CHAPTER-I

FINANCIAL MANAGEMENT

INTRODUCTION

Financial management, as an integral part of over all management is not a

totally independent area. It draws heavily on related disciplines and field of study,

such as Economics, Accounting there disciplines are in related, there are key

references among them.

Financial management refers to its relationship with the closely related

fields, its function, scope and objectives. Financial as academic discipline as under

gone fundamental changes in its scope and coverage. In the early years of its

evolution it was treated synonymously with the rising of funds. In the current

literature pertaining to financial management in addition to procurement of funds

efficient use of resources is universally recognized.

Definition of Financial management:

Ezra Solomon has defined “The Financial Function as the study of the

problems involved in the use and acquisition of funds by a Business”.

Scope of financial management:

The approach to the scope and the functions of financial management is

divided for the purposes of expositions into two broad categories.

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 a) The traditional approach.

b) The modern approach.

Traditional approach:

The traditional to the scope of financial management refers to its subject

matter in academic literature in the stage its evolution as the separate branch of

academic study. The term “Corporation Finance” was used to describe what is

known in the ac academic world as financial management.

Modern approach:

The modern approach views the term Financial Management in the broad

sense and provider a conceptual and analytical framework for financial decision

making.

Objectives of Financial Management:

The objectives of financial management are

1) Profit maximization approach.

2) Wealth maximization approach.

1. Profit maximization approach:

According to this approach actions that increase profits should be

undertaken and those that decrease profits are to be avoided. In specific

operational terms as applicable to Financial Management, the profit maximization

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criterion implies that the investment, financing and dividend policy decisions of a

firm should be oriented to the maximization of profits.

2. Wealth maximization:

This is also known as value maximization or net present worth

maximization. In current academic literature value maximization is almost

universally accepted an appropriate operational criterion for Financial

Management decisions as it removes the technical limitation which characterizes

the earlier profit maximization criterion. Its operational features satisfy all the

three requirements of a suitable operational objective of financial courses of

actions namely exactness, quality of the benefits and the time value of money.

The financial statements just provide the financial ingredients of a firm.

One should analyze to identify where the strengths and weakness of the company

are hiding. So the study on ratio analysis have been taken by me in order o know

efficiency and liquidity of a firm.

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WORKING CAPITAL

INTRODUCTION

Working capital management involves the relationship between a firm’s

short-term assets and its short-term liabilities. The goal of working capital

management is to ensure that a firm is able to continue its operations and that it

has sufficient ability to satisfy both maturing short-term debt and upcoming

operational expenses. The management of working capital involves managing

inventories, accounts receivable and payable, and cash.

Working capital typically means the firm’s holdings of current, or short-

term, assets such as cash, receivables, inventory and marketable securities. These

items are referred to as circulating assets because of their cyclical nature. In a

retail establishment, cash is initially employed to purchase inventory, which is in

turn sold on credit and results in accounts receivables. Once the receivables are

collected, they become cash-part of which is reinvested in additional inventory and

part going to profit or cash throw-off.

The need for working capital to run the day to day business activities

cannot be overemphasized. We will hardly find a business firm which does not

require any amount of working capital. Indeed, firms differ in their requirements

of the working capital.

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 There are two concepts of working capital—gross and net.

Gross working capital refers to the firm’s investment in current assets.

Current assets are the assets which can be converted into cash within an

accounting year an include cash, Short-term securities, debtors, bills receivable

and stock.

Net working capital refers to the difference between current assets and

current liabilities. Current liabilities are those claims of outsiders which are

expected to mature for payment within an accounting year and include creditors

bills payable, and outstanding expenses.

Working Capital is the capital that allows businesses to operate on a day-

to-day basis. Depending on the nature and the time period for which the working

capital is held in business, it can be classified as:

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KINDSOF WORKING CAPITAL:

KINDS OF WORKING CAPITAL

ON THE BASIS OF CONCEPT ON THE BASIS OF TIME

GROSS PERMINANT TEMPORARY

NET WORKING
WORKING WORKING WORKING
CAPITAL
CAPITAL CAPITAL CAPITAL
PERMANENT (OR) FIXED WORKING CAPITAL:

Permanent Working capital is the minimum amount which is required to

ensure effective capitalization of fixed facilities and for maintaining the circulation

of current assets these are always a minimum level of current assets which is

continuously required by the enterprise to carry out its normal business operations.

For example every firm has to maintain minimum level of raw materials

work- in –process finished goods & cash balance. This minimum level of current

assets is called permanent or fixed working capital of this part of capital is

permanently blocked in current assets.

TEMPORARY (OR) VARIABLE WORKING CAPITAL:

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 Temporary Working Capital is the amount of working capital which is

required to meet the seasonal demands and some special emergencies. Variable

Working capital can further classified as reasonable working capital and special

working capital most of the enterprises have to provide additional working capital

to meet the seasonal working capital .special working capital which is required to

meet special exigencies such as marketing research etc.

GROSS WORKING CAPITAL:

It is the amount of funds invested in the various components of current assets this

concept has the following advantages.

 Financial managers are profoundly concerned with current assets.

 This will be provides the current amount of working capital at the right

time.

 It enables a firm to realize the greatest return on its investment.

 It helps in the fixation of various areas of financial responsibility.

 It enables affirm to plan and control funds and to maximize the return on

investment.

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NET WORKING CAPITAL:

In reference to the difference between current liabilities net working capita;

can be positive or negative. A positive net working will arise when current assets

exceeds current liabilities. As negative working capital occurs, where current

liabilities are in excess of current assets.

OPERATING CYCLE

Working capital is required because of the time gap between the sales and

their actual realization in cash. This time gap is technically termed as “operating

cycle” of the business.

In case of a manufacturing company, the operating cycle is the length of

time necessary to complete the following cycle of events...

DEBTORS

CASH FINISHEDGOODS

WORK IN
RAW MATERIAL
PROGRESS

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In case of a “trading firm” the operating cycle will include the length of time

required to convert

i. Cash into Raw Materials.

ii. Raw Materials into Work In Progress.

iii. Work In Progress into Finished Goods.

iv. Finished Goods into Debtors

v. Debtors into Cash

This cycle will be repeated again and again

WORKING CAPITAL MANAGEMENT – AN OVERVIEW

Working capital may be regarded as the most important factor of a business;

its effective provision and utilization can do much to ensure the success of a

business.

While the efficient management may not only lead to loss of projects but also

to the ultimate shown fall of what other wise would be considered as promising

concern. A study on working capital is of major importance, because of its close

relationship with current day today operations of a business.

The term working capital stands for that form of capital which is required for

the financially of working or current need of the company. It is usually invested in

raw material work in progress finished goods accounts receivable and saleable

securities.

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 Management of working capital usually involves planning and controlling

current assets, namely cash and marketable securities, assets receivable and

inventories and also administration of current liabilities.

Working capital or current assets management is one of the most important

aspect of the over all financial management. It is concerned with the problem that

arises in attempting to manage the current assets.

The current liabilities and the inter relationships that exists between them.

Current assets are the assets, which can be converted into cash with in an

accounting year and includes cash short-term securities, debtors, bill receivable

and inventories.

Current liabilities are those claims of outside, which are expected to mature

for payment with in an accounting year and include creditor’s bill payable and

outstanding expenses.

The goal of working capital management is to manage the firms current

assets and current liabilities in such a way enough to cover its current liabilities in

order to ensure that they are obtained and used in the best possible way.

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MEANING OF WORKING CAPITAL

Capital required for a business can be classified under two main categories.

1. Fixed capital

2. Working capital

Working capital is the amounts of funds necessary to cover the cost of

operating of enterprises.

Every business needs funds for two purposes for its establishment sand to

carry out its day-to-day operations. Long-term funds are required to create

production facilities through purchases of fixed assets such as plant, machinery,

land, building, and furniture etc. Investment in these assets represented that part of

firm’s capital, which is blinked on permanent or fixed basis and is called fixed

capital. Funda are also needed for short-term purpose for the purchase of raw

material, payment of wages and other day-to-day expenses. These funds are

known as working capital funds thus invested current assets keep revolving fast

and are being constantly converted into cash and these cash flows ot again in

exchange for other current assets. Hence it is also known as revolving or

circulating capital short-term capital. Circulating capital means current assets of a

company that are changed in the ordinary course of bs8iness from to another.

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Role of working capital management in public sector concern

The salient features of working capital management in public sector

undertakings are presented below;

 There is often no provision for working capital margin, when the project

cost is estimated. Hence long –term funds are not made available for

working capital margin. This means that public sector undertakings are

required to raise all the financing required for current assets from short-

term sources.

 Most of the public sector undertakings are capital-intensive industries like

steel, heavy engineering, oil refining etc. Hence the ratio of current assets

to fixed assets in public sector undertaking, in general is rather low.

 Apparently public sector undertakings do not have much difficulty in

obtaining can now obtain short term financing from all nationalized banks,

which are generally quite accommodations. Since the risk involved in

lending is minimized, commercial banks seem to be quite liberal in

extending credit to the public sector concerns.

 Management of inventories in public sector undertakings rather tax. This is

evident from the high inventory to sales ratios found foremost of the public

sector concerns.

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PRINCIPLES & CONCEPTS OF WORKING CAPITAL

The need for working capital varies with the changes in the volume of business

due to

• Changes in the level of sales /operating expenses

• Managerial policy changes

• Changes in managerial new technologies

“WORKING CAPITAL” may be regarded as the life blood of a business its

effective provision can do much to ensure the success of business, while its in

efficient management can lead only to loss of profits but also to the ultimate

downfall of what otherwise might be considered as a promising concern, A study

of working Capital is of major importance to internal and external analysis

because of its close relationship with the current day to day operations of a

business working capital is the leading cause of that position of the assets of a

business which are used in or related to current operations and represented at any

one time by the “Operating Cycle” of such items as against receivables ,

inventories of raw materials , stores., work in progress & finished goods,

merchandize, notes or bills receivables and cash. The assets of this type are

relatively temporary in nature.

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 The definition of working capital is qualitative in character. Working

capital represents the total of all current assets In other words it is “gross working

capital”. It is also known as CIRCULATING CAPITAL or CURRENT

CAPITAL, of current assets are rotating in their nature. Working capital is

essentially circulating capital that includes cash, inventory and receivables

circulating in nature. In an accounting working capital is the difference between

current assets and current liabilities. This is also termed as “net working capital”.

Concepts o f net working capital enables a firm to determine how much amount is

left for operational requirements.

LIST OF CURRENT ASSETS & CURRENT LIABILITIES

Current Assets: Current Liabilities

Cash in hand Bills payable

Cash in bank Sundry creditors

Bills receivables Accrued expenses

Sundry debtor’s Short-term loans

Stock Dividends payable

Prepaid expenses Bank over draft

Accrued income Provision for taxation

Short-term investment

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OBJECTIVES OF WORKING CAPITAL

The need for working capital cannot be over emphasized. Every business

needs some amount of working capital. The need for working capital arises due to

the time gap between production and realization of cash from sales

 For the purchase of materials, components & spares

 To pay wages & salaries

 To increase day to day expenses & overheads cost such as fuel, power &

office expenses etc

 To meet the selling cost as packing, advertising etc

 To provide credit facilities to the customer

 To maintain the inventors of raw material, work-in –progress, stores, spaces

& finishes stock. There are two important objectives of a working capital

i.e. profitability and liquidity which are conflicting to each other.

PROFITABILITY:

It refers to the rate of return on investment with reference to current asset

levels and their use. For higher profitability d, the enterprise should invest less in

current assets and vice-versa. Because funds will not be locked up but are utilized

to the maximum extent. But this may result I n liquidity and stock outs on account

of deficiency of working capital funds. Therefore, the planning and control of

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working capital aims at trading of between profitability and liquidity. This is th e

major dimension in the working capital management in practice.

ADVANTAGES OF ADEQUATE WORKING CAPITAL:

Working capital is the lifeblood and nerve center of business. Just as circulation of

blood is essential in the human body for maintaining life, working capital is very

essential without an adequate amount of working capital. The main advantage of

maintaining adequate amount of working capital is as follows:

• Solvency of the business

• Good will

• Easy loans

• Cash discounts

• Regular supply of raw materials

• Regular payment of salaries, wages and other day to day commitments

• Exploitation of favorable market conditions

• Ability to face crisis

• Quick and regular return on investments

• High morale

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17
INADEQUATE WORKING CAPITAL:

Every business concern should have adequate working capital to run its

business operations. It should have neither redundant excess working capital nor

inadequate / shortage of working capital.

DISADVANTAGES OF EXCESSIVE WORKING CAPITAL:

 Excessive working capital means idle funds which earn no profits for the

business and hence the business cannot earn a proper rate of return on its

investments

 Where there is a redundant working capital, it may lead to unnecessary

purchasing and accumulations of inventories causing more chances of

theft , waste and losses.

 Excessive working capital implies excessive debtors and defective credit

policy, which may cause higher incidence of bad debts

 It may result into overall inefficiencies in the organization.

 When there is an excessive working capital relations with banks and other

financial institutions may not be maintained

 Due to low rate of return on investment, the value of shares may also fall

 The redundant working capital gives rise to speculative transactions

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DISADVANTAGES OF SHORTAGE WORKING CAPITAL:

 A Concern, which has inadequate working capital, cannot pay its short-term

liabilities in time. Thus, it will lose its representation and shall not be able

to get good credit facilities

 It cannot buy its requirements in bulk cannot avail of discounts etc

 It becomes difficult for the firm to exploit favorable market conditions &

undertake projects due to lack of working capital.

 The firm cannot pay day today expenses of its operations and it creates

inefficiencies, increase cost& reduces the profits of the business

 It becomes impossible to utilize efficiency the fixed assets due to non-

availability of liquid funds.

 The rate of return on investments also falls with shortage of working capital

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 FACTORS DETERMINING WORKING CAPITAL REQUIREMENTS:

1 Nature or character of business

2 Size of Business/sale of operations
3 Production policy
4 Manufacturing process/length of the production cycle
5 Seasonal variations
6 Working capital cycle
7 Stock turnover ratio
8 Credit policy
9 Business cycle
10 Rate of growth of business
11 Earning capacity and dividend policy
12 Price level changes
13 Other factors

WORKING CAPITAL CYCLE:

Debtors (Receivables)

FINISHED GOODS
CASH

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Raw material Work in progress

OPERATING CYCLE:

The duration of time required to complete the following sequence of events

cash of manufacturing firm is called the operating cycle

• Conversation of cash into work process

• Conversation of raw material into work in process

• Conversation work in process onto finished goods into debtors & bill

receivable through sales

• Conversation of debtors & bill receivables into cash

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TYPES OF WORKING CAPITAL:

1.Gross working capital:

It is the amount of funds invested in the various components of currents assets.

This concept has the following advantages.

 Financial managers are profoundly concerned with current assets.

 This will be provides the current amount of working capital at the

right time

 It enables a firm to realize the greatest return on its investment

 It helps in the fixation of various areas of financial responsibility

 It enables affirm to plan and control funds and to maximize the

return on investment.

2.Net working capital:

In reference to the difference between current liabilities net working capital

can be positive or negative. A positive net working will arise when current assets

exceeds current liabilities. As negative working capital occurs where current

liabilities are in excess of current assets.

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INFLUENCING FACTORS OF WORKING CAPITAL REQUIREMENTS:

The working capital needs of firm are influenced by numerous factors. The

important ones are

• Nature of business

• Seasonality of operations

• Production policy

• Market conditions

• Conditions of supply

NATURE OF BUSINESS:

The working capital requirements of firms are closely related to the nature of its

business. A services firm, like an electricity undertaking or a transport corporation,

which has a short operating cycle and which sells predominantly on cash basis, has

a modest working capital requirement.

SEASONALITY OF OPERATIONS:

Firms, which have marked seasonality in their operations usually, have

highly fluctuating working capital requirements. For example, consider a firm

manufacturing ceiling fans. The sale of ceiling fans reaches a peak during the

summer months and drops sharply during the winter period.

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PRODUCTION POLICY:

A Firm marked by pronounced seasonal fluctuation in its sales may have a

production policy which may reduce the sharp variations in working capital

requirements.

MARKET CONDITIONS:

The degree of competition prevailing in the market place has an important

bearing on working capital needs. When competition is keen a larger inventory of

finished goods all required to promptly serving customers who may not be

inclined to wait because other manufacturing are ready to meet their needs.

SOURCES OF WORKING CAPITAL

A large scale manufacturing company may procure funds from various

sources to meet its working capital from time to time. Sources of working capital

may be classified under 2 heads.

a) Sources of long term or Regular working capital

b) Sources of short term or Seasonal working capital

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 Sources of working capital

Long term working capital Short-term working capital

Internal External

Long-term working capital:

• Issue of share

• Issue of debentures

• Profits

• Sale of fixed assets

• Security from employees and from customers

• Term loan

Short-Term working capital:

1. Internal sources:

• Deprecation fund

• Provision of taxation

• Accrued expenses

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2.External sources:

• Normal trade credit

• Credit papers

• Bank credit

• Customer credit

• Public deposits

• Loans from managing directors

• Government assistance

KEY AREAS OF WORKING CAPITAL MANAGEMENT

The following are the key areas of working capital management.

1. Cash management

2. Receivable management

3. Inventory management

1.CASH MANAGEMENT:

Cash management is one of the key areas of working capital. The term cash

with reference to cash management is uses in two senses. In a narrow sense it is

used broadly to cover currency and generally accepted equivalence of cash such as

cheques, drafts and demand deposits in banks

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Motives for holding cash:

Keynes has identified five motives for cash holding those are:

1. Transaction motive:

Need for cash to meet payments arising in the ordinary course of action. These

payments include such things as purchase, labor taxes and dividends etc.

2. Precautionary motive:

This precautionary balance maintenance will act as a casher of buffer to meet it

unforeseen and unexpected contingencies. More predictable cash flow of business,

the less will also influence this balance.

3. Speculative motive:

This is holding of cash management will ensure is resolving uncertainly both cash

flow and cash out flow

4. Investment motive:

 For meeting operational requirements

 For providing liquidity reserve against

 Routine net out flows of cash

 Schedule of major outlays

 Exploitation of possible particulars for advantages long term investment

 Unexpected drains of cash

 Maintenance of bank relationship

 Building of an investment image and other such intangibles.

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  Constructing a reservoir for net cash inflow, pending an opportunity for a

better use of funds.

5. Compensation motive:

Banks provide a variety of services to business firms, such as clearance of

cheque, supply of credit information, transfer of funds etc. While for some of the

services, a bank charges a commission/ fee for other they seek indirect

compensation. Such balances are called compensation balance.

For effective cash management the following points are to be kept in mind

• Planning of cash requirements

• Effective control of cash flow

• Productive utilization of excess funds.

OBJECTIVES OF CASH MANAGEMENT:

• Meeting the payments schedule

• Minimizing funds committed to cash balances

2) RECEIVABLES MANAGEMENT:

Receivables are assets, which are created as a result of the sale of goods or

services in the ordinary courses of business. These are known as “ accounts

receivables, trade receivables or customer receivables”.

The receivables represent an important component of the current assets of a

firm. Every business needs to have a proper control management of receivables.

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Meaning: Receivables represents amount owed to the firm as a result of sale of

goods or services on the ordinary course of business. The purpose of maintaining

or investing in receivables is to meet competition and to the sales and profits.

Characteristics of maintaining receivables:

 Expansion of sales

 Increased profit

 Financing receivables

 Administrative expenses

 Cost of collection

 Bad debts

Factors influencing the receivables management:

 Size of credit sales

 Credit policies

 Terms of trade

 Expansion plans

 Relations with profits

 Credit collection efforts

 Habits of customers

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3) INVENTORY MANAGEMENT:

Every business needs inventory for smooth running of its activities .It

serves as link between production & distribution process. The unforeseen

fluctuations in demand & supply of goods also necessitate the need for inventory.

It is also provides a cushion for future price fluctuation. The purposes of ensure

availability of materials in sufficient quantity as and when require & also to

minimize inventories.

Meaning & nature of inventory management: Inventory is one of the major

current asserts. The literary meaning of work inventory is stock of goods or list of

goods. Various authors understand the inventory differently. Inventory includes

the following things.

 Raw material

 Work in process

 Consumables

 Finished goods

 Spares

OBJECTIVES OF INVENTORY MANAGEMENT:

The main objective of the availability of materials is for the efficient &

uninterrupted production.

 Minimize investment I in inventory to maximize profitability

 To minimize carrying costs & order cost of inventory

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 To facilitate purchasing economy

 To have an efficient stores organizations

 Optimum consumption of materials so that materials cost of a finished

goods is kept at minimum

 To maintain sufficient finished goods inventory for smooth sales

operation & efficient customer services.

 To minimize obsolescence in stores

 To avoid excessive & inadequate stocks

 To contribute profitability

 To dispose surplus items & scrap at appropriate time

 To provide a check against losses of materials through pilferage & theft.

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TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

Effective inventory management requires an effective control system for

inventories. A proper inventory control not only helps in solving the acute

problems of liquidity but also increase profits and causes substantial reduction in

the working capital of the concern. The following are the important tools and

techniques of inventory management and control.

 Determining of stock levels

 Determining of safety stocks

 Selecting a proper system of ordering for inventory

 Determination of economic order quantity

 ABC analysis

 VED analysis

 Inventory turnover ratios

 Aging schedule of inventories

 Classification and codification of inventories

 Preparation of inventory reports

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ADVANTAGES OF HOLDING INVENTORY

 Quick services

 Discounts

 Reduction in order cost

 Efficient production runs

 Protection against shortages

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 OBJECTIVES OF THE STUDY
This project work is aimed to attain the following major objectives.

The objectives are:

1. To know about the Drug industry and business activities of M/s. Hetero Drugs

Ltd. in Hyd.

2. To study the ability of the firm to meet its current requirements.

3. To study the extent to which the firm has used its long-term solvency by

borrowing funds.

4. To study the overall operating efficiency in performance of M/s. Hetero Drugs

Ltd. Hyd.

5. To study the efficiency with which the firm is utilizing its various assets in

generating sales.

6. To suggest guidelines to the company for improving its financial position.

RESEARCH METHODOLOGY
The required for this study would be collected through two sources i.e.,

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 METHODS

PRIMARY DATA SECONDARY DATA

1. Primary Data:

The primary data comprises information obtained by the candidate during discussions

with Heads of Departments and from the meeting with officials and staff.

2. Secondary Data:

The secondary data has been collected from information through Annual

Reports, Public Report, Bulleting and other Printed Materials supplied by the Company.

In the present study 1/4th of the total information of time is from primary

data and the rest is from the secondary data.

NEED FOR THE STUDY

35
• In India of plenty human and nature resources are available but the
capital resources are highly restricted. A understanding of financial
management practices. Is necessary to utilize limited capital resources
efficiently and effectively in order to norms, for sound financial
management in various organization it is necessary to study the
financial management practices in auto parts industry particular
reference to HETERO DRUGS LTD, Hyd.

• It is useful for the owners who are interested in the Return on

investment earnings per share by comparing the details for different
periods to assess the period of the firm.
• It is useful for the employees and consumers in their own field of
interest.

• It is useful for the students like me, to make an analysis for enhancing
our knowledge and skills in the filed of financial management.

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 SCOPE OF THE STUDY

This study is carried in the months of may-June. The data for the study are
collected from the balance sheet, profit and loss account and various schedules
relating to it for six years from

This study covers analysis like ratio analysis; funds flow statement,
comparative financial statements, common size financial statements and Trend
analysis and also include SWOT analysis.

It covers the various activities in the organization and measures the

profitability, solvency and efficiency for six successive years of he firm. Based on

the analysis a trend is to be drawn for a further period of five years.

37
 LIMITATIONS OF STUDY

1. The study is limited to Hetero Drugs, Hyd, it does not relate to any other company

of Hetero Group or other firm’s of Hetero Drugs Industry.

2. The smaller time frame for understanding this study is also a significant

limitation.

3. The ratios are calculated on the basis of past data; these are not future indicators.

4. The scope of study is limited to the last five years balance sheets.

5. The analysis is made basing only on the Annual Reports of HETERO.

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 CHAPTER-III
COMPANY PROFILE

ABOUT HETERO:

Established in the year 1993, with the motto to be the best in the API

manufacturing, Hetero today embodies the vision of a top notch player in

developing and commercializing products catering to a variety of therapeutic

categories, integrating into a leading finished dosage manufacturer.

True to the Statement, "Where the Future Started Yesterday", with a foresight on

the current trends in the DRUGS Market, Hetero has grown from strength to

strength, combining its Research Strengths, Manufacturing Capabilities, and

Human Resources and well established quality management system.

With full-fledged marketing capabilities, the company has been able to market its

products in over 100 countries in Asia, Middle-east, Eastern Europe and Latin

America. With its compliance to the most stringent regulatory requirements,

Hetero has today gained foothold to market several of its APIs in the United

States, Canada and Europe.

With all six manufacturing facilities being supported by excellent infrastructure

and compliance to the GMP requirements, Hetero has crossed numerous

milestones in a comparatively short period since its inception.

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MANAGEMENT

THE MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY

ARE:

NAME DESIGNATION

Dr.B.Partha Saradhi Reddy Chairman & Managing Director

Sri.B.Nagi Reddy Executive Director

Sri.M.Pera Reddy Director-Finance

Sri.Dharmesh M Shah Director- Business Development

Sri.A.V.Narasa Reddy Director- Corp-Tech

Sri.C.Bhaskar Reddy Director-Quality Control

Sri.J.Sambi Reddy Director-Production

Sri.M.Srinivasa Reddy Director

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HETERO GROUP:

• HETERO DRUGS LIMITED

• HETERO LABS

• HETERO RESEARCH FOUNDATION

• SYMED LABS

• GENX PHARMA

• HETERO HEALTH CARE

JOINT VENTURES:

 Invagen Inc, USA, generics Manufacturing Company

 Richmond Labs, Argentina, Finished Formulation Company

 Arafarma S.A., Spain

FOUNDER:

The spirit and brain behind the success story of Hetero is its founder

Dr.B.P.S. Reddy, a Scientist who started the company drawing immense strength

from the vast and rich experience he gained during his earlier stint at the

Laboratory where he was instrumental in developing and commercializing

processes for several APIs .

41
 The Company was started by him with a vision to be recognized as an aggressive

company that combines its strength of R&D and manufacturing with definite

advantages in terms of cost and chemistry with a strong emphasis on Quality of

the products.

The untiring efforts of the Chairman saw Hetero develop processes for several

products at relatively low cost, thus making it possible for several life saving drugs

to be available at affordable prices, meeting all the Regulatory and Quality norms.

With the organization having reached a point where it is identified among the

widely recognized companies, the Chairman is now focusing on giving new

dimensions to the company in terms of exploring possibilities of further growth,

exploring new horizons in the field of DRUGS development and evolving strategies

to take the company to greater heights.

All the members of Hetero Family draw inspiration and motivation from the

Chairman in working towards achieving the Organisational Goals.

MILESTONES/AWARDS:

The Company has been Scaling New Heights on a continual basis. These

achievements have been the result of concerted efforts on the part of different

functions within the organisation to achieve the organisational goal of being a

leader.

42
 In its path to success, Hetero has seen many a milestone being crossed and

achieved many awards on various fronts. Awards for exemplary work in R&D and

marketing are just a few to name.

A track of few events that saw Hetero reaching its Zenith of glory are:

 National Award for “Best Efforts in Research and Development” from the

Department of Scientific and Industrial Research, Ministry of Science and

Technology, Government of India, in the year 1996.

 Highest Exporter award (for the year 1999) against stiff competition from

internationally recognized domestic competitors.

 Approval of the API facilities by USFDA for compliance to CGMP norms

 Approval of the finished dosage facilities by WHO for the supply of anti-

retroviral drugs.

VISION AND VALUES:

Hetero believes:

"Where the future Started Yesterday.....

... Works a day ahead of Future...."

43
 Hetero’s Ambition is to be an aggressive player in DRUGS markets combining

IPR skills, manufacturing capabilities, strong human resource inputs and

marketing strengths.

Values in pursuit of excellence:

 Innovation

 Creativity

 Reliability

 Accessibility

 Cost effectiveness

 Quality

 Accuracy

 Customer delight

 Eco friendly

Hetero visualizes itself as an aggressive player in the global DRUGS scenario,

supplying generics developed, combining intellectual property, research strengths

and strong human resource inputs.

The company values the concepts of having social responsibilities in the course of

its assent to greater heights. It strongly believes in focusing on customer

requirements and delivering the products at the right pace.

44
 Hetero considers its human resources as the core of all its capabilities and believes

in tapping and honing the talents of its members to reach the zenith of success.

It believes in continuous evaluation and improvement in all the factors that

contribute in transforming the organization into a global force to reckon with.

Hetero takes due cognizance to the fact that the processes that it develops should

be all eco-friendly and should not result in any consequence that harms the

ecological harmony.

MISSION:

Hetero’s Mission is to be a globally acclaimed DRUGS Company, Meeting the

requirements of Healthcare imbibing the philosophy of both commercial and

social concerns, driven by research and manufacturing capabilities.

STRENGTH:

 Strong emphasis on Research and Development.

 Ability to develop processes for a large range of therapeutic Categories.

 Ability to orient and adapt to the changing facets of Industry, particularly in

terms of Regulations, Intellectual property and Manufacturing Capabilities.

 Cohesive team of Skilled Professionals in all Wings related to Research,

Manufacture and Marketing.

 Strong Customer base and market Presence.

45
 A Strong Commitment towards the society to provide timely support by

providing life Saving drugs at relatively low costs, Short Span of time.

THE CORE TEAM:

-Research & Development Scientists 300

-Manufacturing chemists and engineers 1600

-Quality Control/Assurance 300

-Administration and Marketing 150

-Domestic Sales representatives 1000

MANUFACTURING FACILITIES:

Hetero API Facilities are designed to meet the best of global standards for an API

Facility.

These state- of- the- art facilities caters to the growing demand of manufacturing a

large spectrum of APIS.

Hetero's production muscle stems from its endeavors to install plant, equipment,

systems and personnel that portray the best in the Indian DRUGS industry.

Professional teams equipped with cutting-edge technology come together in

developing, commercializing and delivering latest Intermediate and Active

DRUGS Ingredients across the globe.

46
Hetero's state-of-the-art plant, which conforms to stringent cGMP guidelines,

facilitates pilot and large scale production. This has enabled it to deliver a wide

range of APIs of international standard and intermediate chemicals for diverse

healthcare applications.

FINISHED DOSAGES:

The Finished Dosage Facilities of Hetero are designed to match the best

globally.The Facilities house the best of the equipment in terms of Design and

Capacity. The approval by Several Regulatory authorities and the approval by

WHO, Geneva stands a testimony of the fact that serious efforts are made to

ensure that every activity being taken up in these Facilities are in Compliance with

the requirements in terms of Quality and Integrity of the products being

manufactured

QUALITY SYSTEMS:

All the activities at Hetero right from the receipt of raw materials to dispatch of

the finished products are carried out in accordance to a well-oiled quality

management system. The importance of having a strong quality based system has

been recognized by the organization due to which every individual in each

department understands his/her responsibilities and carries them out with utmost

care avoiding any confusion, thus delivering the best results.

47
In addition, talking about quality of the product itself, the company has evolved

the systems to implement GMP’s in the manufacture of the product to protect the

safety, quality and integrity. The approval of Hetero’s API Facility by USFDA and

Finished Dosage Facility by WHO bear a testimony to this fact.

RESEARCH AND DEVELOPMENT:

Hetero’s emphasis has always been on Research and Development. The emphasis

was to ensure that the processes being adopted for the products are cost effective,

safe to handle and with optimum advantage in terms of yield and quality.

Having laid solid foundation towards the end Hetero’s R&D approach has also

taken cognizance of the present scenario where stringent patent regime is under

implementation. Hetero’s teams of scientists have been and are involved in

developing non-infringing processes for its products. With its ability to explore

new heights and achieve the best, Hetero has been able to file patents for several

of its processes.

From an organization, which was concentrating on developing processes for API’s

Hetero, has now a full-fledged R&D Facility for formulation development.

Hetero research capabilities have been proven with its ability to carry out a wide

range of reactions, which are difficult to carry out.Given its research capabilities,

Hetero has today initiated contract research. Towards the end, the company has

48
already evolved its strategies and is into discussions with renowned companies for

carrying out the Contract Research. Custom synthesis is one area where the

company has been concentrating on and is initiating work on several projects.In

addition to the above, the Company is now on the threshold of commencing basic

research activities to develop and screen new chemical entities for different

therapeutic categories.

CAREER:

Hetero considers its Human Resources as its core Strength. The Company believes

in the fact that its present position as an aggressive player can be attributed to the

collective efforts of all its employees working in different departments in realizing

its goal of being a Top Notch Company.The Company offers the best of the

opportunities to work, where the potential and Capabilities of personnel are tapped

to the maximum advantage to both the Organization and the personnel. The latent

talents are honed to meet the challenges faced by the organization and achieve the

best.Hetero believes in recognizing and rewarding contributions of its employees.

To meet its staff requirements, Hetero has several openings in different

departments for those who are ready to take up the challenge and deliver the

goods.

49
 INDUSTRY PROFILE

Introduction:

In this chapter the major aspects of the study are going to be discussed. The total

organizational profile will be discussed; the industry to which the study is related

to, i.e., an overview of the steel sector globally and at national level, opportunities

and the growth prospects of the sector will be discussed. Moving up to the

company profile and its structure and functioning, the company’s role in the sector

will also be discussed.

OVERVIEW:

In the total Indian economy, Pharmacy industry is one of the major economic

sectors in India. According to industry reports, the DRUGS industry, with an

output of Rs.250 billion, has recorded a growth rate of 20% over the last five

years.80% of the formulations produced are consumed indigenously, where as the

majority of the bulk drugs manufactured are exported. The Indian manufacturers

are increasingly tapping the export market. Export revenues now contribute almost

half the total revenues for the top 3-Pharmacy majors, viz., Dr.reddy’s, Ranbaxy

and cipla.

Around 60% of this output is exported and exports during 2003 were Rs.141

billion while imports for the same year were Rs.40 billion. The world’s biggest

50
DRUGS market, the USA, accounted for US$450million of India’s exports. India

is ranked 4th in the world in terms of volume and 13th in terms of value. India’s

share in the world DRUGS market is 1% in value and 8% in volume. The DRUGS

sector’s R&D spend around Rs.8 billion averaging between 3% and 4% of sales

value. Capital Investment in the sector is estimated to be Rs.45 billion.

A major problem that hampers R&D thrust in India is that companies have to

generate huge cash surpluses for the basic research processes. This at the moment

is not easy, given the government’s rigid Drug Price Control Administration

(DPCO). Thus, until the DPCO is revised to or abolished & free pricing allowed,

the companies would not be able to make sizeable investments. To overcome this

problem, M&A activity is undertaken not only at the corporate level but various

layers are acquiring brands to re-align their portfolio and strengthen their presence

in certain therapeutic segments. This is done either between Indian companies

themselves or between Indian & MNC’s.

Also to support the R&D investments, the Indian government is providing a

range of tax concessions designed to encourage R&D, including a ten year tax

holiday on income arising from R&D. The Drug Price Control order (DPCO)

continues to affect the industry adversely. This has made the profitability of the

sector vulnerable to the pricing authority. However, as per the budget proposal the

list of 74 drugs under DPCO coverage would be reduced considerably to 29.

51
 Compared to the global DRUGS industry, Indian R&D expenditure is still

minuscule, which could have a negative effect in the long run, especially if the

product patent is enforced after 2006.Companies like Ranbaxy and Dr.Reddy’s

laboratories are providing the lead in India. However by International standards,

the amount which they currently spend around Rs. 2 billions is very little.

Although the Indian DRUGS industry has over 20,000 registered companies.70%

of the market share has been garnered by 250 DRUGS companies. Intense

competition, high volume and low prices characterise the Indian domestic market.

The Indian domestic industry manufactures over 400 bulk drugs with a production

output value of Rs.78 billion. Formulations have achieved a production of Rs.158

billion with many of the formulations produced being channelled to the domestic

market. India is primarily self-sufficient in formulation, although a few essential

formulations are imported.

The Indian DRUGS industry is poised to become an important industry

player post 2005. India has a large, cost competitive scientific and technical

manpower, several USFDA/European Regulatory Authority (European Union

Certification of Suitability-EUCOS) approved manufacturing facilities and a

patent base for international clinical trails. These factors together with low

52
manufacturing cost have established India as an emerging as an international

DRUGS player and a reliable outsourcing partner.

PROSPECTS:

The Indian DRUGS industry is preparing for the post 2005 regime. In1995 India

became a signatory to the WTO and agreed to implement a product patent regime

with effect from 1st January 2005. In accordance with WTO stipulations, India will

grant product patent recognition to all new chemical entities from 2005 and the

Indian government has enacted changes to the Indian Patent Act1970 regarding

mailbox arrangements and exclusive marketing rights. The major industry players

are aware of the challenge of moving from selling cheap copied drugs to high

value products. For knowledge intensive, cost competitive Indian DRUGS

industry this challenge also represents a valuable opportunity.

Multinational companies have not introduced original research products in India

for fear of copying. This is likely to change post 2005. For consumers, the biggest

advantage could be in the form of new and advanced drugs for new therapies. The

bigger DRUGS companies are expected to increase in size with a focus on

research and will fall in the category of Original Research Companies (ORCs).

Some of the smaller companies which offer a wide range of products will survive

with greater focus on exports of such generic products but they will have to

transform themselves into research oriented organizations since maintaining

53
growth momentum through generics alone will not be sustainable in the long run.

The way forward for relatively smaller DRUGSs companies could be in the

business of outsourcing and contract supplies to the large DRUGS companies.

Domestic DRUGS companies will have to undergo certain adjustments, such as

increasing their R&D spend, creating their own IPRs and simultaneously

respecting the IPRs of other companies. There is also need to bring in operational

improvements manufacturing facilities that are world class and focus on emerging

therapeutic trends and segments like cardiovascular, respiratory, orthopedics, CNS

and diabetics.

REGULATION OF THE DRUGS INDUSTRY:

The commercialization of DRUGS formulations that incorporate APIs (Active

Pharmacy Ingredient) is subject to the approval by national agencies and other

entities in different countries that regulate the testing, manufacturing, safety and

promotion of such formulations include certain regulations and standards

applicable to APIs.

INTERNATIONAL PATENT REGULATION :

In order for an invention to be patentable it must be defined by the relevant

country’s patent law as “new”. In most countries, if the invention has been

described in a printed publication anywhere in the world, or if it has been in public

54
use or on sale in that country before the effective filing of the applicant’s

invention, a patent cannot be obtained. Since the rights granted by a national

patent extend lonely throughout that country and have no effect in a foreign

country, an inventor who wants patent protection in other countries must apply for

a patent in each of the other countries or in regional patent offices. Almost every

country has its own Patent law, and a person desiring a patent in a particular

country must make an application for a patent in that country, in accordance with

the requirements of that country. The patent laws of many countries differ in

various respects.

The Paris Convention for the protection of Industrial Property is adhered to by

more than 140 countries, including the United States, India, Russia and China and

provides that each country guarantees to the citizens of other countries the same

rights in patent and trademark matters that it gives to its own citizens There are

two other major international treaties that allow applicants to file a single

application in a centralised location and designate member countries in which the

applications may be issued. The Patent Cooperation Treaty is presently adhered to

by over 90 countries, including United States, India and Russia. The other

international treaty, the European Patent Convention, the examination of an

application field in the European Patent Office. If prosecution results in the grant

of a patent, the patent is published again and treated as a group of patents, one in

55
each of the designated countries if all the formalities for that country are

completed.

INTELLECTUAL PROPERTY RIGHTS AS APPLIED TO DRUGSS:

PRODUCT PATENTS:

DRUGS product patents protect a particular molecular structure, compound,

combination, composition, product, formulation, dosage form or kit and in most

jurisdictions, prevent anyone else from making, using, offering for sale and selling

a DRUGS product that embodies the patented molecular structure, compound,

combination, composition, product, formulation, dosage form or Kit without

permission. Developed markets such as the United States, Canada and the United

Kingdom recognige product patents.

PROCESS PATENTS:

DRUGS process patents protect only the method by which a product is made, not

the molecular structure of the product itself. If someone can make the same

product by a different non-infringing process (often referred to as designing

around), the holder of a process patent cannot prevent the product from being

reproduced.

INDIAN PATENT REGULATION:

Historically, India granted patent protection only to process, not to products and

therefore only the process to manufacture a drug is protected and not the drug

itself. This meant that if a drug company could find an alternative process to

56
produce the same formulation as a competitor, they could sell it in India without

fear of patent infringement suits. In 1995, under GATT, India became a signatory

to the Agreement on Trade Related Aspects of Intellectual Property Rights (the

“TRIPS Agreement”). The regime under the TRIPS Agreement, which is expected

to be fully implemented by 31st December 2004,would provide for the recognition

of product patents for a period of 20 years. As a developing country, India has

been granted a ten-year grace period to comply with product patent laws under the

WTO agreement. This means that the actual product patent regime will come into

force from 2005.However, during the transition period, India will have to provide

pipeline protection to drugs patented after 1995.It must also provide these products

an exclusive marketing right for a period of five years during the transition period.

The validity period of patent for these products is calculated from the date of

applying for the patent, so once the provisions of product patents are implemented,

the patent will be granted for the balance of the 20 year patent term from the date

of filing of the application for pipeline protection. The new patent laws do not

cover drugs patented prior to 1995.

UNITED STATES REGULATION, NEW DRUG APPLICATION:

In order to sell a drug in the United States, a company is required by the US FDA,

to comply with new drug application procedures for branded products prior to

commencement of marketing by it or its licenses. New drug compounds and new

formulations for existing drug compounds which cannot be filed as abbreviated

57
new drug applications, or ANDAs, are subject to new drug application procedures.

These procedures include:

1. Pre clinical laboratory and animal toxicology tests;

2. Scaling and testing of production batches;

3. Submission of an Investigational New Drug Application, which must

become effective before human clinical trials commence;

4. Adequate and well controlled human clinical trials to establish the safety

and efficacy of the drug for its intended indication;

5. The submission of a new drug application to the FDA; and

6. FDA approval of a new drug application prior to any commercial sale or

shipment of the product, including pre-approval and post-approval

inspections of its manufacturing and testing facilities.

The new drug application procedures described above are premised on the

applicant being the owner of, or having obtained a right of reference to, all of the

data required to prove safety and efficacy.

EUROPEAN UNION REGULATION:

Member countries of the European Union have an approval regime that is similar

to the US FDA’s ANDA filing, which involves the manufacturer of the drug

formulation filing a “dossier” which incorporates the APIDMF. Depending on the

drug product, it may be possible for the API manufacturer to file one DMF for use

in all EU jurisdictions. If not, the API manufacturer is required to file a DMF in

58
each jurisdiction in which the generic manufacturer will be filing a dossier. The

EU does not require inspection and approval of the manufacturing facilities as part

of the dossier approval process.

SWOT ANALYSIS OF DRUGS INDUSTRY:

STRENGTHS:

1. India produces a sufficient number of medical and pharmacy graduates who

contribute to the strengthening of the industry.

2. The Patent Act and the Drug Price Control Order of the 1970’s forced

MNC’s to shrink their operations in India, thus providing space for

Indigenous DRUGS companies to expand in the local market.

3. Highly educated people as well as low labour costs are the major strengths

of the Indian DRUGS Industry.

4. The use of computers in the industry is increasing and they are being

applied to data management and drug discovery.

WEAKNESSES:

1. Individual R&D budgets if many Us companies are much more than the

cumulative R&D budgets of all the companies in India. Thus the

availability of funds is a major weakness of the industry.

2. Rigid administrative price control, weak Intellectual Property Rights

regime, outdated and restrictive labour laws, high import tariffs and taxes,

slow pace of economic reforms are the main growth barriers of the industry.

59
3. The Indian DRUGS Industry is investing significant funds in biotechnology

and generics, which are capital consuming and have no guarantee of

success.

4. Animal experiments are an essential part of the R&D. Every drug molecule

must be screened using animals first to determine its efficacy and side or

toxic effects. If Indian animal rights activists block the use of animals in

R&D experimentation, the Indian DRUGS Industry will be forced to turn to

other countries for animal studies.

OPPORTUNITIES:

1. India has emerged as a preferred source for quality medicines at affordable

prices. In addition to opportunities in the domestic market there are various

opportunities for exporting to regulated and unregulated markets.

2. Low manufacturing costs and process skills are the industry’s opportunities

and India would do well to make use of this important opportunity.

3. Focused R&D and the development of centers for clinical trials in India

would allow the industry to discover new drugs for diseases observed in

tropical conditions.

4. Outsourcing: India offers a competitive advantage in outsourcing due to its

abundance of scientific and technical manpower, large and diverse patient

pool for conducting clinical trials and technical capability of producing

active DRUGS ingredients as well as finished dosage forms. All these costs

60
 will be highly cost competitive and they offer several opportunities to small

as well as mid-sized DRUGS companies. Several multinational companies

have already started outsourcing from their Indian subsidiaries services

such as clinical trials, R&D, custom synthesis, bio-statistics and self life

studies.

5. Drug discovery: There are further opportunities for the domestic industry in

the form of drug discovery services, biotechnology and in developing and

producing products based on monocional antibodies and recombinant DNA.

Indian companies have the skills to offer these services but the area of drug

discovery services, clinical research and regulatory services are still largely

unexplored and there are very few Indian companies who have taken

initiatives in these directions.

THREATS:

1. Many more countries will be complying with the terms of patent laws in

2005. It means that, like India, many countries are preparing for competing

to market various DRUGSs.

2. The Indian DRUGS market may face the threat of the dumping of bulk

drugs and formulations by neighboring countries.

3. Industrialisation and environmental factors must be considered and if

proper measures are not taken up front, business growth eventually will be

hampered.

61
MAJOR PLAYERS IN THE DRUGS INDUSTRY IN INDIA:

Rankings of the major players based on their sales figures are as follows:

GlaxoSmithkline, Cipla, Dr.Reddy’s laboratories, Ranbaxy are the top four

companies in terms of gross sales.

The top MNC’s with a presence in India are Glaxosmithkline, Hoechst Marion

Roussel, Knoll pharmacy and Pfizer.

HETRO DRUGS LTD

Hetro Drugs Ltd is an Indian enterprise molded by global aspirations. This

has always demanded a preparedness and long-term organizational vision that can

encompass the turbulence and paradoxes of shifting terms and terrain’s of

business.

History & Profile of the company:

HETRO, promoted by Mr.V.C.Nannapaneni was incorporated on September

19,1981 as a private limited company under the name of HETRO Fine DRUGSs

Private Limited to be in the business of research, developing, manufacturing and

marketing of DRUGS substances and finished dosage forms for Indian and

International markets.

HETRO began its operations in Andhra Pradesh in 1984 as a single unit private

limited company with an objective to manufacture conventional and time release

dosage forms of drugs. HETRO became a deemed public company with effect

62
from July 1,1992 and on February 18,1993 changed its name to HETRO DRUGS LTD

and received change of name certificate.

In the first year of its operations it achieved a sales figure of Rs. 0.5 million. The

company’s first product was cardiac, which is an Anti-Anginal drug. Since then

the company has introduced many dosage forms into the market. By 1985 it had

dosage forms in cardiovascular, Anti-cold, Anti-Asthmatic and Antibiotic

segments. HETRO has the credit of having pioneered Time Release Technology in

India.

HETRO PHARMACY was ranked 82nd in sales among Indian DRUGS companies

in 1994. HETRO also has the credit of being one of the largest contract

manufacturers in India. Some of the well-known companies like Ranbaxy,

Dr.Reddy’s laboratories, John Wyeth, Novartis India ltd., Sun Pharmacy Ltd. etc.,

get their products manufactured by Hetro. HETRO PHARMACY grew in size on

1st April, 1995 when 3 companies merged with it.

1. HETRO PARENTERALS LIMITED.

2. Dr. KARANTH PHARMACY LABS PRIVATE LIMITED.

3. HETRO LABORATORIES LIMITED.

HETRO has historically focused on the domestic formulations markets having

pioneered the introduction of sustained release drugs in India. The domestic

formulations market contributed to approximately 90% of the company’s turnover

63
and the company will continue to focus on high value added finished dosages. As

a differentiation strategy, the company has adopted a two-prolonged approach.

• Therapeutic focus: strategically limited its focus to Oncology, CNS, Urology,

immunity modulators and growth hormones as the key growth areas;

• Niche new product launches: a robust pipeline of products has been identified

for further development.

Hetro Drugs Ltd is a technology driven company specialized in the

manufacture of DRUGSs involving Novel drug delivery systems, Active DRUGS

ingredients and also engaged in custom synthesis and contract manufacturing

activities. V.C.Nannapaneni (M.Pharm, Andhra University, India, MS

(Administration) Long Island University, USA) founded the company in the year

1982 after his 15 year employment in the United States. The current turnover of

the company is about 60 million US$. The company is in the manufacture of anti-

migraine drugs, proton pump inhibitors, and anti-depressants to name a few.

The company has excellent infrastructure in terms of technical facilities, research

excellence and qualified personnel. The company has spent over 6 million US$

on its state of the art research division (HETRO Research Center) committed to

develop cost effective and environmentally friendly technologies. The corporate

R&D has over 20 Ph.D’s and over 150 postgraduates covering various disciplines

of DRUGS sciences and Drug development. The R&D center has filed several

64
patents in the fields of Process chemistry, Novel formulations and Drug delivery

systems.

The company’s manufacturing divisions (API/Formulations) follow International

CGMP norms and one of the divisions has got TGA (Australia) accreditation .The

facilities have received US FDA and MCA, U.K approvals in the current year.

One of the key activities of the formulation division is contract manufacturing

catering to the needs of a good number of Multinationals in India.

With a mission to make the extra-ordinarily expensive anti cancer drugs

affordable and to reach all sections of Indian society, the Company has recently

included anti-neoplastic segment in its portfolio. VEENAT is the first successful

and fruitful product that emerged out during these efforts of the company. The

brand name is derived based on the colloquial interpretation in an Indian language

meaning Music of Life VEENAT capsule is colored green signaling promise of

life and vitality.

The sustained efforts of the company to optimize the manufacturing process of

VEENAT (Covering both the API and the formulated capsule) resulted in

substantially lower production costs thus enabling the company to successfully

adopt a pricing structure that can comfort thousands of CML patients in India. The

current pricing structure of US$3/Capsule is expected to reduce further

considerably during the next year. The company has firmed up plans to make the

drug available free of cost to a section of CML patients. This is undertaken as a

65
part of company’s social service and welfare activity measures through HETRO

TRUST.

HETRO is proud to be a part of global DRUGS community and to be in a position

to cater to a wider spectrum of people for better access to life saving medicines.

MISSION: HETRO, has since over a decade and a half, evolved as a unique entity

in the Indian DRUGS industry, with significant international presence. Today it is

more innovative and active than ever across the entire spectrum in DRUGSs-from

basic research, bulk activities L& intermediates to finished dosage forms and

clinical trials.

In the emerging industry patterns of the twenty-first century, based on new

technologies, HETRO recognises that innovative product development has to be

complemented with cost effective therapeutic solutions to address a better

informed and a more demanding fraternity. To achieve this, the company has

harnessed all its strengths-compact, productive teams, modern facilities, its

command over chemical technologies and economies of scale- into a synergistic

organic entity, continuously creating and nurturing high quality products and

technologies.

66
HETRO believes that in the new order of symbiotic drug industry, it will emerge a

powerful player with specialized skills to address encompassing opportunities in

DRUGSs. Attracting industry leaders with the constancy of its purpose.

HETRO’s emergence from a major business re-engineering exercise further fuels

its ambition to be among the select top leaders in the industry with the power to

turn shared DREAMS into REALITY.

Main Objects of the company:

• To carry out the business of manufacturers of, dealers in, Finished drugs

and DRUGSs, Fine DRUGSs, Bulk Drugs, Chemicals, Fine Chemicals,

Ayurvedic, Unani and cosmetics.

• To establish Laboratory facilities for the company’s own purpose or other

use.

• To do all kinds of consultancy services in DRUGSs and carry on research,

to do loan licensing, manufacturing, act as advisers for such of those industrial

organisations and research laboratories who may desire to utilise these

services in DRUGSs.

• To acquire or invent any secret formulae, know-how, manufacturing

process and or design, manufacture to import, export and deal in P&M or

equipment etc., erect the plant depute technical personnel and run the plant for

company’s use or hand over to any entrepreneur, industrialist or businessmen

who has contracted with the company for the above services.

67
 • To carry on the business of setting up, establish, purchase, sale, export,

manufacture or otherwise deals in all kinds of infrastructure projects including

but not limited to generation and distribution of power, Development of ports,

Roads & Highways, Mining, Petro chemicals, Heavy Industries such as

cement, steel etc., Service Industry like travels, Hotels L& Resorts, advertising

etc.,

• To carry on the business of Development, Export, Import and Marketing of

computers and computer software, E-commerce, communication solutions and

Networking products, running of computer education centers for imparting

Training & Development and to carry on the business of servicing computers

land allied equipment and software consultancy. Data processing in all the

areas of computer related applications.

Business of the company:

HETRO DRUGS LTD is an integrated DRUGS company, engaged in the manufacture

of bulk drugs, finished dosage formulations, capsules, and tablets. The company’s

integrated business model includes undertaking research and development on or

relating to new drug delivery systems, process research, process development,

new drug investigation and manufacturing of API’s and formulations. The

company has its corporate head quarters in Hyderabad, Andhra Pradesh and has

four manufacturing facilities and employs over 1400 personnel.

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Key Strengths:

• Strong research strengths, which facilitate introduction of new drugs, often for

the first time in the country.

• Successful in identifying and launching new products.

• Continuous development of cheaper processes and skills to ensure manufacture

of quality products at a competitive price.

• Highly competent, experienced and professional promoter and management team,

focused on innovative research with strong regulatory capabilities.

• State of the art, US FDA/EUCOS approved manufacturing facilities with the ability

to adopt latest drug delivery techniques.

• Approval of the API/bulk chemicals facility at Mekaguda by the US FDA in

October 2004.

Recent Developments:

• Approval of Ondansetron 4 mg/ 8mg anti-emittic tablets by the Danish Health

authorities giving the company access to the European markets.

• Approval of Metronidazole 400mg anti-diahorrea tablets by the UK Medicines

and Health care products Regulatory Agency.

• Obtained European certificate of suitability for Ondansetron and Sumatriptan

Succinate.

69
QUALITY POLICY:

The company is a recipient of WHO certificate for maintaining good

manufacturing practices. The Quality Policy of HETRO DRUGS LTD is to manufacture

and timely supply cost effective quality products to meet customers expectations

and to achieve CUSTOMER SATISFACTION through implementation of ISO

9001:2000 QMS on continual basis.

Milestones of HETRO DRUGS LTD:

• Incorporated –1981 for manufacture of DRUGS formulations.

• First full year in operations-1984-sales Rs. 0.5 million.

• Pioneered Timed Release, a delayed acting sustained release technology.

Achieved a rare feat of introducing the largest array of timed-release products

based on zero order release concept of Microdialysis Cell Technology.

• Started parenteral manufacturing facility at Nagarjunasagar, India.-1986

• Acquired Dr. Karanth Pharmacy Chemical Labs, a small bulk drug

manufacturer, now known as HETRO Research Center.

• Established bulk drug and Intermediate facility at Mekaguda, India. This

facility is TGA approved, and certified for its environmental management

systems (ISO-14001).

• State of the art manufacturing facilities –CGMP, ISO 9002 certified dosage

facility. A wide distribution network, Indian and International.

70
• Merged three of the group companies with the parent, HETRO Pharmacy

Limlilted-1995.

• Granted US patent for its manufacturing process of Omeprozole.

• Launched anti-cancer drug-Imatinib Meyslate 100mg capsules under the brand

name – VEENAT. Process developed in – house.

RESEARCH OF HETRO DRUGS LTD:

Taking a world view of changing economics and requirements, HETRO

recognises the need and the efforts of world bodies to universally honour

intellectual property and patent rights. HETRO believes this approach would

improve its own research capabilities and sees in it opportunities for growth.

Considering that only those drugs whose patents have been presented from 1995

are eligible for a product cover in India, HETRO’s strategic investments in R&D

are expected to yield results soon.

A multi-prolonged strategy is being pursued to enhance its R&D output:

• Undertaking collaborative research

• Development of original research capability

• Custom synthesis

71
HETRO’s R&D objectives are in line with the company’s mission and policies.

Sixty scientists from different disciplines are currently working towards

developing latest generation basic chemicals, bulk drugs and dosage formulations.

It has undertaken collaborative ventures with leading Indian research

organizations such as CCMB, IICT AND CLRI to focus on developing areas such

as peptides, iso-ascorbic acid and advanced dosage delivery systems such as micro

spheres and Nan spheres. A new state-of-the-art integrated Research Center in

Hyderabad is built to work towards new molecular entities, therapeutic

physiochemical and bio-technology products including peptides, immune

suppressants and related products. HETRO’s expertise in chemistry can be

contracted for custom synthesis at various levels of research and development.

MARKETING OF HETRO DRUGS LTD:

For HETRO, marketing involves the challenges of giving care, concern and

responsibility a wider reach. The demands of optimization in such a scenario have

been met by HETRO through efficient on line information networks. HETRO is

constantly upgrading logistics from a global perspective to achieve this end.

HETRO’s marketing is organized into broad divisions that are further organized

into specialized categories for effective reach in the highly specialized world of

modern medicine.

72
DOMESTIC MARKETING:

The frequency of arrival and the unmatched acceptance of its new products have

attested HETRO’s marketing success. It is also evident from the fact that it is rated

among the fastest growing pharmacy companies in India. HETRO operates three

divisions in the market place, implementing corporate strategies including one for

high value speciality products and one for generics. A 300 strong sales force

supported by marketing services, product management and commercial functions,

cover over 100000 doctors, 18 C&F agents, over 1000 distributors, and over

100000 retailers across India.

INTERNATIONAL BUSINESS:

Offices in India, the USA and the CIS facilitate HETRO’s growing international

presence, currently focused on the consolidation and expansion of businesses. A

multi-pronged strategy including joint ventures, acquisitions, marketing alliances,

manufacturing tie-ups, custom synthesis and other collaborative ventures are being

pursued for long-term growth.

HUMAN RESOURCES OF HETRO DRUGS LTD:

From its directors, scientists, pharmacycists, engineers and managers to its

frontline teams, there is a strong inbuilding of purpose among the entire HETRO

fraternity. Transforming men and groups from neutral, technical units into

participants with a unique stamp, sensitivity and commitment.

73
The core values of team building at HETRO are simplicity, openness, trust and

informality, respecting and accepting people as individuals. Allowing HETRO to

concretely assert that its ultimate focus is customer delight, without fear of the

pitfalls of cliché. This focus is based on a positive attitude to business that takes a

long-term view of any situation.

Plant Locations:

Pharmacy Division _ Kothur , Mahaboobnagar dist

Pharmacy Division – Parenterals , Nagarjunasagar

Chemical Division _ Mekaguda , Mahaboobnagar dist

Chemical - R&D Division _ Sanathnagar, Hyderabad

Board of Directors

Sri. V.C. Nannapaneni : Chairman & managing Director.

Dr. K.U. Mada : Director ( Till 30 th NOV 2005)

Sri G.S. Murthy : Director

Dr. B.S. Bajaj : Director

74
O R G A N I S A T I O N A L H I E R

D I R E C T O R F I N A N C

G E N E R AD LE PM UA TN Y A MG AE RN A

E X E C U TE IXV EE CS U & T IS V T E A S F F&

Dr. M. Rami Reddy : Director

Smt Durga Devi Nannapaneni : Whole Time Director

Dr.P. kadgaPathi : Director & Executive vice President

(Tech ) ( Till 31st December , 2005 )

Sri Rajeev Nannapaneni : Director & Chief Operating officer

( W.e.f 30th Nov 2005)

Sri. P. Bhaskara Narayana : Director & Chief Financial officer,

(W.e.f 30th Nov 2005)

Sri. Mukul Sarkar : Director - Export – Import Bank of

India Nominee ( w.e.f 30th December

, 2005)

Dr. Jasti Sambasiva Rao : Director ( W.e.f 20th April 2006)

75
 MARKETING SYSTEM OF HETRO
O R G A N I S A T I O N A L
GENERAL MANAGER
MARKETING
C H A I R M A N A N D M A N
NATIONAL SALES
MANAGER

D I R E C T O R T E C H N
REGIONAL MANAGER

SOUTH C H I E F O P E R A T I N

V I C E P R E S I D E N T
AREA DEVELOPMENT
EXECUTIVES
D I R E C T O R F I N A
BUSINESS DEVELOPMENT
G E NEXECUTIVES
E R A L M A N A G E R

G E N E R A L M A N A G

G E N E R A L M A N G E

G E N E R A L M A N A G E R

S E N I O R M A N A G E

M A N A G E R - H R A

M A N A G E R P P I C
76
REGIONAL MANAGER REGIONAL MANAGER REGIONAL MANAGER
NORTH
WEST EAST

77
The marketing Department takes over from the 2nd stage i.e., from the carry and

forward agents and then carry on with their jobs.

HETRO makes its drugs through the business development executives

(BDE’s). The executives meet doctors on a regular basis and market their

products. Thus HETRO follows the concept of Direct Marketing to a large

extent though end users cannot be met directly.

78
 CHAPTER-IV
RATIO ANALYSIS
Several ratios, calculated from the accounting date, can be grouped into various classes

according to financial activity or function to be evaluated. As stated earlier, the parties

interested in financial analysis are short and long-term creditors, owners and

management.

“Short-term creditors” main interest is in the liquidity position or the short-term solvency

of the firm. Long-term creditors, on the other hand, and more interested in the long-term

solvency and profitability of the firm. Similarly, owners concentrate on the firms

profitability and financial condition. Management is interested on in evaluating every

aspect of the firms performance. They have to protect the interests of all parties and see

that the firm grows profitably. In view of the requirements of the various users of ratios,

we may classify them into the following four important categories.

Types of Ratio:

 Liquidity Ratios

 Leverage Ratios

 Activity Ratios

 Profitability Ratios

I) Liquidity Ratio:

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

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

So, the liquidity ratios study the firm’s short-term solvency and its ability to pay off the

liabilities.

79
 Current Ratio:

Current ratio is the ratio of current assets and current liabilities. Current Assets are assets

which can be covered into cash within one year and include cash in hand and at bank,

bills receivable, net sundry debtors, stock of raw materials, finished goods and work in

progress, prepaid expenses, outstanding and occurred incomes, and short term or

temporary investments. Current liabilities are liabilities, which are to be repaid within a

period of 1 year and include Bills payable, Sundry Creditors, Bank Overdraft,

Outstanding Expenses, Incomes received in advanced, proposed dividend, provision for

taxation, unclaimed dividends and short term loans and advances repayable within 1 year.

Current Assets
Current Ratio= -------------------
Current Liabilities
A Current ratio of 2:1 is considered as ideal: if a business has an undertaking with its
bankers to meet its working capital requirements short notices, a current ratio of is
adequate.

2. Quick Ratio :

Quick Assets
Quick Ratio = ------------------------
Quick Liabilities

A quick ratio of 1 is considered as ideal. A quick ratio of less than 1 is indicative of

inadequate liquidity of the business. A very high quick ratio is also not available, as funds

can be more profitably employed.

80
 3. Absolute Liquid Ratio

It is the ratio of Absolute Liquid Assets to Quick Liabilities. However, for

calculation purposes, it is taken as ratio of Absolute Liquid Assets of Current

Liabilities. Trade investment or Marketable securities are equivalent of cash

therefore, they may be included in the computation of absolute liquid ratio.

Absolute Liquid Assets

Absolute Quick Ratio = -------------------------------------
Current Liabilities

I) Leverage Ratios:

Leverage ratios indicate the relative interest of owners and creditors in a business. It

shows the proportions of debt and equity in financing the firm’s assets the long-term

solvency of a firm can be examined by using leverage ratios. The long-term creditors

like debenture holders, financial institutions etc., are more concerned with the firms long-

term financial strength.

There are two aspects of the long-term solvency of a firm

1) Ability to repay the principal when due, and

2) Regular payment of the interest they leverage ratio are calculated to measure

the financial rest and firms abilities of using debt.

81
 1) TOTAL DEBT RATIO:

Total debt will include short and long-term borrowings from financial institutions

debentures bonds. Capital employed will include total debt and net worth.

The firm may be interested in knowing the proportion of the interest bearing debt in the

capital structure by calculating total debt ratio. A highly debt burdened firm will find

difficulty in raising funds from creditors and owners in future. Creditors treat the

owner’s equities as a margin of safety.

Total Debt
Total Ratio = --------------------
Capital Employed

2) DEBT-EQUITY RATIO:

It reflects the relative claims of creditors and shareholders against the assets of the

business. Debt, usually, refers to long-term liabilities. Equity includes preference share

capital and reserves.

The relationship describing the lenders contribution for each refers of the owner’s

contribution is called debt equity ratio. A high ratio shows a large share of financing by

the creditors relatively to the owners and therefore, larger claim against the assets of the

firm. A low ratio implies a smaller claim of creditors. The debt equity indicates the

margin of satisfy to the creditors so, there is no doubt the Beth High and Low debt equity

ratios are not desirable. What is needed is a ratio, which strikes a proper balance between

debt and equity.

82
 Total Debt
Debt-Equity Ratio = ----------------------
Net worth

Some financial experts opine that ‘debt’ should include current liabilities also.

However, this is not a popular practice. In case of preference share capital, it is

treated as a part of shareholders funds, but if the preference shares are redeemable,

they are taken as a part of long-term debt shareholder funds are also known as

proprietor funds and it includes items equity share capital, reserves, and surplus. A

debt equity ratio of 3:1 is considered ideal.

3. PROPRIETORY RATIOS:

It expresses the relationship between net worth and total assets.

Net worth
Property ratio = ----------------------------
Total Assets

Net worth = Equity share capital + Preference share capital + reserves – Fictitious

assets.

Total Assets = Fixed assets + current assets (excluding fictitious assets)

Reserves earmarked specifically for a particular purpose should not be included in

calculation of net worth.

A high proprietor’s ratio is indicative of strong financial position of the business. The

higher the ratio, the better it is.

83
 4. FIXED ASSETS RATIO:

Fixed Assets
Fixed Assets = -------------------------
Capital employed

Capital employed – Equity share capital + preference share capital + Reserves + long

term liabilities – Fictitious assets.

This ratio indicates the mode of financing the fixed assets. A financially well-

managed company will have its fixed assets financed by long-term funds. Therefore,

the fixed assets ratio should never be more than

1. A ratio of 0.67 is considered idea

5. INTEREST COVERAGE RATIOS:

This interest coverage ratio is computed by dividing earnings before interests and taxed

by interest charges.

Debt
Interest Coverage Ratio = ------------------
Interest

The interest coverage ratio shows the number of times the interest charges are

covered by funds that are or demurely available for their payment. A high ratio is

desirable but too high ratio indicates that the firm is very conservative in using debt and

that is not using credit to the debt advantage of shareholder. A lower ratio indicates

excessive use of debt or inefficiency operations. The firm should make efforts to improve

the operating efficiency or to retire debt to have a comfortable coverage ratio.

84
 III. ACTIVITY RATIOS:

Activity ratios measure the efficiency or effectiveness with which a firm manages

its resources or assets. They calculate the speed with which various assets, in which

funds are blocked up, get converted into sales.

1) TOTAL ASSETS TURNOVER RATIOS:

The assets turnover ratio, measures the efficiency of a firm in managing and utilizing its

assets. The higher the turnover ratio, the more efficiency the management and utilization

of the assets while low turnover ratio is indicative of under-utilization of available

resources and presence idle capacity. The total assets turnover ratio is computed by

dividing sales by total assets.

Sales
Total assets turn over ratio = ------------------
Total Assets

2) WORKING CAPITAL TURNOVER RATIOS:

Cost of goods sold

Working capital turnover ratio = -----------------------------
Working Capital

Where if cost of goods sold is known. Net sales can be taken in the numerator.

Working capital = Current Assets – Current liabilities.

A high working capital turnover ratio indicates efficiency utilization of the firm’s

funds. However, it should not result in overtrading.

85
 3) DEBTORS TURNOER RATIO:

Debtor’s turnover ratio expresses the relationship between debtors and sales. It is

calculated.

Net credit sales

Debtors Turnover Ratio = -------------------------
Average debtors

Net credit sales inspire credit sales after adjusting for sales returns. In case

information no credit sale is not available. “Sales” can be taken in the numerator.

Debtors include bills receivable. Debtors should be taken at Gross Value, without

adjusting provisions for bad debts. In case, average debtors can’t be found; closing

balance of debtors should be taken in the denominator. A high debtors turnover ratio

or a low debt collection period is indicative of a sound credit management policy. A

debtors turnover collection period of 30-36 days is considered ideal.

1. DEBT COLLECTION PERIOD:

The debt collection period measures the quality of debtors since it indicates the speed of

the collection. The shorter the average collection period implies the prompt payment by

debtors.

No. of days year

Debt collection period = ---------------------------
Debt collection Period

An excessively long collection period implies a very liberal and inefficient

credit and collection performance. This certainly delays the collection of each and

impairs the firm’s liquidity. The average no. of days for which debtors remain

outstanding is called debt collection period or average collection period.

86
2. CREDITORS TURNOVER RATIO:

Creditors turnover ratio expresses the relationship between creditors and purchases.

Net Credit Purchase

Creditors turnover Ratio = -------------------------------
Average Creditors
Net credit purchases imply credit purchases after adjusting for purchases returns. In case

information on credit purchases is not available purchase may be taken in the numerator.

Creditors include bills payable. In case avenue creditors can’t be found, closing balance

of creditors should be taken in the denominator.

The creditors turnover ratio is 12 or more. However, very less creditors turnover

ratio, or a high debt payment period, may indicate the firm’s inability in meeting its

obligations in time.

3. PAYMENT PERIOD RATIO:

Credit turnover rate can also be expressed in terms of number of days taken by the

business to pay off its debts. It is termed as debt payment period which is calculated as:

Number of days in a year

Payment Period Ratio= --------------------------------
Creditors turnover ratio

4. FIXED ASSETS TURNOVER RATIO : It is defined as

Net Sales
Fixed Assets Turnover Ratio= -----------------
Fixed Assets
Fixed assets imply net fixed assets i.e. after depreciation. A high fixed

assets turnover ratio indicates better utilization of the firm’s fixed assets. A ratio

around 5 is considered ideal.

87
 5. INVENTORY TURNOVER RATIO :

Stock turnover ratio indicates the number of times the stock has turned over into sale sin

the year. It is calculated as

Cost of good sold

Inventory Turnover Ratio= --------------------------------
Average Inventory

Cost of goods sold = Sales Gross Profit

Average Stock = (Opening stock and closing stock ½)

In case, information regarding cost of goods sold is not known. Sales may be

taken in the numerator. Similarly, if average stock can’t be calculated, closing stock

should be taken in the denominator.

A stock turnover ratio of ‘8’ is considered ideal. A high stock turnover ratio indicates

that the stocks are fast moving and get converted into sales quickly. However, it may

also be on account of holding low amount of stocks and replenishing stocks in larger

number of installments.

IV. PROFITABILITY RATIO:

It measures the overall performance and effectiveness of the firm. Poor

operational performance may indicate poor sales and hence poor profits. A lower

profitability may arise due to the lack of control over the expenses. Bankers, financial

institutions and other creditors look at the profitability’s. Ratio as an indicator whether or

not the firm earns substantially more than it pays interest for the use of borrowed funds

and whether the ultimate repayment of their debt appear reasonably certain owner are

88
interested to know the profitability as it indicates the return which they can get on this

instruments.

Profitability ratios measure the profitability of a concern generally. They are

calculated either in relation to sales or in relation to investment.

1). NET PROFIT RATIO:

It indicates the result of the overall operation of the firm.

The higher the ratio, per profitable is the business. The net profit ratio is

reassured by dividing net profit buy sales. The net profit ratio indicates management

efficiency in manufacturing administrating and selling the products. This ratio is the

overall firm’s ability to turn each rupee of sale into net profit. If the net profit margin

is inadequate, the firm fails to achieve satisfactory return on shareholder’s funds.

Profit After Tax

Net Profit Ratio = --------------------------
Net Sales

A firm with high net profit margin can make better use of favorable conditions.

Such as rising selling prices, falling cost of products or increasing demand for the

product. Such a firm will be able to accelerate its profits at a faster rate than a firm

with a low net profit margin. This ratio also indicates the firm capacity to withstand

adverse economic conditions.

89
2). RETURN ON NET WORTH RATIO:

It indicates the return, which the shareholders are earning on their resources

invested in the business.

Profit after tax

Return on net worth ratio = ----------------------------
Net Wroth

Net worth = Shareholders funds = Equity share capital + Preference share capital +

Reserves – Factious Assets.

The higher the ratio, the better it is for the shareholders. However, inter firm

comparisons should be made to ascertain if the returns from the company are

adequate. A trend analysis of the ratio over the past few years much is done to find

out the growth or deterioration in the profitability of the business.

3). RETURN ON ASSETS RATIO: It is calculated as:

Profit after tax

Return on assets ratio = --------------------------
Total Assets

Total assets do not include fictitious assets. The higher the ratio, the better it is.

90
 4). EARNINGS PER SHARE RATIO:

Earnings per share are the net profit after tax and preferences dividend, which is earned

on the capital representative of one equity share. It calculated as:

Profit after tax available to equity holders

Earning per share ratio = --------------------------------------------------------------
Number of ordinary share

The higher the EPS, the better is the performance of the company. The

EPS is one of the diving factors in investment analysis and perhaps the most widely

calculated ratio amongst all ratios used for financial analysis.

91
 DATA ANALAYSIS & INTERPRETATION

CHANGES IN WORKING CAPITAL STATEMENT

For the year ended 31st March 2005

Rs. LAKHS
PARTICULARS 2004 2005 Increase Decrease
Current Assets
Inventories 18054.29 17765.50 - 188.79
Sundry Debtors 53232.07 39797.99 6565.92 -
Cash & Bank 4246.65 4880.31 633.66 -
Loans &
41147.20 45547.83 4400.63 -
Advances
Total (A) 96680.21 107991.63 11600.21 288079
Current
Liabilities
Creditors 11483.81 13863.48 - 1879.67
Unclaimed
644.18 871.06 - 226.88
dividend
Deposits 4149.11 4498.28 - 349.17
Interest accrued
but not due on 2268.17 4369.79 - 2101.62
loans
Provision per
4202.15 - 4202.15 -
dividend
Provision for tax 3461.80 3854.06 - 392.26
Total (B) 26209.22 26956.67 4202.15 4949.60
A – B working
70470.99 81034.96 15802.36 5238.39
capital
Increase in
- 10563.97
Working capital
TOTAL 81034.96 81034.96 15802.36 15802.36

CHANGES IN WORKING CAPITAL STATEMENT

For the year ended 31st March 2006
Rs. LAKHS

92
PARTICULARS 2005 2006 INCREASE DECREASE
Current Assets:
Inventories 17765.50 18198.78 433.28 -
Sundry Debtors 39797.99 51608.54 11810.55 -
Cash & Bank 4880.31 5851.53 971.22 -
Loans &
45547.83 46522.47 974.64 -
Advance
Total (A) 107991.63 122181.32 14189.69 -
Current
Liabilities:
Creditors 13363.48 9784.48 3579.00 -
Unclaimed
871.06 699.14 191.92 -
dividend
Deposits 4498.28 4394.61 103.67 -
Interest
occurred but not 4369.79 1278.33 3091.46 -
due on loans
Provision per
3854.06 179.28 3674.78 -
income tax
Total (B) 26956.67 16335.84 10620.83 -
A – B (Working
81034.96 105845.48 24810.52 -
Capital)
Increase in
Working 24810.52 24810.52
Capital
TOTAL 105845.48 105845 24810.52 24810.52

CHANGES IN WORKING CAPITAL STATEMENT

For the year ended 31st March, 2007
Rs. LAKHS
PARTICULARS 2006 2007 INCREASE DECREAES
Current Assets:
Inventories 18198.78 18342.69 143.91 -
Sundry Debtors 51608.54 36945.10 - 14663.38

93
Cash & Bank 5351.53 1932.37 - 2129.75
Loan &
46522.47 44392.72 3919.16 2129.75
advances
Total (A) 122181.32 101612.94 143.91 20712.29
Current
Liabilities:
Creditors 9784.48 6995.84 2788.64 -
Unclaimed
699.14 692.26 6.88 -
dividend
Deposits 4394.61 1196.25 3198.36 -
Interest
occurred but not 1278.33 3503.19 - 2224.86
due on loans
Provision for tax 179.28 - 179.28 -
Total 16335.84 12387.54 6173.16 2234.86
A.B. (WC) 105845.48 89225.40 6317.07 22937.15
Increase in
- 16620.08 16620.08 -
Working capital
Total 105845.88 105845.88 22937.15 22937.15

94
 CHANGES IN THE WORKING CAPITAL STATEMENT
FOR THE YEAR ENDED 31st MARCH 2008

Rs. LAKHS
PARTICULARS 2007 2008 INCREASE DECREASE

Current assets

Inventories 18342.69 6157.47 - 12185.22

Debtors 36945.16 35383.91 - 1561.25
Cash & Bank 1932.37 1463.99 - 468.38
Loans & Advances 44392.72 44816.83 424.11 -
Total Current Assets
(A) 101612.94 87822.20 424.11 14214.85

Current Liabilities

Sundry Creditors 3.12 2.91 0.21 -

Small scale
industries 5929.73 4867.78 1062.95 -
undertakings
Others 692.26 575.33 116.93 -
Unclaimed dividend 241.79 139.05 102.74 -
Unclaimed fixed
deposits 378.36 365.20 13.16 -

Debentures 72.96 54.80 18.16 -

Interest occurred on
above deposits 1196.25 807.21 389.04 -

Interest occurred
but not due on loans 3503.19 234.84 3268.35 -

Other liabilities 402.52 511.18 - 108.66

Provisions 238.74 224.21 14.53 -
Total Current
Liabilities (B) 12658.92 7782.51 4986.07 108.66

Working capital (A-

88954.02 80039.69 5410.29 14323.51
B)
Decrease in working
capital - 8914.33 8913.22 -

Total
88954.02 88954.02 14323.51 14323.51

95
 CHANGES IN WORKING CAPITAL STATEMENT
For the year ended 31st March 2009
Rs. LAKHS
PARTICULARS 2008 2009 INCREAE DECREASE
Current Assets
Inventories 6157.47 7620.13 1462.66 -
Sundry Debtors 3538.91 22170.64 - 13213.27
Cash & Bank 1463.99 1922.16 458.17 -
Loans &
62111.27 18163.62 - 43947.65
Advances
Total (A) 105116.64 49876.55 1920.83 57160.92
Current
Liabilities
Sundry
2.91 40.41 - 37.50
Creditors
Small scale
industrial under 4867.78 7086.42 - 2218.64
takings
others 575.33 441.83 133.5 -
Unclaimed 139.05 59.98 79.07 -
Unclaimed fixed
365.20 359.15 6.05 -
deposits
Unclaimed
54.80 30.86 23.94 -
debentures
Interest
occurred above 807.21 898.39 - 91.18
deposits
Other liabilities 511.18 195.78 315.4 -
Interest occurred
but not due on 234.84 262.87 - 28.03
loans & Deposits
Total (B) 7558.30 9375.30 557.96 2375.35
WC (A-B) 97558.34 40501.25 2478.79 59536.27
Decreased in
57087.09 57087.09 -
Working capital
TOTAL 97558.34 97558.34 59536.27 59536.27

96
 CHANGES IN WORKING CAPITAL STATEMENT
For the year ended 31st March 2010

Rs. LAKHS
PARTICULARS 2009 2010 INCREASE DECREASE
Current Assets
Investors 7620.13 5776.20 - 1843.98
Sundry Debtors 22170.64 31124.31 8953.67 -
Cash & Bank 1922.16 6084.00 4161.84 -
Loans & Advance 18163.62 24529.91 6366.29 -
Total (A) 49876.55 67514.42 194818 1843.93
Current
Liabilities
Sundry Creditors 40.41 2.99 37.42 -
Small Scale 7086.42 12898.27 - 5811.85
industrial
undertakings
Others 441.83 280.75 161.08 -
Unclaimed 59.98 46.80 13.18 -
dividend
Unclaimed fixed 359.15 - - -
deposits
Unclaimed 30.86 7.19 23.67 -
debentures
Interest occurred 898.39 1133.90 - 235.51
on above deposits
Other liabilities 195.78 180.98 14.8 -
Interest occurred 262.87 251.69 11.18 -
but not due on
loans/deposits
Total (B) 9375.69 14802.57 261.33 6047.36
40500.86 52711.85 19220.47 7891.29
WC (A-B)
Increase in WC 12210.99 - - 12210.99
TOTAL 52711.85 52711.57 19220.47 4220.47

1. LIQUIDITY RATIO:

Liquidity ratio measures the firm-ability to meant current obligations.

1. Current Ratio

97
 The current ratio is the measure of the firm short term solvency – it indicates the

availability of current assets in rupees every one rupees of current liability

Rs. Lakhs

Years Current assets (Rs) Current Liabilities (Rs) Current Ratio

2005-2006 122189.32 16174.32 7.55

2006-2007 101612.94 12387.54 8.20

2007-2008 87822.00 7782.51 11.28

2008-2009 49876.00 10070.92 4.95

2009-2010 6751.42 20151.82 3.35

12

10

6
Current
Ratio
4

0
2005-06 2006-07 2007-08 2008-09 2009-10

98
INTERPRETATION:

The ideal current ratio of current assets and current liabilities is 2:1

It is tremendous increase in current ratio from the year 2005-2006 to 2006-2007.

There is a decrease in the last two financial years 2008-2009, 2009-2010, which is good

for the organization.

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 QUICK RATIO:

2. Quick Ratio Establishes a relationship between quick or liquid or assets and current

liabilities.

Rs. Lakhs

Year Liquid (Rs) Current Liabilities (Rs) Ratio

2005-06 103982.54 16174.32 6.43

2006-07 83270.25 12387.54 6.72

2007-08 81664.73 7782.51 10.49

2008-09 42256.42 10070.92 4.20

2009-10 61738.22 20151.82 3.06

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 12

10

6 Quick Ratio

0
INTERPRETATION
2005-06 2006-07 2007-08 2008-09 2009-10

The quick ratio of the company is above idle norm i.e. 1:1

This ratio is in increasing trend its tremendous increase in quick ratio from the

year 2005-2006 to 2006-2007 there is a drastic decrease from the year 2007-2008 to

2009-2010 there is no stability in maintaining the quick assets and quick liabilities. But

the company is maintaining the norm and in a good position to meet its obligations.

101
3. ABSOLUTE LIQUID RATIO

Since cash it the most liquid asset, a financial analyst may examine cash ratio and

its equivalent to current liabilities Rs. Lakhs

Years Absolute liquid Current

Current Assets (Cash & Investment (Rs) Liabilities (Rs) Ratio

2005-06 76609.43 16174.32 4.74

2006-07 73420.47 12387.54 5.93

2007-08 72482.15 7782.51 9.31

2008-09 68366.05 10070.92 6.79

2009-10 73996.27 20151.82 3.07

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 10
9
8
7
6
5 Absolute Liquid Ratio

4
3
2
1
0
2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETATION

The ideal absolute liquid ratio of absolute liquid assets and current liabilities is

05:1

The company maintains increase in absolute liquid ratio in 2005-2006 to 2006-

2007. From the last two years 2008-2009, 2009-2010 it has been a down fall trend. It

indicates that the company is in a position to meet its obligations

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LEVERAGE RATIO
1. Debt equity ratio

This ratio shows the relationship between borrowed funds and owners capital

which is the popular measure of the long term financial solvency of the firm.

Rs. Lakhs

Years Total Debt (Rs) Net Worth (Rs) Ratio

2005-06 192966.82 88865.63 2.18

2006-07 184336.88 84145.42 2.19

2007-08 166411.79 85889.27 1.94

2008-09 149393.93 186697.26 0.80

2009-10 145327.45 184469.96 0.79

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 2.5

1.5
Debt Equity Ratio

0.5

0
INTERPRETATION
2005-06 2006-07 2007-08 2008-09 2009-10

A debt-equity ratio of 2:1 is considered as ideal. Previously company used to

maintaining a good debts equity.

From 2005-06 to 2007-08 the lenders contribution is more than the owners as well

as creditors to have faith on each other. Company used to maintain good debt equity,

now it has been slightly reduced, from the years 2008-09 to 2009-10,

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2. PROPRIETORY RATIO

The proportion of total assets collected through proprietors fund can be

understood from the ratio.

Rs. Lakhs

Years Net worth Total Assets Proprietary Ratio

(Rs) (Rs)

2005-06 88565.63 334592.07 0.26

2006-07 84145.42 313417.50 0.27

2007-08 85889.27 288065.30 0.30

2008-09 186697.26 377244.71 0.49

2009-10 184469.96 375385.13 0.49

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 0.5

0.4

0.3

0.2 Proprietor
y Ratio
0.1

0
20 20 20 20 20
05- 06- 07- 08- 09-
06 07 08 09 10
INTERPRETATION

The proprietor ratio is not around ideal norm 1:3 from the year 2005-2006 to 2010
it is an improvement from year by year. It indicates that less use of proprietary fund use
of debt funds in increasing asset structure of the firm. This situation shows good
solvency and suitable financial position of the company

III ACTIVITY RATIO

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 Activity ratios are employed evaluate the efficiency with which the firm managers

and utilizes it is assets. These ratios are also called turnover ratio because they indicates

the speed with which assets are being converted or turned into sales.

1. Total assets turnover Ratio

The assets turnover ratio shows the firms efficiency of utilizing firm’s assets to

maximize its sales Rs. Lakhs

Year Sales (Rs) Total Assets (Rs) Ratio

2005-06 104367.71 334592.07 0.31

2006-07 89985.09 313417.50 0.29

2007-08 107262.11 288065.30 0.37

2008-09 126638.97 377244.71 0.34

2009-10 145294.74 375385.13 0.39

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 0.4

0.35

0.3

0.25

0.2 Turnover Ratio

0.15

0.1

0.05

0
INTERPRETATION
2005-06 2006-07 2007-08 2008-09 2009-10

The increase in total assets may not be an indicator in ratio. But sales help in the

increase of the financial conditions of the organization. The assets turnover ratio shows

the firms efficiency of utilizing the assets to maximize its sales.

There is an increased position in the assets ratio’s from the years 2005-2006 to

2009-2010. It shows the effective utilization of assets according to the requirement. The

organization’s financial position is good overall. It is maintaining stability in the ratio of

total assets.

109
2. Working Capital Turnover Ratio
A firm may also like to relate net current (or) networking capital to sales.

Working capital determines the liquidity positions of the firm and measures the ability of

the firm to meet its current obligations.

Rs. Lakhs

Years Sales Working Capital Ratio

(Rs) (CA – CL)(Rs)

2005-06 104867.71 106007.00 0.98

2006-07 89985.09 89225.40 1.01

2007-08 107262.11 80039.69 1.34

2008-09 126638.97 39805.63 3.18

2009-10 145294.74 47362.60 3.07

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 3.5

2.5

2
Working
1.5 Capital Ratio

0.5

0
2005-06 2006-07 2007-08 2008-09 2009-10
INTERPRETATION

The working capital ideal norm is 0.75.

The ratios are good as per standard norm when we compared above years. The

trend indicates that the company is able to generate its finances with out side borrowings

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3. Fixed assets turn over ratio

It is used to measure the marginal efficiency which the firm has utilized its

investments in fixed assets and its overall activities. It indicates the generation of the

sales for per rupee invested in fixed assets. Rs.

Lakhs

Year Sales Net Fixed Assets Fixed Asset

(Rs) ( Rs) Turnover Ratio

2005-06 104367.71 141496.69 0.74

2006-07 89985.09 140816.46 0.64

2007-08 107262.11 129224.94 0.83

2008-09 126688.97 260924.27 0.49

2009-10 145294.74 239958.44 0.61

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 0.9

0.8

0.7

0.6

0.5
Fixed Assets
0.4 Turnover

0.3

0.2

0.1

0
2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETATION

The fixed assets turnover ratio of around 0.5 is considered ideal.

From the year 2005-2006 to 2008-2009, the ratio was improved and in 2009-2010

the fixed assets turnover ratio slightly reduced when compared to previous years. The

fixed assets turnover ratio has increased in 2009-2010

A high assets turnover ratio indicates better utilization of the firm’s fixed assets.

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IV Profitability ratio

The profitability ratio measures the profitability or the operational efficiency of

the firm. These ratios reflect the finance result of business operations. The result of the

firm can be evaluated in terms of its earnings with reference to given level of assets or

owners interest etc.

Net Profit Ratio

The net profit ratio indicates the overall measure of the firm’s ability to turn each

rupee sales in to net profit.

Rs. Lakhs

Year Profit after tax sales Net profit ratio

(Rs) (Rs)

2005-06 969.78 10268.81 0.01

2006-07 Nil 89985.09 Nil

2007-08 Nil 107262.11 Nil

2008-09 2952.70 107262.11 0.02

2009-10 6685.20 145294.74 0.04

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 0.04

0.035

0.03

0.025

0.02 Ratio

0.015

0.01

0.005

0
INTERPRETATION
2005-06 2006-07 2007-08 2008-09 2009-10
The higher the ratio, the more profitable is the business. A high net profit margin

would ensure adequate return to the owners of an organization.

From the year 2005-06 has increased position and 2006-07 and 2007-08 the net

profit ratio decreased to nil. From the year 2008-09 has increased position in net profit

ratio. In 2009-10, the net profit ratio has increased with regard to net profit.

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II. EARNINGS PER SHARE

The profitability of the common share holders investment can also be measured

many other ways earning per share shows the profitability of the firm per share. Share

basis it measures the profit available to the equity shares holders on a share base the

amount that they can get on every share held.

Rs. Lakhs

Year Profit after Tax No of ordinary earning per

(Rs) Shares (Rs) share ratio

2005-06 969.78 4170.20 0.23

2006-07 Nil 4170.20 Nil

2007-08 Nil 4170.20 Nil

2008-09 2952.70 4281.81 0.70

2009-10 6685.20 4281.81 1.56

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 1.6

1.4

1.2

0.8 Earning per

share
0.6

0.4

0.2

0
2005-06 2006-07 2007-08 2008-09 2009-10
INTEPRETATRION

The earnings per share was zero the year 2006-07 to 2007-08. From the year 2008-09,

2009-10 has been increasing position.

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 FINDINGS
1. During the all years, the current ratio of the company is above the standard norm
of 2:1 the highest current ratio is raised in 3.69 in 2003-2004 to 11.28 in 2009-
2010
2. The quick ratio of the company is also above the standard norm of 1:1 the highest
quick ratio 6:72 in the year raised in 2007-08 to 10.49
3. In the company lenders have contributed more funds than owners. This is the
reason that the company has paid high interest to the borrowers.
4. The company has a high number of equity shares and its E P S is less even
through the company obtained higher profits.
5. The decrease in the value of earnings per share may tend to decrease in the share
holders equity.
6. The HETERO has so far under the marketing seed programming successfully
distributed more than 1.5 million tonne of Urea.
7. Fertilizer product comes under Essential Commodities Act. Hence the
Government of India fixes the market price.
8. Delayed payment from debtors and large inventory conversion period adversely
affect the company
9. Company is providing sufficient welfare facilities to their employees like
transportation, canteen, housing loan facilities and school.
10. HETERO obtained cheaper financial resources than previous years.
11. The HETERO Drugs Ltd stands 4th Rank in the world not only in terms of
production but also in consumption of nitrogen and phosphate nutrients.
12. HETERO contains 700 Acres of green belt .

118
 SUGGESTIONS
1. The company has to take measures like decreasing the cost of production utilizing
its assets effectively in order to increase return on investment and utilize the plant
and machinery efficiently
2. The company should sell Urea on the basis of cash due to high demand in market
also reduce the collection period.
3. Proper measures should be taken to decrease the inventory conversion period.
4. The company can gain more profits if it can get cheaper source of finance by
decreasing its interest component. Financing Source of the Company: IDBI,
IFCI, IFCI, ICICI, UTI, LIC AND GIC etc..,
5. The company should change its pesticides credit policy to increase the pesticides
sales. Thereby collection form debtors will be vary fast.
6. The company has to liberalize the credit sales policy to increase the sales of the
company particularly in un-season.
7. The company should manage its investments effectively. The company is not
getting good return on unquoted and quoted investments.
8. The inventory Turnover Ratio, Average Collection period has been increasing
from previous year.
9. The Debtors Turnover Ratio, payment Period Ratio decreased from previous year.
It is not good sign to the company.

119
 BIBLIOGRAPHY

 FINANCIAL MANAGEMENT - I. M. PANDEY

 FINANCIAL MANAGEMENT - KHAN & JAIN

 FINANCIAL MANAGEMENT - PRASANNA

CHANDRA

 FINANCIAL MANAGEMENT - S.P.JAIN & K. NARANG

ICFAI journal of financial management

The management accountant by ICWAI

Annual reports of the company

Reports of:

Joint Plant Committee-SAIL

IISI: Indian Iron and Steel Industry

WEBSITES: WWW.SAIL.COM

WWW.GOI.ORG

WWW.ICAI.ORG

WWW.MYICWAI.COM

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