Chapter 1 Introduction

1.1 About Internship:

The part Internship indicates practical training in any area. Stated in other word internship is practically training in any real field where theoretical knowledge is applied practically. In academic teaching student, become aware of common rules and principles that should be followed in the typical situations due to various reasonable causes. The participants of practical training become acquainted with practical rules that in follow in practical situation. They also become aware of how practical practice deviate from theoretical principles. Thus, internship program expands the knowledge and it fulfils the theoretical knowledge of the participants. Therefore in single sentence it would be called that internship is a process by which the acquired knowledge if the participant become expanded by application of academic knowledge in practical field.

1.2 Origin of the Report:

The report is originated from the curriculum requirement of BBA program of Daffodil International University Bangladesh. The topic of my report is Performance Analysis on Incepta Pharmaceuticals LTD.. The report has been prepared under direct supervision of Lecturer Nigar Sultana, Daffodil International University Bangladesh and Md.Nimul Huda, Senior Manager, Finance & Accounts, Incepta Pharmaceuticals Ltd.

1.3 Background of the Report

The purpose of the study is to make an analysis of Financial Statements of Incepta Pharmaceuticals in terms of the Pharmaceutical Industry. This study attempted to understand the financial conditions of IPL on different segments such as liquidity, profitability & solvency & capital structure and solvency, the ratio analysis of Incepta Pharmaceuticals, Ltd.

The purpose is also to give a proper idea about the pharmaceuticals industry in Bangladesh, identify the market leader, market follower, challenger and nicher. The export potentiality of Pharmaceuticals Company, competitive advantages Bangladesh Pharmaceutical Industry & recommendations for improving this sector etc

1.4 Scope of the Report

The scope of this study was strictly confined to the annual report & personal contact with the employees of Incepta Pharmaceuticals Ltd. To collect the information I worked in the Accounts section & FSD & HRM department of IPL. All other data related to the financial analysis was collected from web sites of BPBL & other related co. The scope of my study is only about performance analysis- its financial system, financial stability, different products of IPL, compliance and internal control. The report describes about the ratio analysis of Incepta Pharmaceuticals on different segments such as liquidity, profitability & operating performance, return on invested capital, solvency. The rules and regulations followed by it and the existing internal control system relating to this account, quality assurance system. The report is prepared on the basis of interviews with personnel of accounts and finance department of IPL. My scope of work is limited to local transaction work. But as an intern I am not allowed to do that type of work

1.5 Objective of the Report

The main objective of preparing this report is to apply my academic knowledge in practical field. The objective of this work is to analyze the Performance Analysis on Incepta Pharmaceuticals LTD. and thereby comparable ratio analysis of Incepta, Square and Beximco Pharmaceuticals .The other objectives are;

To assess and find out the financial conditions of the company by different ratio
analysis. To assess and find out the Cash flow adequacy and liquidity of IPL by current ratio, quick ratio, short term debt ratio and account receivable turnover ratio.

To assess and find out the Incepta, s Profitability and Coverage from 2006 to 2008. To get an idea about the export potentiality and comparable growth rate between
Incepta and Square Pharmaceuticals.

To find out the comparable growth rate, among the three leading Pharma companies
in Bangladesh.

To identify product diversification, among Incepta, Square and Beximco pharma. To analysis the market condition and market position of different pharma companies
in Bangladesh. And the potential profitability in this sector.

Finally, calculating credits rating of IPL by giving score on both Qualitative and
Quantitative Perspective.

1.6 Methodology of the Report

For smooth and accurate, study every one have to follow some rules & regulation. The report attribute were collected from two sources:

Primary sources:
Practical deskwork Face to face conversation with the officer Direct observations Face to face conversation with the client

Secondary sources:
Annual report of IPL Files & Folders Various publications on IPL

Employee database prepared by HRD

Audit Report

Website

1.7 Data processing and analysis

Data collected from primary and secondary sources have been processed and analyzed manually and qualitative approach has been used throughout the study. Data has been analyzed by using computer program with the helps of Microsoft Word, and Microsoft Excel.

1.8 Limitation of the Report

There were many limitations of the study, but among those, some major limitations have been mentioned below The duration that is for internship is not enough to learn about a big organization like Incepta Pharmaceuticals Limited. For non-availability of secondary data and for time limitation it was not possible to work on the basis of board data. Due to restriction of time, I could not get detailed information about every Departments of IPL. Lack of confidential information about the organization makes many mistake and targeted aim. Analysis was based mainly on financial statements.

Chapter 2 An overview of Pharmaceuticals Sector In Bangladesh

Origins and Evolution:

The modern pharmaceutical industry is a highly competitive non-assembled global industry. Its origins can be traced back to the Nascent Chemical Industry of the late nineteenth century in the Upper Rhine Valley near Basel, Switzerland when dyestuffs were found to have antiseptic properties. A host of modern pharmaceutical companies all started out as Rhine-based family dyestuff and chemical companies. Hoffman-La Roche, Sandoz, Ciba-Geigy (the product of a merger between Ciba and Geigy), and Novartis etc. Most are still going strong today. The industry expanded rapidly in the sixties, benefiting from new discoveries and a lax regulatory environment. During this period healthcare spending boomed as global economies prospered. The industry witnessed major developments in the seventies with the introduction of tighter regulatory controls, especially with the introduction of regulations governing the manufacture of generics. The new regulations revoked permanent patents and established fixed periods on patent protection for branded products, a result of which the market for branded generics emerged.

Pharmaceutical Industry in Bangladesh

The pharmaceutical industry, however, like all other sectors in Bangladesh, was much neglected during Pakistan regime. Most multinational companies had their production facilities in West Pakistan. With the emergence of Bangladesh in 1971, the country inherited a poor base of pharmaceutical industry. For several years after liberation, the government could not increase budgetary allocations for the health sector. Millions of people had little access to essential life saving medicines. In 1981, there were 166 licensed pharmaceutical manufacturers in the country, but local production was dominated by eight multinational companies (MNCs) which manufactured about 75% of the products. There were 25 medium sized local companies which

manufactured 15% of the products and the remaining 10% were produced by other 133 small local companies. All these companies were mainly engaged in formulation out of imported raw materials involving an expenditure of Tk 600 million in foreign exchange. In spite of having 166 local pharmaceutical production units, the country had to spend nearly Tk 300 million on importing finished medicinal products. A positive impact of the Drug (Control) Ordinance of 1982 was that the limited available foreign currency was exclusively utilized to import of pharmaceutical raw materials and finished drugs, which are not produced in the country. The value of locally produced medicines rose from Tk 1.1 billion in 1981 to Tk 16.9 billion in 1999. At present, 97% of the total demand of medicinal products is met by local production. Local companies (LCs) increased their share from 25% to 70% on total annual production between 1981 and 2000. Leading pharmaceutical companies are expanding their business with the aim to expand export market. Recently, few new industries have been established with high tech equipments and professionals, which will enhance the strength of this sector. Pharmaceutical Industry has grown in Bangladesh in the last two decades at a considerable rate. Currently estimated at US $ 482 million (IMS), the industry may look smaller compared to the population size of 124 million. Nearly 200 manufacturers together make about 95% of the formulations required for the country. Growing at an average rate of 9%, the formulation industry offers tremendous potential. Local firms manufacture about 6,000 brands of medicines in different dosage forms. There were, however, 1,600 wholesale drug license holders and about 39,000 retail drug license holders in Bangladesh. Anti-infective is the largest therapeutic class of locally produced medicinal products, distantly followed by antacids and anti-ulcerants. Other significant therapeutic classes include non-steroidal anti-inflammatory drug (NSAID), vitamins, central nervous system (CNS) and respiratory products. Domestic companies account for more than 65% of the pharmaceutical business in Bangladesh. However, among the top 20 companies of Bangladesh 6 are multinationals including GSK, Aventis, Novartis & Roche. Following the Drug (Control) Ordinance of 1982, some of the local pharmaceutical companies improved range and quality of their products considerably. Squire, Beximco, Acme , Incepta, Opsonin, ACI, General Pharma,

Ibn Sina are quite strong and enjoy good market share. Incepta Pharmaceuticals currently is the Second Company in the industry and enjoys over 8.24% market share.

Table Top 10 Companies: Market Position of Incepta:

Companies Square Incepta Beximco Acme Laboratories Opsonin Pharma Ltd Eskayef Reneta Pharma ACI Aristopharma Drug Int. Others

Market Position Of the Companies (Total 100%) 19.48% 8.24% 7.72% 4.81% 4.76% 4.59% 4.54% 4.48% 4.07% 3.00% 33.43%

10

Potential Profitability:
The prediction of potential profitability of the industry in the sector is foreseeable in future. Pharmaceutical Industry has grown in Bangladesh in the last two decades because The government has decided to set up an API park in Chittagong with the facility to house 20 plants and investment worth Tk. 20 Billion is expected. A local entrepreneur are enthusiastic about the prospect of pharmaceutical industry and in the last few years as many as 10 companies with investment of Tk. 400 million each has been set up. FDI (Foreign Direct Investment) has already begun and Sun Pharmaceuticals Ltd of India has already set up a big production facility and countries like France and other European countries have shown interest to invest in this sector opening doors for more collaboration and cooperation.

11

 Threat of substitute product is almost nil.

Bargaining power of suppliers is reasonable. As multinational companies will be allowed to come to Bangladesh for business similarly Bangladeshi companies will also have access to other countries for export of both formulation products and raw materials under the open market system.

Highlight of the fastest growing Pharmaceuticals sectors in Bangladesh.

Total Market Size in 2008: US $ 715 M

Second highest contributor to national ex-checker

Largest white-collar labor intensive employment sector 97% Local Manufacturing Only 3% import Vaccine Anticancer Insulin About 39,000 retail drug license holders in Bangladesh.

Local firms manufacture about 6,000 brands of medicines in different dosage forms.

12

Mainly dominated by local manufacturers

13%
MNCs

87%
Local

Top 10 pharmaceutical companies are considered local companies

13

Chapter 3 An overview of Incepta Pharmaceuticals Ltd

14

3.1 About Us
Incepta Pharmaceuticals Ltd. is a leading pharmaceutical company in Bangladesh established in the year 1999. The company has a very large manufacturing facility located at Savar, 35 kilometer away from the center of the capital city Dhaka. The company produces various types of dosage forms which include tablets, capsules, oral liquids, ampoules, dry powder vials; powder for suspension, nasal sprays etc. Since its inception, Incepta has been launching new and innovative products in order to fulfill unmet demand of the medical society. The focus was to bring more new technologically advanced molecules to this country. The company specializes in value added high technology dosage form like sustained release tablets, quick mouth dissolving tablets, barrier coated delayed release tablets etc. It has established a modern research and development laboratory for the development of new advanced dosage forms for various drugs and devices like poorly soluble drugs, dry powder inhalers, coated pellets, modified release products, taste masked preparation etc. Incepta quickly developed a very competent sales team, which promotes the specialties all through the country. The company virtually covers every single corner of the rural as well as urban area of Bangladesh. It has its own large distribution network having 13 depots all over the country. The company has a clear vision to become a leading research based dosage form manufacturing company with global presence within a short period of time. The Research and Development department for various dosage forms has been very well developed. Incepta intends to bring newer products of advanced technology through research hitherto unknown in this country. Such activities will not only benefit the company but also the total pharmaceutical sector of the country. In the post 2005 era, the company also intends to embark into the production of Active Pharmaceutical Ingredient (API). Plans are underway to get into reverse engineering and analogue research in order to produce new API.

15

The company is now expanding its activities beyond the geographical boundary of Bangladesh. The products are of high standard and therefore these will be exported to both developed and developing countries. The company is open to collaborate with interested parties in various countries. The future is wide open and the opportunities are bountiful. Incepta will continue to strive to provide high quality medicine at affordable prices to the people here in Bangladesh and other parts of the globe.

3.2 Vision and Mission

To become a research based global pharmaceutical company in addition to being a highly efficient generic manufacturer. To discover and develop innovative, value-added products that improves the quality of life of people around the world and significantly contributes towards the growth of Bangladesh.

Provide people globally with high quality health care products at affordable prices in order to improve access to medicine and to improve employees an enabling environment that facilities realization of their full potential.

3.3 Ownership Pattern:

Incepta Pharmaceuticals Limited is the sister concern of the renowned Impress Group and the business is running as fully private limited company. Directors of Incepta Pharmaceuticals Limited own the majority shares. Incepta is not DSE listed in capital market yet, so it is controlled by the internal board of directors .So any kind of significant decision taken by the management.

16

3.4 Hierarchy of the company

Managing Director Directors

General Manager Deputy General Manager Assistant General Manager Senior Manager Manager Deputy Manager

Assistant Manager Executive Officer Senior Officer Officer Assistant Officer

17

3.5 Chronology of Progress

Incepta began its operation with a handful of highly skilled and dedicated professionals guided by an able leadership. Proper strategic planning, technical excellence, swift and timely decisions helped us achieve our objectives leading to much faster growth.

December 16, 1998, the construction of the factory began. 1998/99 December 1999, first batch of product was produced. April 2000, Osartil the CVS product of Incepta came to the market. 2000 By the end of 2000 Incepta become the number 31st company of the country. A total of 18 new generics with 37 presentations were launched this 2001 year. 11 of these generics were first ever in Bangladesh. By end of the year incepta was ranked the 12th company of the country. A total of 32 new generics with 49 presentations were launched. 14 of these generics were first ever in Bangladesh. New office for the sales 2002 and distribution operation was also taking shape. By the end of the year Incepta was ranked the 10th company of the country. A total of 32 new generics with 48 presentations were launched. 18 of these generics were first ever in Bangladesh. 2003

18

By the end of the year Incepta was ranked the 8th company of the country. A total of 17 new generics with 32 presentations were launched. 6 of 2004 these generics were first ever in Bangladesh. The company was ranked the 5th largest company of the country with the highest growth rate among the top five. We thrived under challenges and excelled in venturing into unexplored grounds and continued to satisfy our customer. Incepta 2005 started to provide life saving drugs to UNICEF from March, 2005. A total of 27 new generics were launched. 12 of these generics were first even in Bangladesh. The company was ranked the 3rd largest company of the country with the highest growth rate among the top five. In a short time Incepta positioned itself at home as an innovative research oriented and knowledge based Pharmaceutical company 2006 specializing in analysis, design and development of new products. With this harmony Incepta successfully started overseas marketing from May 2006. A total of 25 new generics with 82 presentations were launched. 9 of these generics were first ever in Bangladesh. Incepta introduced the era of biotech and lyophilized products in Bangladesh and remained as one of the pioneer manufacturers in 2007 Bangladesh.

19

A total of 32 new generic with 82 presentations were launched. 4 of these generics were first ever in Bangladesh. Insulin was manufactured and launched for first time in Bangladesh by a national company. Marketing, sales, distribution and administration departments shifted to fully own new office premises. 2008 Our core strength is our manufacturing plant which attained European Certificate of GMP compliance on the January 11.2008. Incepta has been able to bring, for the first time ever, such reorganization for a Bangladesh Pharmaceuticals company. As a result of this certificate Incepta will be able to start export of non-patent infringing products to European union and many other regulated markets. 2009 Incepta Pharmaceuticals Company really a big Company and day by day it will be increase their improve because most of the employees are so sensitive their own work. Therefore, Incepta pharma is the only national company in Bangladesh to have an EU-GMP certified plant for solid dosage forms. It is a pre-requisite for export to European Union very quickly has achieved their goal than others.

20

3.6 Company Profile at a glance

Corporate Headquarters 40, Shahid Tajuddin Ahmed Sarani Tejgaon I/A, Dhaka-1208. Bangladesh Phone: +880-2-8837811-26 Fax: +880-2-8837952 Email:incepta@inceptapharma.com, info@inceptapharma.com

Operational Headquarters

40 Shahid Tajuddin Ahmed Sarani Tejgaon I/A, Dhaka-1208. Bangladesh Phone: +880-2-8837811-26 Fax: +880-2-8837952 E-mail: incepta@inceptapharma.com, info@inceptapharma.com

Factory

Dewan Idris Road, Jirabo, Savar, Dhaka. Bangladesh Phone: +880-2-7708502 Fax: +880-2-7708507 Email: factory@inceptapharma.com

Year of establishment Commercial Production Status Type of business Number of employees Value of Authorized capital Paid up capital/ Reserves

24/02/1999 April-1999 Private Company Limited. Pharmaceuticals Manufacturing Company. 3050 16.00 million USD 7.50 million USD/ 4.16 million USD

21

3.7 Export: Existing Country: Afghanistan, Belize, Bhutan, Congo, Costa Rica, Cambodia, Dominican Republic, El Salvador, Ethiopia, Guyana, Georgia, Ukraine, Vietnam. Pipeline country: Armenia, Austria, Azerbaijan, Burundi, Burkina Faso, Benin, Chile, Egypt, Ghana, Germany, Ivory Coast, Indonesia, Iran, Jordan, Kuwait, Philippines, Saudi Arabia, Libya, Laos, Macau, Malaysia, Maldives, Moldova, Mali, Mozambique, Niger, Pakistan, Panama, Russia, Thailand, Tanzania, Sudan, South Africa, Sierra Leon, Yemen, Uganda and UAE. Future Plan: Algeria , Angola, Argentina, Brazil, Bolivia, Belarus, Canada, Gabon, Kazakhstan, Mexico, Morocco, Peru, Qatar, Singapore, Senegal, Syria, Trinidad & Tobago, Turkmenistan, USA, Zimbabwe 3.8 Total Sales turnover in the previous five years-each year separately (split between Export and domestic) sale: The company has experienced excellent growth in revenue, ranking among the companies in Bangladesh including multinationals and number of employee over the past several years. Year Export Sale (Thousand USD) Domestic Sale (Million USD) Growth Rate (as %): Year Turnover 2009 50.39 2008 27.36 2007 17.10 2006 24.80 2005 26.58 2004 46.29 2009 3020 48.32 2008 3350 52.14 2007 2428 41.14 2006 450 36.76 2005 30 2004 23.7 Hong Kong, Honduras, Kenya, Myanmar, Mongolia, Mauritania, Sri Lanka, Somalia, Togo, Tajikistan, Turkey,

22

Revenue Growth: Year Turnover 2009 69.63 2008 62.69 2003 39.05 2002 201.67 2000 1999 -

3.9 Position in Industry:

According to IMS health survey, our position in the industry is currently 2nd in 2010 with the highest growth rate among the top 10 companies here in Bangladesh.

3.10 Ranking (IMS): According to IMS health survey, IPLs previous eight year position in pharmaceuticals industry is given below:

2008 2007 2006 2005 Year 2004 2003 2002 2001 2000 0

2 3 3 3 5 8 10 12 31 5 10 15 Position 20 25 30 35

3.11 Companys Production capacities are-

23

GENERAL PRODUCTS Tablets Capsules Liquid injection ampoules Eye drops Infusion bags Infusion bottles Liquid injection vials Dry vial for injection Nasal spray Cream/ointment/shampoo Oral liquid Powder for oral suspensions Sachet of oral powder Lyophilized vials Pre-filled syringes 1920.00 Million/Year 120.00 Million/Year 24.96 Million/Year 3.00 Million/Year 1.92 Million/Year 80 Million/Year 60 Million/Year 2.70 Million/Year 2.57 Million/Year 5.26 Million/Year 29.48 Million/Year 3.80 Million/Year 19.80 Million/Year 1.80 Million/Year 1.80 Million/Year

CEPHALOSPORIN PRODUCTS Tablets Capsules Powder of oral suspensions Dry Vial for injection 90.00 Million/Year 76.00 Million/year 3.24 Million Bottles /Year 6.00 Million/Year

24

Chapter 04 Performance Analysis Of Incepta Pharmaceuticals Ltd

25

Industry Analysis:
4.1 Market Size: The pharmaceutical industry is one of the fastest growing industries in Bangladesh .The market for pharmaceuticals industry in Bangladesh is above 40 billion which is estimated to be 40 to 50 billion approximately. Its second highest contributor to national exchequer.National drugs policy paper shows in 2002 the market stood at 41 billion taka. Currently approximately pharmaceuticals products of 35 billion taka are sold yearly which comprised of local productions and imports. According to international Medical Statistics of Switzerland, in Bangladesh during April 2006 to march 2007; around 36 billion pharmaceutical products and medicines are sold.

4.2 Market Competition: There are 10000 brand named drugs on the market, which involve 1872 generic and locally produced drugs that meet 93.4% of the local drug demand.Apporximately 85% of the market is controlled by 10 to 20 large companies .Only about 13% of total market is shared by the multinational pharmaceuticals companies. Among 10 best profit-making companies, 9 are domestic and 1 is foreign. There are around 850 pharmaceuticals companies in Bangladesh and 39,000 retail drug license holders in Bangladesh. .Government account state registered 238 pharmaceuticals companies with around 100 inactive. Multinational companies producing about 10.4% of the local production own six of the registered companies.

26

4.3 Competitive Position: According to competitive position of pharmaceuticals industry, Square is enjoining market leader position (19.48%) in Bangladesh currently .Because they able to grab largest market share. On the other hand, Incepta is currently enjoining second position of pharmaceuticals market(8.24%) and Beximco(7.72%) is third .So we can say that, both of the companies are now market challenger in pharmaceuticals sector. As IPL began as a nicher in small production and only 20 employees at the end of 1999.It grew rapidly to market followers and finally assumed market challenger, all within a span of 10 years. Here following table shows the competitive market position of top 10 pharmaceuticals companies in Bangladesh4.4 Export Potentiality: Only about 1.1% of the locally produced drugs is exported .Being a drug exporting least developed country, Bangladesh has a unique position in the region, for not having to adhere to the TRIPS agreement until 2016.Only 5% of local demand is met by imported drugs but simultaneously Bangladeshi Companies are now exporting to 68 countries .In 2005 total export was about 1.44 billion taka and in 2006 it was around 2.0 billion taka. From that circumstance Inceptas 2009 export was $3020000 and 2008 export was $3350000, so this amount slightly decline in 2009. Year 2009 2008 Growth Rate Incepta Parma $3020000 $3350000 -9.85% Square Parma $4804857.14 $3035714.29 58.28%

Above from that table, although in 2009 Inceptas export slightly lower than 2008 but it was satistactory.Thus its growth rate tends to negative. 4.5 Comparable Growth Rate:

27

The pharmaceutical sector attained a growth of 6.91% during the year of 2008 as against 15.80% during the previous year. The national pharma market growth and that of the three companies during the past few years are given below: Year National Market Growth Rate (as %) 2008 2007 2006 2005 2004 6.91 15.80 4.08 17.50 8.60 27.36 17.10 24.80 26.58 46.29 18.83 9.81 22.94 14.30 13.08 21.00 Incepta Square Beximco

Pharma (as %) Pharma (as %) Pharma (as %)

So above from the table, we show that Inceptas growth rate is higher than the rest of the two companies in 2008.On the rest of the previous years this rate is higher than their competitive companies. Thus indicate that the company is increasing their both operational and distributional activities yearly. 4.6 Product Diversification: Incepta has a well known brand in pharmaceuticals industry, mainly produces different Composition medicine. It has over 700 brands of products and the company specializes in value added high technology dosage forms like sustained release tablets ,quick mouth dissolving tablets ,barrier coated delayed release tablets etc.Different categories of products makes Incepta to hedge against market risk for any particular product . Company Brands

28

Incepta Square Beximco

700 556 400+

Industry data of pharmaceuticals industry reveals .Almost all the firms have diversified products ,thus IPL continuously innovating new products .Moreover above from that table we saw that ,Incepta launched more brands of products than Square and Beximco. Thus the production plants at IPL had continued to improve their operational efficiency both qualitatively and quantitatively by upgrading technological process, research and training.

4.7 Product Quality: Incepta pharmaceuticals Limited is a European GMP (Good Manufacturing Practice) certified company for its extensive quality management system. In order to ensure high quality at all levels it uses most updated technology for manufacturing product and to operate these they recruited best knowledge, skill and motivated working group. Incepta has a Quality Assurance System (QAS) which ensures full quality control testing in accordance with customer and product requirements with an extensive range of analytical techniques and instrumentation. Almost 90% has ISO certification, responsibility and accountability is written for most of the firms. The production sites follow the GMP guidelines for environmental requirements of the manufacturing and packaging area, as well as comply with the EHS requirements.

4.8 Market Decentralization:

29

A complete and integrated Sales and Distribution network is inevitable to make the product, services and related information available to the customers. Incepta has highly disciplined and organized Sales and Distribution department to maintain smooth supply of our products, services and related information to fulfill the requirement of our valued customers such as doctors, chemists and patients. The company virtually covers every single corner of the rural as well as urban area of Bangladesh.

The company has a very large and competent sales team, which promotes the specialties throughout the country. Sales team operates its activity by dividing the whole country into 8 regions. Our 600 member strong sales team promotes the products to the doctors.

It has its own large distribution network having 13 depots all over the country. They make the products available in every single drug store of the country. The depots are located at Dhaka, Chittagong, Rajshahi, Khulna, Sylhet, Barishal, Comilla, Noakhali, Mymensingh, Magura, Bogrua, Rangpur and Coxs Bazar.

30

Distribution Network of IPL

4.9 Using five forces Approach: Analyzing a firms profit potential ,analyst has to first assess the profit potential of each industries in which the firm is competing because the profitability of various industries vary systematically and predictably over time. Therefore, I used Porters five forces model to analyze pharmaceutical industry. 4.9.1 Threats of new competitors entering the industry: It is one of the factor that influencing the profitability of the industry. To earn high profit, new entrants may attract in the industry. The new firm that entered the industry is determined to its profitability. The other parameter attracting investments are economics of scale, first mover advantage and access to channels of distribution and relationship and legal barriers may be cited. On the other hand, the customers switching cost and high initial investment may be a barrier .The strict of law in a particular sector dose not allow common investor to invest in that sector. 4.9.2 Bargaining power of the industrys suppliers: As the unemployment rate is very high in Bangladesh, there are many suppliers available in that sector. As a result, less control over industry to be put by the suppliers. The industry can get substitute of suppliers for any item. This provides the industry selecting suppliers as per the choice of the industry. The demand of suppliers is very elastic. The industry doses not feel threatened by the suppliers about forward integration because of the high entry barriers in that sector.

31

4.9.3 Bargaining power of the industrys customers: The choice of the final product is very elastic; customers can choice any companies product. In Bangladesh the product of this industry are mainly sold as per the prescription of their doctors. They can switch over any companies product without incurring any cost. Hence, customers switching costs very low resulting bargaining power of buyer is very high. On the other hand; the companies hardly feel any threat about backward integration by customers because high entry barriers of pharmaceutical industry. 4.9.4 Rivalry among current competitors in the industry: In most industries, the average of profitability is primarily influenced by the nature of rivalry among existing firms. Both the price and non-price rivalry are seen in this industry. The industry is growing very rapidly. So the incumbent firms need not grab market share from each other to grow .There are some big companies in this sector that create huge competition among them so it is very difficult to maintain their market shares .As the demand is elastic for any product of a particular infusion; the customers can switch for any companies infusion. So, companies not to focus on local market as well as focus on international market. 4.9.10 Threat of substitute products: In fact, in pharmaceutical sector, the product has not any substitute because the demand is inelastic. While some herbal medicine is available in the market but these are not treated as substitute. Therefore, in herbal medicine need more research and need take more time to cure diseases .So threats of new substitute are negligible..

4.10 Profitability and coverage:

32

It seems to be excellent performance if gross profit margin is the parameter for IPL.But realistically, as gross profit proceeds for further adjustments like operating costs, interests expenses and taxes. The performance of IPL become moderate .The gross profit margin stood 20.29%, 35.87%, and 33.99% in the year of 2008, 2007and 2006.Through the gross profit margin 2008 is lower than previous years, but it sounds good compare to the peer group average where the Incepta average is 30.05%.After all adjustments mentioned above,IPL net profit margin 3.62%,3.46% and 5.53% in the year of 2008,2007,2006 respectively. Even through the performance shows a positive trend. that is below the industry average net profit margin ranging from 7.05% to 12.25%.One important thing should be noted that this net profit margin is after the services of debt payment, operating expenses and interest expense consume most part of the operating revenues. The total asset turnover ratio of IPL has an increasing trend from 1.53 times to 1.30 times in the year 2008 to 2006.This parameter of IPL reflects better position in terms of industry average performance ,but its high operating costs reduces profit margin. However, from debt coverage performance IPL has moderate capacity to service the debt even though all the way company makes positive profit after paying all obligations 4.11 Cash flow adequacy and liquidity: The financial statement analysis of Incepta Pharmaceuticals limited reveals that an adequacy for serving debt .Incepta, s current ratio 1.06, 1.11 and 1.13 in the year of 2008, 2007 and 2006 respectively. Again quick ratio has a decreasing trend and start to fall 0.11 to 0.06 in the year of 2006 to 2008.More over cash flow adequacy and liquidity are very much important for pharmaceutical industry .In that case IPL,s short term debt ratio 35.41% and 23.01% in the year 2008 and 2007 respectively. Science the pharmaceutical industry is very much based on short term debt; so the companies should have sufficient cash flow adequacy and liquidity to serve the debt. Form the industry perspective, even though cash flow accumulation of ILP is decreasing trend, still company has the sufficient liquidity to serve its debt.

33

The detail analysis in liquidity segment of Incepta Pharmaceuticals Limited encompasses that its account receivable turnover. Inventory turn over of IPL is very much satisfactory level and very much higher on the industry average. In year 2008 and 2007, IPLs account receivable turn over was 126.88 and 103.42 respectively and inventory turnover was 17.58 and 14.94 respectively. However discretionary cash flow or free cash flow of IPL suggests that over the year its debt payback is decreasing. It indicates Incepta, s improving capacity to serve the debt .The company is very much competitive and since turnover ratios and cash flow adequacy ratios are very marginal.

4.12 Operating cost analysis: The operating cost of IPL absorbs significant portion of operating revenues compared to industry average. The operating costs as compared to operating revenue stood at sound position in the June year ended 2008, 2007 and 2006.It indicates that around 75% to 78% of operating revenue is being absorbed by operating cost. Again ,from specific cost control analysis ,IPL has expense control efficiency of 19.35%,10.38% and 9.20% in the year ended 2008,2007,2006 which are lower than peer group on an average(81.84%).The positive expense ratio indicates the better performance possibility in next year. So, operating costs analysis of IPL refers that it absorbs a significant portion of operating revenue keeping only a small portion for the appropriation to its stakeholders. 4.13 Corporate Social Responsibilities Incepta achieved its tremendous commercial success through its honesty and sincerity in business polices. The company aims to become nations most admired company through their honest and intelligent approach to everything they do. Company management strives to support the community where they life and also to support this nation as far as possible in times of need. Incepta gives emphasis to its practice of corporate social responsibility and

34

evidence of this commitment is found in its dealing with clients, employees, governments and the society at large. Company CSR activity includes its finances because the company pays tax and VAT to the government. Incepta considers its employees to be valuable assets and protects their rights and provides full range of staff facilities including life insurance and disbursement of 5% of the company profit to them. Incepta maximizes safety in work place for its employees and child labor is strictly prohibited. As it commitment to society the company donates medicine to the government Relief Fund during natural disaster. Incepta also provides financial assistance for expensive treatment including heart and cancer and disburses its corporate zakat for relief of distressed people every year. Incepta also products life saving import-substitute medicines at affordable price for the people of Bangladesh as an expression of a true love and compassion for the people. All these activities are evidence of socially responsible and carrying company. 4.14 Achievement: Incepta Pharmaceuticals Ltd. is the only national company in Bangladesh to have an EU-GMP (Good Manufacturing Practice) certification plant for solid dosage forms on 11th January 2009. It is a pre-requisite for export to European Union. As a result Incepta can now freely export to not only some countries of European Union, but also to other European countries, South America, Canada and Australia, which recognize European GMP.

35

Chapter 05 Analysis and Findings

36

SWOT analysis of Incepta Pharmaceutical Ltd: Strengths

The company has successfully built up a good reputation.

The market share of the company is now around 4.67% with 42.47% annual growth rate. There is no financial liabilities of the company and the cash flow is steady and stable Over the last five years,the company has successfully launched numerous products that provided the utmost demand of the customers as well as good customer satisfaction. Incepta pharmaceuticals ltd has the necessary technical experts in respective fields(MBAs,Pharmacists, Chemists , Microbiologists ,Doctors ,Biochemists. Medical promotion officer etc ) The product quality of the company is better than nay other company The service quality of the company is outstanding. The company regularly provides doctors with the latest information regarding the development of the medical science . The distribution network of the company covers every corner of the country. The product promotion effort of the company is outstanding and beat the company in that industry with a big margin.

37

 The sales force of the company is one of the youngest, largest and most dedicated to lead in the country. The company is capable is introducing the latest innovative products in the country. There is a well-developed formulation research and development laboratory. The manufacturing facility of the company is one of the largest and most advanced in the country. The company management is proactive and the company practice a flexible market oriented planning and execution.

Weaknesses The company is entirely dependent on imported raw materials for production.

As the company is new and is heavily investing in capital machineries and

infrastructure import from other countries. Although the company has plan for export but at the moment is too occupied in local market development and recently started to explore market outside the country. Rules and regulation are still in the process of development. A dedicated human resource development is lacking now.

38

 Employees benefits are not up to the mark in many cases. Recruitment in many areas is lacking in systematic approaches and procedures. The employees of the company are relatively young and lack of experience, especially in sales and distribution.

There are very few experts on reverse engineering analogue research and chemical
synthesis available in this country so company is hiring employees from abroad giving high remuneration. Opportunities:

Removal of Export Barriers.

From 2000 onwards Bangladesh being a member of LDC country will be allowed to produce cheap copies of patented drugs and their raw materials. Incepta having a cCGMP(Current Good Manufacturing Practice ) compliant factory and one of the best technological know how in the industry can take the expert opportunities that lie ahead. The current level of penetration of allopathic medicine in Bangladesh is low and is expected to increase significantly in the coming days.This is a great opportunity for Incepta to penetrate the market at this growing stage. If the government extends necessary support to the industry, it has the potential to become, a very big export sectors both API and formulation products to all the LDC

39

countries and off patented formulation products to developing and developing countries.

As Indian and Chinese companies will not be able to produce patented active ingredients but they have the necessary technology and expertise in reserve engineering and chemical synthesis they will be more interested in cooperation with Bangladesh after 2004.

As multinational companies will be allowed to come to Bangladesh for business.

Similarly, Bangladeshi companies will also have access to other countries for export of both formulation products and raw materials under the open market system. Dedicated pharma zone (temperature control area) at Sea/Air ports

(eg. New Delhi Airport in India)

Taking advantages Of TRIPS Agreement, Patented products for LDC.

Chief labor and cost advantage ,compare to world Generic Market

Threats:

The present regulation dose not allow local companies to advertise their OTC drugs
in the mass media whereas these are allowed in neighboring countries already creating a market for those products. This situation is very likely to worsen in the post 2010 scenario.

40

 The drug act 1940 & the drug policy of 1982 need to be revised soon on order to copy with the post 2004 scenario.

In the post 2010 scenario Bangladesh may end up not having the necessary raw
materials for its products .Incepta may also be forced to buy raw materials from the innovator company at a much higher price leading to price hike and market shrinkage. The implementation of WTO,s TRIPS and public Health agreement is very likely to result in the rise of production cost of medicine and their distribution which may adversely affect Incepta and the local industry. Big multinationals may come and take major market due to their economics of scale, superior technology and product patent.

After 2010 in the open market scenario cheap and substandard drugs especially from
neighboring countries may enter the market illegally and destabilize the market

41

Ratio Analysis
Building Blocks of Financial Statement Analysis This analysis emphasizes six areas of inquiry with varying degrees of importance. They are considered Building Blocks of financial statements. A. Short-term Liquidity 1. 2. 3. 4. 5. Current ratio Quick ratio Inventory turnover ratio Inventory to sales Average collection period

B. Cash Flow and Forecasting C. Capital Structure and Solvency 1. 2. Debt ratio Debt equity ratio

D.Return on Invested Capital 1. 2. 3. 4. 5. 6. 7. Return on asset Return on equity Price Earning ratio Earngings per share Dividend per share Dividend payout ratio Market to book value

42

E. Asset Turnover 1. Total asset turnover

F. Operating Performance and Profitability 1. 2. Gross profit ratio Net profit ratio

Liquidity ratio: Liquidity ratio measures the ability of the firm to meet its short term financial obligations. These ratios establish relation between cash and other current asset and current liabilities. Creditors to evaluate the creditworthiness of the firm use these ratios. These ratios also provide revels managements policy in managing liquidity position of the firm. The Short -term Liquidity ratio we can satisfy on the two ratios, those are: 1. 2. Current ratio Quick ratio or acid test 1. Current Ratio: Current Ratio indicates the ability of a company to achieve its short-term obligations, where short-term obligations indicate those obligations that are due within a year or within the operating cycle. Current ratios are extent to which the assets that are expected to cash cover the claims of short-term creditors.

43

Current Ratio = Current Assets / Current Liabilities Ratio 2006 2007 2008 Current ratio 1.13 Times 1.11 Times 1.06 Times

Analysis: In the table we see that in 2006 the ratio is 1.13 times and in the 2007 decreases to 1.11 times and the 2008 decreases the ratio is only 1.06 times. Here we can see that in 2008 the current assets are decreasing than the 2007 & 2006 and also current liabilities increases than previous two years. So, the current ratio of IPL decreases in 2008 compared with previous two years. This ratio gives us a gross idea of liquidity position of the company. This ratio includes inventories and prepaid expenses, which is considered two steps from cash. Thats why it doesnt tell us the actual liquidity position of the firm to meet its obligations. 2. Quick Ratio: Quick ratio is most important measure of liquidity than the current ratio. Because inventories which are the least liquid of the current assets from the ratio. It is essential for a company to realize its ability to pay the short-term obligation, without knowing on the sales of inventory because they are the assets on which losses are mostly in the event of liquidation.

44

Quick ratio = (Current assets - Inventory) / Current Liabilities Ratio 2006 2007 2008 Quick ratio 0.13 times 0.11 times 0.06 times

Analysis: The quick ratio has increase over the year 2008 than 2001. This has happened because inventory has increased in 2008 and we know that inventory is deducted from current asset while calculating quick ratio. 3. Inventory turnover ratio: Ratio 2006 2007 2008 Profitability ratio: Profitability refers to the ability of the firm to generate revenues in access of expenses. There are many measures of profitability, which relate the returns of the firm to its sales, assets, or equity. This ratio specify the capacity of the company to survive difficult circumstances, which might occur from a number of basis, such as declining price, increasing cost and declining sale. The Profitability ratio we can justify on the three ratios, those are as follows: 1. 2. 3. Profit margin on sales. Return on asset. Return on common stock. Inventory Turnover 2.62% 14.94% 17.58%

45

1.

Profit margin on sales:

Profit margin on sales ratio offered information as regards a companys success from the action of core trade. Ratio gives an idea about the success relation to sales on after the cost of goods sold is removed. Its could be used as a pointer of the good organization of the manufacture action and relationship between cost of manufacturing goods and selling price. Profit margin on sales = Gross Profit / Sales Ratio 2006 2007 2008 Profit margin on sales 3.62% 3.46% 5.53%

Analysis: In this case the ratio has increased, which is very good sign from on investors point of view. It means that management has able to handle the operating cost and other cost. As a result company has generated more profit during 2008 from the year 2006.

2.

Return on asset:

Return on asset compute the success of a company by using the advantage to create to get self-governing of the financing of those assets. Its compute consequently divides financing action from working and invests tricks.

Return on asset = Net Income / Total Asset Ratio 2006 Return on assets 7.18%

46

2007 2008 Analysis:

4.97% 7.18%

In this case we see that there is a slight decreased of this ratio because the increasing rate of total asset is higher than the increasing rate of net income. Now investors will be unhappy with many current jobs decreasing this ratio. IPLs management try to improvements for the year is reflective of its major restructurings. Because of these restructuring programs and cost cutting efforts, profit margins are higher. 3. Return on common stock equity:

Return on common stock ratio indicates the amount of, which the company is capable to exchange in service income into an after tax income that finally can be maintain by the investor. It is a helpful ratio for investigate the capability of the companys administration to understand a sufficient come back on the capital invest by the proprietors of the company. Return on common stock equity = Net income / stockholders equity Ratio 2006 2007 2008 Return on common stock 30.86% 23.44% 31.35%

Analysis: For the same revenue in this case also the ratio has decreased because the increasing rate of total equity is lower than the increasing rate of return of net income.

47

Assets turnover: Assets turnover ratio indicates to the capability of the companys to create sales using the asset appropriately. The underutilized assets raise the companies require for the expensive finance. By the achieving a sky-scraping turnover a companies cut cost and increase final profit of the proprietorship.

Assets turnover = Sales / Total Assets

Ratio 2006 2007 2008 Assets turnover 1.30 times 1.44 times 1.53 times

Analysis: Here we that total assets turnover has increased because of increasing total sales and decrease of total assets. So analyzing this ratio we can justify that increment has successes to use its assets efficiently.

Operating Performance and Profitability This ratio specify the capacity of the company to survive difficult circumstances, which might occur from a number of basis, such as declining price, increasing cost and declining sale. 1. 2. Gross profit ratio Net profit (after tax) ratio 1. Gross Profit margin:

48

Ratio 2006 2007 2008

Gross Profit 33.99% 35.87% 20.29%

We can see that IPLs gross profit margin for the year 2006, 2007, 2008, is 33.99%, 35.87%, 20.29% implies an downward trend because though the gross profit increased over the three year period but growth rate was relatively slow than sales.

2. Net profit ratio Ratio 2006 2007 2008 Net profit 5.53% 3.16% 3.62%

However, net profit margin is slightly higher than the previous year but not satisfactory like 5.53%, 3.16%3.62% in the year 2006, 2007 and 2008. But operating expenses and costs of goods sold shows an increase in the year 2008 .Continued cost control should allow IPL to further improve profitability and exceed desired level Calculating in credit rating: Rating Methodology: Long term rating of entities AA (Score 90-100) Investment Grade Best quality, Highest safety, nearest to risk free. Economic Characteristics unlikely to A(80-90) effect the company. High Quality, higher safety, risks are modest, risks very due to change in economic BB(70-80) condition. Adequate safety, timely repayments of obligations, risk factors are more variable

49

and B(60-70)

economic

factor

can

change

the

condition of the company. Speculative grade Lack of key protection factors, which result in low safety. Although below investment grade but likely to meet obligations. Adjusted for high risk, timely repayment of obligations is occurred by serious problems, tend to depends on favorable economic condition

C(50-60)

D(40-50)

Default grade Entities rated in this category are adjusted to be either in default or expected to be in default. Short term rating of entities

ST-1 (Score 90-100)

Best Highest certainty of timely payment, Shortterm liquidity is very strong, Strong access of alternative sources of fund. Better High certainty of timely payment, Liquidity position is strong, Risk factors are very small.

ST-2 (80-90)

ST-3 (70-80)

Good Good certainty of timely payment, Liquidity position is sufficient, Access to capital market is good and risk factors are small. Moderate Liquidity position is mere satisfactory and other protective factors qualify the company as an investment grade, Risk factors are larger and subject to high degree of variation. Poor The company is in default or likely to default

ST-4 (60-70)

ST-5 (50-60)

50

to meet its shortterm obligations, market access for liquidity and external support is uncertain

Detail calculation of Credit-Rating (See on Appendix) Here credits rating of IPL try to show its Long term rating on entities & Short term rating of entities by giving score on both Qualitative and Quantitative Perspective. Rating Category Qualitative Quantitative Total A Qualitative Perspective: Quality Checklist: ISO Certification Responsibility and accountability written or not? Considers customers complaints? Users /Stakeholders kept informed about products? 100 80 69 74.5 Weight 40% 60% BB

Technology Check list: Technology own/Foreign? Raw material imported? Quality assurance system? Different tests for quality?

51

Tax regulation check list: Tax payment

Management Check List: Family owned outfit Management Style Internal and financial control system Training of stuffs

B Quantitative Perspective: Operating costs analysis: Operating costs efficiency Expense control efficiency Profitability and coverage: Gross profit margin Interest coverage ratio Net profit margin Return on assets Return on equity Capital structure leverage checklist:

52

 Total debt to total capital ratio(Book) Total debt to total capital ratio (Market) Cash flow adequacy and liquidity status: Current ratio Quick ratio Cash accumulation ratio Turnover ratios Debit services capacity from operations Operating Costs analysis: Operating costs efficiency Expense control efficiency

Findings:
Bangladesh is a large population base for the pharmaceutical sector. At present, 95% of the total demand of medicinal products is met by local production. The total pharma market of the country was valued at approximately $800 million, and the government has declared pharma has a thrust sector owing its huge export potentiality But Local companies are heavily dependent on imported raw materials for their production ,so most of the sales revenue goes to import these raw materials. The company is entirely dependent on imported raw materials for production. Bangladesh pharma market is dominated by local manufacturing who currently meet almost 95% of countrys requirement .All of the companies in the top 10 list are local, and they enjoy almost 87% of market share.Incepta is

53

currently holding second position (8.24%) of total pharmaceuticals market. Currently Incepta exporting its medicines almost 32 countries. The company attained highest growth rate (27.36%) compare to Square and Beximco pharma in 2008. Incepta has more than 700 brands in the market. Rapid product launching over the past five years has resulted in this big product range than Square (556 brands) and Beximco (400+ brands). Incepta pharmaceutical Limited is only one company in Bangladesh that is certified by European GMP (Good Manufacturing Practice) for its extensive quality management system. It maintains its sales and distribution system by dividing the whole country into 8 regions and 600 members strong sales team promotes the products to the doctors. The performance of IPL become moderate .The gross profit margin stood 20.29%, 35.87%, and 33.99% in the year of 2008, 2007and 2006. The total asset turnover ratio of IPL has an increasing trend from 1.53 times to 1.30 times in the year 2008 to 2006. The concern is IPL current ratio decreases in 2008 (1.06 times) compared with previous two years. The market share of the company is now around 4.67% with 42.47% annual growth rate. Inventory turnover (126.88 times) is very much satisfactory level and very much common for the industry on an average. Incepta gives emphasis to its practice of corporate social responsibility. Company CSR activity includes pays tax and VAT to the government, company donates medicine to the government Relief Fund during natural disaster, disburses its corporate zakat every year.

Chapter 06
54

Conclusion And Recommendation

Incepta Pharmaceuticals Ltd. has been established in the year 1999. As a recently established Pharmaceutical company it has a large number of products in the market. There is a huge potentiality of pharmaceuticals sector in Bangladesh.Incepta initially started their business as a market neicher in pharmaceuticals industry and now successfully operate the business as a market challenger in pharmaceuticals sector. Incepta successfully took the advantage of the growing pharmaceutical market in Bangladesh. It has achieved significant growth over the past five years of its market operation. As a result it is currently ranked the second largest pharmaceutical company in the country. According to the prescription share the company is now second. It has its own large distribution network

55

having 13 depots all over the country has enabled them to strategically cater to all parts of the country. The 3 years financial data show a growing trend of the company. The net profits after tax (NOPAT) indicate the companys excellent performance in operation, turnover, management and competitive business statically. As the inventors expectation is to earn more money over their investment. By analyzing it can be said with certainty that if Incepta can maintain the quality of products and maintain strong sales distribution, it will be able to grab the position of marker leader. Incepta should concentration on market portfolio business rather than investing one sector that will reduce the risk a lot of. Moreover, Incepta has no long term liabilities, which give its investors the great dependability upon the company. Inceptas profit after tax has a clear indication of its financial viability. Incepta is also contributing a lot in the national economy by paying a huge value added tax (VAT). Incepta is not now in such a strong condition to Export. But good news is Incepta Pharmaceuticals Limited won the EU-GMP (Good Manufacturing Practice) certificate, which is a prerequisite for export to European Union. As a result they will export countries like -South America, Canada and Australia, which recognize European GMP.So there is a good opportunity to grow and dominate the market .Since the bio-tech and aventis product market is high demand in domestic market of Bangladesh. So Incepta should concentration on producing that product.

Bibliography: 1) Financial Statement Analysis(2nd edition) by George Foster

2) Principle of Marketing by Philip Kotler (seventh edition) 3) Annual report of Square Pharma 2008-2009 4) Annual report of Beximco 2008-2009 5) www.incepta-pharam.com 6) www.beximco-pharma.com

56

7) http://www.square-pharma.com

57