PROJECT REPORT

ON

Industrial Visit to Cipla, Sikkim

Submitted by:

Arnab Bhattacharjee (14DM052)

Astha Mehra (14DM054)

Avantika Mittal (14DM055)

Bhavika Sharma (14DM060)

Biprajit Goswami (14DM062)

Bunny Garg (14DM063)

Chaitali Batra (14DM064)

Saumyadeep Chakraborty (14DM188)

Sayan Ghosh (14DM190)

i

ACKNOWLEDGEMENT

We are highly thankful to Prof. Ashok Malhota, Chairperson, Centre for Business

Management for organizing the explicit visit to the Cipla manufacturing plant in Sikkim,

Gangtok.

A special token of thanks to Asst. Prof. Gagan Katiyar who continuously guiding and

mentoring us during the industrial visit and Asst. Prof. Eugene Reuben, Ms. Meenakshi

Bhat and Sir Vijay Kumar for their constant supervision as well as for providing necessary

arrangements during the industrial visit.

We would like to express special gratitude towards the employees and workers at Cipla

Sikkim for their hospitality and providing us with all the necessary information regarding the

manufacturing processes at the plant.

At last, we would also like to thank the tour operators for planning the trip and appreciate our

colleague in developing the project who willingly helped us with their abilities.

ii

CONTENTS

Sl. No. Particulars Page

1 INTRODUCTION 1

Indian Pharmaceutical Sector 1 2 OVERVIEW OF THE COMPANY 3

History 3 Milestones 4 Competitive Positioning 4 3 PRODUCT PROFILE 6

Pharmaceuticals 6 Animal Healthcare products 6 4 PLANT LAYOUT 8

General requirements 8 Manufacturing 10 Quality Control 11 Packaging 12 5 FINANCIAL STATUS 13

Profit and Loss account 13 Balance Sheet 14 Ratios 15 6 SUPPLY CHAIN PRACTICE FOR EFFICIENCY 19

Typical supply chain structure 19 7 PRODUCT PROMOTION AND DISTRIBUTION

STRATEGIES

20

Distribution in India 21 Replenishment Model 23 Forecasting Model 23 Sales force structure 24 Sales force selling practices 24 8 HR PRACTICES 25

9 MOST IMPORTANT OBSERVATION OF THE VISIT 26

Quality Assurance 26 10 LEARNING OUTCOME FROM THE VISIT 28

11 SETTING UP AN ENTERPRISE IN A TAX HOLIDAY

ZONE

29

Conditions to be satisfied 30 Amount of deduction general provisions 30 Period and rate of deduction 31 Transfer under a scheme of amalgamation or

demerger

31

12 REFERENCES 33

1

INTRODUCTION

Pharmaceutical is an aggregation of Active substances and basic pharmaceutical products and

Medicaments, vaccines and other preparations. It consists of the following categories:

Active Substances and Basic Pharmaceutical Products This category includes production of medicinally active substances to be used for

their pharmacological properties in the manufacture of medicaments, processing of blood,

manufacture of chemically pure sugars, processing of glands and manufacture of extracts of

glands, etc.

Medicaments, Vaccines and Other Preparations This category includes manufacture of pharmaceutical preparations: antisera and other

blood fractions, vaccines, diverse medicaments, including homeopathic preparations,

manufacture of chemical contraceptive products for external use and hormonal contraceptive

medicaments, dental fillings and bone reconstruction cements, medical impregnated wadding,

gauze, bandages, dressings, surgical gut string, etc.

Indian Pharmaceutical Sector

The Pharmaceutical industry in India is the world's third-largest in terms of volume.

According to Department of Pharmaceuticals of the Indian Ministry of Chemicals and

Fertilizers, the total turnover of India's pharmaceuticals industry between 2008 and

September 2009 was US$21.04 billion. While the domestic market was worth US$12.26

billion. The industry holds a market share of $14 billion in the United States.

According to India Brand Equity Foundation, the Indian pharmaceutical market is likely

to grow at a compound annual growth rate (CAGR) of 14-17 per cent in between 2012-

16. India is now among the top five pharmaceutical emerging markets of the world.

Indian Pharmaceutical Industry has witnessed a robust growth over the past few years moving on from a turnover of approx. US $ 1 billion in 1990 to over US $ 20 billion

in 2010of which the export turnover is approximately US $ 8 billion.

Indian Pharmaceutical market is valued at 72069 crores INR in 2013, however growth has gone down to 9.8% from 16.6% in 2012.

In 2013, there were 4,655 pharmaceutical manufacturing plants in all of India, employing over 345 thousand workers.

It has shown tremendous progress in terms of infrastructure development, technology base creation and a wide range of products.

The country now ranks 3rd worldwide by volume of production and 10th by value thereby accounting for around 10% of world's production by volume and 1.5% by

value.

2

Globally, it ranks 4th in terms of generics production and 17th in terms of export value of bulk actives and dosage forms.

Indian exports are destined to more than 200 countries around the globe including highly regulated markets of US, West Europe, Japan and Australia.

The Indian pharmaceuticals market is largely dominated by branded generics as they make up around 80% of total sales.

Medicaments, vaccines and other preparations accounted for 82% of total market size in 2012, while active substances and basic pharmaceutical products held the

remaining 18%, with this structure remaining constant throughout the review period.

India is the only country with largest number of US-FDA compliant plants (more than 100) outside USA.

There 793 WHO-GMP approved Pharma Plants, 153 European Directorate of Quality Medicines (EDQM) approved plants with modern state of Art Technology.

India is capable of manufacturing low cost generic alternatives due to a number of economic factors favoring the industry.

In 2013, there were 4,655 pharmaceutical manufacturing plants in all of India, employing

over 345 thousand workers.[The Top ten pharmaceutical companies in India according to

the sales revenue in 2012 as per the reports of Corporate Catalyst India (CCI) are as

follows:

S.No. Company Name Sales in INR billion (2012)

1 Cipla 69.77

2 Ranbaxy Lab 76.86

3 Dr Reddy's Labs 66.86

4 Sun Pharma 40.15

5 Lupin Ltd 53.64

6 Aurobindo Pharma 42.84

7 Jubiliant Pharma 26.41

8 Cadila Health 31.52

9 Ipca Labs 23.52

10 Wockhardt 26.5

Top 10 pharmaceutical companies in India

3

OVERVIEW OF THE COMPANY

Cipla was established in 1935 with the vision of making India self-reliant and self-sufficient

in healthcare. Today, Cipla is one of the worlds largest generic pharmaceutical companies with a presence in over 170 countries. Cipla is renowned for making affordable, world-class

medicines that meet the needs of patients across therapies. We also offer services like

consulting, commissioning, plant engineering, technical know-how transfer and support.

Corporate Office- Cipla Ltd., Mumbai Central, Mumbai 400 008, India

Chairman - Dr. Yusuf K. Hamied

Executive Vice

Chairman-

Mr. M.K. Hamied

Turnover* USD 1.5 billion

Approvals US FDA, WHO-Geneva, MHRA-UK, TGA-Australia, SUKL-Slovak

Republic, APVMA-Australia, MCC-South Africa, PIC-Germany,

Danish Medical Agency, ANVISA-Brazil, INVIMA- Colombia, NDA-

Uganda, Department of Health-Canada and MOH-Saudi Arabia, among

others

Highlights One of the worlds largest generic companies. Over 2,000 products, 65 therapeutic categories, over 40 dosage

forms.

34 state-of-the-art manufacturing facilities approved by major

international regulatory agencies.

Continuous innovation in R&D; over 20 world first

Table 2: Details about Cipla

The company has three manufacturing plants in India, in Goa, Bangalore and Sikkim. The

company is amongst the pioneers in the country in manufacturing prescription drugs at

cheaper prices, making them available for the masses. The company has a massive presence

across the world, and is amongst the leading exporters of pharmaceuticals and formulation

products to more than 170 countries, including the US, Latin America, the Middle East and

Europe.

History

Ciplas journey began in 1935 when Dr. K. A. Hamied, set up an enterprise with the vision to make India self-sufficient in healthcare. Cipla has 34 state-of-the-art manufacturing facilities

that make Active Pharmaceutical Ingredients (APIs) and formulations, which have been

approved by major international Regulatory Agencies. It has over 2000 products in 65

therapeutic categories; with over 40 dosage forms, covering a wide spectrum of diseases

4

ranging from communicable, non-communicable, common and emerging diseases to even

rare diseases. It has a strong presence in over 170 countries.

Milestones

In 1939, Mahatma Gandhi visited Cipla and inspired our to make essential medicines

for the country, and strive for self-sufficiency. During World War II, when India was

dependent on imported medicines and there was an alarming shortage of life-saving

drugs, it manufactured them for the country.

In the 1960s, Cipla pioneered API manufacturing in the country and helped lay the

foundation for the bulk drug industry in India.

In 1978, Cipla pioneered inhalation therapy in India with the manufacture of Metered-

Dose Inhaler (MDI), at a time when the country stopped receiving imported supplies.

Today, Cipla has the worlds largest range of inhaled medication and devices.

In 1994, Cipla launched Deferiprone, the worlds first oral iron chelator which revolutionized the treatment for thalassemia. For the first time patients with

thalassemia had an option that was affordable, painless and convenient.

In 2001, Cipla pioneered the access to HIV treatment by making antiretrovirals

(ARVs) available at less than a Dollar a Day'. The cost of treatment dramatically fell from $12,000 per patient per year to $300 per patient per year. This caused a

revolution where HIV treatment became a reality for the world and millions of lives

could be saved.

In 2012, it made a breakthrough in reducing the prices of cancer drugs, thus making

world-class medicines affordable and accessible to cancer patients.

Competitive Positioning

Cipla held a negligible value share in consumer health in 2012, and ranked 56th. Its

presence in consumer health is low, as the company is primarily involved in

prescription medicines.

The companys value sales witnessed growth in 2012, reaching Rs54 million, increasing from Rs50 million in 2011. This growth was because the company is one

of the only ones which manufacture OTC motion sickness remedies in India.

5

The company is in an emerging category in consumer health, as its product is one of

its kind in the Indian market, and OTC motion sickness remedies is still a niche

category in the country.

In consumer health the company has a narrow product portfolio. However, in

prescription medicines the company has a massive portfolio.

The company offers economically priced consumer health products and prescription

medicines in order to provide quality healthcare to the masses at low prices.

The company is an innovator, and consistently comes up with new drugs, especially

in prescription medicines.

6

PRODUCT PROFILE

Pharmaceuticals

The company is a leading domestic pharmaceutical major, has a product range comprising

antibiotics, anti-bacterial, anti-asthmatics, anthelmintics, anti-ulcerants, oncology,

corticosteroids, nutritional supplements and cardiovascular drugs. It is a leader in the anti-

bacterial and anti-asthmatic segments and is the first player in Asia to launch non-CFC

metered dose inhaler. Formulations contribute 84.1% (mainly sold in the domestic market)

and bulk drugs 15.9% (mostly exported). Among Cipla`s prominent brands are Ciplox

(market share 7.3%), Norflox (5.5%), Novamox (3.8%) and Asthalin-Inh (9.7 per cent).

DPCO coverage of Cipla is around 40%.

Animal Health Care Products

Cipla is largest exporter of veterinary pharmaceutical products in India, with its products

available now in over 100 countries. The company covers pretty much all animal groups from horses, canines and cats to livestock and poultry, and even aqua products but equine and companion animal care products continue to be its focus areas.

Cipla offers companion animals (dogs and cats) a wide range of products, which can be

classified broadly into six categories. Below is a peek into each of these categories:

1) Deworming: This includes the Triworm range of dewormering tablets that are meant to

tackle ascarids, hookworms, tapeworms and whipworms in dogs and cats. Triworm-D and

Triworm-D XL tablets are for dogs, while Triworm-C is for cats.

2) Flea and tick control: This category includes the Fiprotec range of tonics, formulated for

the prevention and treatment of flea and tick infestations on canines as well as cats.

3) Joint care: GCS-DOG powder, GCS-DOG OMEGA chews and GCS-DOG OMEGA

liquid help in managing the specific health requirements of dogs with degenerative joint

diseases, while GCS-CAT OMEGA gel does the same thing for cats.

4) Skin care: This category has the antiseptic Dermavet cream (which helps accelerate the

wound-healing process, whether the patient be a dog, cat or any other animal), Oticlear (ear-

cleansing solution for dogs and cats), Efazol (skin and coat care solution for dogs, containing

Omega-3 and Omega-6 essential fatty acids, among other things), and the Cipla band

(cohesive bandages for dogs, cats and horses, which come in various sizes).

5) Scheduled: This category contains the anti-inflammatory PETCAM oral suspension,

available in various sizes and for sundry animals.

6) Anxiety and stress: This one consists of the Calmeze range of anti-anxiety and -stress

pills, liquids and gels all meant to soothe the nerves of pets pooches and pussies.

7

In addition to the joint care, deworming, topical and scheduled categories, Cipla offers for its

equine consumers an additional category gastrointestinal. This includes the EQUISYLLIUM fibre, which assists in the management of sand colic and sand-associated

diarrhoea.

The above list is only but a small sample of veterinary products from the stable of Cipla. Just

like the other hundreds of products manufactured by the companys plants that are approved by international regulatory agencies, the ones for veterinary purposes are also affordable yet

world-class.

OTC: These include: child care products, eye care products, food supplements, health drinks,

life style products, nutraceuticals & tonics, skin care products, and oral hygiene products.

Flavour & Fragrance: Cipla manufactures a wide range of flavours, which are used in foods

and beverages, fruit juices, baked goods, and oral hygiene products. Cipla fragrances have

wide ranging applications such as in personal care products, laundry detergents and room

fresheners.

Products are available in 8 major formulations

Tablets- Ciplox500, Asthalin4, Theo Asthalin, AmlopressAP

Capsule- Urimax0.4,0.8, Velnar XR

Rotacap- Asthalin,Livolin,Aerocort,Cerobid

Aerosol- Asthalin,Aerocort

Hormonal Tablet and Capsule- Tibofen, Norloot-N, Danozen

Respule- Asthalin,Duolin,Budecort, Budesal

Eyedrop-Ciplox,Moxicit

Nasal Spray- Flomist, Metaspray, Furamist

Respiratory Solution- Asthalin,Budesal, Budecort

8

PLANT LAYOUT

The plant layout adheres to SCHEDULE M of central drugs standard control organization of

India and also the Current Good Manufacturing Practice (CGMPs) regulation for human

pharmaceuticals, enforced by the food and drugs administration of USA.

Schedule M specifies the general requirements of plant and equipments used for production

as well as on the area required for manufacture of various types of medicines such as oral

liquid preparations, tablets, powders, capsules. for e.g.- for capsules, a minimum area of

twenty-five square meters for basic installation and ten square meters for Ancillary area each

for penicillin and non-penicillin sections is recommended.

General requirements

Location and surroundings- The factory building(s) for manufacture of drugs shall be so

situated and shall have such measures as to avoid risk of contamination from external

environmental including open sewage, drain, public lavatory or any factory which product

disagreeable or obnoxious odour, fumes, excessive soot, dust, smoke, chemical or biological

emissions. 1.2. Building and premises.- The building(s) used for the factory shall be

designed, constructed, adapted and maintained to suit the manufacturing operations so as to

permit production of drugs under hygienic conditions. They shall conform to the conditions

laid down in the Factories Act, 1948 (63 of 1948)

The premises used for manufacturing, processing, warehousing, packaging labelling and

testing purposes shall be (I) compatible with other drug manufacturing operations that may be

carried out in the same or adjacent area / section; (ii) adequately provided with working space

to allow orderly and logical placement of equipment, materials and movement of personnel

so as to: (a) avoid the risk of mix-up between different categories of drugs or with raw

materials, intermediates and in-process material; (b) avoid the possibilities of contamination

and cross- contamination by providing suitable mechanism; (iii) designed / constructed /

maintained to prevent entry of insects, pests, birds, vermin, and rodents. Interior surface

(walls, floors and ceilings) shall be smooth and free from cracks, and permit easy cleaning,

painting and disinfection; (iv) air-conditioned, where prescribed for the operations and

dosage forms under production.

The production and dispensing areas shall be well lighted, effectively ventilated, with air

control facilities and may have proper Air Handling Units (wherever applicable) to maintain

conditions including temperature and, wherever necessary, humidity, as defined for the

relevant product. These conditions shall be appropriate to the category of drugs and nature of

the operation. These shall also be suitable to the comforts of the personnel working with

protective clothing, products handled, and operations undertaken within them in relation to

the external environment. These areas shall be regularly monitored for compliance with

required specifications; (v) provided with drainage system, as specified for the various

categories of products, which shall be of adequate size and so designed as to prevent back

9

flow and/or prevent insets and rodents entering the premises. Open channels shall be avoided

in manufacturing areas and, where provided, these shall be shallow to facilitate cleaning and

disinfection; (vi) The walls and floors of the areas where manufacture of drugs is carried out

shall be free from cracks and open joints to avoid accumulation of dust. These shall be

smooth, washable, covered and shall permit easy and effective cleaning and dis-infection.

The interior surfaces shall not shed particles. A periodical record of cleaning and painting of

the premises shall be maintained.

CGMP refers to the Current Good Manufacturing Practice regulations enforced by the US

Food and Drug Administration (FDA). CGMPs provide for systems that assure proper design,

monitoring, and control of manufacturing processes and facilities. Adherence to the CGMP

regulations assures the identity, strength, quality, and purity of drug products by requiring

that manufacturers of medications adequately control manufacturing operations. This

includes establishing strong quality management systems, obtaining appropriate quality raw

materials, establishing robust operating procedures, detecting and investigating product

quality deviations, and maintaining reliable testing laboratories. This formal system of

controls at a pharmaceutical company, if adequately put into practice, helps to prevent

instances of contamination, mix-ups, deviations, failures, and errors. This assures that drug

products meet their quality standards.

The CGMP requirements were established to be flexible in order to allow each manufacturer

to decide individually how to best implement the necessary controls by using scientifically

sound design, processing methods, and testing procedures. The flexibility in these regulations

allows companies to use modern technologies and innovative approaches to achieve higher

quality through continual improvement. Accordingly, the "C" in CGMP stands for "current,"

requiring companies to use technologies and systems that are up-to-date in order to comply

with the regulations. Systems and equipment that may have been "top-of-the-line" to prevent

contamination, mix-ups, and errors 10 or 20 years ago may be less than adequate by today's

standards

10

Manufacturing

Manufacturing process is as follows

Manufacturing Process

Major Instruments used in Production-

Compression Machine Autoclave Deduster Metal Detector Peristaltic pump, Blender, Shiftor, Rapid Mixer Granulator Coating Machine Diana Scan Measuring Apparatus DT Apparatus

Tablet Section

Rapid Mixer Granulator Coating Machine Tablet Counting Machine

Capsule Section

Filling Machine Printing Machine Polishing Machine Counting Machine

Procurement Testing Dispensing

Manufacturing

and filling

in process

testing

secondary

packaging

finished

product testing Batch release

Product

dispatch

11

Liquid Section

Homogenizer Filter Press Washing Machine Automatic Labelling Machine

Quality Control

All type of testing done in the Quality control (QC) Department of Pharmaceutical industries

are necessary as they plays an important role in defining the quality of products manufactured

in the pharmaceutical Industries. These different types of testing cited that whether the raw

materials & the water used in the manufacturing of the Pharmaceutical products is right to

use or not. Also plays an important role in determination of the different components of drugs

in right concentration. HPLC technique is used most widely for the testing. This book gives a

practical illustration of most of the Pharmaceutical Q.C. techniques followed in the labs

including microbial limit tests, determination of total microbial count (TMC), total bacterial

count (TBC), total fungal count (TFC), serial dilutions, tests for specified microbes,

biochemical tests, chromatographic techniques (HPLC, Ion exchange chromatography, size

exclusion chromatography, affinity chromatography etc.)

Cipla Quality Control Department at Sikkim has 4 major Sections-

Raw Materials section Instrument Section Finished Product Section Stability Section

Steps Involved-

The raw material which is bought from various companies is stored in the storage Department.

Sampling- A small portion of the sample is taken for quality control and transferred to the Raw Material section of QC department.

Assay- Analysis is done which involves physical as well as chemical tests. After Assay is done the sample is transferred to the Instrument Section which

involves the use of instruments like Gas Chromatography, Liquid Chromatography,

High Performance Liquid Chromatography (HPLC), DT Apparatus etc.

If the sample passes the test it goes to the Finished Product section after production or else it goes to the raw material section and the raw material is reversed.

After the final product is formed, it goes for packaging and thereafter it goes to the Stability Section to check the stability of the product.

12

Cipla uses state-of-the-art technology, the most stringent operating procedures, a highly motivated and technically competent team, highest standards of safety practices and environmentally green and clean processes.

The Cipla Quality benchmark is achieved by strict adherence to the following:

The state-of-the-art manufacturing facilities is cGMP compliant (current Good Manufacturing Practices) in conformity with national and international standards. They are equipped with hi-tech sophisticated machineries to achieve a high level of accuracy and precision.

The quality control laboratories have the latest high precision equipments that build quality at every stage of processing including inputs. Ciplahas a dedicated pool of talent who consistently ensure that the highest quality and safety standards are built into the products.

Cipla constantly upgrade the manufacturing facilities and adapt the technological innovations in facilities to consistently excel and produce high quality medicines at an affordable price.

Packaging

Pharmaceutical packaging and Labelling- It has to be carried out for the purpose of the safety

of the pharmaceutical preparations in order to keep them free from contamination, hinder

microbial growth, and ensure product safety through the intended shelf life for the

pharmaceuticals. Packaging is a critical tool in the pharmaceutical industry for product

delivery and regulatory compliance, many pharmaceutical companies will do all their

packaging within a contamination free environment or Cleanroom.

Package labelling is any written, electronic, or graphical communication on the package or on

a separate but associated label.

Types-

Blister packing Strip Pack Container Pack Aerosol Packing

Purpose-

Physical protection Barrier Protection Information Transmission Marketing Anti-Counterfeiting Packaging

http://en.wikipedia.org/wiki/Pharmaceutical_drughttp://en.wikipedia.org/wiki/Contaminationhttp://en.wikipedia.org/wiki/Microbialhttp://en.wikipedia.org/wiki/Shelf_lifehttp://en.wikipedia.org/wiki/Packaginghttp://en.wikipedia.org/wiki/Pharmaceutical_industryhttp://en.wikipedia.org/wiki/Label

13

FINANCIAL STATUS

There was no information given to us by the company officials of Cipla, Sikkim saying that it is

confidential information and they have no right to give such information to outsiders. But searching

on the internet, we found out some data relating to the same.

PROFIT & LOSS ACCOUNT

(Rs in Cr) Mar' 14 Mar' 13 Mar' 12 Mar' 11 Mar' 10

Income :

Operating Income 9,380.29 8,202.42 6,977.50 6,331.09 5,605.69

Expenses

Material Consumed 3,844.67 3,149.40 2,959.21 2,997.58 2,503.45

Manufacturing Expenses 191.84 211.17 211.32 183.65 351.82

Personnel Expenses 1,284.75 969.28 728.21 540.33 318.87

Selling Expenses 0 0 0 0 326.48

Administrative Expenses 2,069.50 1,753.43 1,496.90 1,288.83 724.14

Expenses Capitalized 0 0 0 0 0

Cost Of Sales 7,390.76 6,083.28 5,395.64 5,010.39 4,224.76

Operating Profit 1,989.53 2,119.14 1,581.86 1,320.70 1,380.93

Other Recurring Income 280.28 229.13 148.3 91.64 94.21

Adjusted PBDIT 2,269.81 2,348.27 1,730.16 1,412.34 1,475.14

Financial Expenses 127.86 33.38 26.63 12.92 28.3

Depreciation 323.61 303.03 282.07 248.03 165.25

Other Write offs 0 0 0 0 0

Adjusted PBT 1,818.34 2,011.86 1,421.46 1,151.39 1,281.59

Tax Charges 430 504.75 297.5 191 243.5

Adjusted PAT 1,388.34 1,507.11 1,123.96 960.39 1,038.09

Non Recurring Items 0 0 0 0 31.5

14

Other Non Cash adjustments 0 0 0 0 11.9

Reported Net Profit 1,388.34 1,507.11 1,123.96 960.39 1,081.49

Earnings Before Appropriation 5,657.84 4,617.37 3,421.89 2,659.46 2,036.32

Equity Dividend 133.29 133.29 134.53 188.09 160.58

Preference Dividend 0 0 0 0 0

Dividend Tax 27.29 27.29 26.05 36.72 26.67

Retained Earnings 5,497.26 4,456.79 3,261.31 2,434.65 1,849.07

From the above table we can see that the company is doing pretty well. The earnings before

appropriation have increases every year and so do the retained earnings.

The investors trust this company and are happy investing in this. The current share price is

737.85 and has increased by 1.81%.

BALANCE SHEET

(Rs in Cr)

Mar'

14

Mar'

13

Mar'

12

Mar'

11

Mar'

10

SOURCES OF FUNDS

Owners' Fund

Equity Share Capital 160.58 160.58 160.58 160.58 160.58

Share Application Money 0 0 0 0 0

Preference

Share Capital 0 0 0 0 0

Reserves & Surplus 9,931.06 8,708.94 7,389.70 6,452.37 5,744.54

Loan Funds

Secured Loans 0 9.49 10 2.95 0.41

Unsecured Loans 877.34 956.32 2.2 437.53 4.66

Total 10,968.98 9,835.33 7,562.48 7,053.43 5,910.19

USES OF FUNDS

15

Fixed Assets

Gross Block 5,394.36 4,983.81 4,298.18 3,928.47 2,895.44

Less: Revaluation Reserve 0 0 0 0 8.97

Less: Accumulated Depreciation 1,870.17 1,565.52 1,295.52 1,060.82 884.27

Net Block 3,524.19 3,418.29 3,002.66 2,867.65 2,002.20

Capital Work-in-progress 376.69 350.34 343.45 253.07 684.24

Investments 3,587.13 2,601.82 1,035.15 570.65 265.1

Net Current Assets

Current Assets, Loans & Advances 5,435.99 5,122.76 4,612.53 4,756.46 5,483.42

Less : Current Liabilities & Provisions 1,955.02 1,657.88 1,431.31 1,394.40 2,524.77

Total Net Current Assets 3,480.97 3,464.88 3,181.22 3,362.06 2,958.65

Miscellaneous Expenses not written 0 0 0 0 0

The company is having a large chunk of assets as well as sound owners funds which makes the trustworthy relationship with the investors.

RATIOS

Mar'

14

Mar'

13

Mar'

12

Mar'

11

Mar'

10

PER SHARE RATIOS

Adjusted E P S (Rs.) 17.29 18.77 14 11.96 12.93

Adjusted Cash EPS (Rs.) 21.32 22.54 17.51 15.05 14.99

16

Reported EPS (Rs.) 17.29 18.77 14 11.96 13.47

Reported Cash EPS (Rs.) 21.32 22.54 17.51 15.05 15.53

Dividend Per Share 2 2 2 2.8 2

Operating Profit Per Share (Rs.) 24.78 26.39 19.7 16.45 17.2

Book Value (Excl Rev Res) Per Share (Rs.) 125.69 110.47 94.04 82.36 73.55

Book Value (Incl Rev Res) Per Share (Rs.) 125.69 110.47 94.04 82.36 73.66

Net Operating Income Per Share (Rs.) 116.83 102.16 86.9 78.85 69.82

Free Reserves Per Share (Rs.) 0 0 0 0 71.54

PROFITABILITY RATIOS

Operating Margin (%) 21.2 25.83 22.67 20.86 24.63

Gross Profit Margin (%) 17.75 22.14 18.62 16.94 21.68

Net Profit Margin (%) 14.37 17.87 15.77 14.95 18.97

Adjusted Cash Margin (%) 17.72 21.46 19.73 18.81 21.11

Adjusted Return On Net Worth (%) 13.75 16.99 14.88 14.52 17.57

Reported Return On Net Worth (%) 13.75 16.99 14.88 14.52 18.31

17

Return On long Term Funds (%) 19.28 23.05 19.17 17.59 22.16

LEVERAGE RATIOS

Long Term Debt / Equity 0 0 0 0 0

Total Debt/Equity 0.08 0.1 0 0.06 0

Owners fund as % of total Source 92 90.18 99.83 93.75 99.91

Fixed Assets Turnover Ratio 0.9 0.94 0.95 0.97 1.94

LIQUIDITY RATIOS

Current Ratio 2.78 3.09 3.22 3.41 2.17

Current Ratio (Inc. ST Loans) 1.92 1.95 3.18 2.59 2.17

Quick Ratio 1.5 1.68 1.95 2.06 1.57

Inventory Turnover Ratio 3.74 3.5 3.82 3.36 4.18

PAYOUT RATIOS

Dividend payout Ratio (Net Profit) 11.56 10.65 14.28 23.4 17.31

Dividend payout Ratio (Cash Profit) 9.37 8.87 11.42 18.6 15.01

Earning Retention Ratio 88.44 89.35 85.72 76.6 81.97

Cash Earnings Retention Ratio 90.63 91.13 88.58 81.4 84.44

COVERAGE RATIOS

Adjusted Cash Flow Time Total Debt 0.51 0.53 0.01 0.36 0

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Financial Charges Coverage Ratio 17.75 70.35 64.97 109.31 52.13

Fin. Charges Cov.Ratio (Post Tax) 14.39 55.23 53.8 94.53 45.05

COMPONENT RATIOS

Material Cost Component(% earnings) 42.67 41.94 42.24 49.53 47.94

Selling Cost Component 0 0 0 0 5.82

Exports as percent of Total Sales 54.9 54.79 53.43 53.98 54.54

Import Comp. in Raw Mat. Consumed 53.16 39.71 38.68 41.02 43.85

Long term assets / Total Assets 0.57 0.55 0.48 0.43 0.34

Bonus Component In Equity Capital (%) 94.44 94.44 94.44 94.44 94.44

From the above ratio it is being seen that the company is paying a constant dividend of Rs 2 per share.

The profit of the company has also declined as compared to the previous year. Debt to equity ratio is also less than one so the company is in a sound position to

repay the debt.

The exports of the company have also increased as compared to the previous year because of the decline in the rupee value from time to time.

The company is having less number of long term assets as compared to the total assets.

19

SUPPLY CHAIN PRACTICE FOR EFFICIENCY

Based on the need of a drug in the market, found through market research, drugs are ordered

for manufacturing.

Drugs are ordered through authorized suppliers and most of raw materials are ordered after

auditing for quality is done by the suppliers themselves. This ensures that proper material is

used for the making of drugs.

To avoid contamination during supply, it is essential that drugs are supplied through proper

means. For this, CIPLA utilizes its own agency for safely supplying its various

manufacturing plants with the raw materials and also distributing the finished goods.

Typical Supply Chain Structure

20

PRODUCT PROMOTION AND DISTRIBUTION

STRATEGIES

Indian pharmaceutical industry is on a strong growth path with the total value of Indian

Pharma industry expected to reach almost $50 Billion by 2015-2016. Out of this close to 22

billion is expected to originate from the domestic formulation business. A key issue faced by

the industry is management of the supply chain. Supply chain in India is highly fragmented

with more than 550,000 retail pharmacies in the country. According to a report by bioplan

Associates, though the number of distributors have increased by 4 fold in the last three

decades, from 125,000 in 1978, the volume of prescriptions distributed have not increased

proportionally. Hence it is evident that though there is a growth in the number of distributors

and retail pharmacies, distribution is not very efficient. Also the rural markets remain highly

untapped.

Drug distribution in India has witnessed a paradigm shift. Before 1990, pharmaceutical

companies established their own depots and warehouses. Now they have been replaced by

clearing and forwarding agents (CFAs).

CFAs: These organizations are primarily responsible for maintaining storage of the

companys products and forwarding SKUs to the stockist on request. Most companies keep 13 CFAs in each Indian state. On an average, a company may work with a total of 2535 CFAs. The CFAs are paid by the company yearly, once or twice, on a basis of the percentage of total turnover of products.

Stockist: is the distributor, who can simultaneously handle more than one company

(usually, 515 depending on the city area), and may go up to even 3050 different manufacturers. They pay for the products directly in the name of the pharmaceutical

company after 30 to 45 days.

The retail pharmacy obtains products from the stockist or substockist through whom it

finally reaches the consumers (patients).

21

Typical Distribution Channel in India for Pharmaceutical products

Distribution in India

CFA Operations

Large drug manufacturers will have CFAs in almost every state in India. CFAs majorly help

manufacturers in providing reach for its products. They majorly facilitate in by passing the

state sales tax (CST- 4%). CFAs are just created to avoid local state taxes (they hardly take 1 or 2% margin). Mostly CFAs serve a single company. CFAs follow a stock transfer model

from the manufacturer and all invoices sent to the stockists are on the name of the

manufacturer itself. Based on the demand for their products they decide on how many

stockists to maintain in each district and further in talukas.

Cost of the distribution from manufacturing plant till the stockist is borne by the

manufacturer. Price to Stockist (PTS), Price to Retailers (PTR) are the terms used in the

industry.

Sub stockists would get the stock from stockists and operate on 8% commission till they

establish themselves as a big player and qualify for getting a stockist license from

manufacturers. Retailers get 15 20% margins based on type of drugs, generic/branded/price controlled and even more on counterfeit drugs.

22

Logistics providers transfer stock on per kilo basis, Rs. 5 per kilo etc. Logistics are managed

through cost effective means, local players who quotes lowest price. There are suppliers who

quote surprisingly low prices and operate by sending a person in public transport to deliver

the products.

Association of Druggists and Stockists in India

All India Organization of Chemists & Druggists (AIOCD) has over 5.5 Lac members from

retail chemists and pharma distributors/stockists. Stockist plays a very powerful role in the

pharma distribution in India. Companies cannot bypass stockists and sell directly to

institutions or retail chains. They may face a ban from the stockists and considering the

substitutes available for each molecule, companies cannot take the risk of losing the sales.

Retail Pharmacy Chains

Organized pharmacy retail sales in India are only 3% of the total sales. They can procure the

stock from the stockists registered in the association (AIOCD) only (Manufacturers would

not sell their products directly to retails chains). The remaining 97% market is completely

controlled by the stockists (There are many layers of stockists or distributors based on the

volume and region they operate in). Sales representatives do rarely come and talk with the

concerned distribution managers in the retail chains to sell their products.

Institutional Supplies

Institutional supplies are 7% of the total drug sales in India. Distribution for institutions

(divided into state funded, central funded & large hospitals) happen either through stockist or

directly from the company CFA . Companies bid for the tenders passed by these institutions

like major PSUs (Public Sector Units) including NTPC, BHEL etc.

Replenishment Model vs. Forecasting Model

For planning the distribution of drugs, Indian companies follow two models, 1)

Replenishment model (DRL) and 2) Forecast based model (Ranbaxy). Product sales are

monitored daily from the supply nodes and based on the demand and availability; products

are supplied in the replenishment model. In forecast based model, sales are forecasted based

on the previous sales and the plan for the present year and then products are supplied

periodically.

Replenishment model has its own disadvantages of keeping the track of the sales and

inventory daily and frequent supplies. Forecasting based model will work out best for the

company as sending the stock once a month or fortnight based on the stockist inventory will

be much easier for the company.

The main advantage of replenishment model is that the retailer and the stockists will be

happy, since his inventory space is saved and he can accommodate products from many

different companies

23

Replenishment Model

Forecasting Model

24

Sales Force Structure

Sales force structure for a pharmaceutical company

A large pharmaceutical company in India is usually divided into strategic business units

(SBUs) based on therapeutic areas like cardiology, urology etc. Sales force is structured

under each therapeutic area and managed by a national sales manager.

Sales Force Selling Practices

Sales force functions based on the therapeutic area.

Each representative has to make 10 visits to a doctor in a day, 240 visits in month.

The below image depicts a sample function of a Scientific Business Officer from

company

25

HR PRACTICES

Cipla has job opportunities across most functional areas. Some typical entry or junior

level job positions are:

Chemical analysts Account executives Account assistants Book keepers

The company is an equal opportunities employer and tends strategic importance

towards recruitment,retention and training of best of the professionals in the industry.

The Company uses a consistent and non-discriminatory approach towards the

development of personal careers within the organization, through meritocracy driven

appraisals, consistent effort in motivation and structured approach towards managing

human resource.

The workers working there were:

1. Highly Skilled

2. Semi skilled

3. Unskilled

26

MOST IMPORTANT OBSERVATION OF

THE VISIT

Quality Assurance

The most important observation from the visit is undoubtedly the dedication and commitment

towards quality control and quality assurance mechanism at Cipla.

Ciplausesstate-of-the-art technology, expensive modern equipment, the most stringent

operating procedures, a highly motivated and technically competent team, highest standards

of safety practices and environmentally green and clean processes to maintain its quality

standards.

Cipla Quality Control Department at Sikkim has 4 major Sections-Raw Materials section,

Instrument Section, Finished Product Section and Stability Section.

Cipla uses the following procedure for quality assurance-

The raw material which is bought from various vendors is stored in the storage chambers.

Sampling- A small portion of the sample is taken for quality control and transferred to the Raw Material section of QC department.

Acceptance range adopted by cipla is 100+/- 2 (i.e. 98 to 102) Assay- Analysis is done which involves physical as well as chemical tests. After Assay is done the sample is transferred to the Instrument Section which

involves the use of instruments like Gas Chromatography, Liquid Chromatography,

High Performance Liquid Chromatography (HPLC), DT Apparatus etc.

If the sample passes the test it goes to the Finished Product section after production or else it goes to the raw material section and the raw material is reversed.

After the final product is formed, it goes for packaging and thereafter it goes to the Stability Section to check the stability of the product.

The benchmark is achieved basis the strict adherence to the following practices:

The quality control laboratories have the latest high precision equipments that

build quality at every stage of processing including inputs. Cipla has a dedicated pool

of talent who consistently ensure that the highest quality and safety standards are built

into the products.

The state-of-the-art manufacturing facilities is cGMP compliant (current Good

Manufacturing Practices) in conformity with national and international standards.

They are equipped with hi-tech sophisticated machineries to achieve a high level of

accuracy and precision.

27

Cipla constantly upgrade the manufacturing facilities and adapt the technological

innovations in facilities to consistently excel and produce high quality medicines at an

affordable price.

Developing a new pharmaceutical quality system or modifying an existing one

requires careful assessment of size and complexities of the companys activities. Cipla was able to do so by careful idea mapping and has been able to establish, implement,

and maintain a system that has not only allowed it to deliver its products with the

desired quality attributes but has also helped in developing effective monitoring and

control systems for specified process performance which in turn has established the

capability of processes.

These objectives collectively have been able to contribute towards a better end

product quality and better process understanding. Furthermore the technical aspects of

the process, peculiarity of the product design and problems during product life cycles

helped Cipla create a knowledge database and provided principles and examples of

tools for quality risk management and approach to identifying, scientifically

evaluating and controlling potential risks to quality. Quality risk management strategy

has helped Cipla identify attributes for measurement and analysis of state of control

with various approaches including statistical indicators.

All this has been possible because Cipla consistently demonstrated strict commitment toward

the quality objectives, performed quality audits periodically for appropriate improvement in

process performance and provided training to its staff effectively to identify and follow up

quality management systems. Although all this required adequate resource management,

effective communication between all levels of management and periodical review of the

quality system but it has finally paid off by achieving desired pharmaceutical quality system

governance.

28

LEARNING OUTCOME FROM THE VISIT

Developing a new pharmaceutical quality system or modifying an existing one requires

careful assessment of size and complexities of the companys activities. Cipla was able to do so by careful idea mapping and has been able to establish, implement, and maintain a

system that has not only allowed it to deliver its products with the desired quality attributes

but has also helped in developing effective monitoring and control systems for specified

process performance which in turn has established the capability of processes. These

objectives collectively have been able to contribute towards a better end product quality and

better process understanding. Furthermore the technical aspects of the process, peculiarity of

the product design and problems during product life cycles helped Cipla create a knowledge

database and provided principles and examples of tools for quality risk management and

approach to identifying, scientifically evaluating and controlling potential risks to quality.

Quality risk management strategy has helped Cipla identify attributes for measurement and

analysis of state of control with various approaches including statistical indicators.

This all has been possible because Cipla consistently demonstrated strict commitment toward

the quality objectives, performed quality audits periodically for appropriate improvement in

process performance and provided training to its staff effectively to identify and follow up

quality management systems. Although all this required adequate resource management,

effective communication between all levels of management and periodical review of the

quality system but it has finally paid off by achieving desired pharmaceutical quality system

governance.

29

SETTING UP AN ENTERPRISE IN A TAX

HOLIDAY ZONE

Tax Holiday (Sections 10A, 10AA, 10B & 10BA)

Free Trade Zone (FTZ) Special Provision in respect of newly Established Undertaking in Free Trade Zone.

1. Conditions to be satisfied

2. Amount of Deduction-General Provisions

3. Period and Rate of Deduction

4. Transfer under a Scheme of Amalgamation or Demerger

FREE TRADE ZONE (FTZ)[ Section 10A]

(SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED

UNDERTAKINGS IN FREE TRADE ZONE)

1. CONDITIONS TO BE SATISFIED :

In order to get deduction, an undertaking must satisfy the following conditions :

Condition 1:

It must begin manufacture or production in free trade zone :

It has begun or begins to manufacture or produce during the previous year

relevant to the assessment year (a) commencing on or after 1-4-1981, in any free trade zone; or

(b) commencing on or after 1-04-1994, in any software technology park or

electronic hardware technology park or;

(c) commencing on or after the 1-04-2001 in any special economic zone;

Conditions 2 : It should not be formed by splitting / reconstruction of business.:

Conditions 3 :

It should not be formed by transfer of old machinery:

It is not formed by the transfer to a new business of machinery or plant

previously used for any purpose.

1. 20% of second value machinery allowed : Where in the case of an

undertaking, any machinery or plant or any part thereof previously

used for any purpose is transferred to a new business and the total

value of the machinery or plant or part so transferred does not exceed

20% of the total value of the machinery or plant used in the business,

then, the condition specified therein shall be deemed to have been

http://incometaxmanagement.com/Pages/Taxation-System/Tax-Holiday-Sections-10A-10AA-10B-10BA-1.html#1http://incometaxmanagement.com/Pages/Taxation-System/Tax-Holiday-Sections-10A-10AA-10B-10BA-1.html#2http://incometaxmanagement.com/Pages/Taxation-System/Tax-Holiday-Sections-10A-10AA-10B-10BA-1.html#3http://incometaxmanagement.com/Pages/Taxation-System/Tax-Holiday-Sections-10A-10AA-10B-10BA-1.html#4

30

complied with.

2. Imported Machinery allowed : Any machinery or plant which was

used outside India by any person other than the assessee shall not be

regarded as machinery or plant previously used for any purpose, if

the following conditions are fulfilled, namely :

1. such machinery or plant was not previously used in India

2. such machinery or plant is imported into India from any

county outside India ; and

3. No deduction on account of depreciation in respect of

such machinery or plant has been allowed or it allowable

under the provisions of the Act in computing the total income

of any person for any period prior to the date of the

installation of machinery or plant by the assessee.

(Value of imported machine can exceed 20% of the Total Value of Machine)

Conditions 4 :

Sale construction should be remitted to India in convertible foreign

exchange.:

Sale consideration should be remitted to India in convertible foreign

exchange, within a period of six months from the end of the previous year

or, within such further period as the competent authority may allow in this

behalf.

Condition 5 :

Report of Chartered Accountant :

The deduction under [this section] shall not be admissible for

any assessment year beginning on or after the 1st day of April, 2001, unless

the assessee furnishes in the prescribed Form 56 , along with the return of

income, the report of an Chartered Accountant, as defined in the Explanation

below sub-section (2) of section 288, certifying that the deduction has been

correctly claimed in accordance with the provisions of this section.

Condition 6 : Return of income should be submitted in time.

2. AMOUNT OF DEDUCTION GENERAL PROVISIONS :

If the aforesaid conditions are satisfied, the deduction u/s 10A may be computed as under :

Export Turnover of eligible undertaking

Profits of the business of eligible undertaking = _______________________________

Total Turnover of eligible undertaking

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'Export Turnover'': means the consideration of articles or things or

computer software received in, or brought into India by the assessee in convertible foreign

exchange in accordance with sub-section (3), but does not include

1. freight,

2. telecommunication charges or

3. insurance attributable to the delivery of the articles or things or computer

software outside India or

Expenses, if any, incurred in foreign exchange in providing the technical services outside

India

3. PERIOD AND RATE OF DEDUCTION :

Out of the total income of an assessee a deduction of 90% of such profits and gains as are

derived by an undertaking from the export of articles, or things or computer software shall be

allowed.

Rate of deduction for unit set up in Special Economic Zone on or after 1-4-2003 shall be as

follows for first 10 assessment years :

8 First 5 Years 100 % of profits and gains derived from the export of such articles or things or computer software for a period of five consecutive assessment years beginning with

the assessment year relevant to the previous year in which the undertaking begins to

manufacture or produce such articles or things or computer software, as the case may be, and

thereafter,

8 Next 2 Years: 50% of such Profit and Gains is deductible for further 2 assessment years.

8 Next 3 Years : for the next three consecutive assessment years, so much of the amount not

exceeding 50% of the profit as is debited to the profit and loss account of the previous year in

respect of which the deduction is to be allowed and credited to a reserve account (to be called

the ''Special Economic Zone Re-investment Allowance Reserve Account'') to be created and

utilized for the purposes of the business of the assessee

4 TRANSFER UNDER A SCHEME OF AMALGAMATION OR DEMERGER :

In case an undertaking eligible for deduction under this section is transferred, before the

expiry of the specified period, to another Indian company in a scheme of amalgamation or

demerger

(a) No deduction shall be admissible under this section to the amalgamating or the

demerged company for the previous year in which the amalgamation or demerger

takes place ; and

32

(b) The provisions of this section shall apply to the amalgamated or the resulting

company as if the amalgamation or demerger had not taken place.

33

REFERENCES

www.dolcera.com www.wikipedia.org www.moneycontrol.com Department of Pharmaceuticals (DoP)

Indian Pharmaceutical SectorHistoryMilestonesCompetitive PositioningManufacturingMajor Instruments used in Production-Tablet SectionCapsule SectionLiquid Section

Quality ControlPackagingTypical Supply Chain StructureDistribution in IndiaCFA OperationsAssociation of Druggists and Stockists in IndiaRetail Pharmacy ChainsInstitutional SuppliesReplenishment Model vs. Forecasting ModelReplenishment ModelForecasting Model

Sales Force StructureSales Force Selling Practices

1. freight,2. telecommunication charges or3. insurance attributable to the delivery of the articles or things or computer software outside India or