Sun Pharmaceutical

A detailed report about Sun Pharma:
- Corporat4e governance
-Risk and return profile of the company
-capital structure
-Recommendations

1. Project Report on
Sun Pharmaceuticals Industries Ltd.









Submitted Group to:
Prof. L. Ramani
Submitted Group to:
Prof. L. Ramani
Submitted Group to:
Prof. L. Ramani
Submitted by:
Group 4
Gaurav Thakur 20DM073
Ekansh Gupta 20DM076
Itika Vashistha 20DM087
Kartik Garg 20DM099
Kartik Yadav 20DM100
Manvi Bolia 20DM118

2. Acknowledgement

We would like to take this opportunity to acknowledge the valuable support of
Prof. L. Ramani and convey our sincere thanks to him for giving us the
opportunity to know the subject better through practical projects. It would not
have been possible to complete the work without his guidance, support and
valuable suggestions. We are indebted to him.

We have taken a good time and effort to present this report without any errors.

3. About Pharmaceutical Industry
India is one of the largest manufacturers of generic drug worldwide. Indian pharmaceutical
sector supplies over half of global demand for various vaccines, 40% of generic demand in
the US and 25% of all medicine in the UK.
India’s pharmaceutical sector growing rapidly, occupying a 20% share in global supply in
volume, and also supplies 62% of global demand for vaccines. Thus, India ranks 3
rd
world
Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40%
of generic demand in the US and 25% of all medicine in the UK.
 “The total market size id Indian Pharma Industry is expected to grow till $130 billion
by 2030.”
 “India holds 12% of all global manufacturing sites catering to US markets.”
 “The cost manufacturing in India in approximately 33% lower than that of the USA”
 “India’s online pharmacy market is estimated to swell to $2.7 billion by 2023.”
 “India’s domestic pharmaceutical market turnover reached Rs 1.4 lakh
crore (US$ 20.03 billion) in 2019, up 9.8% y -o-y from Rs 129,015
crore (US$ 18.12 billion) in 2018. ”


About Sun Pharmaceutical Industries Ltd.
Sun Pharma is India’s largest pharmaceutical company established by Mr. Dilip Sanghvi in
1983 in Gujrat. Now it has its operations all around the world. It has its headquarters in
Mumbai, India. It is a market leader in psychiatry, neurology, cardiology, etc.

4. A brief timeline of sun pharma from its inception in 1983

Promoters Group:

Mr. Dilip S. Shanghvi is the Managing Director of the company and Chairman and MD of Sun
Pharma Advanced Research Company Ltd. He is the Founding partner of the Sun
Pharmaceutical Industries which was converted in company (SPIL) in 1993. As the Promoter
of the Sun Pharma Industries limited, he has been actively involved in international
pharmaceutical markets, business strategy, business development and research and
development functions in the company.

S.no Classification
% of Total
Shares
%
1 Individual/HUF
Dilip S. Shanghvi 9.60
Sudhir Valia 0.60
Vibha Dilip Shanghvi 0.37
Aalok Dilip Shanghvi 0.12
Vidhi Dilip Shanghvi 0.12
Kumud S. Shanghvi 0.01 10.82


2 Bodies Corporate
Sun Pharma started with just 5
products in a small city, Vapi, Gujrat.
Today, it has acquired a lot of small
pharma companies, making it
number one in Indian market and
number 4 globally.

5. Shanghvi Finance Private Limited 40.30
Aditya Medisales Limited 1.68 41.98

3 Any Other Trusts
Shanghvi Family & Friends Benefit Trust 0.05
Unimed Investments Limited 0.43
Raksha S Valia 1.20 1.68

Total 54.48














Shareholding belonging to the category: "Promoter and Promoter Group"

6. Name of the Shareholder Total Shares held
Shares pledged or otherwise
encumbered
Number
As a % of
grand total
(A) + (B) +
(C)
Number
% of
Total
shares
held
As a % of
grand total
(A) + (B) +
(C)
Shanghvi Family & Friends
Benefit Trust (Kumud S.
Shanghvi and Dilip S.
Shanghvi)
1,276,774 0.05 0 0 0
Dilip Shantilal Shanghvi 230,285,690 9.6 0 0 0
Sudhir Valia 14,345,019 0.6 14300000 99.69 0
Raksha S.Valia 33,830,352 1.41 33640000 99.44 0
Unimed Investments
Limited
10,400,850 0.43 0 0 0
Vibha Dilip Shanghvi 8,840,280 0.37 0 0 0
Aalok Dilip Shanghvi 2,877,280 0.12 0 0 0
Shanghvi Finance Private
Limited
967,051,732 40.3 121858353 12.6 0
Flamboyawer Finance
Private Limited
20,865 0 0 0 0
Vidhi Dilip Shanghvi 2,822,427 0.12 0 0 0
Kumud S. Shanghvi 199,465 0.01 100000 50.13 0
Sanghvi Properties Private
Limited
15,479 0 0 0 0
Gujarat Sun Pharmaceutical
Industries Pvt Ltd
14,362 0 0 0 0
Aditya Medisales Limited 40,153,960 1.67 3550000 8.84 0

7. Composition of Board of Directors of Sun Pharmaceutical Industries limited
S.no Name Designation
1 Israel Makov Chairman
2 Dilip S. Shanghvi Managing Director
3 Sudhir S. Valia Non-executive & Non-Independent Director
4 Saliesh T. Desai Whole-Time Director
5 Kalyanasundaram Subramanian Whole-Time Director
6 Vivek Chaand Seghal Non-executive & Independent Director
7 Rekha Sethi Non-executive & Independent Director
8 Gautam Doshi Non-executive & Independent Director

As we observe that Mr. Dilip S Shanghvi, MD and Mr. Sudhir S. Valia who is non-executive and Non-
Independent Director have shareholdings in the company and rest others are independent and does
not have any share or percentage of shareholding in the company. From this we can deduce that the
company’s operations and functioning is driven professionally.

8. Corporate Governance:
The company’s philosophy foresees reaching people by touching the lives of people globally
by following the core values of the company, which is Quality, Consistency, Reliability, trust,
Integrity, Passion, and Innovation. These values form the base for the corporate governance
practices in the organization and helps to add value to all the stakeholders which includes
shareholders, employees, customers, consumers, suppliers, and statutory authorities.
The Board of Directors has established a Global code of conduct for all the board members,
senior management, and the employees. All the Directors and the Senior management have
affirmed compliance with the global code of conduct as approved and adopted by the board
of Directors for which declaration has been signed by the Managing Director annexed as
Annexure “A” to the Corporate Governance Report.
Board Meetings and Procedures:
The Board has constituted a Corporate Governance and Ethics Committee with effect from
May 28, 2019. The main objective of the board is to review the ethical standards, best
practices followed, compliance with corporate governance guidelines and applicable laws and
regulations.
There are minimum of four meetings held every year. Detailed report is presented in the
board meeting covering the operations of the business, financial statements, Sales &
marketing, global and domestic environment, and other related details. The special resolution
passed in the board meeting like re-appointment of Managing director or whole-time director
is passed in the meeting and the same is conveyed to the shareholders. All the necessary
disclosures and statutory compliance report are duly reported in the board meeting and the
proceedings of the board meeting are noted in the minutes book.
Audit Committee:
The Audit Committee which is constituted meets all the requirements as laid down under
section 177 of the Companies Act, 2013 and of Regulation 18 of the Listing Regulations. Mr.
Sunil R. Ajmera, the Company Secretary is also the Secretary of the Audit Committee.



The Audit committee comprises of three directors. They are as under:
S. no Name Designation
1 Mr. Gautam Doshi Independent Non-executive Director
2 Ms. Rekha Sethi Independent Non-executive Director
3 Mr. Sailesh T. Desai Whole Time Director

9. The Internal Auditors have shared their findings and reported the same to Audit Committee
of the organization. The auditors of the company have issued an unmodified opinion of the
financial statements of the company.
Nomination and Renumeration Committee:
The constitution of the Nomination and Renumeration Committee meets the requirements
of section 178 of the Companies Act, 2013 as well as the requirements laid down in Regulation
19 of the Listing Regulations. The Committee comprises of three members which are as
follows:
S.no Name Designation
1 Ms. Rekha Sethi Chairperson
2 Mr. Israel Makov Member
3 Mr. Gautam Doshi Member

The renumeration of the Managing Director and Whole-time Director(s) is approved by the
board, as per the recommendations of the Nomination & Renumeration Committee within
the overall limits fixed by the shareholders at their meeting.
Stakeholders Committee:
The committee is formed to looks into the redressal of the grievances of shareholders,
debenture holders and other security holders of the company. Mr. Gautam Doshi is the
Chairman of the Committee and other two members of the committee are Mr. Dilip S.
Shanghvi and Mr. Sudhir V. Valia.
Risk Management Committee:
The committee is constituted and meets all the requirements of Regulation 21 of the Listing
Regulations. The purpose of the committee is to implement, monitor and review the risk
management plan for the company and recommend and implement procedures to minimize
risk. Mr. Dilip S. Shanghvi is the chairman of the committee.

10. Capital Structure of the company
Capital structure is the combination of Debt and Equity of a company. Debt consists of
borrowed money that is due back to the lender, commonly with interest expense. Equity
consists of ownership rights in the company, without the need to pay back any investment.
An optimum capital structure has such a proportion of debt and equity which will maximise
the wealth of the firm. At this capital structure the market price per share is maximum and
cost of capital is minimum.
The optimal capital structure indicates the best debt-to-equity ratio for a firm that maximizes
its value. Generally speaking, a sound optimum capital structure is one which:
I. Maximises the worth or value of the firm
II. Minimizes the cost of capital


Both Equity and debt have a cost attached to it.
Cost of equity: It is the amount of return a company needs in order to determine whether an
investment meets their capital return requirements or not. It is often used as a threshold for
the required rate of return. It can also be the dividends that the company has to pay.
Cost of equity can be calculated using CAPM:
Ke= Rf + β (Rm + Rf)







Risk free return 5.98% 10-year gov bond
Beta factor .87 Calculated as above
Expected market return 11.2% General market return of nifty 50

Total Equity 1465993.67
Total Debt 83148.8
Ke  Cost of equity
Rf  Risk free rate of interest
Β  systematic risk
Rm  Expected rate of return from the market

11. Interest on debt 3.64%


After calculating cost of equity using CAPM formula mentioned above we get the percentage
to be 10.52%

Cost of capital or Weighted Average Cost of capital is calculated in the following manner;

Using the above formula, we could see that the WACC of Sun Pharma is 10.08%.

Under this managers or investors try to find out the debt-to-equity ratio. The D/E ratio is an
important metric used in corporate finance. It is a measure of the degree to which a
company is financing its operations through debt versus wholly-owned funds. Equity consists
of ownership rights in the company, without the need to pay back any investment.
Formula:


Year Total Debt Total Equity
Debt/Equity
ratio
2016 32157.9 370677.3 0.086754436
2017 748.5 404305.3 0.001851324
2018 2939.1 421982.7 0.006964977
2019 2353.9 447226 0.005263334

12. Credit Rating
Credit rating agencies rate companies on various aspects regarding the ability and
willingness of an organisation to fulfil its financial obligations.” A credit rating also
signifies the likelihood a debtor will default. It is also representative of the credit
risk carried by a debt instrument – whether a loan or a bond issuance.”
Credit Rating Information Services of India Limited, CRISIL is an Indian credit rating
agency.


2016 2017 2018 2019
Total Debt 32157.9 748.5 2939.1 2353.9
Total Equity370677.3 404305.3 421982.7 447226
32.1579
0.7485 2.9391 2.3539
370.6773
404.3053
421.9827
447.226
0
50
100
150
200
250
300
350
400
450
500
Thousands
Debt/Equity Ratios
Total DebtTotal Equity

13.  CRISIL has rated Sun Pharmaceutical Industries’ long-term bonds as AAA (stable)
and short term as A1+.
 Under both long and short term CRISIL and ICRA have given them the highest
rating.
 Highest rating means that the bonds are stable and risk is quite low. If there’s low
risk the return on securities will also be low.
 ICRA Ltd. has assigned the highest credit rating of ‘[ICRA] A1+’/‘[ICRA]
AAA(Stable)’ for the bank facilities, long term/short term borrowings and
commercial paper programs of the Company.
 CRISIL Ltd. has assigned the highest credit rating of ‘CRISIL A1+ and CRISIL
AAA/Stable’ for short term & long-term bank facilities and commercial paper
programs of the Company.



Sun Pharma has consistently received the highest credit rating from both CRISIL as
well as ICRA. Their capital structure indicates that the company has reduced its
percentage of debt and increased its percentage of equity. Sun Pharma’s investing
and operating activities have shown a considerable increase in the amount of cash
influx in the company which has led them to take efforts to reduce their debt.
Their debt has gone down from ₹ 1,05,143.6 million to ₹ 83,148.8 million and is only 14%
of their total capital.

14. Their common equity has increased from ₹ 414,090.6 million to ₹ 452,644.5 million and
accounts for 78% of their capital. This indicates that their credit rating of AAA/A1+/Stable
from CRISIL and ICRA has helped their reputation in the market as well as the amount of
dividend that they have distributed.


How the company has rewarded its shareholders in the past?
Sun Pharmaceutical Industries Limited is an Indian multinational pharmaceutical company
which is headquartered in Mumbai. It manufactures and sells pharmaceutical
formulations and active pharmaceutical ingredients primarily in India and the United
States. When we talk about the shares of the company, from 2015-2020 the price of its
single share has ranged between ₹1168.50 in 2015 to ₹316.1 in March of 2020.
For FY2019 the company had declared an interim dividend of ₹3.00 per equity share of
₹1/- each for the year. Later on in addition the Directors provided a dividend of ₹1 which
made the final dividend to be ₹4.

Dividend History.
The company has paid good amount of dividend to its shareholder’s previous year.

6
4
3
2.75
2
3.5
1
3
0
1
2
3
4
5
6
7
Feb 09,
2021
Aug 19,
2020
Feb 17,
2020
Aug 20,
2019
Sep 17,
2018
Sep 18,
2017
Sep 08,
2016
Oct 21,
2015
Dividend Payout

15. The amount of dividend paid to its shareholders has almost increased by 190% in 2020
compared to 2016. It is also evident from the above graph that the company has also had a
history of providing marginally low amount of dividends to its shareholders such as in 2017.
What is your opinion about the company going to do in the future?
Even though Sun Pharmaceuticals is considered as a leading manufacturer in India but due to
the fact that the pharmaceutical sector contains high risk and a longer cycle for return on
investment as there are large variety of products available in the market from other
companies.

Now, both the Net Profit and Return on Equity has declined in 2020 compared to 2016. Some
of the potential reasons for this can be identified as:
1. High Investment in speciality Drug’s franchise.
2. Integration of Ranbaxy
3. Corporate governance issues in the company such as Insider trading, whistle blower
complaint regarding CEO, Stock rigging case.
The company has invested almost $2 billion in building the speciality drug franchise but the
issue of the speciality drug sector is that it involves high risk of low sale of its products as not
their use is not very common. We believe that the company should increase investments of
their other line of products which are making good number of sales. Also, we recommended
that the company should look into their governance issues as they negatively impact their
share price.

“Shanghvi said the company is also looking to protect supply chain, ensure optimum
utilisation of its factories and work closely with vendors to ensure continuity of supply, while
at the same time continue to focus on improving productivity throughout”.
With the aim to ensure protection of supply chain which will focus on minimizing the risk of supply
chain, logistics, and transportation ultimately leading to reduced cost. Also, it will help rectify

16. inefficiencies in delivery schedules. Ensuing optimal utilization of factories will help in gaining
competitive edge and further the goal of improving productivity.
The company already has a presence in 150 countries and is leader in the biggest democracy gives
them the advantage to earn high revenues and expand easily. The company will invest AUD 2 mn in
WRS Bioproducts which is developing novel technologies to produce and commercialize
supplements and nutraceutical ingredients from diverse algae.

Conclusion
To sum up what has been discussed above, Sun Pharmaceutical is one of the largest
manufacturers of generic drug Boyd. India’s pharmaceutical sector is growing rapidly and
occupying a 20% share in global supply in volume and it also supplies 62% of global demand
for vaccines the company was established by Mr delete sanghvi in 18 in 1983 in Gujarat and
is now operating all around the world and has its headquarters in Mumbai India what's up
having Mr dileep sanghvi as its managing director an MD The shareholding pattern comprises
of promoters at 54% if I had 12.33% and DI add 20.70% remaining is others.
Ask something tries to optimally structured capital which
One. Maximizes the work or value of the form
2. minimizes the positive capital under
Understand Parma wewe can That company capital structure is divided into equity share and
long term debt from their financials we could see that over the years company has reduced
its long term debt and increase equity From a 19% that in 2017 the company has reduced it
to 14% in 2020.
Order you could see that costed equity comes out to be 10.52% and cost on bed is 3.64 and
weighted average cost of capital for the company is 10.08%
The company also improved which can also financial since they have reduced their debt.

We could also see, that credit rating agencies have rated sun pharma with their highest
grade. It shows that don't speak unities of the company are quite stable and risk free this
would in turn mean that investors would be owning low returns on such securities. Overtime
from 2021 the dividend payout has increased 100% in 2015 the company paid ₹3 as dividend
or share an in February 9 2021 two companies paid ₹6.00 as dividend.
In future companies looking forward to protect its supply chain in, ensure continuity of
supply, optimal utilization of its battery while at the same time continue to focus on
improving productivity throughout.
With all this the company aims to ensure that Competitive edge is maintained.

17. With the performance of the company, it is suggested to buy the share of the firm. It is
estimated that in future the prices per share will rise.
It is seen that in USA the company has grown 12% QoQ. Also, global speciality sales surpass
pre-COVID levels while Ilumya global sales for 9MFY21 already crossed FY20 full year sales. SUNP
hiked price of Ilumya by 5% recently.
 India Business: Grew 9% YoY and QoQ led by growth in chronic products while acute
products continue to underperform due to lower number of incidence. MRs back on
field with full force and even doctors are back on chambers but patient footfalls in clinics
are at 70-75% of pre COVID levels. In 3QFY21, SUNP launched 27 new products in
domestic market.
 EM/ROW/API: Revenue declined 3% for EM and ROW QoQ while API grew 8% QoQ.



References:

Read more at: https://www.bloombergquint.com/business/sun-pharma-aims-to-gain-
market-share-preserve-cash-amid-pandemic
https://images.moneycontrol.com/static-mcnews/2021/02/Sun-Pharmaceutical-Industries-
05-02-2021-prabhu.pdf
https://economictimes.indiatimes.com/sun-pharmaceutical-industries-ltd/stocks/companyid-
9134.cms
https://www.financialexpress.com/market/stock-market/sun-pharmaceutical-industries-ltd-
stock-price/
https://www.bseindia.com/stock-share-price/sun-pharmaceutical-industries-
ltd/sunpharma/524715/
https://www.screener.in/company/SUNPHARMA/consolidated/
https://in.investing.com/equities/sun-pharma-advanced-research