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India is the largest supplier of generic drugs in the world. India's pharmaceutical sector supplies more than 50% of the global demand for various vaccines, 40% of the general demand in the US and 25% of all medicines in the UK. Globally, India ranks 3rd in pharmaceutical production by volume and 14th in value. The national pharmaceutical industry consists of a network of 3,000 pharmaceutical companies and about 10,500 manufacturing units. India occupies an important position in the world pharmaceutical industry. There are many firms which contributed in the success of Indian pharmaceutical industry and among them Sun Pharmaceutical Ltd. hold an important position. Sun pharmaceutical industries Ltd. is largest pharma company in India and the fourth largest generic pharmaceutical company in the world with global revenues of over US$ 4.5 billion. Over 72% of Sun Pharma's sales come from markets outside of India, primarily the United States. The United States is the largest market, accounting for about 30% of the company's revenue. Production is spread across 44 global locations in India, USA, Asia, Africa, Australia and Europe. In the United States, the company markets a large basket of generic drugs, with a robust pipeline awaiting approval from the Food and Drug Administration (FDA). It was started in the year 1983 and since then it acquired many pharma companies. The company acquired a large stake in Taro Pharmaceuticals in 2010, which is amongst the largest generic companies in US and currently it holds about 69% stake in Taro Pharmaceuticals. In 2012, Sun Pharma again announced acquisition of two more US based companies- DUSA Pharmaceuticals and URL pharma. In 2014, it acquired Ranbaxy in US $4 billion which made Sun Pharma the world’s fifth largest pharmaceutical company. Its most recent acquisition is of Polo Pharma in Japan so that it can strengthen its global dermatology presence. The segments Sun Pharma targeted are dermatology, ophthalmology and oncology. Currently it deals with over 2000 products in over 100 countries. Financial statement analysis is the process of reviewing and analyzing the financial statements of a business in order to make better economic decisions to generate future income. These reports include the income statement, balance sheet, cash flow statement, notes to accounts, and statement of changes in equity. To assess the financial performance of Sun Pharmaceuticals Ltd. various ratios have been taken into consideration to assess firm’s liquidity, leverage, growth, margins, profitability, rates of return, valuation and more.

To assess the financial performances of Pharmaceutical companies few literatures were reviewed. Bhunia,A. (2010) concluded that liquidity position of KAPL and RDPL was quite strong and the predicted that Indian pharma industry would witness an increase in market share. Sheela, C.S. & Karthikeyan, K. (2012) showed the impact and value of DuPont model drivers on return on equity. The study compared the financial performance of top three companies which are Cipla, Ranbaxy and Dr Reddy’s Lab and found that Cipla had highest return on equity which was done by reducing its expenses and cost. Altaf, N. & Ahmad, F.  (2019) discussed about working capital financing and its relation with financial performance and found that it is guided by inverted U-shaped curve.

Priyadharshini & Rajeshwari (2021) analysed profitability and liquidity of Sun Pharma and Divi’s Laboratories to reveal that the companies were performing well but there was a scope of growth in the industry. Panigrahi, Ashok (2019) analysed financial performance by studying the relationship between profitability ratios of five leading pharma companies and found a significant relation between them. However, the study focused mainly on profitability only for performance analysis. 

From the above literature review it is found that most of the articles had used ratio analysis tool to assess the financial health and the following points were came into picture

1. Some articles had showed the relationship between leverage and profitability of a firm.

2. Some articles had studied how liquidity and solvency ratios influence profitability.

3. Some articles assessed the performance of the companies based on DuPont analysis.

4. Some articles studied the dependence of profitability on working capital.

Research Gap

1. Most of the studies showed dependence of working capital or leverage only on the profitability but has not assessed the overall performance of the firm.

2. Further the studies had not done Principal Component analysis to find out leading ratios which had influenced liquidity, profitability, efficiency and Capital structure of the company.

The study is done mainly relative measurement technique. Ratio analysis has been done by analysing liquidity, profitability, efficiency, leverage and market value analysis. Principal Component analysis is done because all these factors with their constituent ratios are not equally important in determining performance of the selected company, someone of these factors may be more important than others in the sense of its explaining power or predictive power. Further, all the ratios may not move in the same direction to derive the valid conclusion. An attempt is made to club the homogeneous ratios in the form of liquidity, profitability, efficiency, leverage and market value ratio then a regression equation is done with gross-profit dependent variable to assess the performance of the company.

Findings: From the analysis of financial performance of Sun Pharma Ltd. through ratio analysis over the study period 2016-17 to 2020-21 it is found that all the liquidity ratios have gradually improved over the study period; but in each year they are below the standard norm except quick ratio in last year (see Table-1). This implies that Sun Pharma has taken aggressive policy in liquidity management to maximize its profitability.

Table-1: Liquidity Analysis

	2017	2018	2019	2020	2021
LIQUIDITY RATIOS
Current ratio	0.5827	0.7625	0.8416	1.0658	1.4462
Quick ratio	0.36916	0.58999	0.627902	0.82707	1.05325
Operating cash flow ratio	-0.1479	-0.0933	0.0936	0.1166	0.2082

Table-2: Principal Component analysis of Liquidity Position

Factor (F)	Eigen Value	% of Variation	Factor Matrix in Factor-1
1	2.874	95.80	.987 (Current ratio)
2	.117	3.90	.959 (Cash Flow ratio)
3	8.825E-03	.294	.990 (Quick ratio)

 

 

 

 

 

 

Further form principal component analysis of three liquidity ratios, it is found that as per Kaiser criterion (KMO.726) the principal factor is current ratio, because Eigen value is more than 1. From Bartlet Test of Sphericity (BTO) it is found that BTO=12.61 and it is significant at 1% probability level, which implies Principal Component Analysis is well fitted here Again, from regression analysis it is found that operating profit and liquidity are negatively related, though it is insignificant.

Profitability Analysis: In profitability analysis I have used three ratios namely gross margin, operating margin and net profit margin ratio. From profitability analysis it is found that all the ratios have fluctuated from time to time. They are in rising trend up to 2020 but decreases in year 2021, except gross margin ratio. But fluctuation of net margin is much higher than gross margin. This implies indirect expenses growth in the study period is much higher.

Table-3: Profitability Analysis

	2017	2018	2019	2020	2021
PROFITABILITY RATIOS
Gross margin ratio	56.10%	59.30%	62.45%	61.64%	61.87%
Operating margin ratio	-0.22%	14.03%	19.77%	27.32%	17.84%
Net profit margin ratio	-0.30%	3.48%	8.35%	26.97%	17.02%

Table-4: Principal Component analysis of Profitability Position

Factor (F)	Eigen Value	% of Variation	Factor Matrix in Factor-1
1	2.637	87.90	.981(Gross Margin)
2	.308	10.25	.926 (Operating Margin)
3	5.537	1.85	.904 (Net Profit)

 

 

 

 

 

 

Further from principal component analysis of three profitability ratios, it is found that as per Kaiser Criterion (KMO-.606) the principal factor is Gross margin ratio, because Eigen value is more than 1. From Bartlet Test of Sphericity (BTO) it is found that BTO=6.723 and it is significant at 1% probability level, which implies Principal Component Analysis is well fitted here

Again, from regression analysis it is found that operating profit and liquidity are negatively related, though it is insignificant.

Efficiency Analysis:

For efficiency analysis in Table-3, it is found that asset turnover is in rising trend over the study period; in inventory turnover ratio also, it is in rising trend except last year 2021which may be due to pandemic Covid-19. In receivable turnover it is in decreasing trend except year 2021.

Table-5: Efficiency Analysis:

	2017	2018	2019	2020	2021
Efficiency ratio
Asset turnover ratio	0.221	0.248	0.263	0.313	0.325
Inventory turnover ratio	1.897	2.342	2.480	2.705	2.682
Receivable turnover ratio	3.1743	2.1974	1.8991	2.1263	2.0051

Table-6: Principal Component analysis of Efficiency Position

Factor (F)	Eigen Value	% of Variation	Factor Matrix in Factor-1
1	2.618	87.257	.904(Asset Turnover)
2	.366	12.216	.995 (Inventory Turnover)
3	1.508E-02	.527	.900 (Receivable Turnover)

 Further from principal component analysis of three Efficiency ratios, it is found that as per Kaiser Criterion (KMO.455) the principal factor is Asset Turnover ratio, because Eigen value is more than 1. From Bartlet Test of Sphericity (BTO) it is found that BTO=9.076 and it is significant at 5% probability level, which implies Principal Component Analysis is well fitted here

In regression analysis it is found that operating profit and asset turnover is positively related though insignificant.

Capital Structure Analysis:

From Table-4 it is found that Debt ratio and debt to equity ratio had fluctuated from time to time over the study period; but interest coverage ratio has risen. In each year debt to equity ratio is more than 50% which implies that the company has taken debt capital advantage to maximise its return. Also the debt ratio is less than 1 or 100% which means that the company owns more assets than liabilities and can meet its obligations by selling its assets if needed so it’s in less risky position.

Table-7: Leverage ratios

	2017	2018	2019	2020	2021
Leverage ratios
Debt ratio	37.96%	39.33%	39.43%	36.49%	35.79%
debt to equity ratio	61.19%	64.82%	65.10%	57.44%	55.75%
Interest coverage ratio	-0.0751	3.1695	3.5751	7.9728	8.7261

 Table-8: Principal Component analysis of Capital Structure Position

Factor (F)	Eigen Value	% of Variation	Factor Matrix in Factor-1
1	2.632	87.733	.975(Debt ratio)
2	.368	12.265	.995 (Debt to Equity)
3	5.150E-05	1.717E-03	.900 (Interest coverage)

 Further from principal component analysis of three Efficiency ratios, it is found that as per Kaiser Criterion (KMO.498) the principal factor is Debt ratio, because Eigen value is more than 1. From Bartlet Test of Sphericity (BTO) it is found that BTO=21.463 and it is significant at 1% probability level, which implies Principal Component Analysis is well fitted here

From regression analysis it is found that operating profit and debt ratio is positively related though insignificant.

Market Value Analysis:

Table-9: Market value ratios

	2017	2018	2019	2020	2021
Market value ratios
Book value per share	105.16	93.04	95.21	101.68	104.36
P/E ratio	90.28	261	58.67	42.94	72.86
Earnings per share ratio	-0.1	1.3	3.4	13.38	8.92

 Table-10: Principal Component analysis of Capital Structure Position

Factor (F)	Eigen Value	% of Variation	Factor Matrix in Factor-1
1	2.328	77.605	.969(Book Value per Share)
2	.594	19.793	.764 (Dividend payout)
3	7.806E-025.150E-05	2.602	.898 (Earnings per share)

For market value ratios it is found that except for the second year it is in rising trend over the study period. It is seen that the company is overvalued since its book value is much less than its yearly market value share prices. From Price earnings ratio it is found that they have fluctuated over the period which implies volatility in share price of the company. Earnings per share of the company is negative for the first year but it increased significantly over the years except for year 2021 for which may be because the company was less efficient in that particular year due to the Covid-19 pandemic.

Further from principal component analysis of three Market value ratios, it is found that as per Kaiser Criterion (KMO-.518) the principal factor is Debt ratio, because Eigen value is more than 1. From Bartlet Test of Sphericity (BTO) it is found that BTO=4.824, but it is insignificant at 10% probability level, which implies Principal Component Analysis is not well fitted here.

1. Annual reports of Sun Pharmaceuticals Ltd. 2. Bhunia, A. (2010), “Financial performance of Indian Pharmaceutical Industry- A case study” 'Asian Journal of Management Research' ISSN 2229-3795 pp 427-451 3. Sheela, C. S. &Karthikeyan, K. (2012), “Financial Performance of Pharmaceutical Industry in India Using DuPont Analysis” ‘European Journal of Business and Management’ vol. 4, no. 14, 2012 pp 84-91 4. Altaf, N. & Ahmad, F. (2019), in their article on “Working Capital Financing, Firm Performance and Financial Constraints” published in ‘International Journal of Managerial Finance’ March 2019, pp 1-15 5. Panigrahi, Ashok (2019), in his article on “Analysis of Financial Performance: A Study of Selected Pharmaceutical Companies” published in ‘Global Management Horizon’ Annual Referred Journal 2019, vol. VIII, pp 47-56 6. Priyadharshini & Rajeshwari (2021), in their article on “Analysis of The Profitability and Liquidity Ratios of Pharmaceutical Companies in India” published in ‘EPRA International Journal of Multidisciplinary Research (IJMR) – Peer Reviewed Journal’ vol. 7, issue 7, pp 298-301 7. https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-performance/ 8. https://www.moneycontrol.com/