regulation of blank transfers, regulation of Badla or carryover business, control of the settlement and other activities of the stock exchange, fixating of margin, fixation of market prices or making up prices, regulation of taravani business (jobbing), etc., regulation of brokers trading, brokerage chargers, trading rules on the exchange, arbitrage and settlement of disputes, settlement and clearing of the trading etc.REGULATION OF STOCK EXCHANGESThe securities contracts (regulation) act is the basis for operations of the stock exchanges in India. No exchange can operate legally without the government permission or recognition. Stock exchanges are given monopoly in certain areas under section 19 of the above Act to ensure that the control and regulation are facilitated. Recognition can be granted to a stock exchange provided certain conditions are satisfied and the necessary information is supplied to the government. Recognition can also be withdrawn, if necessary. Where there are no stock exchanges, the government licenses some of the brokers to perform the functions of a stock exchange in its absence.SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI).SEBI was set up as an autonomous regulatory authority by the government of India in 1988 “to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matter connected therewith or incidental thereto”. It is empowered by two acts namely the SEBI Act, 1992 and the securities contract (regulation) Act, 1956 to perform the function of protecting investor’s rights and regulating the capital markets.BOMBAY STOCK EXCHANGE This stock exchange, Mumbai, popularly known as “BSE” was established in 1875 as “The Native share and stock brokers association”, as a voluntary non-profit making association. It has an evolved over the years into its present status as the premiere stock exchange in the country. It may be noted that the stock exchanges the oldest one in Asia, even older than the Tokyo stock exchange, which was founded in 1878. The exchange, while providing an efficient and transparent market for trading in securities, upholds the interests of the investors and ensures redressed of their grievances, whether against the companies or its own member brokers. It also strives to educate and enlighten the investors by making available necessary informative inputs and conducting investor education programs. A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public representatives and an executive director is the apex body, which decides is the apex body, which decides the policies and regulates the affairs of the exchange.The Exchange director as the chief executive offices is responsible for the daily today administration of the exchange.BSE INDICES: In order to enable the market participants, analysts etc., to track the various ups and downs in the Indian stock market, the Exchange has introduced in 1986 an equity stock index called BSE-SENSEX that subsequently became the barometer of the moments of the share prices in the Indian stock market. It is a “Market capitalization weighted” index of 30 component stocks representing a sample of large, well-established and leading companies. The base year of sensex 1978-79. The Sensex is widely reported in both domestic and international markets through print as well as electronic media.Sensex is calculated using a market capitalization weighted method. As per this methodology the level of the index reflects the total market value of all 30-component stocks from different industries related to particular base period. The total market value of a company is determined by multiplying the price of its stock by the nu7mber of shared outstanding. Statisticians call index of a set of combined variables (such as price and number of shares) a composite Index. An indexed number is used to represent the results of this calcution in order to make the value easier to go work with and track over a time. It is much easier to graph a chart based on Indexed values than on based on actual valued world over majority of the well-known Indices are constructed using “Market capitalization weighted method”. In practice, the daily calculation of SENSEX is done by dividing the aggregate market value of the 30 companies in the index by a number called the Index Divisor. The divisor is the only link to the original base period value of the SENSEX. The Devisor keeps the Index comparable over a period value of time and if the references point for the entire Index maintenance adjustments. SENSEX is widely used to describe the mood in the Indian stock markets. Base year average is changed as per the formula new base year average = old base year average*(new market value / old market value).NATIONAL STOCK EXCHANGE The NSE was incorporated in Nov, 1992 with an equity capital of Rs.25 crs. The international securities consultancy (ISC) of Hong Kong has helped in setting up NSE. ISC has prepared the detailed business plans and initialization of hardware and software systems. The promotions for NSE were financial institutions, insurances, companies, banks and SEBI capital market ltd, Infrastructure leasing and financial services ltd and stock holding corporations ltd. It has been set up to strengthen the move towards professionalisation of the capital market as well as provide nation wide securities trading facilities to investors.NSE is not an exchange in the traditional sense where brokers own and manage the exchange. A two tier administrative set up involving a company board and a governing aboard of the exchange is envisaged.NSE is a national market for shares PSU bonds, debentures and government securities since infrastructure and trading facilities are provided.NSE-NIFTY: The NSE on Apr22, 1996 launched a new equity Index. The NSE-50. The new Index which replaces the existing NSE-100 Index is expected to serve as an appropriate Index for the new segment of future and option.“NIFTY” mean National Index for fifty stocks. The NSE-50 comprises fifty companies that represent 20 board industry groups with an aggregate market capitalization of around Rs 1, 70,000 crs. All companies included in the Index have a market capitalization in excess of Rs. 500 crs each and should have trade for 85% of trading days at an impact cost of less than 1.5%. The base period for the index is the close of price on Nov 3 1995, which makes one year of completion of operation of NSE’s capital market segment. The base value of the index has been set at 1000.NSE-MIDCAP INDEX:The NSE madcap index or the junior nifty comprises 50 stocks that represent 21st board industry groups and will provide proper representation of the midcap segment of the Indian capital market. All stocks in the Index should have market capitalization of grate than Rs.200 crs and should have traded 85% of the trading days at an impact cost of less than 2.5%. The base period for the index is Nov 4 1996, which signifies 2 years for completion of operations of the capital market segment of the operations. The base value of the Index has been set at 1000.Average daily turn over of the present scenario 258212 (Laces) and number of average daily trades 2160(Laces). At present there are 24 stock exchanges recognized under the securities contract (regulation Act, 1956. COMPANY PROFILE COMPANY PROFILE INDIA INFOLINE GROUPThe India Infoline group, comprising the holding company, India Infoline Limited and its wholly-owned subsidiaries, straddle the entire financial services space with offerings ranging from Equity research, Equities and derivatives trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan products and Investment banking. India Infoline also owns and manages the websites and The company has a network of 758 business locations (branches and sub-brokers) spread across 346 cities and towns. It has more than 800,000 customers.India Infoline LtdIndia Infoline Limited is listed on both the leading stock exchanges in India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a member of both the exchanges. It is engaged in the businesses of Equities broking, Wealth Advisory Services and Portfolio Management Services. It offers broking services in the Cash and Derivatives segments of the NSE as well as the Cash segment of the BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a one-stop solution for clients trading in the equities market. It has recently launched its Investment banking and Institutional Broking business.India Infoline Media and Research Services Limited.The content services represent a strong support that drives the broking, commodities, mutual fund and portfolio management services businesses. Revenue generation is through the sale of content to financial and media houses, Indian as well as global.It undertakes equities research which is acknowledged by none other than Forbes as 'Best of the Web' and '…a must read for investors in Asia'. India Infoline's research is available not just over the internet but also on international wire services like Bloomberg (Code: IILL), Thomson First Call and Internet Securities where India Infoline is amongst the most read Indian brokers. India Infoline Commodities Limited.India Infoline Commodities Pvt Limited is engaged in the business of commodities broking. Our experience in securities broking empowered us with the requisite skills and technologies to allow us offer commodities broking as a contra-cyclical alternative to equities broking. We enjoy memberships with the MCX and NCDEX, two leading Indian commodities exchanges, and recently acquired membership of DGCX. We have a multi-channel delivery model, making it among the select few to offer online as well as offline trading facilities.India Infoline Marketing & ServicesIndia Infoline Marketing and Services Limited is the holding company of India Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited. (a) India Infoline Insurance Services Limited is a registered Corporate Agent with the Insurance Regulatory and Development Authority (IRDA). It is the largest Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is India's largest private Life Insurance Company. India Infoline was the first corporate agent to get licensed by IRDA in early 2001. (b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited is a newly formed subsidiary which will carry out the business of Insurance broking. We have applied to IRDA for the insurance broking licence and the clearance for the same is awaited. Post the grant of license, we propose to also commence the general insurance distribution business. India Infoline Investment Services Limited Consolidated shareholdings of all the subsidiary companies engaged in loans and financing activities under one subsidiary. Recently, Orient Global, a Singapore-based investment institution invested USD 76.7 million for a 22.5% stake in India Infoline Investment Services. This will help focused expansion and capital raising in the said subsidiaries for various lending businesses like loans against securities, SME financing, distribution of retail loan products, consumer finance business and housing finance business. India Infoline Investment Services Private Limited consists of the following step-down subsidiaries.(a) India Infoline Distribution Company Limited (distribution of retail loan products) (b) Moneyline Credit Limited (consumer finance) (c) India Infoline Housing Finance Limited (housing finance) The Management Mr. Nirmal JainChairman & Managing DirectorIndia Infoline Ltd.Mr. R VenkataramanExecutive DirectorIndia Infoline Ltd.The Board of DirectorsApart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline Ltd. comprises:Mr Nilesh Vikamsey Independent DirectorIndia Infoline Ltd.Mr Sat Pal KhattarNon Executive DirectorIndia Infoline Ltd.Mr Kranti SinhaIndependent DirectorIndia Infoline Ltd.Mr Arun K. PurvarIndependent DirectorIndia Infoline Ltd.Products and Services????? INDIA INFOLINE LTD. is a one-stop financial services shop, most respected for quality of its advice, personalized service and cutting-edge technology.?Equties Indiainfoline provided the prospect of researched investing to its clients, which was hitherto restricted only to the institutions. Research for the retail investor did not exist prior to Indiainfoline. Indiainfoline leveraged technology to bring the convenience of trading to the investor’s location of preference (residence or office) through computerised access. Indiainfoline made it possible for clients to view transaction costs and ledger updates in real time. PMS India Infoline Ltd. Portfolio Management Service is a product wherein an equity investment portfolio is created to suit the investment objectives of a client. We at Indiainfoline invest your resources into stocks from different sectors, depending on your risk-return profile. This service is particularly advisable for investors who cannot afford to give time or don't have that expertise for day-to-day management of their equity portfolio. Research Sound investment decisions depend upon reliable fundamental data and stock selection techniques. Indiainfoline Equity Research is proud of its reputation for, and we want you to find the facts that you need. Equity investment professionals routinely use our research and models as integral tools in their modities Indiainfoline’s extension into commodities trading reconciles its strategic intent to emerge as a one-stop solutions financial intermediary. Its experience in securities broking has empowered it with requisite skills and technologies. The Company’s commodities business provides a contra-cyclical alternative to equities broking. The Company was among the first to offer the facility of commodities trading in India’s young commodities market (the MCX commenced operations only in 2003). Average monthly turnover on the commodity exchanges increased from Rs 0.34 bn to Rs 20.02 bn. The commodities market has several products with different and non-correlated cycles. On the whole, the business is fairly insulated against cyclical gyrations in the business. Mortgages During the year under review, Indiainfoline acquired a 75% stake in Moneytree Consultancy Services to mark its foray into the business of mortgages and other loan products distribution. The business is still in the investing phase and at the time of the acquisition was present only in the cities of Mumbai and Pune. The Company brings on board expertise in the loans business coupled with existing relationships across a number of principals in the mortgage and personal loans businesses. Indiainfoline now has plans to roll the business out across its pan-Indian network to provide it with a truly national scale in operations. Invest onlineIndiainfoline has made investing in Mutual funds and primary market so effortless. All you have to do is register with us and that’s all. No paperwork no queues and No registration charges.INVEST IN MF Indiainfoline offers you a host of mutual fund choices under one roof, backed by in-depth research and advice from research house and tools configured as investor friendly. APPLY IN IPOs You could also invest in Initial Public Offers (IPO’s) online without going through the hassles of filling ANY application form/ paperwork. SMSStay connected to the marketThe trader of today, you are constantly on the move. But how do you stay connected to the market while on the move? Simple, subscribe to India Infoline's Stock Messaging Service and get Market on your Mobile! There are three products under SMS Service: ? Market on the move. ? Best of the lot. ? VAS (Value Added Service )InsuranceAn entry into this segment helped complete the client’s product basket; concurrently, it graduated the Company into a one-stop retail financial solutions provider. To ensure maximum reach to customers across India, we have employed a multi pronged approach and reach out to customers via our Network, Direct and Affiliate channels. Following the opening of the sector in 1999-2000, a number of private sector insurance service providers commenced operations aggressively and helped grow the market. The Company’s entry into the insurance sector derisked the Company from a predominant dependence on broking and equity-linked revenues. The annuity based income generated from insurance intermediation result in solid core revenues across the tenure of the policy. Wealth Mangement ServiceImagine a financial firm with the heart and soul of a two-person organization. A world-leading wealth management company that sits down with you to understand your needs and goals. We offer you a dedicated group for giving you the most personal attention at every level. NewslettersThe Daily Market Strategy is your morning dose on the health of the markets. Five intra-day ideas, unless the markets are really choppy coupled with a brief on the global markets and any other cues, which could impact the market. Ocassionally an investment idea from the research team and a crisp round up of the previous day's top stories. That's not all. As a subscriber to the Daily Market Strategy, you even get research reports of India Infoline research team on a priority basis.The Indiainfoline Weekly Newsletter is your flashback for the week gone by. A weekly outlook coupled with the best of the web stories from Indiainfoline and links to important investment ideas, Leader Speak and features is delivered in your inbox every Friday evening. India Info-line distinguished its business through the interplay of knowledge and technology:?Complete solution:The Company provides a complete - advice to execution – solution facilitated by information and advice on likely commodity trends in the Indian and international environment. ?Technology:The Company has extended the trading terminal to the investor’s home/workplace reinforced with real-time commodity information and ledger position.Rates:The Company harnessed technology to offer services at among the lowest rates in the business. Membership: The Company widened client reach in trading on the domestic and international exchanges.Key FeaturesEnjoys memberships with the MCX and NCDEX, two leading Indian commodities exchanges Recently acquired membership of the DGCX ?Multi-channel delivery model, making it among the select few to offer online as well as offline trading facilities ?Extended commodity trading to retail investors, among the few Indian financial intermediaries to do so ?Online business at 80% of revenues dominates commodities trading revenues ?Provides regular commodity updates pertaining to the Indian and international environment 1. PROFILE OF AUROBINDO PHARMACEUTICAL COMPANY LIMITED The company was born of a vision. Founded in 1986 by Mr. P.V. Ramaprasad Reddy, Mr. K. Nityananda Reddy and a small, highly committed set of professionals, Aurobindo Pharma became a public company in 1992. It commenced operation in 1988-89 with a single unit manufacturing semi synthetic penicillin (SSPs) at Pondicherry. Aurobindo Pharma had gone public in 1995 by listing its shares in various stock exchanges in the country. The company is the market leader in the semi-synthetic penicillin drugs. It has a presence in key therapeutic segments like SSPs, cephalosporins, antiviral, CNS, cardiovascular, gastroenterology, etc. Over the years, the company has evolved into a knowledge driven company. It is R&D focused, has a multi product portfolio with multi country manufacturing facilities and is becoming a marketing conglomerate across the world. Aurobindo Pharma created a name for itself in manufacture of bulk actives, its area of core competence. After ensuring a firm foundation of cost effective production capabilities and a clutch of loyal customers, the company has entered the high margin specialty generic formulations segment with a global marketing network. The formulation business is systematically organized with a divisional structure, and has a focused team for each key international market. Aurobindo believes in gaining volume and market share in every business segment it enters. The company has set up two state-of-the-art formulation plants. Aurobindo Pharma has obtaining approvals from UK MCA, UK FDA and various regulatory bodies for these two plants. This initiative would enter the developed markets. The company has adopted cost efficient manufacturing processes and has continuously widened the product portfolio. Older drugs have been replaced, and new introductions made to meet the needs of society. There is a constant up gradation in product list. The company applies a premium to remaining contemporary. The company has forayed into custom synthesis business in a big way and has a dedicated kilo lab to complement its current infrastructure in manufacturing and R&D. Aurobindo Pharma has identified international operations as a major engine of growth and has hence expanded its global network of marketing and manufacturing operations. Joint ventures\subsidiaries in China, Brazil, and USA, will further expand its international franchise. All the key indications of the company confirm the scorching pace of growth. For instance, the turnover of Aurobindo Pharma has growth at a CAGR of 21 per cent, in the last four years (FY 1999 to FY 2004). Similarly net profit grew at 32 per cent, in the same period. Over a period Aurobindo Pharma has become a knowledge company with strong intellectual properly. It is now positioned to ride the challenges with strengthened fundamentals.The milestones achieved and the evolution of the company can be summarized as follows:Vertical integrationMergers and acquisitions.Broadening of product portfolio.Broad basing of the board of directors.Listing of shares on major stock exchanges.Thrust on exports.Cost leadership.1.DR. REDDY’S LABORATORIES COMPANY LIMITED Dr. Reddy’s Laboratories was founded by Dr Anji Reddy, a entrepreneur-scientist, in 1984. The DNA of the company is drawn from its founder and his vision to establish India’s first discovery led global pharmaceutical company. In fact, it is this spirit of entrepreneurship that has shaped the company to become what it is today. Dr Anji Reddy, having moved out of Standard Organics Limited, a company he had successfully co-founded, started Dr. Reddy’s Laboratories with $ 40,000 in cash and $120,000 in bank loan! Today, the company with revenues of Rs.1947 crore (US $446 million), as of fiscal year 2005, is India’s second largest pharmaceutical company and the youngest among its peer group. The company has several distinctions to its credit. Being the first pharmaceutical company from Asia Pacific (outside Japan) to be listed on the New York Stock Exchange (on April 11, 2001) is only one among them. And as always, Dr. Reddy’s chose to do it in the most difficult of circumstances against widespread skepticism. Dr. Reddy’s came up trumps not only having its stock oversubscribed but also becoming the best performing IPO that year. Dr. Anji Reddy is well known for his passion for research and drug discovery. Dr. Reddy’s started its drug discovery programme in 1993 and within three years it achieved its first breakthrough by outlicensing an anti-diabetes molecule to Novo Nordisk in March 1997. With this very small but significant step, the Indian industry went through a paradigm shift in its image from being known as just ‘copycats’ to ‘innovators’! Through its success, Dr. Reddy’s pioneered drug discovery in India. There are several such inflection points in the company’s evolution from a bulk drug (API) manufacturer into a vertically integrated global pharmaceutical company today. Today, the company manufactures and markets API (Bulk Actives), Finished Dosages and Biologics in over 100 countries worldwide, in addition to having a very promising Drug Discovery Pipeline. When Dr. Reddy’s started its first big move in 1986 from manufacturing and marketing bulk actives to the domestic (Indian) market to manufacturing and exporting difficult-to-manufacture bulk actives such as Methyldopa to highly regulated overseas markets, it had to not only overcome regulatory and legal hurdles but also battle deeply entrenched mind-set issues of Indian Pharma being seen as producers of 'cheap' and therefore ‘low quality’ pharmaceuticals. Today, the Indian pharma industry, in stark contrast, is known globally for its proven high quality-low cost advantage in delivering safe and effective pharmaceuticals. This transition, a tough and often-perilous one, was made possible thanks to the pioneering efforts of companies such as Dr. Reddy’s Laboratories. Today, Dr. Reddy’s continues its journey. Leveraging on its ‘Low Cost, High Intellect’ advantage. Foraying into new markets and new businesses. Taking on new challenges and growing stronger and more capable. Each failure and each success renewing the sense of purpose and helping the company evolve. With over 950 scientists working across the globe, around the clock, the company continues its relentless march forward to discover and deliver a breakthrough medicine to address an unmet medical need and make a difference to peoples lives worldwide. And when it does that, it would only be the beginning and yet it would be the most important step. As Lao Tzu wrote a long time ago, ‘Even a 1000 mile journey starts with a single step.’ANALYSIS OF DR. REDDY’S LTDHistorySince its inception in 1984, DR. Reddy’s has chosen to walk the path of discovery and innovation in health sciences. There has been a quest to sustain and improve the quality of life, and they have has nearly two decades of creating safe Pharmaceutical solutions with the ultimate purpose of making the world a healthier place. Their competencies cover the entire Pharmaceutical value chain- API and intermediaries, finished dosages (branded and Generic) and NCE research.Their research center uses cutting edge technology and has discovered break through Pharmaceutical solutions in selected therapeutic areas. In short span, they have filed 64 patents. They are the first Indian company to out- license an NCE molecule for clinical trails. To strengthen their research arm, they have set up a research subsidiary, Reddy Us therapeutics Inc,. Atlanta, USA.They export bulk actives branded formulations and generic formulations to over 60 countries. Their inherent strength lies in identifying relevant bulk drugs and formulations, and selling them at affordable rates across the world. A few of their API such as Norfloxacin, ciprofloxacin enjoy a large customer base. Their finished dosages have an enviable track record. Some of them such as nise, omez, enam, ciprolet are among the top brands in India, and many have become household names in near-regulated countries too. Their generic formulations have also become very popular in quality- conscious regulated markets such as the US and Europe. All this has been possible because of their innovative and sustained marketing efforts. They are all set to spread their wings further and touch more lives across the globe.VISION AND VALUESCORE PURPOSE “To help people lead healthier lives”VISION“To become a discovery led global pharmaceutical company”VALUES They strive for excellence in everything they think, say and do. The values that guide their thoughts and actions are: 1. Quality: They are dedicated to achieving the highest levels of quality in everything they do to delight customers, internal & external, every time. 2. Respect for the Individual: They uphold the self-esteem and dignity of each other by creating an open culture for expression of views and ideas. 3. Innovation & Continuous Learning: They create an environment of innovation and learning that fosters, in each one of us, a desire to excel and willingness to experiment. 4. Collaboration &Teamwork: They seek opportunities to build relationship and leverage knowledge, expertise and resources to create greater value across functions, business and locations. 5. Harmony & Social Responsibility: They take utmost care to protect their natural environment and serve the communities in which they live and work.MILESTONESMajor milestones of Dr.Reddy’s Laboratories Limited are2006Acquires betapharm- the fourth-largest generics company in Germany for a total enterprise value of € 480 million. 2005 Acquires Roche's API Business at the state-of-the-art manufacturing sitein Mexico with a total investment of USD 59 million.Announces the formation of Perlecan Pharma: India’s First Integrated Drug Development Company.Announces India's first major co-development and commercialization dealfor it's molecule Balaglitazone (DRF 2593), with Rheoscience.Announces a unique partnership for the commercialization of ANDAs withICICI Venture.2004Acquires access to Drug Delivery Technology Platforms in the Dermatology segment through the acquisition of Trigenesis2003 Announces a 15-year exclusive product development and marketing agreement for OTC drugs with Leiner Health Products in the US Launches Ibuprofen, first generic product to be marketed under the “Dr. Reddy’s” label in the US2002 Conducts its first overseas acquisition – BMS Laboratories Limited and Meridian Healthcare in UK 2001 Becomes the first Asia Pacific pharmaceutical company, outside Japan, to list on the New York Stock Exchange. Listed with the symbol ‘RDY’ on April 11, 2001. Out-licenses DRF 4158 to Novartis for up to US $55 million upfront paymentLaunches its first generic product, Ranitidine, in the US marketBecomes the first Indian pharmaceutical company to obtain an 180-day exclusive marketing rights for a generic drug in the US market with the launch of Fluoxetine 40 mg capsules on August 3, 20012000 Dr. Reddy's Laboratories becomes India's third largest pharmaceutical company with the merger of Cheminor Drugs Limited, a group companyReddy US Therapeutics, a wholly-owned subsidiary, is established at Atlanta, US to conduct target based drug discovery 1986 Dr.Reddy’s had gone for public issue.1985 Dr.Reddy’s enters international market with the export of Methyldopa.1984 Dr.Reddy’s is established with an initial capital of Rs.25lakhs.BOARD OF DIRECTORSWhole Time Directors DR. Anji reddy-Chairmen G. V. Prasad- Vice Chairmen and CEO Satish Reddy- Chief Operating OfficerIndependent and non whole time directors DR. Omkar Gowsawmi P.n. Devarajan Ravi Bhootalingam P.Satyanarayana Rao Dr. v. Mohan Dr. Krishna palepu Anupam puriSTRATEGIC BUSINESS UNITSBranded finished dosagesGeneric finished activitiesBulk activitiesCustoms chemicalsBiotechnologyCritical careDiscovery research AUROBINDO PHARMACEUTICALS1. Calculation of Free Cash Flows (Rs in crores)Free Cash FlowsYears2006200720082009Net Fixed Assets atthe end of the year170.07298.28473578.05Net Current Assets atthe end of the year420.12530.88728.38786.14 Total590.19829.161201.381364.19Net Fixed Assets atthe beginning of the year160.60170.07298.28473Net Current Assets atthe beginning of the year307.30420.12530.88728.38 Total467.9590.198209.161201.38Net Investment122.29238.97372.22162.81NOPLAT89.23114.79143.2538.82FCF -33.06-124.18-228.97-123.99FREE CASH FLOWS OF AUROBINDO PHARMACEUTICALS (Rs in crores)Years2006200720082009FCF-33.06-124.18-228.97-123.99INTERPRETATIONThe FCF of Aurobindo has been decreasing over the period of the study. In the year 2006it was -33.06 and in 2009 it was -123.99.CALCULATION OF COST OF CAPITAL (Aurobindo) (Rs in crores)Years2006200720082009% of EquityShareholders Fund361.36533.39756.37788.59Total Source of Fund698.421096.691461.871708.69Cost of EquityDividend60.679.4114.225.4Shareholders Fund698.421096.691461.871708.692006200720082009% of DebtLoan Fund336.0525.47618.39829.12Total Source of Fund698.421096.691461.871708.692006200720082009Cost of DebtInterest42.3942.5932.2439.99Loan Fund336.0525.47618.39829.123.COST OF CAPITAL (Aurobindo) (Rs in crores) (% Ke*Ke)+(% Kd*Kd)Years2006200720082009% of Equity0.517390.486360.517390.461517Cost of Equity0.086760.072390.0781190.014865Total0.044880.035210.040410.00686% of Debt0.4810850.479140.423010.485237Cost of Debt0.126160.081050.0521350.048231Total0.060690.038830.022050.02340Cost of Capital0.105570.074040.062460.03026% for Present Value11%7%6%3%CONTINUING VALUEYears2006200720082009FCF-33.06-124.18-228.97-123.99K11%7%6%3%G26%40%45%14%Continuing Value=1127.184. FIRM VALUE (Aurobindo) (Rs in crores)PV(FCF)+PV(CV)Years2006200720082009Continuing ValueFCF-33.06-124.18-228.97-123.991127.18Present Value11%7%6%3%3%Total-29.78-108.46-192.25-110.161001.49Total Firm Value=560.84Dr. REDDY’S LABORATORIES LTD 1. Calculation of Free Cash Flows (Dr. Reddy’s) (Rs in crores)Free Cash FlowsYears2006200720082009Net Fixed Assets atthe end of the year395.76458.1538.13563.40Net Current Assets atthe end of the year1231.87929.841025.71139.47 Total1627.631387.941563.831702.87Net Fixed Assets atthe beginning of the year348.35395.76458.1538.13Net Current Assets atthe beginning of the year1011.911231.87929.841025.7 Total1360.261627.631387.941563.83Net Investment267.37239.69175.89139.04NOPLAT392.09283.2435.6447.83FCF 124.7243.51259.71308.79FREE CASH FLOWS OF Dr. REDDY’s LABORATORIES LTD (Rs in crores)Years2006200720082009FCF124.72283.2259.71308.79INTERPRETATIONThe Free Cash Flow of Dr. Reddy’s in 2006 was 124.72 crores and it increased to 283.2 crores by 2007 and decreased to 259.71 crores by 2008 and it again increased to 308.79 crores by 2009. Overall the FCF was increasing. 2. CALCULATION OF COST OF CAPITAL (Dr. Reddy’s) (Rs in crores)Year2006200720082009% of EquityShareholders Fund1806.922047.022047.012074.08Total Source of Fund1835.682105.242109.092149.972006200720082009Cost of EquityDividend150100100100Shareholders Fund1806.922047.022047.92074.082006200720082009% of DebtLoan Fund28.7658.2262.0875.89Total Source of Fund1835.682105.242109.092149.972006200720082009Cost of DebtInterest6.054.231.489.96Loan Fund28.7658.2262.0875.893. COST OF CAPITAL (Dr.Reddy’s) (Rs in crores)(% Ke*Ke)+(% Kd*Kd)Years2006200720082009% of Equity0.9843320.9723450.9709870.964701Cost of Equity0.0830140.0488510.0488310.048214Total0.08171330.047500.0474140.046512% of Debt0.0156670.0276540.029430.035298Cost of Debt0.21036160.0726550.023840.131242Total0.0032950.0020090.0007010.00463Cost of Capital0.0850080.0495090.0481150.051142% for Present Value9%5%5%5%CONTINUING VALUEYears2006200720082009FCF124.72283.2259.71308.79K9%5%5%5%G20%15%13%9%Continuing Value=-7719.754. FIRM VALUE (Dr.Reddy’s) (Rs in crores)PV(FCF)+PV(CV)Years2006200720082009Continuing ValueFCF124.7243.51259.71308.79-7719.75Present Value9%5%5%5%5%Total114.4239.46224.35254.04-6351.09TOTAL FIRM VALUE=-5718.82COMPARISION OF VALUE OF THE FIRM’S (Rs in crores)CompanyAUROBINDODr.REDDY’Svalue560.84-5718.82INTERPRETATIONThe Value of Aurobindo Pharmaceutical Limited is 560.84 Crores and Dr. Reddy’s Laboratories Limited is -5718.82 Crores. The Value of Aurobindo Pharmaceutical is greater than Dr. Reddy’s Laboratories.ANNEXUREFinancial Analysis of Aurobindo Pharmaceuticals LtdProfit & Loss Accounts(Rs in crores)YearsMar-05Mar-06Mar-07Mar-08Mar-09INCOME12 mths12 mths12 mths12 mths12 mthsSales Turnover996.101037.721190.381341.071159.17-Exercise Duty46.9162.3776.4681.1874.15Net Sales949.19975.351113.921259.891085.02Other Income10.3714.6811.6522.0616.56+Stock Adjustments47.2417.0531.8936.3513.24TOTAL INCOME(A)1006.801007.081157.461318.301114.82EXPENDITURERaw Material581.21602.45734.14753.18640.48Purchase of Trading Goods115.6364.7220.6333.9016.96Other Manufacturing Exp96.3198.70120.53153.74172.46Payments to & Provisions for Employees21.6225.1833.5251.3566.22Administration & Selling Expenses44.8643.2342.7887.3195.3TOTAL EXPENSES(B)859.63834.28951.61079.38991.42Operating profitPBDIT (A-B)147.17172.8205.86238.92123.4-Interest41.6842.3942.5932.2439.99PBDT105.49130.41163.27206.6883.41-Depreciation14.7815.8123.1834.1640.49Profit Before Tax90.71114.6140.09172.5242.92-Extra-ordinary items-10.0---PBT(post-ord- items)90.71104.6140.09172.5242.92-Tax15.0915.3725.329.274.1NET PROFIT75.6289.23114.79143.2538.82Earnings per share(rs)33.8233.8922.7326.546.91Preference Dividend1.9----Equity Dividend60.660.679.4114.225.4Balance Sheets of Aurobindo Pharmaceutical Ltd (Rs in crores) YearsMar-05Mar-06Mar-07Mar-08Mar-09SOURCES OF FUNDS12 mths12 mths12 mths12 mths12 mthsTotal Share Capital20.020.6723.2525.3825.39Equity Share Capital20.020.6723.2525.3825.39Preference Share Capital00000Reserves & Surplus256.42340.69510.14730.99763.2Share Capital Suspense0.2----Equity Share Warrants-1.062.1535.0035.00Secured Loans137.45181.4406.57514.61624.4Unsecured Loans88.45154.51118.90103.78204.72Deferred Tax Liability--35.9552.1155.98TOTAL 502.52698.421096.961461.871708.69APPLICATION OF FUNDSGross Block198.19219.12378.91584.41729.74Less: Depreciation37.5949.0580.63111.41151.69Net Block160.60170.07298.28473.00578.05Capital Work-in-Progress10.8655.96115.49111.60176.50Investments23.7673.73413.77584.60151.27Current Assets Loans & AdvancesInventories172.99125.46203.52259.64323.58Sundry Debtors201.30367.57407.65453.85441.38Cash & Bank Balances4.5511.1333.1537.4113.8Loans & Advances63.7570.45107.07149.45213.47Interest Accured on Investments-0.020.030.030.03Other Current Assets---0.340.02442.59574.63751.42903.72992.28Less: Current Liabilities127.92142.45206.49155.09195.19 Provisions7.3712.0614.0520.2510.99135.29154.51220.54175.34206.14Net Current Assets307.3420.3530.88728.38786.14Miscellaneous Expenditure-0.65---TOTAL 502.52698.421096.961461.871708.69Financial Analysis of Dr. Reddy’s LtdProfit & Loss Acconts(Rs in crores)YearsMar-05Mar-06Mar-07Mar-08Mar-09Income12 mths12 mths12 mths12 mths12 mthsSales Turnover1565.741598.331740.201740.201825.08-Exercise Duty78.9784.7279.9873.5757.38Net Sales1486.771513.611661.221666.631767.70Other Income85.8946.4675.7475.7469.58+Stock Adjustments11.0223.649.669.6629.62TOTAL INCOME(A)1583.681583.711746.621752.031866.9EXPENDITURERaw Material402.71426.82526.81590.96574.04Power & Fuel32.8438.1241.2343.9645.35Employee cost100.59126.63153.83153.84182.36other manufacturing exp83.008105.39131.28230.15293.30Selling & administration expenses282.3248.06444.74169.52186.59Miscellaneous expenses149.8240.6469.4334.5623.98preoperative exp capitalized00000TOTAL EXPENSES(B)1051.341085.661367.321222.991305.62Operating profit446.45451.59303.56432.56332.26PBDIT (A-B)532.34498.05379.3529.04561.28-Interest14.156.054.231.489.96PBDT518.19492375.07527.56551.32-Depreciation47.4260.8471.7271.7292.46Profit before Tax518.19492375.07527.56551.32-Extra-ordinary items47.4260.8471.7271.7292.46PBT(post-ord- items)470.77431.16303.35455.84458.86-Tax11.1239.0720.1520.2411.01NET PROFIT459.65392.09283.2435.6447.83Earnings per share(rs)42.958.443.852.357.9Preference Dividend00000Book value(rs)190.54236.14237.51294.24328.45Equity Dividend40150100100100Balance sheet of Dr reddy’s Ltd ( Rs in crores)YearsMar-05Mar-06Mar-07Mar-08Mar-09Sources of fund12 mths12 mths12 mths12 mths12 mthsTotal share capital38.2638.2638.2638.2638.26Equity share capital38.2638.2638.2638.2638.26preference share capital00000Reserves1419.731768.662008.762008.752035.82Revaluation Reserve00000Net worth(A)1457.991806.922047.022047.012074.08Secured loans(a)5.34.2935.6436.4556.24un secured loans(b)8.5224.4722.5825.6319.65Total Debt(a+b)(B)13.8228.7658.2262.0875.89Total Liabilities(A+B)1471.811835.682105.242109.092149.97Application of FundsGross Block569.94685.12810.95956.451035.65Less: Accum.Depreciation221.56289.36352.85418.32472.25Net Block(I)348.35395.76458.1538.13563.40Capital work in progress(II)47.6151.41105.25145.36186.32Investments(III)63.94156.64612.05254.35365.41Inventories189.81240.11258.01231.57254.84Sundry Debtors444.95432.11444.05489.23462.63Cash & Bank Balance488.56688.4408.08543.36498.21Total current asset1123.321360.9611110.141264.161215.68Loans & Advances135.88201.28233.56287.36331.42(+)Total CA, Loans & Advances (IV)1259.201562.241343.701551.521547.1Deferred credit4.734.293.75.215.11Fixed deposit00000Current Liabilities219.26275.14355.73425.65512.34(+)Provision28.0355.2358.1362.1368.52Total CL & Provisions(VI)247.29330.37413.86487.78580.86NET Current Assets1011.911231.87929.841025.71139.47Miscellaneous Expenses(V)00000Total Assets{(I:V)-VI1471.811835.682105.242345.522541.36Contingent Liabilities151.65166.7226.69295.32364.25FINDINGS, SUGESSIONS & CONCLUSSIONSFINDINGSFREE CASH FLOWThe FCF of Aurobindo Pharmaceutical has been decreasing over the period of the study. In the year 2006 it was -33.06 crores and in 2009 it was-123.99 crores. Whereas the FCF of Dr. Reddy’s has been increasing over the period of the study.In the year 2006 it was 124.72 crores and in 2009 it was 308.79 crores.COST OF CAPTIALThe Cost of Capital of Aurobindo has been decreasing. It was 11% in the year 2006 and decreased to 3% in the 2009. Whereas the cost of capital of Dr. Reddy’s also decreased and remained constant. In the year 2006 it was 9% and decreased to 5% in 2007 and remained constant at 5% in 2008 and 2009CONTINUING VALUEThe Continuing Value of Aurobindo Pharmaceutical was positive at 1127.18 crores in the year 2009. Where as the Continuing Value of Dr. Reddy’s was negative at -7719.75 crores in 2009VALUE OF THE FIRMThe value of Aurobindo Pharmaceutical was positive at 560.84 crores in 2009 and whereas the value of Dr. Reddy’s was negative at -5718.82 crores in 2009.The value of Aurobindo Pharmaceutical Ltd is higher than Dr. Reddy’s LaboratoriesEQUITY DIVIDENDThe Equity Dividend of Aurobindo was 60.6 in 2006 and increased to 114.2 in 2007 and decreased to 25.4 in 2009. Whereas Equity Dividend of Dr. Reddy’s has been increasing from 40 in 2005 to 150 in 2006 and remained constant at 100 from 2007 to 2009 the dividend of Dr. Reddy’s is higher than AurobindoCONCLUSIONS AND SUGGESTIONSAs the Corporate value of the firm Aurobindo Pharmaceutical Ltd has been showing higher trend than the Dr. Reddy’s Laboratories Ltd, the investor should consider in investing Aurobindo Pharmaceutical LtdThe value of the Dr. Reddy’s Laboratories company is less than Aurobindo company, hence it can suggested that the Dr. Reddy’ company should take considerable steps to improve its overall firm valueResearch and Technology: Research and Technology is back bone of the companies so both companies should pay more attention to build effective tols to be used in research and technology and widened it to the possible extend.Marketing Strategies: The companies must develop more effective marketing strategies to the greatest extent, which displays and meet customer’s requirement and help in meeting the companies objectives and expectations.Terms of offer: The investor must go through all the terms and conditions of the offer document thoroughly and always deal in legal transactions.The Investors has to make proper investments after making necessary calculations.The Value of firm depends upon many factors. Some of them areFCF - Free Cash FlowK - Cost of Capitalg - Expected Growth rate of Free Cash Flow for ever The FCF’s of Aurobindo Pharmaceutical were Negative over the period of the study (2006 – 2009), but it’s Value of Firm was positive at 560.84 crores. Whereas the FCF’s of Dr. Reddy’s were Positive and increased over the period of study (2006 – 2009), but it’s Value of Firm was negative at -5718.82 crores. The reasons for above values may be due to changes in Cost of Capital and Growth Rate of firm’s. The Cost of Capital of Aurobindo has decreased to 3% in 2009 from 11% in 2006 and the Growth rate increased to 45% in 2008 and decreased to 14% by 2009. Whereas the Cost of Capital of Dr. Reddy’s was 5% in 2009 and the Growth rate has decreased to 9% in 2009 from 20% in 2006.BIBLIOGRAPHYPrasanna Chandra, “Financial Management”, Sixth Edition.I.M.Panday, “Financial Management”. Websites referredcfmfin@ ................
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