sp project report on capital structure

8/14/2019 SP Project Report on Capital Structure

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Summer Training, Report

On

STUDY OF CAPITAL STRUCTURE

Submitted to:


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Table of contents

Acknowledgement 02Certificate 03Preface 04Abstract 07

INTRO TO RANBAXY LABORATORIES LTD

Company Profile 08-10ision 10-11

!perating "oint ent#res and $#bsidies 12-1%!b&ecti'es 1(-18ario#s di'isions of )anba*y 1+-20,ntro of )anba*y Plant in ,ndia and 'ario#s depts 12-23Prod#ct )e'iew 24-2(

INTRO TO CAPITAL STRCTRE T!EORY AND ANALYSIS

,ntrod#ction 27-28.iterat#re of re'iew on Capital $tr#ct#re 2+/etodology 30eory and Analysis 31-38!ptimal Capital $tr#ct#re for )anba*y 3+-%8Capital e*pendit#re an o'er'iew %+-80.atest balance seet and capital str#ct#re of )anba*y 81-82)ecommendations and $#ggestions for ,nd#stry 82-+0Concl#sion +1-+2

iblograpy +3

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A$)AC

A pro&ect work is a mandatory re#irement for te #siness/anagement Programme is type of st#dy aims at e*posing teyo#ng prospecti'e e*ec#ti'e to te act#al b#siness world

is pro&ect gi'es me knowledge abo#t te capital str#ct#re andteory analysis5inancing decisions in'ol'e raising f#nds for te firm,t is concerned wit form#lation and designing of capital str#ct#re orle'erage e most cr#cial decision of any company is in'ol'ed in teform#lation of its appropriate capital str#ct#re e best design orstr#ct#re of te capital of a company elps te management to acie'eits #ltimate ob&ecti'es of minimising o'erall cost of capital6

ma*imising profitability and also ma*imising te 'al#e of te firmorganiation ,t is 'ery effecti'e way to dge a companys cas flow

prospects6 as cas is like blood life for any company

e report initially begins wit te company profile6 followed by tedetailed analysis of company6 like b#sinesses of te company6

prod#cts offered by te company6 financials of te company6 etc

e report in'ol'es a lot of researc to #nderstand wat e*actlycapital str#ct#re of te company so#ld betats 6 wy companiesre#ire appropriate capital str#ct#reT"e #u$#ose is to de%elo# anaction #lan t"at c$eates suc" a ca#ital st$uctu$e t"at &ill u#'$ades

and standa$di(e t"e )ualit* of business anal*sis+



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ITRODUCTIO TO RA!A"Y

CO,PANY PRO-ILE

.Acompany empowered by one mission to place itself on the worldmap. An enterprise propelled by one force-that synergizes its energies to

charter unexplored markets. Organizations fuelled by one dream-to transformcompetition into opportunity.

)anba*y .aboratories .td was incorporated in "#ne 1+(16 in te name of /9$.:P,, )A;A and it commenced its b#sinessin /A)C? 1+(26 in tecnical and financial collaboration wit an internationalcompany named .:P, $PA6 /,.A;6 ,A.=

)anba*y .aboratories P't .td merged wit @.eptit )anba*y .aboratories P't.td in 1+(2 )anba*y and company also merged wit tis company in 1+((e collaboration arrangement wit /9$ .:P, was terminated in 1+((B afterwic ,ndian nationals ac#ired te entire sare capital of te company

erefore te word .eptit was remo'ed from te name of te company ename is known as )A;A ,n 1+73 te

company iss#ed sares to te general p#blic and became a f#ll fledged P.,C.,/,:> C!/PA;=

oday6 )anba*y as emerged as a .eadingParmace#tical Company on te ,ndianfirmament6 wit te second largest marketsare and en&oys an en'iable rep#tation for itsig standard of etics and #ality aro#nd its

core strengt of anti-infecti'e6 it as prod#cednew brands in emerging terape#tic areas like cardio'asc#lar6 central ner'o#sGJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page 4of 94


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system and n#tritional s#pporting tis e*pansion6 te company as in'ested inworld class man#fact#ring infrastr#ct#re tat le'erages ,ndias comparati'e costad'antage and skilled manpower6 wile deli'ering international #ality

e companys dri'e for ,nternationalism is g#ided by te well planned brand

strategy tat co'ers some of te world emerging markets like Cina6 cis6 Central:#rope and .atin America ,ts position today is in leag#e of te op enParmace#tical companies of tree world an decent ranking as te ele'entlargest company in te international generics space is te reso#ndingendorsement of its strategic mind

,t is clear tat for a long time6 te dominant sare of re'en#es of te companywo#ld contin#e to come from te e'er e*panding global generics market ?encete intent of )anba*y mission is to acie'e a s#stained growt rate tro#g tecontin#o#s p#rs#it of inno'ation pase one trials for per'asion6 a compo#nd fortreating prostetic males a'e been completed Pase 1 trials wit clafrinast6 anastma compo#nd is an important step towards researc based 'al#e creation

is company also ad s#ccess wit Ciploflo*acine6 an ingenio#s form6 createdtro#g te no'el dr#g deli'ery systems researc As te demand of te b#lkdr#gs inside te co#ntry and abroad was increasingly rapidly a new6 plant wasset #p at oansa near )opar in 1+87 is was a iger capacity plant designedto cater to te present and f#t#re needs6 initially antibiotics like Ampicillin6

riydrate and >o*ycycline were man#fact#red

.ater6 on te oter dr#gs like Cepale*in monoydrate and )anitidine were alsoprepared e plant at oansa was designed to meet te stringent standards setby te 5ood and >r#g Administration D5>AE of $A is plant as beenappro'ed by 5>A and tis will open #p American and oter newer markets for)anba*ys prod#ctsAt present )anba*y a'e fo#r plants for te man#fact#re of b#lk dr#gs two at/oali6 one at >ewas D/PE A;> Anoter at oansa near )!PA) At present6

)anba*y is te second most ,ndian company engaged in te man#fact#ring ofParmace#ticals6 #lk >r#gs and 5ine Cemicals

)A;A


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great part in transforming te company into a m#ltic#lt#ral and m#ltiracial teamoday6 )anba*y is te largest e*porter acco#nting for 12F of te ind#strye*ports parmace#tical s#bstance and dosages forms to o'er %0 co#ntries witte internationals sales comprising of 4%F of te total t#rno'er

/ISION: 0ARDA

>#ring te year 20026 te company as e'ol'ed a 10-year 'ision till 20126 fors#staining significant growt consistent wit its mission to be an internationalresearc based Parmace#tical Company6 #nder te r#bric G/ision 0a$uda6wit increasing empasis on No%el D$u' Deli%e$* S*stems Resea$c" 1DDR2

,n licensing and o#t licensing6 relationsip wit oter important parmace#ticalentities6 e*pansion of man#fact#ring facilities bot in ,ndia and strategico'erseas locations6 re'amping of organiational str#ct#res to cater to te widerand more dispersed span of operations6 and streamlining and standardiing te

b#siness processes tro#g o#t te global organiation6 are oter areas tatrecei'e foc#s and attention of management on priority

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,ission

o become a !esearch based"nternational pharmaceutical company

/ision34564

Achie#e significant business in$roprietary prescription products

%y &'(&)ith a strong presence in de#eloped markets

As#i$ations34564

Aspire to be a*+ billion company%ecome a op + global generics player,ignificant income from $roprietary products

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OPERATIN0 7OINT /ENTRES

AND SBSIDIARIES

BRA8IL : Ranba9* S+P+ ,edicamentos Ltd+

C!INA : Ranba9* 10uan'("ou C"ina2 Ltd+

E0YPT : Ranba9* E'*#t Ltd+

0ER,ANY : Basics 0mb !+

!ON0 ON0 : Ranba9* 1!on' on'2 Ltd+

INDIA : Re9cel #"a$maceuticals Ltd+;

Solus #"a$maceuticals Ltd+;

/id*ut T$a%el Se$%ices ltd+

IRELAND : Ranba9* I$eland Ltd+

,ALAYSIA : Ranba9* 1,ala*sia2 Sdn+ B"d+

NET!ERLANDS : Ranba9* P"a$maceuticals B+/+

NI0ERIA : Ranba9* Ni'e$ia Ltd+

PANA,A : Ranba9* Panama SA+

POLAND : Ranba9* Poland S#+ 8o+

SOT! A-RICA : Ranba9* 1SA2 1Pt*+2 Ltd+

T!AILAND : nic"em #"a$maceuticals LTD+;

nic"em Dist$ibuto$s Ltd+ Pa$t;

Ranba9* nic"em CO+Ltd+

+ : Ranba9* 12 Ltd

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SA : Ranba9* #"a$maceuticals Inc+

O"m Labo$ato$ies Inc+;

Ranba9* Sc"ein P"a$ma; LLC

/IETNA, : Ranba9* /ietnam Com#an* Ltd

ALLIED BSINESSES

Ranba9* Animal !ealt"

e Animal ?ealt di'ision saw an enco#raging growt despite te pre'ailingpoor market conditions e di'ision grew at twice te growt rate recorded inte ind#stry !n te basis of a'ing a 'ast dome satiated animal pop#lation6 teli'estock6 po#ltry b#siness and pets b#siness are among te fastest growingsectors in ,ndia A 'ast infrastr#ct#re of 'eterinary colleges6 agric#lt#ralinstit#tes6 tecnologists and researcers are elping farmers to so#rce ealty6cost effecti'e prod#cts ,n connction wit te present scenario6 te A?Cdi'ision of )anba*y .aboratories .imited as introd#ced se'eral latest

generation prod#cts



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Ranba9* -ine C"emicals Limited 1R-CL2

e di'ision ranked 4t in te

ind#stry and capt#red 11F marketsare )A;H:/ is establised as apowerf#l brand6 )5C.Is brand forits range of )eagents is nowsynonymo#s wit e*cellence inreagents and fine cemicals in teco#ntry e foc#s of b#sinessremains on de'eloping e*tensi'ec#stomer relationsB enancing ser'ice le'els and enricing te prod#ct mi* witte elp of a #alified and competent marketing and sales team

Dia'nostics

e diagnostics di'ision as aggressi'ely foc#sed on market e*pansionacti'ities based on strategy of reliability6 #ality prod#cts and efficient ser'ice,ntrod#ction of prod#cts in GPoint of Care markets as e*panded market

presence and o'er te ne*t 1 J 2 years tis segment will see considerablee*pansion in line wit world trends

e >ade ering segment as increased its installation base by (0F in leadingospitals and laboratories Plans are afoot for te introd#ction of more

parameters for te GPoint of Care market and te la#nc of $pecial Cemistries6a range of dr#g assays6 pl#s an entry into a#tomated microbiology in bot tease and >ade ering b#siness areas

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e company as also witnessed significant milestones in te area of ;o'el>r#g >eli'ery $ystems D;>>$E e company as entered into strategic

b#siness arrangements wit companies s#c as ayer AK6 Kla*o-Lellcome6:li-.illy etc for prod#ction and co-marketing operations /any inno'ati'ede'elopments a'e been taking place in recent times e companys researc

team is capable of de'eloping one ;>>$ prod#ct e'ery 12 to 18 monts Also6two new prod#cts )oletra-> and Alti'a->6 will soon be la#nced in ,ndia

,n order to e*pand and promote global growt6 te company opened se'eral newmarkets d#ring te year6 notably in rail6 were 2% filings were #ndertaken ina span of 2-3 monts

e company as planned to b#ild and protect intellect#al property wit teelp of ,PC6 wic addresses all matters pertaining to patents CMA s#per'iseste implementation of standard operating proced#res D$!PE and ens#rescompliance to corporate #ality ass#rance policy in all tecnological operationsof te organiation e company is committed to in'est (F of te sales in )and > by 20036 of wic 7F of te e*pendit#re will be earmarked for researcon ;ew >r#g >isco'ery and ;o'el >r#g >eli'ery $ystems ere will becontin#o#s empasis on a#gmenting ) and > performance and prod#cti'itywit ad'anced scientific and tecnological tools

/ALES O- RANBAXY LABORATORIES LI,ITED

1 Acie'ing c#stomer satisfaction is f#ndamental to teir b#siness2 Practice dignity and e#ity in relationsips and pro'ide opport#nities for

people to realie teir f#ll potential3 :ns#re profitable growt and enance wealt of sareolders4 5oster m#t#ally beneficial relationsips wit all teir b#siness partners% /anage teir operations wit concern for safety and en'ironment( e a responsible corporate citien

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OB7ECTI/ES O- RANBAXY LABORATORIES LTD+

1 o be a leader in te Parmace#tical ind#stry2 o be a profitable company wit a steady growt in earnings3 o set an e*ample as a socially responsible company4 o di'ersify in ealt care related areas% o stri'e for e*cellence and contin#o#s impro'ement in all speres( o impro'e te #ality of life of people by pro'iding better ser'ices and

#ality prod#cts

Environment, Health and Safety [EHS]

Caring for te :n'ironment is a core corporate 'al#e and as a part of tiscommitment e Company en#nciated its :?$ policy in 1++3

e Companys :?$ policy pro'ides for te creation of a safe and ealtyworkplace and a clean en'ironment for employees and te comm#nity ,t aimsat iger international standards in plant design6 e#ipment selection6

maintenance and operations e policy seeks to man#fact#re prod#cts safelyand in an en'ironmentally responsible manner

e implementation of te :?$ Policy is ens#red by instit#tionaliing a rob#st:?$ /anagement system6 ade#ately s#pported by well defined organiationalstr#ct#re

As a part of :?$ processes at te corporate le'el6 besides laying downg#idelines on systems6 policy and training6 te corporate :?$ office monitorscompliance6 maintains and disseminates information on laws and reg#lations:?$ performance re'iew meetings are eld on reg#lar basis to monitor te

progress against agreed :?$ impro'ement plans Close cooperation between all

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#nits and indi'id#als is te key to maintaining ig standards of en'ironmentprotection and safety in all te plants

e key processes at location le'el comprise of reg#lar safety s#r'eillance6inspections N a#dits6 Permit to work system for operational 9 maintenancesafety6 5ire pre'ention N protection acti'ities6 operation of te :P9,ncinerator6

disposal acti'ities related to aardo#s wastes6 reg#lar monitoring of teen'ironment internally and also tro#g appro'ed laboratories /ontly reportsaddress :?$ initiati'es6 compliance N 'ario#s records #nder te stat#toryre#irement6 training of employees incl#ding contract employees on :?$awareness6 interaction wit te residential associations9nearby comm#nity etc6celebration of ;ational safety day6 fire day6 :n'ironment day etc for :?$awareness among employees

e man#fact#ring facilities for b#lk dr#gs and dosage forms comply wit testringent re#irements of Kood /an#fact#ring Practices DK/PE and Kood

.aboratory Practices DK.PE and are appro'ed by ,nternational ealt andreg#latory Agencies like 5>A - $A6 /CA J H6 L?! etc ese practicesand appro'als ens#re tat an effecti'e framework is always in place6 not onlyfor man#fact#re of ig #ality prod#cts6 b#t also for effecti'e #se of reso#rcesand red#ction of wastes as well as ig safety N ygiene standards

)anba*y as made significant impro'ements in process safety of te e*istingman#fact#ring facilities by pro'iding e*tensi'e instr#mented safety protectionsystems e intended safety feat#res are incorporated in te basic design of tenew pro&ects

,n'estments a'e been made on process impro'ements as well as effl#enttreatment plant #p-gradation #sing te latest membrane based tecnology6 m#lti-effect termal e'aporation system and state-of-te-art ,ncinerator esein'estments a'e elped to red#ce discarges of contaminants into teen'ironment Lit te facilities installed at oansa for recycling of te treatedeffl#ent6 te site as acie'ed te stat#s of @ero discarge site

e Company also engages wit te concerned a#torities and ind#stry inde'ising responsible laws6 reg#lations and standards and t#s making safety6

occ#pational ealt N en'ironmental information and e*pertise a'ailable to itsemployees and te comm#nity at large )anba*y as made :?$ concerns and

practices a necessary factor in appraising its employee performance

e Company also accords a 'ery ig priority to ygiene monitoring at workplace and ealt assessment of all employees at site e plant and processes arecontin#o#sly #pgraded to impro'e ygiene and ealt standards ;ecessarytraining is imparted to te employees to enance teir awareness towards ealtrelated matters



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$afety knowledge of te employees is constantly #pdated tro#g 'ario#se*ternal and in-o#se training programs6 incl#ding special training programs byo'erseas e*perts N cons#ltants

/o'ing #p te 'al#e cain6 te company identified Cons#mer ?ealtcare as itsnew b#siness area in te year 2001 )anba*y Klobal Cons#mer ?ealtcare

D)KC?E was la#nced in !ctober 2002 wit a portfolio of 4 switc brands)e'ital6 Pepfi6 Kesdyp N Karlic Pearls $ince tese brands were already

pop#lar amongst cons#mers and represented te leading common ailmentcategories like /$ Ditamins N /inerals $#pplementE6 tis portfolio wascaref#lly created for te introd#ction of )KC? to te ,ndian market$#bse#ently in 20046 )KC? la#nced its first erbal range of prod#cts tro#g

;ew Age ?erbals D;A?E wit prod#cts offering remedy in categories of Co#gN Cold D!lesan !il N Co#g $yr#psE and Appetite $tim#lant D:at :aseE



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/ARIOS DI/ISIONS O- RANBAXY

LABORATORIES LTD+

+

6+ C"emical Di%ision

4+ Dia'nostic Di%ision

+ Inte$national Di%ision

?+ P"a$maceutical Di%ision

@+ Tec"nical Di%ision

+ Co$#o$ate Di%ision+ Animal !ealt" Ca$e Di%ision

DI/ISIONS IN /ARIOS 0EO0RAP!ICAL AREAS

6+ India and ,iddle East

4+ Eu$o#e; CIS and Af$ica


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7OINT /ENTRE O- T!E CO,PANY+

2000 )anba*y files ,;> Application for Astma /olec#le- )*4(386 afters#ccessf#l completion of pre-clinical st#dies)anba*y

ac#ires ayers Kenerics b#siness Dtrading #nder te;ame of asicsE in Kermany)anba*y forays into rail6 te largest parmace#ticalmarket in $o#t America and acie'es global sales of$ O 2% million in tis market

2001 )anba*y took a significant step forward in ietnam by initiating te$etting #p of a new man#fact#ring facility wit anin'estment of $ O 10 million)anba*y acie'ed a t#rno'er of $ O %02 million forte year 2002 and mo'ed closer to acie'ing a targetof 1 billion dollar by 2004

2002 )ecei'es appro'al from 5>A to market /idaolam ?ydrocloride $yr#p2 /g base9 ml )anba*y recei'es and appro'al from5>A to man#fact#re and market Cefpodo*imePro*etil for !ral $#spension6 .isinopril ?ydroclorotiaide ablets s6 eraosin?ydrocloride Caps#les and Amo*cillin !ral

s#spension $P?eralding te companys entry intote ,ndian !C market

2003 )anba*y recei'ed te economic times award for corporate e*cellence-for te company for yearranba*y signed an agreementtoac#ire )PKDa'entisE $A along wit its f#lly owneds#bsidiary6!P,? $A).6in france

)anba*y la#nced its first range of erbal pro&ects

200% Ac)uisition of additional stae in Ranba9*-a$maceutica Ltda+; B$a(il)anba*y anno#nced teac#isition of e-abs Parmace#ticals DPtyE .imited

2008 Ac#ired by te "apanese giant6 te O+(2 billion >aiici $ankyo6 ranked;o 3 in "apan

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T!E /ARIOS DEPART,ENTS

!uman Resou$ce De#a$tment

e basic f#nction of te #man reso#rce department in te modern corporateworld is knowledge management e ?) department stri'es to maintaincoesi'eness among employees ,t also ens#res interdepartmental cooperation inacie'ing targets e appraisal system is also taken care by tis departmente ?) department del'es deep into te employees psyce to analye te

positi'es and negati'es of eac employee6 so tat a proper system of delegationand 9 or empowerment can be e'ol'ed

-inance De#a$tment

e finance department takes care of te reg#lar financial needs of te companyit ens#res proper allocation of f#nds and takes care of te working capitalre#irements ,t 'erifies capital raised by different departments and sends temfor appro'al to te iger a#torities

Sto$es De#a$tment

e f#nction of tis department is to pro'ide ade#ate and proper storage andpreser'ation of 'ario#s items to meet te demand of 'ario#s oter departmentsby proper iss#es and maintaining acco#nts of cons#mption ,t also keeps a trackof stock acc#m#lation and abnormal cons#mption

E$ection and -ab$ication De#a$tment

As te name s#ggests6 tis department identifies new pro&ects and elps inerecting tem is department also #ndertakes ma&or modifications of

e#ipment

ERP De#a$tment

:)P department elps to integrate te entire enterprise starting from tes#pplier to te c#stomer6 co'ering financial and #man reso#rces is willenable te enterprise to increase prod#cti'ity by red#cing costs ,t also ens#res asingle sol#tion to te information needs of te wole organiation

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PRODCT RE/IEF

)anba*ys terape#tic widt co'ers fi'e of te top si* categories incl#dingAnti-infecti'e6 Kastrointestinal6 ;#tritionals6 Cardio'asc#lar6 Central ;er'o#s$ystem6 )espiratory6 >ermatological and oters Lile anti-infecti'e contrib#te%(F of te total sales6 )anba*ys oter brands like $im'otin and $tor'as in tecardio'asc#lar segment6 $erlift in C;$ and )e'ital and )iconia in ;#tritionals6

are on teir way to s#ccess in m#ltiple markets>#ring "an - >ec 20006 amongst te top prod#cts of )anba*y6 $poride*DCepale*inE was te ;#mber 1 brand6 closely followed by CifranDCiproflo*acinE

Anti 3 Infecti%es

Anti- infecti'e as been te main dri'er of )anba*ys sales e importantbrands in tis category are Cifran DCiproflo*acinE6 $poride* DCipale*inE6

:nancin DAmo*ycla'E6 Cri*an DClaritromycinE6 ercef DCefaclorE6 !frama*DCeftria*oneE6 Cepodem DCefpodo*ime Pro*etilE6 Qanocin D!flo*acinE6 Cero*imDCef#ro*ime A*etilE6 and .o*of D.e'oflo*acinE

Cifran DCiproflo*acinE is te key brand in te anti- infecti'e portfolio6 witestimated sales of $ O 32 /n6 c#rrently being marketed in 1% co#ntries>e'elopment of Ciproflo*acin once a day as been an important landmarkacie'ed by )anba*y e prod#ct as been licensed to ayer Cifran contin#esto be a dominant player in te #inolones market in ,ndia6 Cina and )#ssia

$poride* is anoter leading brand in )anba*ys prod#ct portfolio witworldwide ann#al sales of $ O 3% /n ,t is a'ailable in eigt different dosageforms incl#ding caps#les6 dry powder for s#spension6 redimi*6 dispersibletablets6 paediatric drops6 soft gelatin caps#les6 sacet and ad'anced form#lationfor twice-daily administration ,t is c#rrently marketed in 1% co#ntries ,n ,ndia6$poride* is te leading brand wit a market sare of 3(F of te Cepale*insegment

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Heflor is a'ailable in se'en different dosage forms and is te tird-largestselling brand for )anba*y worldwide e dosage forms list incl#des caps#les6dry syr#p6 modified release tablets6 dispersible tablets6 drops and redimi*

:nancin is e*pected to be te leading prod#ct in )anba*ys prod#ct portfolio

wit estimated sales of $ O 4% /n by te year 200% e prod#ct will be rolledo#t to abo#t 20 important markets d#ring tis period

Qanocin6 wit appro*imate sales of $ O 10 /n6 is te se'ent-largestcontrib#tor to )anba*ys total sales

Cepodem is c#rrently a'ailable in tree different co#ntries o#tside ,ndia6 andwill be rolled o#t to 13 different co#ntries in te near f#t#re

Ca$dio%ascula$s

Cardio'asc#lar is pro&ected to be te second-best category for )anba*y $tatinsa'e been te key dri'ers for tis segment e sale of $im'astatin as growns#bstantially in te past few years6 a trend tat is likely to contin#e in te f#t#re,n ,ndia6 $im'otin D$im'astatinE is te market leader in te colesterol red#cersegment Anoter leading brand in tis category is $tor'as DAtor'astatinE$tor'as as been one of te fastest-e'er to enter te top-300 brands list of te,ndian parma ind#stry !ter global cardio'asc#lar brands are Co'ance

D.osartanE and Caslot DCar'edilolE

Cent$al Ne$%ous S*stem

e Central ;er'o#s $egment is one of te important foc#s areas identified by)anba*y6 wit $erlift being te key brand ,n ,ndia6 $erlift is n#mber 1 amongst$ertraline brands ;ew prod#ct introd#ctions will be dri'ers of growt in tiscategory

0ast$ointestinal

C#rrently6 gastrointestinal dr#gs are te second-largest category for )anba*ye key brands in tis category incl#de ?istac and )omesac e c#rrent ann#alsales of )anitidine are estimated to be aro#nd $ O 1( /n and te prod#ct ismarketed in more tan 20 co#ntries

R"eumatolo'icals

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e first generation Co*-2 inibitors principally dri'e worldwide growt inre#matology is category is estimated to grow e*ponentially for )anba*y6wit brands like Celeco*ib is year6 )ofiba* D)ofeco*ibE introd#ced in ,ndia6as establised itself as a leader in te Co*-2 inibitor category and aso'ertaken all Celeco*ib brands ,t as been identified as a key Klobal brand for

te f#t#re

Nut$itonals

;#tritionals a'e been a ma&or contrib#tor to )anba*ys sales wo of teimportant prod#cts in tis category are )e'ital and )iconia Lit ann#al salesestimated at abo#t $ O 10 /n6 )e'ital contrib#tes a significant sare of totalsales ,t is a leading brand in ,ndia and as done e*ceedingly well in some partsof te world as an !C prod#ct

De$matolo'icals

e dermatology category is mainly dri'en by ,ndia region and is likely to sowa good growt pattern in te f#t#re $ome of te key brands doing well in tissegment are /obio*6 $il'ere*6 /oist#re*6 etc

GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page22of 94


23/94

INTRODUCTION TO CAPITAL

STRUCTURETHEORY AND

ANALYSIS



24/94

T)i* i* a Report on t)e +Capita Stru-ture an. Capita

E/pen.iture o0 Ran1a/ La1oratorie* Lt. T)e

purpo*e an. *-ope o0 t)e pro5e-t -an 1e i*te. a*6

nde$standin' t"e o$'ani(ational st$uctu$e and functionin' of

Ranba9* Labo$ato$ies Ltd+

Anal*sin' and com#a$in' t"e financial "ealt" of t"e fi$ms in t"e

Indian P"a$ma Indust$*+

Identif*in' and anal*sin' t"e ca#ital st$uctu$e of Ranba9*+

Conductin' a Re%ie& of t"e Ca#ital E9#enditu$e done at Ranba9*

Labo$ato$ies Ltd+

Identif*in' loo#"oles in t"e functionin' and in t"e a$ea of stud*

and $ecommendin' t"e su''estions fo$ t"e same+

-ollo&in' a$e t"e limitations of t"e stud*:

Balance s"eets of onl* < *ea$s "a%e been studied but t"e com#an* is

in o#e$ation fo$ so man* *ea$s+

Onl* s#ecific tools 1i+e+ $atio anal*sis2 "a%e been used fo$ data

anal*sis; &"ile so man* ot"e$ tools a$e also t"e$e+

O$'ani(ational $ules G $e'ulations+

A%ailabilit* of data+ -inancial fi'u$es fo$ 455 of Ranba9* &e$e not

a%ailable+

Limitations of t"e financial tools used+



25/94

Litretre of re!ie" o# Ca$ita% Str&tre

CAPITAL STRUCTURE IS A MI' O( DE)T ANDE*UITY CAPITAL MAINTAINED )Y A (IRM+ CAPITALSTRUCTURE IS ALSO RE(ERRED AS (INANCIAL STRUCTURE O(A (IRM+ THE CAPITAL STRUCTURE O( A (IRM IS VERY

IMPORTANT SINCE IT RELATED TO THE A)ILITY O( THE (IRMTO MEET THE NEEDS O( ITS STAKEHOLDERS+ MODIGLIANIAND MILLER ./01 2ERE THE (IRST ONES TO LANDMARK

THE TOPIC O( CAPITAL STRUCTURE AND THEY ARGUED THATCAPITAL STRUCTURE 2AS IRRELEVANT IN DETERMINING THE(IRM3S VALUE AND ITS (UTURE PER(ORMANCE+ ON THEOTHER HAND, LU)ATKIN AND CHATTERJEE ..41 AS2ELL AS MANY OTHER STUDIES HAVE PROVED THAT THEREE'ISTS A RELATIONSHIP )ET2EEN CAPITAL STRUCTURE AND(IRM VALUE+ MODIGLIANI AND MILLER .561SHO2ED THAT THEIR MODEL IS NO MORE E((ECTIVE I(

TA' 2AS TAKEN INTO CONSIDERATION SINCE TA'SU)SIDIES ON DE)T INTEREST PAYMENTS 2ILL CAUSE ARISE IN (IRM VALUE 2HEN E*UITY IS TRADED (OR DE)T+IN MORE RECENT LITERATURES, AUTHORS HAVESHO2ED THAT THEY ARE LESS INTERESTED ON HO2CAPITAL STRUCTURE A((ECTS THE (IRM VALUE+ INSTEADO( THE (IRM+ MODIGLIANI AND MILLER .561 ARGUED

THAT THE CAPITAL STRUCTURE O( A (IRM SHOULDCOMPOSE ENTIRELY O( DE)T DUE TO TA' DEDUCTIONSON INTEREST PAYMENTS+ HO2EVER, )RIGHAM ANDGAPENSKI ..51 SAID THAT, IN THEORY, THE

MODIGLIANI-MILLER MM1 MODEL IS VALID+ )UT, INPRACTICE, )ANKRUPTCY COSTS E'IST AND THESE COSTSARE DIRECTLY PROPORTIONAL TO THE DE)T LEVEL O( THE(IRM+ HENCE, AN INCREASE IN DE)T LEVEL CAUSES AN

INCREASE IN )ANKRUPTCY COSTS+ THERE(ORE, THEYARGUE THAT THAT AN OPTIMAL CAPITAL STRUCTURE CANONLY )E ATTAINED I( THE TA' SHELTERING )ENE(ITSPROVIDED AN INCREASE IN DE)T LEVEL IS E*UAL TO THE)ANKRUPTCY COSTS+ IN THIS CASE, MANAGERS O( THE(IRMS SHOULD )E A)LE TO IDENTI(Y 2HEN THISOPTIMAL CAPITAL STRUCTURE IS ATTAINED AND TRY TOMAINTAIN IT AT THE SAME LEVEL+ THIS IS THE ONLY2AY THAT THE (INANCING COSTS AND THE 2EIGHTEDAVERAGE COST O( CAPITAL 2ACC1 ARE MINIMISED

THERE)Y INCREASING (IRM VALUE AND CORPORATEPER(ORMANCE+

!OOD7OO Ro*)an AS- Finan-e, !!A 87on* Finan-e, !S- 87on* !an:ing ;Internationa Finan-e

8Emai6 ro*)an1oo.)oo23(?%&9'&&&

GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page2#of 94


26/94

@et)o.oog@et)o.oog

e metodology adopted for te st#dy was as follows

5amiliariation6 e*amination and e'al#ation of te proced#res relating

to capital str#ct#re and capital e*pendit#re Collection of rele'ant data form company records and cross ceckingof tis data

Calc#lations of financial ratios6 parameter and norms6 as also teirfinancial implications

roadly te data were collected for te report on te pro&ect work as beentro#g te primary and secondary so#rces

e primary data is collected by 'ario#s approaces so as to gi'e a precise6acc#rate6 realistic and rele'ant data e main goal in te mind wilegatering primary data was in'estigation and obser'ation e ends weret#s acie'ed by a direct approac and personal obser'ation from teofficials of te company e oter staff members and te employees wereinter'iewed for te sake of maintaining reasonable standard of acc#racy

e secondary data as it as always been important for te completion of

any report pro'ides a reliable6 s#itable e#ate and specific knowledge eann#al reports6 te fi*ed asset register and te Cape* register pro'ided teknowledge and information regarding te rele'ant s#b&ects

e 'al#able cooperation and contin#ed s#pport e*tended by all associatedpersonnels6 ead of te department6 di'ision and staff members contrib#teda lot to f#lfil te re#irement in te collection of data in order to present acomplete report on te pro&ect work

GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page2$of 94


27/94

Capital Structure: Theory and

AnalysisCapital Structure

5inancing decisions in'ol'e raising f#nds for te firm ,t is concernedwit form#lation and designing of capital str#ct#re or le'erage emost cr#cial decision of any company is in'ol'ed in te form#lation

of its appropriate capital str#ct#re e best design or str#ct#re of tecapital of a company elps te management to acie'e its #ltimateob&ecti'es of minimising o'erall cost of capital6 ma*imising

profitability and also ma*imising te 'al#e of te firme capital str#ct#re decision of a firm is concerned wit tedetermination of debt e#ity composition Capital str#ct#re ordinarilyimplies te proportion of debt and e#ity in te total capital of acompany e term capitalmay be defined as te long J term f#nds of

te firm Capital is te aggregation of te items appearing on te leftand side of te balance seet minusc#rrent liabilities,n oter words capital may be e*pressed as followsCapital R otal Assets J C#rrent .iabilities5#rter6 capital of a company may broadly be categorised into equityand debt.e total capital str#ct#re of a firm is represented in tefollowing fig#re

GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page2%of 94


28/94

:stablised companies generally a'e track record of teir profit

earning capacity6 wic elps tem to create teir creditwortinesse lenders feel safe to in'est teir f#nds in s#c companies #s6tere is ample scope for tis type of companies to collect debt #t acompany cannot freely ie wito#t a'ing any limit e companym#st a'e to calk o#t a plan to collect a debt in s#c a way tat teacceptance of debt becomes beneficial for te company in terms ofincrease in :P$6 profitability and 'al#e of te firm,f te cost of capital is greater tan te ret#rn6 it will a'e an ad'erse

effect on companys profitability6 'al#e of te firm and its :P$$imilarly6 if company is #nable to repay te debt witin te sced#led

period it will affect te goodwill of te company in te credit marketand conse#ently may create problems in f#t#re for collecting f#rterdebt !ter factors remaining constant6 te company so#ld select itsappropriate capital str#ct#re wit d#e consideration

GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page2&of 94

Total Ca#ital

E)uit* Ca#ital Debt Ca#ital

:#ity $are CapitalPreference $are Capital

$are Premi#m)etained :arnings

erm .oans>ebent#res

>eferred Payments .iabilities!ter .ong term >ebt


29/94

Capital str#ct#re in'ol'es a coice between risk and e*pected ret#rne optimal capital str#ct#re strikes te balance between tese risksand ret#rns and t#s e*amines te price of te stock

$ignificant 'ariations wit regard to capital str#ct#re can easily benoticed among ind#stries and firms witin te same ind#stry $o it isdiffic#lt to generate te model capital str#ct#re for all b#siness#ndertakings e following is an attempt to consolidate te literat#reon 'ario#s metods to s#ggested by researcers in arri'ing at optimalcapital str#ct#re

Notations used:

R 'al#e of firm

5C5 R free cas flow

LACC R weigted a'erage cost of capital

rs and rd are costs of stock and debt

reand wdare percentages of te firm tat are financed wit

stock and debt

Operating and inancial !everages

e term leveragerefers to te ability of a firm in employing long Jterm f#nds a'ing a fi*ed cost6 to enance ret#rns to te owners ,noter words le'erage is te employment of fi*ed assets or f#nds forwic a firm as to meet fi*ed costs or fi*ed rate of interest obligation

irrespecti'e of te le'el of acti'ities attained or te le'el of operatingprofit earned?iger te le'erage6 iger te profits and 'ice J 'ersa #t a igerle'erage ob'io#sly implies iger o#tside borrowings and enceriskier if te b#siness acti'ity of te firm s#ddenly takes a dip #t alow le'erage does not necessarily indicate pr#dent financialmanagement6 as te firm migt be inc#rring an opport#nity cost fornot a'ing borrowed f#nds at a fi*ed cost to earn iger profits



30/94

Operating e#erage!perating le'erage is concerned wit te operation of any firm ecost str#ct#re of any firm gi'es rise to operating le'erage beca#se ofte e*istence of fi*ed nat#re of costs is le'erage relates to te salesand profit 'ariations

O#e$atin'

Le%e$a'e H

Cont$ibution

EBIT

Contrib#tion R $ales J ariable Costs:, R :arnings efore ,nterest and a*es

Disad%anta'es of O#e$atin' Le%e$a'es

e reliability of operating ratios rests to a large e*tent on tecorrectness of te fi*ed costs identified wit a prod#ct 5a#lty

apportionment wo#ld distort te #sef#lness of te ratio e p#blised acco#nts does not gi'e details of te fi*ed cost

inc#rred and te contrib#tion from eac prod#ct and for ano#tsider it is diffic#lt to calc#late te firms operating le'erage

5irms cost str#ct#re and nat#re of te firms b#siness affectsoperating le'erage A degree cange in sales 'ol#me res#lts inmore tan proportionate cange D9-E in operating Dor lossE can be

obser'ed by #se of operating le'erage

inancial e#erage

is ratio indicates te effects on earnings by rise of fi*ed cost f#nds,t refers to #se te #se of debt in te capital str#ct#re 5inancialle'erage arises wen a firm deploys debt f#nds wit fi*ed carge eratio is calc#lated wit te following

GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page3(of 94


31/94

Ea$nin's befo$e inte$est and ta9 Ea$nin's afte$ inte$est

e iger te ratio6 te lower te c#sion for paying interest onborrowings A low ratio indicates a low interest o#tflow andconse#ently lower borrowings A ig ratio is risky andconstit#tes a strain on profits is ratio is considered along witte operating ratio6 gi'es a fairly and acc#rate idea abo#t tefirms earnings6 its fi*ed costs and te interest e*penses on longterm borrowings

Ea$nin's #e$ S"a$e ?iger financial le'erage leads to igerEBIT res#lting in iger EPS, if oter tings remain constant5inancial le'erage affects te 'ariability and e*pected le'el ofEPS e more debt te firm employs te iger its financialle'erage 5inancial le'erage generally raises e*pected EPS6 b#t

it also increases te riskiness of sec#rities as te debt 9 asset ratiorises

-inancial

Le%e$a'e H

EBIT

EBT

EBIT :arnings efore ,nterest and a*EBT :arnings efore a*es

Consider T"o Hypothetical irms

5irm 5irm .

;o debt 106000 of 12F debt

206000 in assets 206000 in assets

40F ta* rate 40F ta* rate

ot firms a'e same operating le'erage6 b#siness risk6 and :, of

36000 ey differ only wit respect to #se of debt



32/94

"mpact of e#erage on !eturns

5irm 5irm . (Fig.in Rs!

:, 36000 36000,nterest 0 16200: 36000 16800a*es D40FE 16 200 720

;, 16800 16080

R"E #.$ %.&$

/ore :, goes to in'estors in 5irm .

otal dollars paid to in'estors

;, R )s16800

. ;, ,nt R )s16080 )s16200 R )s26280

a*es paid

)s16200B . )s720

/ow consider the fact that 0%" is not known with certainty.1etermining the impact of uncertainty on stockholder

profitability and risk for irm 2 and irm

irm 23 2nle#eraged

:conomy (Fig.

in Rs!

ad A'g Kood



33/94


34/94

,: 17* 2%* 33*

.

P$ofitabilit* ,easu$es:

E(BEP! %*.$ %*.$

E(R"I+! #.$ #.$

:D)!:E +0F 108F

Ris ,easu$es:

s)!,C 212F 212Fs)!: 212F 424F

Conclusions

asic earning power D:,9AE and )!,C D;!PA9Capital

R :,D1-E9AE are #naffected by financial le'erage

. as iger e*pected )!: ta* sa'ings and smaller e#ity

base

. as m#c wider )!: swings beca#se of fi*ed interest

carges ?iger e*pected ret#rn is accompanied by iger

risk

,n a stand-alone risk sense6 5irm .s stockolders see m#c more risk

tan 5irm s

and . s)!,CR 212F

s)!:R 212F

. s)!:R 424F



35/94

.s financial risk is s)!: - s)!,C R 424F - 212F R

212F Ds is eroE

5or le'erage to be positi'e Dincrease e*pected )!:E6 :P

m#st be T rd

,f rdT :P6 te cost of le'eraging will be iger tan te

inerent profitability of te assets6 so te #se of financial

le'erage will depress net income and )!:

,n te e*ample6 :D:PE R 1%F wile interest rate R 12F6 so

le'eraging @works

Choosing the Optimal Capital Structure for #an$a%y!a$oratories !td&

ased on te ratio analysis done abo'e it can be concl#ded tat

)anba*y is an #nle'eared firm wit 'ery less debt component in itscapital str#ct#re e company is in a position to increase its debtcomponent by resorting to e*ternal debt financing ?owe'er it so#ld

be kept in mind tat6 tere co#ld be two opposite effects if debt isincreased in te capita str#ct#re e first effect may be an o'erallred#ction in te cost of capital as te proportion of debt increases inte capital str#ct#re d#e to low cost of debt !n te oter and6

beca#se of fi*ed contract#al obligation te financial risk of te

company increases #s6 it is said tat te optim#m capital str#ct#reimplies a ratio of debt and e#ity at wic weigted a'erage cost ofcapital wo#ld be least and te market 'al#e of te firm wo#ld beigest

Heeping te abo'e to#gt in mind , a'e tried to comp#te watwo#ld be te optimal capital str#ct#re for )anba*y

.aboratories .td6 based on te following information as per teAnn#al )eport 200%



36/94

:, being 3762736800B

Ass#ming tat te firms e*pects ero growt

22%6%%76810 sares o#tstandingB rsR 12FB

R 3%FB b R 10B r)5R (FB

)P/R (F

:stimates of Cost of >ebt

Percent financed

wit debt6 wd rd

0F -

20F 80F

30F 8%F

40F 100F

%0F 120F

,f company recapitalies6 debt wo#ld be iss#ed to rep#rcase stock

e Cost of :#ity at >ifferent .e'els of >ebt ?amadas :#ation

// teory implies tat beta canges wit le'erage

bis te beta of a firm wen it as no debt Dte #nle'ered

betaE

b.R bU1 D1 - ED>9$EV

e Cost of :#ity for wdR 20F



37/94

se ?amadas e#ation to find beta

b. R bU1 D1 - ED>9$EV

R 10 U1 D1-03%E D20F 9 80FE V

R 11(

se CAP/ to find te cost of e#ity

rs R r)5 b.D)P/E

R (F 11( D(FE R 12+8F

Cost of :#ity 's .e'erage

wd >9$ b. rs

0F 000 100 1200F

20F 02% 11( 12+8F

30F 043 128 13(7F

40F 0(7 143 14(0F

%0F 100 1(% 1%+0F

e LACC for wdR 20F

LACC R wdD1-E rd wers

LACC R 02 D1 J 03%E D8FE 08 D12+8FELACC R 1142F

)epeat tis for all capital str#ct#res #nder consideration

LACC 's .e'erage

wd rd rs LACC

GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page3%of 94


38/94

0F 00F 1200F 1200F

20F 80F 12+8F 1142F

J 6

$ R )s21261%368%28+ J )s4264306770%8 R )s1(+6723608231

GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page3&of 94


39/94

>ebt and $tock al#e 's .e'erage

wd >ebt6 > $tock al#e6 $

0F 0 )s20168++67%000

20F )s426 4306770%8 )s1(+6723608231

30F )s(46 73763+47+ )s1%160%36+2118

40F )s8%6 30+67%3%2 )s1276+(46(3028

%0F )s1026 2276721%2 )s10262276721%2

Fealt" of S"a$e"olde$s

al#e of te e#ity declines as more debt is iss#ed6 beca#se debt is

#sed to rep#rcase stock

#t total wealt of sareolders is 'al#e of stock after te recap pl#ste cas recei'ed in rep#rcase6 and tis total goes #p D,t is e#al toCorporate al#e on earlier slideE

Stoc P$ice fo$ &dH 45J

e firm iss#es debt6 wic canges its LACC6 wic canges 'al#e

e firm ten #ses debt proceeds to rep#rcase stock



40/94

$tock price canges after debt is iss#ed6 b#t does not cange d#ringact#al rep#rcase Dor arbitrage is possibleE

T"e stoc #$ice afte$ debt is issued but befo$e stoc is

$e#u$c"ased $eflects s"a$e"olde$ &ealt":

S; %alue of stoc

Cas" #aid in $e#u$c"ase

>0and n0are debt and o#tstanding sares before recap

> - >0is e#al to cas tat will be #sed to rep#rcase stock

$ D> - >0E is wealt of sareolders after te debt is iss#ed b#timmediately before te rep#rcase

P R $ D> J >0E

n0

P R )s1(+6723608231 D)s 4264306770%8J 0E

22%6%%76810P R )s+40( per sare

W )ep#rcased R D> - >0E 9 P

W )ep R D)s4264306770%8 J 0E 9 )s+40(

R 4%611(

W )emaining R n R $ 9 Pn R )s1(+6723608231 9 )s+40(

R 1680464(2

Price per $are 's .e'erage

W sares W saresGJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page4(of 94


41/94

wd P )ep#rc

)emaining

0F )s8+%1 0 262%%6%78

20F )s+40( 4%1611( 1680464(2

+?@ ?@?;?@< 6;>@;5>

40F )s+4%% +026231 163%36347

%0F )s+0(4 16127678+ 16127678+

Optimal Capital Structure

wdR 30F gi'es

?igest corporate 'al#e

.owest LACC

?igest stock price per sare

#t wdR 40F is close !ptimal range is pretty flat

'odigliani and 'iller Theory ('odern )ie"*

e traditional 'iew of capital str#ct#re e*plained in eig-tedaverage c'st ' capitalis re&ected by te proponents/'digliani and/iller (//! (%#*&!. According to tem6 #nder competiti'e

conditions and perfect markets6 te coice between e#ity financingand borrowing does not affects a firms market 'al#e beca#se teindi'id#al in'estor can alter in'estment to any mi* of debt and e#ityte in'estor desires



42/94

Assum#tions of ,, T"eo$*e// T-e'ryis based on te following ass#mptions

Perfect capital markets e*ist were indi'id#als and companiescan borrow #nlimited amo#nts at te same rate of interest

ere are no ta*es or transaction costs

e firms in'estment sced#le and cas flows are ass#medconstant and perpet#al

5irms e*ist wit te same b#siness or systematic risk at differentle'els of gearing

e stock markets are perfectly competiti'e

,n'estors are rational and e*cept oter in'estors to bea'erationally

// eory ;o a*ation

e debt is less e*pensi'e tan e#ity An increase in debt willincrease te re#ired rate of ret#rn on e#ity Lit te increase in tele'els of debt6 tere will be iger le'el of interest payments affectingte cas flow of te company en e#ity sareolders will demandfor more ret#rns e increase in cost of e#ity is st eno#g to offsette benefit of low cost debt6 and conse#ently a'erage cost of capitalis constant for all le'els of le'erage as sown in 5ig#re 1

igure (3 77 #iew of 8apital ,tructure


rCost of Ca#ital

Le%el of le%e$a e

Cost of

E)uit*

Aerage -o*t o0

Capita

Cost of

Debt


43/94


44/94

Proof by e*ample -

Consider olding 1F of stock in an all-e#ity firmwit 'al#e

en yo#r wealt is 001

Also6 yo# recei'e a cas flow of 001C5t e'eryperiod

Alternati'ely6 consider olding 1F e#ity and 1Fdebt in le'ered 'ersion of te same firm wit 'al#egR:>

=o#r wealt ten is U001:001>V R 001g

Cas 5lows eac periodX U001D,ntE001DC5t-

,ntEVR001C5t

As te inerent risk of te firm is te same6 ten tedisco#nted 'al#e of te cas flows m#st be te same6ie6 gR


$rop. "FACC

,G,

E

T$aditional

BE


45/94

,, T"eo$*: P$o#osition I

7 7 heory3 P$o#osition II

e rate of ret#rn re#ired by sareolders increases linearly as te

debt 9 e#ity ratio is increased ie te cost of e#ity rises e*actlyin line wit any increase in gearing to precisely offset any

benefits conferred by te #se of apparently ceap debt

//went on arg#ing tat te e*pected ret#rn on te e#ity of a gearedcompany is e#al to te ret#rn on a p#re e#ity stream pl#s a risk

premi#m dependent on te le'el of capital str#ct#ree premi#m for financial risk can be calc#lated as debt 9 e#ity ratiom#ltiplied by te difference between te cost of e#ity for #ngeared

company and risk J free cost of debt

e cost of e#ity depends on te following tree 'ariables1 e re#ired rate of ret#rn on te firm DHuE

2 e re#ired rate of ret#rn on te firms debt DHdE3 e firms debt9e#ity ratio D01EE

// pr'p'siti'n II can be s#mmed #p in following points

:#ity olders re#ire a premi#m o'er wat e'eryone is paid ifte firm as debt

e premi#m0"ESdepend #pon te firms financing mi*T-e ealt- ' equity -'lders, -'ever, is unaected.

Any increase in le'erage raises b't-te risk of e#ity and itsre#ired ret#rn

St'c2-'lders are indierent t' capital structure and t' c-ange in

leverage.


( )>

gg u u d= +


46/94

,, T"eo$*: P$o#osition II

, , T"eo$*: P$o#osition III

// t-e'rys tird proposition asserts tat te c#t-off rate for newin'estment will in all cases be a'erage cost of capital and will be #naffected by te type of sec#rity #sed to finance te in'estments

, , T"eo$*: A$bit$a'e

e cost of e#ity will rise by an amo#nt st s#fficient to offset anypossible sa'ing or loss e lenders determine te s#pply of debt eoptimal le'el is simply te ma*im#m amo#nt of debt wic lendersare prepared to s#bscribe in any gi'en circ#mstances eg le'el ofinflation6 rate of economic growt6 le'el of profits etc te in'estorswill e*ercise teir own le'erage by mi*ing teir own portfolio witdebt and e#ity e in'estors call tis te arbitrage process ndertese conditions of in'estment te a'erage cost of capital is constant,f two different firms wit same le'el of b#siness risk b#t differentle'els of gearing sold for different 'al#es6 ten sareolders wo#ldmo'e from o'er 'al#ed firm to te #nder 'al#e firm and adst teirle'el of borrowing tro#g te market to maintain financial risk at tesame le'el e sareolders wo#ld increase teir income tro#g tismetod wile maintaining teir net in'estment and risk at te samele'el is process of arbitrage wo#ld dri'e te price of te two firmsto a common e#ilibri#m total 'al#e


P$o#+ II!

0

,G,

Slo#e H!A

R 1

%

0

T$aditional!A


47/94


48/94

/L

/

al#e increases by P of ta* sielda* ad'antage of debt increases as C increases

,n /N/ world DCR 0E6 . R

B

,, T"eo$*: Co$#o$ate Ta9ation

nder te ass#mption of ta* relief being a'ailable on debt interest6 tetotal market 'al#e of te company is increasing f#nction of te le'elof gearing// t-e'rycost of e#ity form#la for a geared company

9g: 9u; 4( 6 49u 9d6

// t-e'ryass#mes tat te 'al#e of te geared company will alwaysbe greater tan an #ngeared company wit similar b#siness risk b#tonly by te amo#nt of debt J associated ta* sa'ing of te gearedcompany al#e of geared company


49/94

,, T"eo$*: Pe$sonal Ta9ation

// t-e'ry considered only corporate ta*es ,t was left to as#bse#ent analysis by/iller (%#66! to incl#de te effects of personalas well as corporate ta*es ?e arg#ed tat te e*istence of ta* relief ondebt interest b#t not on e#ity di'idends wo#ld make debt capitalmore attracti'e tan e#ity capital to companies e market for debtcapital #nder te laws of s#pply and demand6 companies wo#ld a'eto offer a iger ret#rn on debt in order to attract greater s#pply ofdebt Len te company offers after personal ta* ret#rn on debt atleast as e#al to te after personal ta* ret#rn on e#ity6 te e#itys#pply will switc o'er to s#pply debt to te company ,t is ass#medtat6 from te angle of te company6 it will be indifferent betweenraising debt or e#ity as te effecti'e cost of eac will be te sameand tere is no ad'antage to gearing

inancial +istress and Capital Structure

e ass#mption is tat wen firm as 'ery ig le'el of borrowingtey are more likely to r#n into te cost of final distress and cost of

bankr#ptcy Len te le'erage of te firm is e*tremely ig ten it is'ery likely tat at some stage it will not be able to make ann#alinterest payments and loan repayments >i'idends for sareolderscan be bypassed b#t fail#re to pay interest on loans often gi'es te

lender te rigt to claim on te firms operating assets terebypre'enting te firms contin#ity of acti'itye following ill#strati'e list of acti'ities wic may ca#se increasein cost of te firm

$#ccessi'e borrowings beyond te companys target debt Je#ity ratio

orrowing iger le'els of interest

$kip off or c#t in di'idend wic may ca#se te fall of market

rate of saresGJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page49of 94


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,n respect of debt finance6 te s#ppliers of debt are m#c concerned6abo#t teir in'estment in te company6 abo#t teir in'estment in tecompany6 abo#t te risk in'ol'ed in financing debt to te company ,norder to minimie te risks in debt finance6 te s#ppliers of loan willimpose restricti'e conditions in loan agreements tat constraintmanagements freedom of action and it is known as agency costs emore money te s#ppliers of debt lend to te company J ten temore constraints tey are likely to impose on te managements inorder to sec#re teir in'estments T-ere're, agency c'sts are m're in-ig-ly geared irms.

>iffic#lt to identify and estimate6 b#t e*ist R CJ PCJ P of agency costs

PC PACe'ent#ally dominate o'er P of ta* sield

P of agency costs 6 as generally

Debt -inancin' and A'enc* Cost

Signaling Theory

GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page#2of 94

P/ of Ta9 S"ield

/

/

P/BC

K P/AC

B


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,n a pioneering st#dy p#blised in 1+(16 Kordon >onaldson e*aminedow companies act#ally establis teir capital str#ct#re e findingsof is st#dy are s#mmarised below

1 5irms prefer to rely on internal accr#als6 ie on retained earningsand depreciated cas flow

2 :*pected f#t#re in'estments opp#rt#nities and e*pected f#t#recas flow infl#ence target di'idend payo#t ratio 5irms set tetarget pay o#t ratio at s#c a le'el tat capital e*pendit#res6#nder normal circ#mstances6 are co'ered by internal accr#als

3 >i'idends tend to be sticky in te sort r#n >i'idends are raisedonly wen te firm is confident tat te iger di'idend can bemaintainedB di'idends are not lowered #nless tings are 'ery

bad

4 ,f a firms internal accr#als e*ceed its capital e*pendit#rere#irements6 it will in'est in marketable sec#rities6 retire debt6raise di'idends6 resort to ac#isitions6 or b#yback its sares

% ,f a firms internal accr#als are less tan its non-postponablecapital e*pendit#re6 it will first draw down its marketablesec#rities portfolio and ten seek e*ternal finance

;oting te inconsistencies in te trade J off teory6 /yers proposed anew teory6 called tesignalling, 'r asymmetric in'rmati'n, t-e'ry

' capital structure. e main points of te teory are /anagers often a'e better information

$ell stock if stock is o'er'al#ed

$ell bonds if stock is #nder'al#ed

,n'estors #nderstand tis6 so 'iew new stock sales as anegati'e signal

Corporate inance .ractices

e capital str#ct#re decision is a diffic#lt decision tat in'ol'es acomple* trade J off among se'eral considerations like income6 risk6fle*ibility6 etc gi'en te o'er J riding ob&ecti'e of ma*imising temarket 'al#e of a firm6 te following g#idelines so#ld be kept inmind wile ammering o#t te capital str#ct#re of te firm

A%ail of t"e Ta9 Ad%anta'e of Debt+GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page#3of 94


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,nterest on debt finance is a ta* J ded#ctible e*pense ?encefinance scolars and practitioners agree tat debt financing gi'esrise to ta* selter wic enances te 'al#e of te firm

P$ese$%e -le9ibilit*

5le*ibility implies tat te firm maintains reser'e borrowingpower to enable it to raise debt capital to respond to #nforeseencanges in b#siness and political en'ironment ?ence te firmm#st maintain some #n#sed debt capacity as an ins#ranceagainst ad'erse f#t#re de'elopments

Ensu$e t"at t"e Total Ris E9#osu$e is Reasonable

e affairs of te firm so#ld be managed in s#c a way tat tetotal risk borne by te e#ity sareolders is not #nd#ly ig

Subo$dinate -inancial Polic* to Co$#o$ate St$ate'*

5inancial policy and corporate strategy are often not integratedwell is may be beca#se financial

,iti'ate Potential A'enc* Costs+

>#e to separate ownersip and control in modern corporations6agency problems arise $areolders scattered and dispersed astey are not able to organise temsel'es effecti'ely ?ence6 'erylittle monitoring takes place in te sec#rity markets

$ince agency costs are borne b#y sareolders and temanagement6 te financing strategy of a firm so#ld seek tominimise tese cost by employing e*ternal agents wospecialise in low cost J monitoring

Issue inno%ati%e Secu$ities

anks to $:, g#idelines introd#ced in 1++26 iss#es a'econsiderable freedom in designing financial instr#ments ereis greater scope for employing inno'ati'e sec#rities to tead'antage of te firm e important sec#rities inno'ations a'e

GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page#4of 94


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been as follows floating rate bonds Dor notesE6 collateralisedmortgage obligations6 d#al c#rrency bonds6 e*tendible notes6medi#m term notes

Fiden t"e Ran'e of -inancin' Sou$ces

,n as dynamically e'ol'ing financial en'ironment6 traditionalso#rces of financing may diminis in importance ey may not

be ade#ate or optimal ?ence6 it beo'es on a firm to employnew modes of finance like commercial paper6 factoring6 :#roiss#es6 and sec#ritisation

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similarly #antifiable ;e'erteless6 an attempt m#st be madeto e*press te benefits e*pected6 in a manner tat facilitatescomparison wit costs and elps form#late a rational basis forte decision making process 5ollowing are te financial toolstat are taken into acco#nt for appro'ing capital e*pendit#re

1iscounted 8ash low 4186

is is one of te tecni#es for financial e'al#ation ofCape*s >C5 tecni#es are based on te concept of time'al#e of money and pro'ide a metodology of taking intoacco#nt te timing of cas proceeds and o#tlays o'er te life ofte in'estment e proced#re #nderscores te need to statecas flow streams arising in different time periods t#s

differing in 'al#e and6 ence comparable only in terms of acommon denominator 'i present 'al#es

". 1iscounted $ayback $eriod 41$$6

>PP is te n#mber of years it takes for te present 'al#e ofinflows to e#al te initial in'estment Apart from gi'ing d#eimportance to time 'al#e of money it ser'es as a reasonabletool of risk appro*imation ,t fa'ors pro&ects6 wic generate

s#bstantial cas inflows in initial years6 and discriminatesagainst tose tat bring in s#bstantial inflows in later yearsDrisk tending to increase wit ten#reE ereby implying tat anearly resol#tion of #ncertainty enables te decision maker totake prompt correcti'e action by modifying9 canging oterin'estment decisions?owe'er6 by te same logic it cannot be #sed as a principal toolfor analysis beca#se it ignores any s#bstantial cas flows

arising after te pay back period

"". "nternal !ate of !eturn 4"!!6

,)) is te disco#nt rate tat e#ates te present 'al#e of tee*pected f#t#re cas inflows to te present 'al#e of tee*pected f#t#re cas o#tflows ,t is te post ta* ret#rn fromin'estment and ence te e*cess of ,)) o'er te cost of capitalindicates a s#rpl#s after paying for te capital employed ,))

pres#pposes an e#i'alent rate of ret#rn on te cas flowsGJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page#%of 94


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generated d#ring te life of te asset ie6 it ass#mes re-in'estment of intermediate cas flows at te rate of ret#rn e#alto te pro&ectIs ,)),nternal rates of ret#rn are most often #sed as #sef#l additionsto ;P comp#tations is as in t#rn stified te #se of ,))as a good s#bstit#te to ;P ,))s a'e te merit of indicatingweter a pro&ect is wortwile6 intat - an ,)) abo'e te cost of capital represents a positi'e

;P pro&ect6 an ,)) e#al to te cost of capital is a ero ;Ppro&ect and an ,)) less tan te cost of capital is associatedwit a negati'e ;P pro&ect,nspite of its merits6 it needs to be #nderstood tat ,))s elpsonly to identify pro&ects tat ma*imies te ratio of r#pee-'al#e

to r#pee-capital in percentage terms Lat ;P will elp indetermining is te pro&ects tat ma*imies te r#pee-spread

between 'al#e and capital

""". /et $resent


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assessment of )isk Capital in'estments are essentiallycommitted in e*pectation rater tan in certainty6 wicimplies tat in'estments are s#b&ect to risk contrib#te toremo'ing te sortcomings of an #nstr#ct#red workings

ITRODUCTIO

e term ?8apital expenditure?refers to e*pendit#re intendedto yield ret#rns o'er a period of time6 #s#ally e*ceeding oneyear is basically implies tat any e*pendit#re6 wic res#ltsin te creation of a new asset or s#bstantially increases tecapacity9benefits of an e*isting asset and is of a \long term\nat#re6 so#ld be classified as Capital e*pendit#re

$ince6 te e*pression ICapital e*pendit#reI is not e*a#sti'elydefined6 te facts of a partic#lar case wo#ld decide wetere*pendit#re is capital or re'en#e Kenerally speaking6 tee*pendit#re so#ld be tested on te following criteria tofacilitate classification between capital and re'en#e

:*pendit#re wo#ld be deemed to be capital6 if inc#rredfor

,nitiation of b#siness

:*tension of b#siness :ntry into new markets Nprod#cts Dincl#ding )N> and reg#latory e*pensesE

/odification of asset9 e#ipment res#lting inincreased benefits from te e*isting asset

ringing into e*istence a new asset

Con'ersely6 e*pendit#re wo#ld be deemed to bere'en#e6 if inc#rred for

)o#tine repairs and maintenance of e*isting plantGJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page#9of 94


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)eplacement of any part of te e*isting plant witcapacities remaining #ncanged

$ifting of plants

/aking alterations or reno'ations on rentedpremises

Assets a'ing life of less tan one year

Classification Of Capital /nvestments

$ince te analysis for appraisal of te proposed capitale*pendit#re will largely depend #pon te kind of in'estment6 itis necessary to classify capital in'estments into te followingcategories

62 Cost Reduction; ,ode$nisation and Rationalisation+

:*pendit#re to replace ser'iceable6 b#t obsoletee#ipment is may become necessary beca#se of te e*piryof normal life or cange in tecnology e p#rpose of tise*pendit#re is to impro'e prod#cti'ity6 increase efficiency orred#ce cost of labo#r6 material or oter items s#c as power

42 E9#ansion of E9istin' P$oducts Ca#acit*

:*pendit#res to increase plant capacity for e*istingprod#cts9e#ipment or enance m#lti-p#rpose fle*ibility


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is wo#ld incl#de e*pendit#re made for entering andde'eloping new markets $#c proposals wo#ld re#ire te

b#siness case to be accompanied wit detailed financialanalysis

>2 Re#lacement: ,aintenance of Business

:*pendit#re necessary to replace worn-o#t or damagede#ipment ey are not likely to increase capacity or alter

prod#ction significantly Capital spares are incl#ded ere

?2 ualit*; 0ood ,anufactu$in' P$actices; Safet*; !ealt" and

En%i$onment+

:*pendit#res necessary to #pgrade #ality6 compliance of

K/Ps6 go'ernment reg#lations6 labo#r agreements6 ins#rancepolicy terms6 and en'ironmental safety re#irements 5inanciale'al#ation9benefits from s#c e*pendit#re may to te e*tent#antifiable6 be pro'ided

@2 Resea$c" G De%elo#ment

:*pendit#re on )N> pro&ects9 e#ipment9 facilities 5inanciale'al#ation9benefits from s#c e*pendit#re may to te e*tent

#antifiable6 be pro'ided

2 Info$mation Tec"nolo'*

:*pendit#re on proc#rement of , infrastr#ct#re D?ardwareEand9or application software 5inancial e'al#ation9benefits froms#c e*pendit#re may to te e*tent #antifiable6 be pro'ided

2 Ot"e$s

is incl#des office b#ildings6 'eicles6 f#rnit#re6 officee#ipment6 ,nfoec related e#ipment and #tilities6 and alls#c assets6 wic pro'ide infrastr#ct#res s#pport is alsoincl#des any capital e*pendit#re not e*plicitly co'ered in teabo'e classifications

Capital E%penditure proposals are not applica$lefor

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A#tority for fi*ing date of capitalisation wo#ld be wit :N5department

.ead-time between certification and Commencement ofcommercial prod#ction will not normally e*ceeds 30 days

,n case of lead-time e*ceeding 30 days to take specificappro'als from te Plant ?ead

8apitalization of 0xpenditure other than basic cost of assets

All e*pendit#re directly related to te assets capitaliedincl#ding freigt6 :ntry ta*6 !ctroi6 c#stom d#ty6 and any s#camo#nt6 wic does not form part of te original in'oice6 is to

be capitalied along wit te rele'ant assetsAll installation cost6 ser'ice carges and labo#r cost6 trial r#ncost Dnet of realiable 'al#e of te prod#ctE6 tecnician fee andany oter e*pendit#re directly attrib#table to te installation

Cen'at 9C> credits will be netted off from te cost of assetsAs per acco#nting standard we a'e to capitalise te assets netof /od'at

:N5 department operational cost will be directly identifiedwit te pro&ects or allocated to te pro&ects on e#itable basis

5or all tis e*pendit#re it is important to book at te stage ofinitiation at $AP locations tro#g te same capital internalorder n#mber6 wic as been #ni#ely gi'en to te Cape*

proposal at te time of initiation of te partic#lar asset

)egarding Cen'at9 C> credits netting off6 special care isre#ired to be taken towards year ends to ens#re meeting

tecnical re#irements as per te Acco#nting $tandards andens#re ma*im#m depreciation Dincl#ding iger depreciationallowed is acco#nted for on capitaliation6 as applicable Ntere is no Cen'at Dcas flowE loss

Cape% 0um$ering

e n#mbering sceme is as #nder

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$afety9:P

MA9MC

$tores

5or abo'e different f#nctions )CCs ead prepared teirre#irement cart specifying

)CCs n#mber

>escription Dweter prod#ction6 engineering6MA9MCE

Classification D)eplacement6 pgradationE

Hind of e*pendit#re Dcapital or re'en#eE

"#stification

:>

M#antity

)CCs n#mber is #ni#e for eac f#nction >escription abo#t

te f#nction weter it falls in prod#ction6 engineering6personnel etc

)e'en#e or capital e*pendit#re can be f#rter di'ided as per)CCs re#irements

CAPITAL EXPENDITRE

)eg#lation

K/P DKoods /an#fact#ring PracticesE

:?$ D:n'ironment ?ealt $afetyE

)eplacement

Capacity

pgradation

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Additional

RE/ENE EXPENDITRE

!perating :*penses

$tores

)epairs #ilding

)epairs and /aintenance

$taff Lelfare

:> is a management science tool6 wic is #sed by 'ario#sdepartment depicting 'itality of partic#lar need raised atoperational le'el were

stands for ,A.

: stands for :$$:;,A.

> stands for >:$,)A.:

e abo'e re#irement cart prepared by )CC ead tenconsolidated by >i'isional 5inance Acco#nts >epartment and

b#dgets are prepared 5or eac plant tis cart is preparedwere re#irement of 'ario#s f#nctions are sown and alsorespecti'e )CC ead gi'es stification 5inance departmentre'iew te e*pendit#re type weter capital or re'en#e again asit co#ld be classified wrong by )CC ead 5inance department

ten modifies tis cart into b#dget based onPlant wise re#irement

Hind of f#nction

,n plant wise re#irement 'ario#s e*cel files are preparedwic is as follows

$#mmery statementGJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page$$of 94


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)e'en#e e*pendit#re

Capital e*pendit#re

)CC wise

$imilarly depending #pon te f#nctions 'ario#s b#dgets is

prepared asically ere for prod#ction and engineeringre#irements send by )CC ead is pro'ided in plant wisedescription cart b#t for oters s#c as

Personnel9sec#rity

$afety9:P

MA9MC

$tores

,n abo'e f#nctions di'ision wise b#dgets are also made fore*ample

AC 3M Di%ision 3M PDL

A

Cont$act ,anufactu$in'

Pe$sonnelsecu$it* 3M Di%ision 3M Pe$sonnelsecu$it*

Di%ision ,ana'ement

Di%ision Accounts

$eparate b#dgets are prepared and ten sanctioned byrespecti'e ead

;ow te b#dgets prepared by finance department is f#rtersend to respecti'e departmental ead en plant eads6followed by ice President N onwards as per te Cape*amo#nt6 appro'es tese cape*s

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asset ,n case6 as per te terms of te P!6 any ad'ance is to begi'en to 'endor6 te same is released by acco#nts department6after passing te necessary entries in te 'endor acco#nt #nderrespecti'e b#siness area DAE e p#rcase department wile

preparing te P! wo#ld ens#re to mention complete name as@)A;A6 AP,/A;5AC),;K and address9 location of deli'ery of teasset !n receipt of te goods6 te

$tores department will arrange to prepare te K); and get tesame appro'ed by te #ser department !n appro'al of teK);6 te stores department will send te bill to acco#nts forin'oice 'erification e acco#nts department will 'erify te

in'oice wit P! and release te balance payment to 'endor

,ate$ial Cost

e p#rcase re#isition DP)E for domestic materials ie $ol'ents6Cemicals and oter Cons#mables re#ired for pro&ect completionwill be raised by scientists after obtaining appro'al from terespecti'e ead6 te p#rcase re#isition DP)E will be send to

p#rcase department for proc#rement of te material P#rcasedepartment will float en#ires and prepare comparati'e carts forat least 3 'endors e p#rcase department will place te P! onte 'endor for s#pply of te materials ,n case6 as per te terms ofte P!6 any ad'ance is to be gi'en to 'endor6 te same will bereleased by acco#nts department after passing te necessary entriesin te 'endor acco#nt #nder #siness Area DAE e p#rcasedepartment wile preparing te P! wo#ld ens#re to mentioncomplete name as @)A;A6AP, /A;5AC),;K and address9 location of deli'ery ofte asset !n receipt of te goods6 te stores department willarrange to prepare te K); and do te respecti'e ead appro'ete same !n appro'al of te K);6 te stores department will sendte bill to acco#nts department for in'oice 'erification eacco#nts department 'erifies te in'oice wit P! and releases te

balance payment to 'endor e cost of material will be booked inte AP, /A;5AC),;K cost center #nder #siness Area1000GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page$9of 94


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,n case of imported material on receipt of appro'ed P) from teAP, /A;5AC),;K6 p#rcase department6 /oali will sendte P) to international p#rcasing department D,> P#rcaseE at>e'ika ower6 >eli e ,> P#rcase6 wile preparing te P!wo#ld ens#re to mention te complete as @)A;A6 AP, /A;5AC),;K andaddress9 location of deli'ery of te asset

!n receipt of te material6 te p#rcase department will arrange toprepare te K); and do te respecti'e ead appro'e te same !nappro'al

!f te K);6 te ,> P#rcase department will send te bill toacco#nts department will only 'erify for in'oice 'erification e

acco#nts department will 'erify te in'oice wit P! te'erification of C#stom d#tyB !'erseas frigt etc will be done by,> acco#nts and will arrange to release te payment to 'endor ecost of material will be booked in te AP, /A;5AC),;Kcost center #nder #siness Area 1000

,n te $AP system6 a separate storage location D$torage .ocation107% plant 1030E for material re#ired by AP,/A;5AC),;K so#ld be created so tat at any gi'en point

te material p#rcased N cons#med may be identified Pysically6te capital assets as well as te materials p#rcased for AP,/A;5AC),;K so#ld be stored in a separate storage

preferably witin AP, /A;5AC),;K storage location

Re%enue E9#enditu$e

Apart from material6 to carry on te AP, /A;5AC),;K6

certain e*penses will be inc#rred #nder 'ario#s acco#nting eadsese e*penses eiter may be inc#rred directly by AP,/A;5AC),;K6 or may be inc#rred by oter locations eacco#nting of tese e*penses wo#ld be made as #nder

e manpower ie lab tecnician and oter s#pporting staffworking for te AP, /A;5AC),;K so#ld be identifiedAll direct N indirect e*penses inc#rred in connection witrecr#itment6 salaries6 allowances and oter benefits related te saidmanpower be carged to te cost center for AP,GJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page%(of 94


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/A;5AC),;K eg )epairs N maintenance of b#ilding6A/Cs o#sekeeping6 ?ortic#lt#re6 ooks N Periodicals6Conference N /eeting6 training6 tra'eling lab assistant6 Kifts N

presents etc6 so#ld be carged to te cost center of AP,/A;5AC),;K

tilities cost s#c as :lectricity6 Later6 Power6 and $tream etc6inc#rred for AP, /A;5AC),;K6 based #pon te act#al billsrecei'ed from te s#pplier ,n case te #tilities are pro'ided by anyof te e*isting man#fact#ring facilities6 te s#pply so#ld bemonitored by separate meter9s#b meter etc6 and carges for tesame based #pon te act#al #nits cons#med so#ld be debited tote cost center of AP, /A;5AC),;K

e oter s#pplies9facilities s#c as elepone6 5a*6 ele* etc6so#ld be directly in te name of AP, /A;5AC),;K ,ncase6 any common facility is #sed6 carges on reasonable basisso#ld be debited to te cost center of AP, /A;5AC),;K6/oali e s#pplies from common canteen so#ld also becarged on a reasonable basis ie linked to te n#mber ofemployees working in AP, /A;5AC),;K e carges forea6 coffee6 snakes etc6 cons#med by AP, /A;5AC),;K

K#est wo#ld be carged on reasonable basis to te Cost Center ofAP, /A;5AC),;K

,n case any materials9cons#mables are pro'ided by any of teman#fact#ring location to te AP, /A;5AC),;K A stocktransfer note will be raised on AP, /A;5AC),;K$imilarly if any ser'ices are pro'ided by marketing facility to AP,/A;5AC),;K6 cost tere of at arms lengt basis will bedebited to te AP, /A;5AC),;K

Statuto$* Com#liances 1-o$ Duties G Ta9es2:

7a8 E9cise:

1 e C:;A credit sall not be a'ailable in respect ofte ,np#ts recei'ed from te 'endors

2 ransfer of any e*cisable inp#ts as s#c or intermediatefrom man#fact#ring locations te same so#ld be on

payment9re'ersal of appropriate d#ty6 on wic C:;A is notapplicableGJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page%'of 94


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$!): A;> $PA):$ 4SSSSSS

/aterial mod#le #nder $AP consist of te following

!rganiation str#ct#re

/aster data

Proc#rement process

,n'entory management

O$'ani(ation st$uctu$e

Client

Company code

#siness Area

Plant

Controlling area

!perating concern

Cost center

Client G Com#an* Code

Client - Application-independent #nit op le'el Pysical str#ct#re

Client is a self-contained #nit in $AP )93 $ystem wit $eparate

/aster )ecords and its own set of tablesCompany Code )epresents an independent legal acco#nting #nit6werein a alance seet6 and PN. statement can be prepared$e'eral company codes can be set #p for eac client6 t#s enablingacco#nting data to be managed sim#ltaneo#sly for se'eralindependent organiations

:*ample a s#bsidiary company6 member of a corporate gro#p

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%usiness Area

.ine of #siness eg AP, /an#fact#ring6 Parmace#ticals

An organiational entity tat is not independent from a .egalstandpoint ,nternal balance seets and income $tatements can becreated at #siness Area le'el

#siness Area config#red in )..

AP, /A;5AC),;K

AP, /A)H:,;K

5!)/.A,!; /A;5AC),;K

5!)/.A,!; /A)H:,;K

)A>,;K

A..,:> $,;:$$

P?A)/A $,;:$$ $PP!)

):A$:A)C? N >::.!P/:;

$lant

A plant is an organiational #nit witin a company A plantprod#ces goodsB render ser'ices6 or makes goods a'ailable fordistrib#tion A plant can be one of te following types of locations

/an#fact#ring facility eg /5K D/oaliELareo#se distrib#tion center

ranc office

8ontrolling Area

is is organiational controlling #nit ransactions witin

Controlling area is possibleGJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page%#of 94


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Operating 8oncern

op-le'el logical #nit in $AP ,t is s#perset of all Cost Center6

#siness Area and Controlling Area etc

8ost 8enter

Cost center is te smallest #nit in Pase , ,n $AP for andling'ario#s costs6 tere are different types of cost centers :*amples6Personal Cost Center6 Amo*y Cost Center6 tility Cost Center5or 5inancial p#rposes Cost Center are classified into 'ario#s

eads s#c as administrati'e cost center6 works cost center6tility 9 Prod#ction cost center

,A$ !oute

$AP f#nctioning in te system begins by creating internal order

,nternal order n#mber is created by finance department by #sing$AP command is

Acco#nting -T ,n'estment /anagement -T internal order -T/aster data -T special f#nctions -T H!02

e abo'e pat command is H!02 tat creates an internal orderfor wic following information need to be filled

Keneral data6 Applicant6 Person )esponsible6 Processing gro#p6:stimated costs6 Application data6 >epartment6 Control data6$ystem stat#s6 ser stat#s6 Assignments6 Company code6 #sinessarea6 Plant6 !b&ect class

o make certain canges in internal order te command is

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1 ):M:$ 5!) M!A,!; D)5ME J P#rcase >epartmentafter recei'ing te P#rcase )e#isition will place orderdepending #pon re#irements ,n system6 for different itemsdifferent staff person recei'es partic#lar P#rcase re#isition tatis differentiated by #ni#e p#rcasing gro#p 5or :*ample %0% iste p#rcasing gro#p tat andled P#rcase )e#isition for itemsrelated to :lectrical and instr#ments

5or eac item P#rcase >epartment is re#ired to send )5M to 3'endors ree is te minim#m limit for e'ery item b#t in casewere P#rcase )e#isition DP)E specify te brand of partic#larneed to be ac#ired6 in tat case only one )5M need to send 5ore*ample if P) specifies one .K ten only one )5M need to

send to dealers dealing in .K commodities 5or CAP:< P) startsfrom 3000001+87 )5M is te 10-digit n#mber ,n $AP forcreating a )5M /:41 is te command #sed by p#rcasedepartment en a applet window comes were informationregarding

)5M type

.ang#age key

)5M date

M#otation deadline

)5M

!rganiational data

P#rcase organiation

P#rcasing gro#p

>efa#lt data for items

,tem category

>eli'ery date

Plant

/aterial Kro#p

$torage location

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Ca#ital st$uctu$e

-$om

Yea$

To

Yea$

Class Of

S"a$e

Aut"o$i(ed

Ca#ital

Issued

Ca#ital

Paid #

S"a$es 1Nos2

Paid #

-ace /alue

Paid #

Ca#ital

2008 2008

:#ity

$are 2++00 21018 4203(+7%3 % 21018

2007 2007:#ity$are

2++00 18(%4 37307082+ % 18(%4

200( 200(:#ity$are

2++00 18(34 372(8(+(4 % 18(34

200% 200%:#ity$are

2++00 18(22 3724421+0 % 18(22

2004 2004:#ity$are

1++00 18%8+ 18%8+0742 10 18%8+

2003 2003

:#ity

$are 1++00 18%%4 18%%43(2% 10 18%%4

2002 2002:#ity$are

1++00 18%4% 18%4%20+8 10 18%4%

2001 2001:#ity$are

1%000 11%+0 11%8+%478 10 11%+0

2000 2000:#ity$are

1%000 11%+0 11%8+%478 10 11%+0

1+++ 1+++:#ity$are

1%000 11%+0 11%8+%2%0 10 11%+0

1++7 1++8:#ity

$are(+00 %373 %372(2%2 10 %373

1++( 1++7:#ity$are

(+00 4+41 4+414717 10 4+41

1++% 1++(:#ity$are

(+00 4813 431322%3 10 4313

1++% 1++(:#ity$are

(+00 4813 %000000 3 12%

1++4 1++%:#ity$are

(+00 4313 431322%3 10 4313

1++3 1++4:#ity

$are

(+00 3%33 3%3302(+ 10 3%33

1++2 1++3:#ity$are

4+00 217+ 217+30%0 10 217+

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#ecommendations and Suggestions forthe /ndian .harma /ndustry&

e acie'ements of te ,ndian parmace#tical ind#stry arespectac#lar in recent times and are praise worty6 wic as e'ol'edas model ind#stry of te co#ntry in performance #t6 in te 21stcent#ry6 te parmace#tical 'al#e cain wo#ld depend on te abilityof parmace#tical companies to make te tecnological siftnecessary to maintain and increase teir competiti'e positions

Also for te /;Cs6 ,ndia pro'ides not st te possibility J b#t te#ni#e N tangible opport#nity to make te desired Gtecnological

sift J in process6 and in locationY e #estion before ParmaCompany C:!s te world o'er today is not G$o#ld my company goto ,ndiaX b#t GCan my company afford not to go to ,ndiaX

STEPS REIRED TO BOOST T!E CO,PETITI/ENESS O-

T!E P!AR,A INDSTRY

E9tension of deduction of 6>5J of RGD e9#enses+ iswo#ld enco#rage more and more companies to in'est in )N>

e go'ernment as earmarked 1%0 crores for )N> is is stnot eno#g ,t so#ld be a#gmented to at least 2000 crores

To $ationali(e D$u' P$ice Cont$ol O$de$ 1DPCO2+ eob&ecti'e of te price control was to ens#re ade#ate a'ailabilityof #ality medicines at affordable prices e prod#ct patentregime will make it obligatory for ,ndian companies to competein )N> if tey want to s#r'i'e $imilarly6 L! led global

trading system will res#lt in import tariffs coming down 5or,ndian companies to compete wit ceap imports6 tey will a'eto in'est in cost effecti'e tecnology and processes erefore6it is imperati'e tat te parma ind#stry as s#rpl#s forin'estment ,n tis conte*t6 a liberalied price control regime

becomes more important

An academic indust$ial $elations"i# can be fu$t"e$

e9#lo$ed6 on te lines of te $ model6 were te #ni'ersities

are te sites of inno'ation and te ind#stry commercialies teGJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page&2of 94


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prod#ct e #ni'ersities are permitted to own te ,ntellect#alProperty )igts D,P)E and get a sare of te profits Academicinstit#tions will ten become te engines of entreprene#rsipis also re#ires setting #p of greater n#mber of centres ofacademic e*cellence tro#go#t ,ndia in different states6 so tat

people from across te co#ntry can a'ail of s#c ed#cation andmake teir contrib#tions wito#t feeling te need to look beyond,ndia for acie'ing academic e*cellence

Income ta9 e9em#tions s"ould be 'i%en on clinical t$ials and

cont$act $esea$c" done outside t"e com#an* and ab$oad+

is is beca#se ,ndia is seen as emerging as a ma&or centre foro#tso#rcing of clinical trials for te Parmace#tical /;Cs

T"e #$oblem of s#u$ious d$u's "as to be tacled+

e proced#re for proc#rement of licence so#ld bemade more stringent6 incl#ding e*tensi'e disclos#re ofdetailed personal6 financial and b#siness information and atoro#g backgro#nd ceck ere is a strong need tostrengten and streamline te Central and $tate >r#g

Control !rganiations $tate dr#g controllers so#ld takemeas#res like setting #p of separate intelligence-c#m-legalmacinery wit police assistance 5aking so#ld be madenon-bailable and cogniable offence and te prosec#tionso#ld be instit#ted by any police or Central #rea# of,n'estigation officer not less tan te rank of a s#b-inspector Dinstead of an inspector in te e*tant pro'isionE

/ost of te cases relating to sp#rio#s dr#gs remain

#ndecided for years ?ence tere is a strong need forsetting #p separate co#rts for speedy trials of s#coffences e case so#ld be tried by te co#rt of te rankof a $ession "#dge or abo'e wereas te e*tant pro'ision

pro'ides for a trial by a metropolitan magistrate or a firstclass dicial magistrate or abo'e

:ac state so#ld set #p accredited testinglaboratories tat are well e#ipped and ade#ately staffed

e staff so#ld be trained well for drawing samples forGJ-IMT,MOHALI ANUJ KUMAR SRIVASTAVA Page&3of 94

8/14/2019 SP Project Report on Capital Stru

sp project report on capital structure

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