....credit-risk-management@ Cipla.docx 1w274j

A STUDY ON CREDIT RISK MANAGEMENT WITH REFERENCE TO CIPLA PHARMACEUTICALS LTD.,

Cipla Pharmaceuticals Limited Pharmaceutical Products Wholesaler Address: Prashanthi Nagar, Near Y junction, Kukatpally, Hyderabad, Telangana 500072 Phone:

040 2307 5811

TABLE OF CONTENTS CHAPTER

TITLE

1

INTRODUCTION

2

REVIEW OF LITERATURE

3

INDUSTRY PROFILE & COMPANY PROFILE

4

RESEARCH METHODOLOGY

NEED OF THE STUDY OBJECTIVES OF THE STUDY SCOPE OF THE STUDY LIMITATIONS OF THE STUDY RESEARCH DESIGN

5

DATA ANALYSIS & INTERPRETATION

6

FINDINGS, SUGGESTIONS & COCLUSION

7

ANNUXURE & BIBLIOGRAPHY

CHAPTER – 1 INTRODUCTION

INTRODUCTION: Trade credit arises when a firm sells in products or services on Credit and does not receive cash immediately. It is an essential marketing tool, acting for the moment of goods through production and distribution stages to customer. A firm grants trade credit to protect is sales form the competitors and to attract the potential customers to by its products at favorable . Trade creates “s receivable or trade debtors” that the firm is expected to in the near futures. The customers from whom receivable or book debits have to be collected in the future is called trade debtors or simply as debtors and represent the firms clime or asset.

A credit sale has characteristics: i) ii) iii)

It involves an element of risk that should be carefully analyzed. Cash sales are totally risk less, but not the credit sales as the cash sales as the cash payment are yet too received. It is based on economic value to the buyer, the economic value goods services es immediately at the time of sales while the seller expects on the equivalent value to be received later on. It implies futurity the buyer will make the cash payment for goods services Received by him in future period. Debtors constituted a substantial portion of customer assets several firms. For e.g.:- n India, traders Debtors after inventories are the major components of current assets. They from 1/3rd of current assets in India. Granting credit and creating Dr’s amount to the blocking of the firms founds. Thus trade debtors represent investment as substantial amount are tide-up in trade debtors it needs careful analysis and proper management

CHAPTER – 2 REVIEW OF LITERATURE

REVIEW OF LITERATURE Good risk management at a strategic level helps protect an organization’s reputation, safeguard against financial loss, minimize disruption to services and increase the likelihood of achieving business objectives successfully. This also gives assurance on how an organization’s business is managed and at the same time will satisfy any compliance requirements of the organization, where an internal control mechanism is established. Internal control includes:     

The establishment of clear business objectives, standards, processes and procedures Clear definition of responsibilities Measurement of inputs, outputs and performance outcomes in relation to objectives Performance Management Financial controls over expenditure and budget.

Identification of risk helps:        

The establishment and understanding of a risk management policy and framework The identification, assessment and judgement of threats to the achievement of clear business objectives Effecting the right action to anticipate and mitigate against risk - this includes establishing effective internal controls to counter key risks Where necessary, to take reasonable and calculated risks based on well informed management decisions Balancing risks by design control to give reasonable assurance to contain risks and offer value for money Monitoring risks and reviewing progress Quantifying risks by assessing any potential costs or benefits arising from possible impact Reporting on the above

Identifying risks Step 1 - Clarity of Objectives

Be clear first of all about the overall objectives of the organisation and understand how departmental objectives are aligned to the delivery of same. Think about:   

What needs to be done By when Who is able for delivery.

Step 2 - Identify Risks With your objectives in mind, ask the following questions:    

What can go wrong? How and why can it happen? What do we depend on for continued success? What could happen?

Consult with staff and others as appropriate and consider a range of possible scenarios including the best and worst cases. Be as creative with this process as possible. Consider the 'cause and effect' and scope of the risk and state as clearly as possible to avoid misunderstanding and misinterpretation. Try to quantify where possible based on what the effect might be. Go back to Step 1 above and do the same for external risks by considering the relationship between the organisation and its wider environment and follow the steps above. Consider potential external cause of business disruption, issues affecting relationship with partners, suppliers and any possible changes in government policy and legislation.

Step 3 - Assess Risks      

Identify existing controls and their effectiveness Assess what other controls may be necessary Determine likelihood / impact - use a bespoke template: Likelihood of risk occurring is used as a qualitative description of probability or frequency Impact is the outcome of the risk impacting and is expressed qualitatively or quantitatively, i.e. being a loss, injury, disadvantage or gain. NB - there may be a range of possible outcomes. Set out a realistic timeframe for managing / mitigating risk.

Step 4 - Address Risks This involves practical steps to managing and controlling risks. Think about:    

What actions or responses are required to control risks What are the associated cost of these actions Are the costs proportionate to the risk that it is controlling What information is needed to make an informed decision to accept, manage, avoid, transfer or reduce the risks



Is it better to work to eliminate or innovate through taking reasonable calculated risks.

Step 5 - Review, Quantify and report Risks Although policy may dictate a review and half yearly update should be enacted, risk owners need to regularly review to ensure there is ongoing relevant management of risks Advice should be sought where quantification / confirmation is needed, i.e. Finance or Audit Department Build into the current reporting structure via the business planning round. Where key risks need to be considered, ensure it is given priority within the agreed framework.

Risk Defined Risk: is the actual exposure of something of human value to a hazard and is often regarded as the product of probability and loss - Source: Smith K 2001; Environmental Hazards Assessing Risk and Reducing Disaster: London: Routledge: 6 -7. Risk Assessment: The evaluation of a risk to determine its significance, either quantitatively or qualitatively. Risk Management: Determines the levels at which risk acceptability is set and methods of risk reduction are evaluated and applied. Resilience: The ability at every relevant level to detect, prevent and, if necessary handle disruptive challenges. Source: CCS Resilience Business Continuity: A proactive process which identifies the key functions of an organization and the likely threats to those functions; from this information plans and procedures which ensure that key functions can continue, whatever the circumstances, can be developed.

Credit Policies The first decision area is credit policies: The credit policy of a firm provides the frame work to determine – a) Whether or not to extend credit to a customer and b) How much credit to extend.

Credit Policy Variables: In establishing an optimum credit policy. The financial manager must consider the important decisions variables which influence the level of receivables. The major controllable decision variable include the following –

   

Credit standards Credit analysis Credit Collection policies and procedures

Credit Standards The term credit standards represent the basic criteria for the extension of credit to customers. The quantitative basic of establishing credit standards or factors such as credit rating, credit reference, average payment period and certain financial ratio’s since we are interested in illustrating the trade – off between benefit and cost to the firm as a whole. We do not consider here these individual components of credit standards. To illustrate the effect we have divided the overall standards into: Tight or restrictive and. Liberal or non- restrictive i.e., to say our aim is to show what happens to the trade-off when standards are relaxed or alternatively, tighten.

The trade – off with reference to credit standards covers The collection cost    

The average collection period or investment in receivables Levels of bad debts losses and Level of sales. These factors should be considered while deciding whether to relax credit standards or not. If standards are relaxed, it means more credit will be extended while. If credit standards are tightened. Less credit will be extended.

Collection Cost: The implication of relaxed credit standards are  

More credit A large credit department to service s receivables and related matters Increase in collection cost

The effect of tightening of credit standards will be exactly the opposite. These costs are likely to be semi-variable. This is because up to a certain point the existing staff will be able to carry on the increased workload but beyond that, additional staff would be required these are assumed to be included in the variable cost per unit and need not be separately identified.

Investment in Receivable or Average Collection Period The investment in s receivable involves a capital cost as funds have to be arranged by the firm to finance them till customers make payment. Moreover, the higher

the average s receivables; the higher is the capital or carrying cost. a change in the credit standards – relaxation or tightening leads to a change in the level of s receivables either.  

Through a change in sale, Through a change in collection.

A relaxation in credit standards as already stated, implies an increase in sales which in turn would lead to higher average s receivables? Further relaxed standards would mean that credit is extended liberally so, that it is available to even less credit worthy. Customers who will take longer period to pay over dues. The extension of trade credit to slow paying customers would result in a higher level of s receivables. A tightening of credit standards would signify: i) ii)

A decrease in sales and lower average s receivables / A and An extension of credit limited to more credit worthy customers who can promptly pay their bills and thus, a lower average level of s receivables.

Thus a change in sales and change in collection period together with a relaxation in Standards would produce a higher carrying cost, while changes in sales and collection period result in lower costs when credit standards are tightened. These basic reactions also occur when changes in credit or collection procedures are made.

Bad Debts Another factor which is expected to be affected by changes in the credit standards is bad debts (default) expenses. They can be expected to increase with relaxation in credit standards and decreases if credit standards become more restrictive.

Sales Volume: Changing credit standards can also be expected to be change the volume of sales. As standards are relaxed, sales are expected to increase; conversely a tightening is expected to cause a decline in sales. The basic changes and effects on profits arising from a relaxation of credit standards are summarized in exhibit If the credit standards are tightening, the opposite effects, as shown in the brackets would follow:

Credit standards influence the quality of the firm’s customers. There are two aspects of the quality of customers. i) ii)

The time taken by customers to repay credit obligations, The default rate.

The A determines the speed of payment by customers. It measures the number of days for which credit sales remains outstanding. The longer the A, the higher the firm’s investment in s receivables.

Default Rate-Can be measured in of bad debts losses ratio’s – the proportion of uncollected receivable. Bad debts losses ratio indicates default risk. Default Risk-Is the likelihood that a customer will fail to repay the credit obligation. On the basis of past practice and experience, the financial or credit manager should be able to form a reasonable judgment regarding the chance of default. To estimate the probability of default, the financial or credit manager should consider 3 c’s – a) Character b) capacity and

c) Conditions

Character Refers to the customers willingness to pay the financial or credit manager should Judge whether the customer will make honest efforts to honor their credit obligation. The moral factor is considerable importance in credit evaluation in practice.

Capacity Refers to the customers ability to pay can be judged by assessing the customers capital and assets which he may offer as security capacity is evaluated by the financial position of the firm’s as indicated by analysis of ratio’s and trends in firm’s cash and working Capital position. The financial position or credit manager should determine the real worth of assets offered as collateral (security).

Conditions Refers to the prevailing economy and other conditions which may effects the customers’ ability to pay. Adverse economic conditions can affect the ability or willingness of a customer to pay. An experienced financial or credit manager will be able to judge the extent and genies ness to which the customer’s ability to pay is effected by the economic conditions. Information on these variables may be collected from the customers themselves, their published financial statement and outside agencies which may keep credit information about customers. A firm should use this information in preparing categories of customers according to their credit worthiness and default risk. This would be an important input for the financial or credit manager in formulating its credit standards. The firm may categorized its customers at least, in the following 3 categories:

Good s: that is financially strong customers. Bad s: that is financially very weak, high risk customers.

Marginal s: that is customers with moderate financial health and risk (falling between good and bad s). The firm will have no difficulty in quickly deciding about the extension of credit to Good s and rejecting the credit request of bad s. Most of the firm’s time will be taken in evaluating marginal s. i.e., customers who are not financially very strong but are also not so bad to be rightly rejected. A firm can expand its sales by extending credit to marginal s but the firms cost and bad debts losses may also increases. Therefore credit standards should be relaxed upon the point where incremental return equals incremental cost (IR = IC).

Credit : The 2nd decision area in s receivable management is the credit . After the credit standards have been established and the worthiness of the customers has been assessed the management of a firm must determine the and conditions on which trade credit . These relate to the repayment of the amount under the credit sale. Credit term is the stipulation under which the firm sells on credit to customers are called credit .

Credit Period: The length of time which credit is to customers is called the credit period. It is generally stated in net of a net date. A firms credit period may governed by the industry norms. But depending on its objective the firm can lengthen the credit period. On the other hand, the firm may lengthen its credit period if customers are defaulting to frequently and bad debts losses are building up. A firm lengthens to credit period to increases its operating profit through expanding sales however, there will be net increases in operating profit when the cost of extended credit period is less than the incremental operating profit. With increased sales and extended credit period receivable would increases.   

Incremental sales result in incremental receivables and Excising customer will take more time to repay credit obligations i.e. avg. Collection period will increase.

The 2nd component of credit is the credit period. The expected effect of an increase in the credit period is summarized in table below.

Cash Discount:

A cash discount is a payment offered to customers to induce them to repay credit obligations within a specified period of time which is less than the normal credit period. It is usually expressed as a percentage of sales cash discount indicate the rate of discount and the period for which it is available. It the customer does not avail the. Offer, he must make payment within the normal credit period. Credit term would include. • Rate of cash discount • The cash discount period. • The net credit period A firm uses cash discount as a tool to increases sales & accelerates collections form customers. Thus the level of receivable & associated costs may be reduced the cost involved in the discounts taken by customers. The effects of increasing the cash discounts are summarized in below table.

Cash Discount Period: Which refers to the duration during which the discount can be availed of these are usually written in abbreviation for instance 2/10 net 30 i.e. 2% 10 days (time available) 30 days (maxi)

Collection Policy & Procedures: A collection policy is needed because all customers do not pay the firm’s bill in time, some customers are slow payers while some are non payers. The collection effort should, therefore aim at accelerating collections from slow payers and reducing bad debts losses. A collection policy should ensure prompt and regular collection. Prompt collection is needed for fast turn over or working capital keeping collection costs and bad debts within limits and maintaining collection efficiency’s. Regularity in collection keeps dr’s alert & they tend to pay their dues promptly. The collection policy should lay down clear cut collection procedures. The collection procedures for past dues or delinquent s should also be establish in unambiguous . The slow paying customers should be handled very tactfully, some of them maybe permanent customers the collection process initiated quickly. Without giving any chance to them may antagonize them, and the firm may loss them to competitors. The ing dept maintains the credit records and information it is responsible for collection, it should consult the sales dept before initiating an action against non paying customers similarly the sales dept must obtain past information about customers from the ing dept before granting credit to him. Through collection procedure should be firmly established, individual cases should be dept with on their merits. Some customers may be temporarily in tight financial position and in spite of their best intention may not be able to pay on due date this may be due to recessionary –conditions, or other factors beyond the contract of the customers, such cases need special consideration. The collection procedure against them should be initiated only after they have overcome their financial difficulties and do not intend to pay promptly.

Credit Granting Decision: Once a firm has assessed the credit worthiness of a customer, it has to decide whether or not. Credit should be granted. The firm should use the NPV (net present value) rule to make the decision, if the NPV is positive, credit should be granted. If the firm chooses not to grant any credit, the firm avoids the possibility of any losses but losses the opportunity of increasing its profitability. On the other hand if it grants credit then it will benefit if the customer pay’s. There is some profitability that a customer will default, and then the firm may lose its investment. The expected net pay-off of the firm is the differences between the present values of net benefit and present value of the expected loss.

Credit Limit: A credit limit is a maximum amt of credit which the firm will extend at a point of time. It indicates the extent of risk taken by the firm by supplying goods on credit to a customer. Once the firm has taken a decision to extend credit to the applicant, the amount and duration of the credit has to be decided. The decision on the magnitude of credit will depend upon the amount of contemplated scale and the customer’s financial strength in case of customers who are frequent buyers of the firm’s goods, a credit limit can be establish. This would avoid the need to investigate each order from the customers. Depending on the regularity of payment, the line of credit for a customer can be fixed on the basis of his normal buying pattern The credit limit must be reviewed periodically. If tendencies of slow paying are found. That credit can be revised downward.

Why Do Companies Grant In India: Companies in practice feel the necessity of granting credit reason: • Competition: Generally the higher the degree of competition, the more the credit granted by a firm however, there are exceptions such as firms in the electronics industry in India.

• Companies Bargaining Power: If A Company has higher bargaining power vis-à-vis its buyers, no or less credit. The company will have a string bargaining power if it has a strong product, monopoly, and brand image, large size or strong financial position.

• Buyer Requirement:

In a number of business sectors buyers or dealers are not able to operate with extend credit this is particularly so, in the case of industrial products.

• Buyers Status: Large buyers demand easy credit because bulk purchasers and higher bargaining power some companies fallow a policy of not giving much credit to small retailers since it is quite difficult to collect dues from them.

• Relationship with Dealers: Companies sometimes extend credit to dealers to build long –term relationship with or to reward them for their loyalty.

• Marketing Tool: Credit is used as a marketing tool, particularly when a new product is launched or when a new company wants to push its week products.

• Industry Practice: Small companies have been found guided by industry practice or norm more than the large companies. Sometimes companies continue givining credit because of past practice rather than industry practice.

Trynist Delay: This is a forced reason for extended credit in the case of a number of companies in India most companies evolved systems to minimize the impact of such delays some of them take the help of banks to control cash flows in such situations.

Nature of Credit Policy: A firm’s investment in s receivable depends on – a) The volume of credit sales, and b) The collection period For example; if a firm’s credit sales are Rs. 30, 00,000 per day and customers, on an average, take 45 days to make payment then the firm’s average investment in s receivable is: Daily credit sales x A [30, 00,000 x 45 = 1, 350, 00,000] The investment in receivables may be expressed in of cost of sales instead of sales value.

The volume of credit sales is a function of the firm’s total sales and the % of credit sales to total sales. Total sales depends on market size, firm’s share, product quality, intensity of competition, economic condition etc. The financial manager hardly has any control over these variables. The % of credit sales to total sales are mostly influence by the nature of the business and industry norms. For example: Car manufacture in India, until recently, was not selling cars on credit.They required the customers to make payments at the time of delivery. Some of them even asked for the payment to be made in advance this were so, because of the absence of genuine competition and a wide gap between demands for and supply of cars in India. This position changed after economic liberalization which led to intense competition. In contrast, the textile manufacture sold 2/3 rd of their total sales on credit to the wholesale dealers. The textile industry is still going through a difficult phase.

Goals of Credit Policy: A firm may follow a Lenient or a stringent credit policy. The firm follow a lenient credit policy tend to sell on credit to customers on very liberal and standards, credits are granted for longer period even to those customers whose credit worthiness is not fully known or whose financial position is doubtful. A firm follow a stringent credit policy sells on credit on a highly selective basis only to those customers who have proven credit worthiness and who are financially strong. In practice firms follow credit policies ranging between stringent to lenient.

Cost of Credit Policy: 1) If the credit policy is loose, bad debts are more. 2) If the credit policy is tight, bad debts are less. 3) If the credit policy is tight, opportunity cost is more. 4) If the credit policy is loose, opportunity cost is less-optimum credit policy.

Research on Credit Management Business have receivables i.e. dues from credit customers. To increase sales, to earn more, to meet the competitors, to achieve break even volumes, to gain a foot hold in the market, to help the customers on whom the business fortune is intimately in nexus and to develop a strong brand, receivables, i.e. credit sales, are vital. Maintaining s receivables involves cost. istration cost, capital cost, collection cost, and bad-debt cost etc. are diverse costs involved. As in any financial decision matching costs with benefits are needed here too. And what is the optimum level of s receivables is to be decided. Too little of s receivable, that is very limited credit ales reduced sales, loss of customer to the competitor’s camp, reduced profit and so on. Of course no bad debt, less capital locked up in s receivables resulting lower capital cost etc., are benefits. But, a little more risk can be taken and profits can be inflated. Too much of s receivables lead to scale advantage and hence more profit can be inflated. Too much of s receivables lead to scale advantage and hence mire profit, but costs of added bad debts, capital cost etc. are involved. Perhaps by reducing s receivables costs can be steeply reduced, while

benefits are not similarly 53 decreasing. Therefore optimum investment in s receivable has to be planned and achieved

Credit Policy Policy is a guideline to action. Policy establishes guideposts or limits for actions. Credit policy, therefore, refers to guide lines regarding credit sales, size of s receivables etc. Credit policy has a few variables. Credit standard, Credit period, Credit and collection policies are the policy variables.Credit standards refer to classification of customers on the basis of their Credit standards and stipulation of Credit eligibility of different classes of customers. The high rated customers may be extended unlimited Credit, the moderate Credit standards class may be extended a limited credit facility and the rest may not be given any Credit facility .credit period refers to how long credit is allowed. Longer credit period might help drawing more customers and vice-versa. Credit refer to discount incentive for prompt payments by offering cash discount can be ensured. 2/30,net 45 means.2% cash discount for payment within 30 days ,failing which full payment by the 45th day of truncation. Collection policy refers the seriousness or otherwise with which collection is dealt with, especially the delinquent customers. It may be harsh or warm. Credit policy can be liberal or stringent. Liberal credit policy adopts a lenient credit Standards ,i.e. almost all are extended credit; longer Credit period, higher cash discount for a longer entitlement period and informal and accommodative collection procedure. Stringent credit policy does the opposite. Both policies have advantages and accompanying costs .hence, choice must be exercised by individual firms after assessing the net effect of liberalizing or tightening up the Credit policy..

Control on Credit Management The investment in s should be within accepted level. To achieve this, control measures are needed so that when actual fall outside the prescribed range, corrective actions can be taken. In controlling s receivables certain techniques are adopted. Three such techniques are described below. These are

Debtor’s turnover ratio (DTR): Debtor’s turnover ratio refers to ratio of sales to s receivable (sundry debtors plus bills receivables). The s receivables may be closing figure, or average of year beginning and year-end figures or average of monthly opening and closing figures. An acceptable range for the ratio is within this band, is all right. if the actual DTR is less than 5,it means more money is locked up in s receivables. Either sales have slumped relative to size of debtors, or debtors have risen to sales. If the ratio exceeds the upper hand, it means customers promptly pay willingly or buy over force. It is good.

Debtor’s velocity:

Debtors velocity refers to how much many days sales are outstanding with the customers. This is given by: s receivables/ per day credit sales. If fact, debtors velocity indicates the average collection period allowed, everything is fine. If it exceeds the credit period allowed, this should be corrected. If A is less than credit allowed, it can be considered as good, debtors velocity can be computed ,this vary also, that: number of working days in the year/DTR.

Age of debtors: Age of debtors refers how long debts are outstanding. Say 10% of s receivables is 6 months old,15% is 5 months old,25% is 4 months old,25% is 3% months old,15% is 2 months i.e., 15% is 2 months old and 10% is 1 month old. The average age of debtor’s olds to: 6+75+100+75+3+1=3.5 months. An ideal break up of s receivables can be establishes and actual position is monitored accordingly. The idle average age and actual average age of s receivables can be compared and control is exercised on s receivables.

Research on Credit Management The objectives of research non credit management could be:   

To study the credit policies adopted across firms/ industries or in a firm/ industry. To study the extent of impact of lenient and stringent credit policies on sales, capital cost, profit, bad debts, etc. To study the influence of different factors like –credit allowed by suppliers, credit allowed by companies, etc. on credit policy.

Credit Management is a branch of ancy, and is a function that falls under the label of "Credit and Collection' or 's Receivable' as a department in many companies and institutions. They will usually deal with the credit vetting of customers, the resolution of any invoice queries or disputes, allocations of payments or cash application, internal fund movements, reconciliations and also maintaining positive working relationships with customer during the debt collection or credit review and approval process. A key requirement for effective revenue and receivables management is the ability to intelligently and efficiently manage customer credit lines or credit limits. In order to minimize exposure to bad debt, over-reserving, and bankruptcies, companies must have greater insight into customer financial strength, credit score history and changing payment patterns. Likewise, the ability to penetrate new markets and customers hinges on the ability of a company to quickly make well informed credit decisions and set appropriate lines of credit. Credit Management has evolved now from being a pure ing function into a frontend customer facing function. It involves screening of customers and only those who is credit worthy are allowed to do business. A sound review of the financial position of the customer, and understanding of their business model is the first step in ensuring that the company does not end up selling to a customer who ends up seriously delinquent or in default.

Hence, before the sales function commences its business with the particular customer, the credit management role begins. Later as the customer starts dealing with the company, the s receivable function is used to ensure recovery as per agreed of credit is followed.

Credit Analysis It is the method by which one calculates the creditworthiness of a business or organization. The audited financial statements of a large company might be analyzed when it issues or has issued bonds. Or, a bank may analyze the financial statements of a small business before making or renewing a commercial loan. The term refers to either case, whether the business is large or small. Credit analysis involves a wide variety of financial analysis techniques, including ratio and trend analysis as well as the creation of projections and a detailed analysis of cash flows. Credit analysis also includes an examination of collateral and other sources of repayment as well as credit history and management ability. Before approving a commercial loan, a bank will look at all of these factors with the primary emphasis being the cash flow of the borrower. A typical measurement of repayment ability is the debt service coverage ratio. A credit analyst at a bank will measure the cash generated by a business (before interest expense and excluding depreciation and any other noncash or extraordinary expenses). The debt service coverage ratio divides this cash flow amount by the debt service (both principal and interest payments on all loans) that will be required to be met. Bankers like to see debt service coverage of at least 120 percent. In other words, the debt service coverage ratio should be 1.2 or higher to show that an extra cushion exists and that the business can afford its debt requirements.

Credit Control: Policies aimed at serving the dual purpose of (1) increasing sales revenue by extending credit to customers who are deemed a good credit risk, and (2) minimizing risk of loss from bad debts by restricting or denying credit to customers who are not a good credit risk. Effectiveness of credit control lies in procedures employed for judging a prospect's creditworthiness, rather than in procedures used in extracting the owed money. Also called credit management. People have become increasingly dependent on credit. Therefore, it's crucial that you understand personal credit reports and your credit rating (or score). Here we'll explore what a credit score is, how it is determined, why it is important and, finally, some tips to acquire and maintain good credit.

What is a Credit Rating? When you use credit, you are borrowing money that you promise to pay back within a specified period of time. A credit score is a statistical method to determine the likelihood of an individual paying back the money he or she has borrowed. The credit bureaus that issue these scores have different evaluation systems, each based on different factors. Some may take into consideration only the information contained in your credit report, which we look at below. The primary factors used to calculate an individual’s credit score are his or her credit payment history, current debts, time length of credit history, credit type mix and frequency of applications for new credit. Because the scoring systems are based on different criteria which

are weighted differently, the three major credit bureaus in the U.S. (Equifax, TransUnion, and Experian) may issue differing scores for an individual, even though the scores are based on the same credit report information. You may hear the term FICO score in reference to your credit score - the are essentially synonymous. FICO is an acronym for the Fair Isaacs Corporation, the creator of the software used to calculate credit scores. Scores range between 350 (extremely high risk) and 850 (extremely low risk). Here is a breakdown of the distribution of scores for the American population in 2003:

What about a Credit Rating? In addition to using credit (FICO) scores, most countries (including the U.S. and Canada) use a scale of 0-9 to rate your personal credit. On this scale, each number is preceded by one of two letters: "I" signifies installment credit (like home or auto financing), and "R" stands for revolving credit (such as a credit card). Each creditor will issue its own rating for individuals. For example, you may have an R1 rating with Visa (the highest level of credit rating), but you might simultaneously have an R5 from MasterCard if you've neglected to pay your MasterCard bill for many months. Although the "R" and "I" systems are still in use, the prevailing trend is to move away from this multiple rating scale toward the single digit FICO score. Nevertheless, here is how the scale breaks down. When you borrow money, your lender sends information to a credit bureau which details, in the form of a credit report, how well you handled your debt. From the information in the credit report, the bureau determines a credit score based on five major factors: 1) previous credit performance, 2) current level of indebtedness, 3) time credit has been in use, 4) types of credit available, and 5) pursuit of new credit. Although all these factors are included in credit score calculations, they are not given equal weighting. Here is how the weighting breaks down: As you can see by the pie graph, your credit rating is most affected by your historical propensity for paying off your debt. The factor that can boost your credit rating the most is having a past that shows you pay off your debts fairly quickly. Additionally, Maintaining low levels of indebtedness (or not keeping huge balances on your credit cards or other lines of credit), having a long credit history, and refraining from constantly applying for additional credit will all help your credit score. Although we would love to explain the exact formula for calculating the credit score, the Federal Trade Commission has a secretive approach to this formula. Credit is a Fragile Thing being aware of your credit and your credit score is very important, especially since you can harm your credit without even being aware of it. Here's a true story of what can happen: Paul applied for a travel reward miles card, but never received any response from the credit card company. Since it was a high-limit travel card, Paul just assumed that he'd been

declined and never thought about it again. More than a year later, Paul goes to the bank to inquire about a mortgage. The people at the bank pull up Paul's credit report and find a bad debt from the credit card company. According to the credit report, the company tried to collect for a year but recently wrote it off as a bad debt, reporting it as an R9, the worst score you can get. Of course, all this is news to Paul. Well, it turns out there was a clerical error, and Paul's apartment suite number was missing from the address the credit card company had on file. Paul had been approved for the card but never actually received it, and any subsequent correspondence didn't get through either. So the credit card company still charged Paul the annual fee, which he didn't pay, because he didn't know the debt existed. The annual fee collected interest for a year until the credit card company wrote it off. In the end, after jumping though several fiery hoops, Paul was able to get the problem rectified, and the card company itted fault and notified the credit-reporting agency. The point is, even though it was a small balance due (about $150), the istration error almost got in the way of Paul getting a mortgage. Nowadays, since all data goes through computers, incorrect information can easily get onto your credit report.

Tips to Improve or Maintain a High Credit Score:       

Make loan payments on time and for the correct amount. Avoid overextending your credit. Unsolicited credit cards that arrive by mail may be tempting to use, but they won't help your credit score. Never ignore overdue bills. If you encounter any problems repaying your debt, call your creditor to make repayment arrangements. If you tell them you are having difficulty, they may be flexible. Be aware of what type of credit you have. Credit from financing companies can negatively affect your score. Keep your outstanding debt as low as you can. Continually extending your credit close to your limit is viewed poorly. Limit your number of credit applications. When your credit report is looked at, or "hit," it is viewed as a bad thing. Not all hits are viewed negatively (such as those for monitoring of s, or prescreens), but most are. Credit is not built overnight. It's better to provide creditors with a longer historical time frame to review: a longer history of good credit is favoured over a shorter period of good history.

Credit Policies: Credit policies are decided by zonal manager and credit will be given to dealers based up on track record, history and credit worthiness of the distributors. It is depends on the management and under control of the credit controller (zonal Manager and one of the directors).

Credit Standards: Depends on the credit market position if the position is down. The zonal manager or Credit controller is looking (i.e., to extend the credit period or limit). Credit standards are determined based on the economic conditions. If the economy is in the recession more credit will be extended and if the economy is in boom less credit will be extended.

Credit Period: The length of time for which credit is extended to customers. Credit period = 90 days

Cash Discount Period: A cash period is a reduction in payment offered to customers to induce them to repay credit obligation within a specified period of time, which will be less than the normal credit period. Cash discount period = 30 days • Cash discount = 3% • Credit discount = 40% on MRP

Credit Limit: Credit limit is a maximum amount of credit which the firm will extend at a point of time. • Credit limit is depending on the dealers deposit amount. For example: if he deposit = 500,000 The credit limit = 25, 00,000 will be given.

Eligibility for Taking Dealership: • 5 years Bank statement • 2 cheques for security • 1 DD for the dealer deposit amount • He should have the Tin number (wholesaler, retailer)

Three Types of Customers: 1) Builders of contractors-sales: Company is giving discount depends on the volume of goods taking by the builders. 2) Institutions-sales: Up to 6% giving.

3) Ordinary dealers: Company standards discount. Payment 30 days for every sale.

CHAPTER – 3 INDUSTRY PROFILE & COMPANY PROFILE

INDUSTRY PROFILE: Introduction The Indian pharmaceuticalindustrycurrentlytopsthechartamongstIndia'ssciencebasedindustrieswithwiderangingcapabilitiesinthecomplexfieldofdrugmanufactureandtechnol ogy.Ahighlyorganizedsector,theIndianpharmaceuticalindustryisestimatedtobeworth$4.5billi on,growingatabout8to9percentannually.Itranksveryhighamongstallthethirdworldcountries,int ermsoftechnology,qualityandthevastrangeofmedicinesthataremanufactured.Itrangesfromsim pleheadachepillstosophisticatedantibioticsandcomplexcardiaccompounds,almosteverytypeof medicineisnowmadeintheIndianpharmaceuticalindustry. TheIndianpharmaceuticalsectorishighlyfragmentedwithmorethan20,000edunits.Ithase xpandeddrasticallyinthelasttwodecades.ThePharmaceuticalandChemicalindustryinIndiaisane xtremelyfragmentedmarketwithseverepricecompetitionandgovernmentpricecontrol.ThePhar maceuticalindustryinIndiameetsaround70%ofthecountry'sdemandforbulkdrugs,drugintermedi ates,pharmaceuticalformulations,chemicals,tablets,capsules,orals,andinjectibles.Thereareapp roximately250largeunitsandabout8000SmallScaleUnits,whichformthecoreofthepharmaceutic alindustryinIndia(including5CentralPublicSectorUnits). TheGovernmenthasalsoplayedavitalroleinthedevelopmentoftheIndiaSoftwareIndustry.In1986 ,theIndiangovernmentannouncedanewsoftwarepolicywhichwasdesignedtoserveasacatalystfor thesoftwareindustry.Thiswasfollowedin1988withtheWorldMarketPolicyandtheestablishmento ftheSoftwareTechnologyParksofIndia(STP)scheme.Inaddition,toattractforeigndirectinvestme nt,theIndianGovernmentpermittedforeignequityofupto100percentanddutyfreeimportonallinpu tsandproducts. The first Indian pharmaceutical company, Bengal Chemicals and Pharmaceutical Works, which still exists today as one of 5 government-owned drug manufacturers, appeared in Calcutta in 1930. These five public sector drug-manufacturing units under the Ministry of Chemicals and Fertilizers are: Indian Drugs and Pharmaceutical Limited (IDPL), Hindustan Antibiotics Limited (HAL), Bengal Immunity Limited (BIL), Bengal Chemicals and Pharmaceutical Limited (BL) and Smith Stanistreet Pharmaceutical Limited (SSPL). In addition, there are a number of pharmaceutical manufacturing units under the control of state governments such as Goa Antibiotics Ltd. and Karnataka Antibiotics Ltd. For the next 60 years, most of the drugs in India were imported by multinationals either in fully-formulated or bulk form. There are 24,000 licensed pharmaceutical companies. Of the 465 bulk drugs used in India, approximately 425 are manufactured here. India has more drug-

manufacturing facilities that have been approved by the U.S. Food and Drug istration than any country other than the US. Indian generics companies supply 84% of the AIDS drugs that Doctors without Borders uses to treat 60,000 patients in more than 30 countries. The Indian pharmaceutical sector has expanded drastically in the last two decades. The Pharmaceutical industry in India is an extremely fragmented market with severe price competition and government price control. The Pharmaceutical industry in India meets around 90% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectables. There are approximately 300 big and medium scale Pharmaceutical companies and about 8000 Small scale units, which form the core of the pharmaceutical industry in India.

Current Scenario Indianpharmaceuticalindustryisexpectedtogrowat19%in2013.Indiaisnowamongthetopfivepha rmaceuticalemergingmarkets.Therewillbenewdruglaunches,newdrugfilings,andPhaseIIclinict rialsthroughouttheyear.Onbackofincreasingsalesofgenericmedicines,continuedgrowthinchron ictherapiesandagreaterpenetrationinruralmarkets,thedomestiharmaceuticalmarketisexpecte dtoastrongdouble-digitgrowthof13-14percentin2013.

In future it will be a growth period of the Indian Pharmaceutical Industry. The growth is expected to emerge from three major areas: 

Contract research and development services.



Export led business of generics and bulk drugs and



Growth in specialty therapeutic areas in the domestic market. The growth in the institutional segment is likely to raise the market for diagnostics.

Increasing industrialization, literacy levels and urbanization are likely to increase the health awareness of the general public. Consequently the demand for preventive medicine in general and immunological like tetanustoxoid, triple antigen (DPT), measles vaccine, Hepatitis vaccine, anti-rabies vaccine, polio vaccine and typhoid vaccine are likely to increase. Companies are likely to pay greater attention to their human resources development effort in general and management developmental programs in particular. The present state of armed truce between the trade and the industry is likely to continue in the future. But with a difference. The industry is likely to be united more closely than before.

Companies, which have strong research, focus and competence only can achieve a sustainable growth and performance in the borderless future market place. Now the companies are steadily increasing their investment in Research and Development. Companies that think strategically are the ones that are likely to succeed in the future. Marginal firms are likely to be marginalized. Strategic thinking plays an even greater role in the coming years. Unless the pharmaceutical companies in India start preparing for future competition right now by upgrading in all areas it could be very difficult to exploit growth opportunities. It might become difficult even to survive any longer. The industry will continue to be in consolidation mode and mood. The last few years have seen a spate of mergers and acquisitions of brands as well as companies. Indian companies continue to be aggressive in pursuing merger and acquisition strategies to gain access to international markets and to reinforce their position. Strategic alliances too will be on the rise particularly in the areas of contract research, contract manufacturing and product licensing.

ADVANTAGE INDIA As regards the pharmaceutical marketing in the world, India is becoming one of the front runner destinations because of its second largest population in the world, the pace of development of its economy, adoption of technological advancements, economical medical treatment cost and also availability of world renowned physician’s etc. Following are the advantages of Indian Healthcare Scenario: 

Competent workforce: India possesses a skillful work force with high managerial and technical competence.



Cost-effective chemical synthesis: The track record for development, particularly in the area of improved cost-beneficial chemical synthesis for various drug molecules is excellent.



Legal and Financial Framework: India is a democratic country with a solid legal framework and strong financial markets. There is already an established international industry and business community.



Information and Technology: It has a good network of world-class educational institutions and established strengths in Information Technology.



Globalization: The country is committed to a free market economy and globalization. Above all, it has a 70 million middle class market, which is constantly growing.

Major Pharmaceutical Companies in India Some of the leading Indian players by sales (INR Billion) Company Name

Sales in INR billion

Cipla

69.77

Ranbaxy Lab

76.86

Dr Reddy's Labs

66.86

Sun Pharma

40.15

Lupian Ltd

53.64

AurobindoPharma

42.84

Jubilant Life

26.41

Cadila Health

31.52

Ipca Labs

23.52

Wockhardt

26.50

Cipla Limited Cipla is a global pharmaceutical company whose goal is ensuring no patient shall be denied access to high quality & affordable medicine and . Cipla’s journey began in 1935 when our founder, Dr K A Hamied, set up an enterprise with the vision to make India selfsufficient in healthcare. Over the past 77 years, they have emerged as one of the world’s most respected pharmaceutical names, not just in India but worldwide. For patients, caring is a promise that they will do whatever it takes to ensure they have continued access to the highest quality medicines at affordable prices; whether a disease affects millions or just a few hundreds. To the medical fraternity, caring means the assurance of world-class medicines and across multiple therapeutic areas. For business partners, caring brings the confidence of always getting world-class quality and competitive prices. For employees, caring manifests itself in a safe, equal-opportunities' workplace that fosters innovation for a healthier world.

Ranbaxy Laboratories Limited: Ranbaxy Laboratories was established in 1961. It is a research-based international pharmaceutical company serving customers in over 150 countries and has experience of more than 50 years in providing high quality, affordable medicines trusted by healthcare professionals and patients. Ranbaxy is a member of the Daiichi Sankyo Group which is a leading global pharma innovator, headquartered in Tokyo, Japan. Ranbaxy has operations in 43 countries and 21 manufacturing facilities spread across eight countries. The company covers all the top 25 pharmaceutical markets of the world and has a robust presence across both developed and emerging markets. Driven by innovation and through their continued focus on research & development (R&D), Ranbaxy has achieved several regulatory approvals in both developed and emerging markets.

Dr. Reddy's Laboratories: Dr Reddy’s began as an active pharmaceutical ingredients (API) manufacturer in 1984, producing high-quality APIs for the Indian domestic market. In 1987, the company started its formulations operations and, after becoming a force to reckon with in the Indian formulations market, went international in 1991. Dr Reddy’s today is more than a 200-million dollar venture with presence in almost all major therapeutic areas. The company is committed to providing affordable and innovative medicines for healthier lives. Through its three businesses – Pharmaceutical Services and Active Ingredients, Global Generics, and Proprietary Products, Dr Reddy’s offers a portfolio of products and services including APIs, custom pharmaceutical services, generics, biosimilars and differentiated formulations. The company’s major therapeutic focus is on gastrointestinal, cardiovascular, diabetology, oncology, pain management and anti-infective. Major markets for Dr Reddy’s include India, USA, Russia-CIS and Europe, apart from other select geographies within emerging markets. Recently, Dr Reddy’s deepened its focus into the rural markets in India to ensure the expansion of its reach. In this initiative, the company collaborated with its CSR wing, Dr Reddy’s Foundation to reach the millions who are still away from effective treatment and availability of the right medicines.

Sun Pharmaceutical Industries Ltd: Sun Pharmaceutical Industries Ltd is an international specialty pharma company. The Company manufactures and markets pharmaceuticals formulations as branded generics, as well as generics in India, the United States (US) and several other markets across the world. The Company’s business is divided into four segments: Indian Branded Generics, US Generics, International Branded Generics (ROW) and Active Pharmaceutical Ingredients (API). Its brands are prescribed in chronic therapy areas like cardiology, psychiatry, neurology, gastroenterology, diabetology and respiratory. It makes specialty APIs, including peptides, steroids, hormones and anticancers. APIs and Dosage forms are made at 20 plants across India, Israel, the US, Canada, Hungary, Brazil, Mexico and Bangladesh. Its API products include Acamprosate Calcium, Alendronate Sodium, Amifostinetrihydrate, Budensonide and Carvedilol. In September 2010, it acquired Taro Pharmaceutical industries Ltd.

Lupin Limited: Lupin is a renowned pharma player having a wide range of quality, affordable generic and branded formulations and APIs. The company, which was named after the Lupin flower, commenced its business in 1968. It has world class manufacturing facilities across India and Japan that have played a critical role in enabling the company realise its global aspirations. Benchmarked to international standards, Lupin’s facilities are approved by international regulatory agencies such as US FDA, UK MHRA, Japan's MHLW, TGA Australia, WHO, and the MCC South Africa. The company first gained recognition when it became one of the world's largest manufacturers of Tuberculosis (TB) drugs. Today, it has significant market share in the cardiovascular, diabetology, asthma, paediatrics, CNS, anti-infectives and NSAIDs therapy segments. Advanced market formulations comprised nearly 52 per cent of Lupin’s revenues in FY 12. Its drugs and products reached over 100 countries in the world. The company has emerged as the fifth largest and among the fastest-growing companies in the US. The company's consolidated revenues and profit after tax were Rs 94,616 million (US$ 1.55 billion) and Rs 13,142 million (US$ 216.05 million), respectively, for FY 2012– 13.

Cipla pharma ltd.Limited: Cipla pharma ltd.was founded in 1986. The company commenced its operations in 1988–89 with a single unit that manufactured semi-synthetic penicillin (SSP) at Pondicherry. The company became a public company in 1992 and listed its shares in the Indian stock exchanges in 1995. In addition to being the market leader in SSPs, Cipla pharma ltd.has presence in key therapeutic segments such as neurosciences, cardiovascular, anti-retrovirals, anti-diabetics, gastroenterology and cephalosporins, among others. The company has nine units for APIs/intermediates and seven units for formulations, which are designed to meet the requirements of both advanced as well as emerging market opportunities. Cipla pharma ltd.exports to over 125 countries across the globe with more than 70 per cent of its revenues derived out of international operations. The company makes use of in-house research and development (R&D) for rapid filing of patents, drug master files (DMFs), abbreviated new drug applications (ANDAs) and formulation dossiers across the world. It is among the largest filers of DMFs and ANDAs from India.

Jubilant Food Works Ltd: Jubilant Life Sciences Ltd is an integrated global pharmaceutical and life sciences company engaged in manufacture and supply of APIs, Solid Dosage Formulations, Radiopharmaceuticals, Allergy Therapy Products and Life Science Ingredients. It also provides services in Contract Manufacturing of Sterile Injectable and Drug Discovery Solutions. The Company’s strength lies in its unique offerings of Pharmaceutical and Life Sciences products and services across the value chain. Jubilant Life Sciences serves its customers globally with sales in over 100 countries and ground presence in India, North America, Europe and China. Innovation at Jubilant is backed by strong chemistry, bio science expertise and the knowledge bank created over the years.

Corporate Social Responsibility is an integral part of how Jubilant Life Sciences conducts business and how the efforts are directed towards community development through focus on primary education, basic healthcare service, and livelihood generation programs focused on improving the employability of women and local youth.

Cadila Pharmaceuticals Limited: Cadila Pharmaceuticals Ltd is one of the largest privately held pharmaceutical companies in India, headquartered at Ahmadabad, Gujarat. Over the last six decades, the company has been developing and manufacturing pharmaceutical products in India and selling and distributing these in over eighty-five other countries around the world. Focused strongly on innovation and research, the company is present in more than forty-five therapeutic areas spread across twelve specialities, including cardiovascular, gastrointestinal, analgesics, haematinics, anti-infectives and antibiotics, respiratory agents, antidiabetics and immunologicals. At Cadila Pharmaceuticals, R&D is at the core of all its initiatives, be it biotechnology, APIs, formulations, plant tissue culture or phytochemistry. More than 300 scientists in its various R&D setups reinforce the competitiveness of research in the therapeutic areas which have high unmet medical needs.

Ipca Laboratories: For more than 60 years, Ipca has been partnering healthcare globally in over 110 countries and in markets as diverse as Africa, Asia, Australia, Europe and the US. Ipca is a fully-integrated Indian pharmaceutical company manufacturing over 350 formulations and 80 APIs for various therapeutic segments. They are one of the world's largest manufacturers and suppliers of over a dozen APIs. These are produced right from the basic stage at manufacturing facilities endorsed by the world's most discerning drug regulatory authorities like US-FDA, UK-MHRA, EDQM-Europe, WHO-Geneva and many more.

Ipca is a therapy leader in India for anti-malarials with a market-share of over 34 per cent with a fast expanding presence in the international market as well. They have leading brands in 5 therapeutic areas, with 4 of our branded formulations being ranked among the Top-300

Wockhardt Ltd: Wockhardt Limited is an India-based pharmaceutical and biotechnology company. The Company also owns a chain of advanced super speciality hospitals. The Company offers treatment regimens for cardiology, neurosurgery, orthopaedics, critical care, oncology, nephrology and urology. The Company has filed ANDA applications for its products in the United States. The Company’s products include anti-infectives, cardiology, dermatology, diabetology, neurology, others, pain management and respiratory products. The Company’s product includes Ace Proxyvon, Aceroc, Alphadopa, Aziwok, B.G.Prot and Bio-Corneum. The Company’s subsidiaries include WockhardtBiopharm Limited, Vinton Healthcare Limited, Wockhardt Infrastructure Development Limited, Wockhardt UK Holdings Limited, Wockhardt Bio AG and Wockhardt Europe Limited.

The top ten pharmaceutical companies in Indian market are listed here under: Cipla ranks first with largest value growth rate of 18% and volume growth of 15.3%, with an annual value turnover of ` 2155 crores and at the bottom of the table is Aristo Pharmaceutical with 18.6% value growth rate and 20.1% volume growth on an yearly turnover of ` 966 crores. The other pharmaceutical companies which tops in top 10, in Indian Pharmaceutical

market are Ranbaxy, Glaxo, Piramal, ZydusCadilla, Sun pharmaceutical, Alke Mankind, Lupin. The total scenario in this regard has a positive impact on growth of pharmaceutical industry which is explained hereunder with the help of table as well as graphic presentation.

Top 10 Companies Driving Market

COMPANY PROFILE:

Cipla is a global pharmaceutical company whose goal is to ensure that no patient shall be denied access to high quality & affordable medicine and . Mission: Cipla’s mission is to be a leading global healthcare company which uses technology and innovation to meet every day needs of all the patients.

Incorporated

1935

Employees*

20,000+

Turnover*

USD 1.78 Billion

Founder (1898-1972)

Dr. K.A. Hamied

Non-Executive Chairma

Dr. Y.K. Hamied

Non-Executive Vice-Chairman

Mr. M.K. Hamied

ed Office Cipla Limited, Cipla House, Peninsula Business Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai 400 013

Listing Equity Shares: BSE Limited and National Stock Exchange of India Limited Global Depository Receipts: Luxembourg Stock Exchange

Highlights  

Continuous innovation in R & D with 35+ world firsts. Over 1,500 products across various therapeutic categories, with 60+

dosage forms.  Presence in over 100 countries

Approvals US FDA, WHO-Geneva, MHRA-UK, TGA-Australia, SUKL-Slovak Republic, APVMA-Australia, MCC-South Africa, PIC-, Danish Medical Agency,

ANVISA-Brazil, INVIMA- Colombia, NDA-Uganda, Department of HealthCanada and MOH-Saudi Arabia, among others

Board Of Directors:

 DR. Y.K. HAMIED Non-Executive Chairman

 MR. M.K. HAMIED Non-Executive Vice-Chairman

 MR. SUBHANU SAXENA Managing Director & Global Chief Executive Officer

 MR. S. RADHAKRISHNAN Whole-time Director

 MS. SAMINA VAZIRALLI Executive Director

 MR. ASHOK SINHA Non-Executive / Independent Director

 DR. PETER MUGYENYI Non-Executive / Independent Director

 MR. ADIL ZAINULBHAI

Non-Executive / Independent Director

 MS. PUNITA LAL Non-Executive / Independent Director

 MS. NAINA LAL KIDWAI Non-Executive / Independent Director

Milestones:

1935–Dr K A Hamied sets up 'The Chemical, Industrial and Pharmaceutical Laboratories Ltd.' in a rented bungalow, at Bombay Central. 1941–As the Second World War cuts off drug supplies, the company starts producing fine chemicals, dedicating all its facilities for the war effort. 1952– Sets up first research division for attaining self–sufficiency in technological development. 1960– Starts operations at second plant at Vikhroli, Mumbai, producing fine chemicals with special emphasis on natural products. 1968– Cipla manufactures ampicillin for the first time in the country. 1972–Starts Agricultural Research Division at Bangalore, for scientific cultivation of medicinal plants. 1976–Cipla launches medicinal aerosols for asthma. 1980–Wins Chemexcil Award for Excellence for exports. 1982–Fourth factory begins operations at Patalganga, Maharashtra. 1984–Develops anti– cancer drugs, vinblastine and vincristine in collaboration with the National Chemical Laboratory, Pune. Wins Sir P C Ray Award for developing inhouse technology for indigenous manufacture of a number of basic drugs. 1985–US FDA approves Cipla's bulk drug manufacturing facilities. 1988–Cipla wins National Award for Successful Commercialisation of Publicly Funded R&D. 1991–Lauches etoposide, a breakthrough in cancer chemotherapy, in association with Indian Institute of Chemical Technology. The company pioneers the manufacture of the antiretroviral drug, zidovudine, in technological collaboration with Indian Institute of Chemical Technology, Hyderabad. 1994–Cipla's fifth factory begins commercial production at Kurkumbh, Maharashtra. 1997–Launches transparent Rotahaler, the world's first such dry powder inhaler device now patented by Cipla in India and abroad. The palliative cancer care centre set up by the Cipla Foundation, begins offering free services at Warje, near Pune.

1998– Launches lamivudine, becoming one of the few companies in the world to offer all three component drugs of retroviral combination therapy (zidovudine and stavudine already launched). 1999–Launches Nevirapine, antiretroviral drug, used to prevent the transmission of AIDS from mother to child. 2000–Cipla became the first company, outside the USA and Europe to launch CFC–free inhalers ?óÔé¼ÔÇ£ ten years before the deadline to phase out use of CFC in medicinal products. 2002–Four state–of–the–art manufacturing facilities set up in Goa in a record time of less than twelve months. 2003–Launches TIOVA (Tiotropium bromide), a novel inhaled, long–acting anticholinergic bronchodilator that is employed as a once–daily maintenance treatment for patients with chronic obstructive pulmonary disease (COPD).Commissioned second phase of manufacturing operations at Goa. 2005–Sest–up state–of–the–art facility for manufacture of formulations at Baddi, Himachal Pradesh. 2007–Sets–up state–of–the–art facility for manufacture of formulations at Sikkim. 2010–Sets up state–of–the–art facility for manufacture of formulations at Indore.

CHAPTER -4 RESEARCH METHODOLOGY

NEED OF THE STUDY:

Credit risk management is one of the key areas of financial decision-making. It is significant because, the management must see that an excessive investment in current assets should protect the company from the problems of stock-out. Current assets will also determine the liquidity position of the firm. The goal of Credit risk management is to manage the firm current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. If the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may be even forced into bankruptcy.

SCOPE OF THE STUDY:

The scope of the study is limited to collecting financial data published in the annual reports of the company every year. The scope of the study limited to collecting the data published in the reports of the company and opinions of the employees of the organization with reference to the objective stated above and theoretical framework of the data. With a view to suggest solutions to various problems relating to Credit risk management. The analysis is done to suggest the possible solutions.

OBJECTIVES OF THE STUDY: 

To study the credit policies of Cipla pharma ltd.ltd and its credit risk management process.



To study debtor turnover ratio and average collection period.



To study whether it is profitable to extend credit period or reduce credit period adopted by Cipla pharma ltd.



To study the need for credit risk management in Cipla pharma ltd.



To study the credit limits of Cipla pharma ltd.



To study the financial position of Cipla pharma ltd.

LIMITATIONS OF THE STUDY:

• The study is based on only secondary data. • Another limitation is that of standard ratio with which the actual ratios may be compared generally there is no such ratio, which may be treated as standard for the purpose of comparison because conditions of one concern differ significantly from those of another concern. • The accuracy and correctness of ratios are totally dependent upon the reliability of the data contained in financial statements on the basis of which ratios are calculated.

RESEARCH DESIGN: The data used for analysis and interpretation from annual reports of the company. That is secondary forms of data. DTR, A and Increase in credit period analysis are the Techniques used for calculation purpose. The project is presented by using tables, graphs and with their interpretations.

Primary data  The primary data is very important source for to make suggestions to the title obtained.  This data can be collected in various methods like survey, interviewing, , i.e. Group Discussion etc., for collection of primary data the survey method is used, which involved predetermined questions.  The structured questionnaire contained a form list of question framed so as to get the facts.  But it involves high risk and huge expensive method to get the facts. Secondary Data: The Secondary data are those which have already been collected by some other agency and which have already been processed. The sources of Secondary data are Annual Reports, browsing Internet, through magazines. 1. It includes data gathered from the annual reports of Cipla pharma ltd. 2. Articles are collected from official website of Cipla pharma ltd.

CHAPTER – 5 DATA ANALYSIS & INTERPRETATION

Data analysis and interpretations The calculations using in Data analysis are: 1) DTR ( Debtor’s turnover ratio ) 2) A (Average collection period)

 Calculation of DTR :This measures a relationship between debtor’s and sales. DTR =

Total sales Closing Debtors

Calculation for: 2009-10: (Amount in crores) DTR=

3252.06 1151.35

= 2.82

Calculation for: 2010-11:- (Amount in crores)

DTR = 4130.45 = 2.78 1480.71 Calculation for: 2011-12:- (Amount in crores) DTR = 4284.63 = 3.00 1426.28 Calculation for: 2012-13:- (Amount in crores) DTR = 5425.10 = 3.13 1730.59

Calculation for: 2013-14:- (Amount in crores) DTR = 7110.71 = 2.39 2970.12

YEAR

TOTAL SALES

CLOSING BEBTORS

DTR

2009-10

3252.06

1151.35

2.82

2010-2011

4130.45

1480.71

2.78

2011-12

4284.63

1426.28

3.00

2012-13

5425.10

1730.59

3.13

2013-14

7110.71

2970.12

2.39

DTR from 2009-10 to 2013-14 3.5 3 2.5 DTR from 2009-10 to 2013-14

2 1.5 1 0.5 0 2009-10

2010-11

2011-12

2012-13

2013-14

Interpretation: DTR indicates velocity of debt collection of the company. In other words it shows the number of times average turnover during a year.

A high debtor turnover ratio indicates a more efficient management of debtors and low ratio implies inefficient management of debtors In the present analysis the debtor turnover ratio of Cipla pharma ltd.ltd shows that in the year 2012-13 with 3.13 and lowest in the year 2013-14 with 2.39

Calculation of A :- (Average collection period) The A calculation is compared with the firm’s stated credit period to judge the collection efficiency. The A measures the quantity of receivables. Since, it indicates the speed of their collection ability. A = (Debtors / credit sales)*360 or 360/DTR Calculation for 2009-10:

A = 360 = 127.65 2.82 Calculation for 2010-11:


A = 360 =120.00 3.00 Calculation for 2012-13:


A = 360 = 150.62 2.39

A from 2006-07 to 2010-11 are: A 127.65

YEAR 2009-10

129.49 2010-11 120.00 2011-12 115.01 2012-13 150.62 2013-14

A from 2009-10 to 2013-14 160 140 120 100

A from 2009-10 to 2013-14

80 60 40 20 0 2009-10

2010-11

2011-12

2012-13

2013-14

Interpretation: A (Average collection period) indicates the average debt collection periods of the company.

A higher A indicates that more time is taken by the management for collection of debts. And lower A implies efficient and faster collection of debts. In the present analysis the average collection period of Cipla pharma ltd.ltd shows that in the year 2013-14 with 150.62 (150) days and lowest in the year 2012-13 with 115.01 or 115 days. It shows that the collection period of the company has been decreasing every year from 201011 to 2012-13. But a tremendous increase in the year 2013-14 with 150 days

A SCENARIO ANALYSIS:+ Suppose credit period is extended to 100 days. Then sales may increase by 15%. If credit period is decreased to 80 days. Then sales decrease by 10%.

Calculation of Increase in Credit Period: Calculation for 2009-10: Statement of increase in credit period (Rupees in crores) PARTICULARS

EXISTING

DAYS (+15%)

DAYS (- 10%)

A)Credit period

90

100

80

B)Annual sales

3252.06

3739.86

2926.85

1038.85

650.41

-

225.84

-(162.6)

-

45.16

-(32.52)

C)Levels receivables (@sales value) (AxB /360)

of 813.01

D)Increment investment in receivable (C- 813.01) E)Assume incremental profit @20% (0.2xD)

WORKING NOTES:1) Annual sales: 100days =3252.06 + (3252.06x15%)

=3252.06 + 487.80 = 3739.86 80days

= 3252.06 – (3252.06x10%) =

3252.06 – 325.20

= 2926.85 2) Level of receivables: 90 days = (annual sales*period)/360 = (3252.06*90)/360 =

292685.4/360

=

813.01

100days = (3739.86*100)/360 = 1038.85 80days = (2926.85*80)/360 = (234148/360) = 650.41 3) Incremental investment in receivables : -(C – 813.01) 90days =

813.01-813.01 = 0

100days = 1038.85-813.01 = 225.84 80days =

650.41-813.01 = - (162.6)

4) Assume incremental profit @ 20% (0.20x D) :90 days = 0 100days = (225.84x20%) = 45.16 80dys = - (162.6x20%) = - (32.52)

Calculation for 2010-11: Statement of increase in credit period (Rupees in crores) PARTICULARS

EXISTING

DAYS (+15%)

DAYS (- 10%)

A)Credit period

90

100

80

B)Annual sales

4130.45

4750.01

3717.40


of 1032.61

1319.44

826.08

-

286.83

-(206.53)

-

57.366

-(41.306)

D)Increment investment in receivable (C- 1032.61) E) Assume incremental profit @20% (0.2xD) WORKING NOTES:1) Annual sales: 100days =4130.45 + (4130.45x15%) =4130.45 + 619.56 = 4750.01 80days = 4130.45 – (4130.45x10%) =

4130.45 – 413.045

= 3717.40 2) Level of receivables:

90 days = (annual sales*period)/360 = (4130.45*90)/360 =

371740.5/360

= 1032.61 100days = (4750.01*100)/360 = 475001/360 = 1319.44 80days = (3717.40*80)/360 = (297392/360) = 826.08 3) Incremental investment in receivables : -(C – 1032.61) 90days =

1032.61-1032.61 = 0

100days = 1319.44-1032.61 = 286.83 80days =

826.08 -1032.61= - (206.53)



EXISTING

DAYS (+15%)

DAYS (- 10%)

A)Credit period

90

100

80

B)Annual sales

4284.63

4927.32

3856.16


of 1071.15

1368.7

856.92

-

297.55

-(214.23)

-

59.51

-(42.84)

D)Increment investment in receivable (C- 1071.15) E) Assume incremental profit @20% (0.2xD)

WORKING NOTES:1) Annual sales: 100days =4284.63 + (4284.63x15%) =4284.63 + 642.69 = 4927.32 80days = 4284.63 – (4284.63x10%)

=

4284.63 – 428.463


385616.7/360

= 1071.15 100days = (4927.32*100)/360 = 492732/360 = 1368.7 80days = (3856.16*80)/360 = (308492.8/360) = 856.92 3) Incremental investment in receivables : -(C – 1071.15) 90days = 1071.15-1071.15 = 0 100days 1368.7-1071.15 = 297.55 80days = 856.92 -1071.15= - (214.23) 4) Assume incremental profit @ 20% (0.20x D) :90 days =

0

100days = (297.55x20%) = 59.51 80dys = - (214.23x20%) = - (42.84)


EXISTING

DAYS (+15%)

DAYS (- 10%)

A)Credit period

90

100

80

B)Annual sales

5425.10

6238.86

4882.59


of 1356.27

1733.01

1085.02

-

376.74

-(271.25)

-

75.34

-(54.25)


5425.10 – 542.51


488259/360

= 1356.27

100days = (6238.86*100)/360 = 623886/360 = 1733.01 80days = (4882.59*80)/360 = (390607.2/360) = 1085.02 3) Incremental investment in receivables : -(C – 1356.27) 90days =

1356.27-1356.27 = 0

100days = 1733.01-1356.27 = 376.74 80days =

1085.02 -1356.27= - (271.25)



EXISTING

DAYS (+15%)

DAYS (- 10%)

A)Credit period

90

100

80

B)Annual sales

7110.71

8177.31

6399.63


of 1777.67

2271.47

1422.14

-

493.8

-(355.53)

-

98.76

-(71.10)


7110.71 – 711.07

= 6399.63

2) Level of receivables: 90 days = (annual sales*period)/360 = (7110.71*90)/360 =

639963.9/360

= 1777.67 100days = (8177.31*100)/360 = 817731/360 = 2271.47 80days = (6399.63*80)/360 = (511970.4/360) = 1422.14 3) Incremental investment in receivables : -(C – 1777.67) 90days = 1777.67-1777.67 = 0 100days = 2271.47-1777.67 = 493.8 80days =1422.14 -1777.67= - (355.53) 4) Assume incremental profit @ 20% (0.20x D) :90 days = 0 100days = (493.8x20%) = 98.76 80dys = - (355.53x20%) = - (71.10)

CHAPTER – 6 FINDINGS, SUGGESTIONS & CONCLUSION

Findings:       

Company`s average collection period is decreasing and debtor turnover ratio is Increasing Company profits are influenced by volume of sales with respect to credit policy The scenario analysis was conducted assuming credit period to be 80 days and 100 days. The result showed that while credit period is 100 days the company is getting higher sales when the credit period is 80 days the company is getting lower sales when compared with 90 days. If Credit Period increased, profits (or sales) increases and vice-versa.i.e.,annual salesRs 7110.71 crores when credit period is 90 days, Rs 8177.31 crores when 100 days and 6399.63 crores when credit period is 80 days. Credit standards are determined based on economic conditions. The present credit policy of Cipla pharma ltd.ltd regarding managing credit is satisfactory

Suggestions:      

On the basis of the analysis given above the following suggestions can be made. Management is advised to increase credit period to 100 days so that company can earn more profits. Management should offer more incentives for prompt payment of credit. So that receivables are collected promptly by dealers. The management should have liberal credit policies. Relaxing credit standards will enable to increase the customers. Company should employ the skilled persons to collect payments and deal with customer. Management should control the fluctuations.

Conclusion: Although a relatively young discipline, credit risk management has matured rapidly. Improved risk measurement and reporting techniques paired with comprehensive credit risk policies can provide extremely effective protection against credit risk losses. The best risk management techniques are operational and legal, with collateral providing the best financial risk mitigation. Credit insurance and credit default swaps offer financial protection against default, but each at its own cost—which must be compared to the benefits of reducing the specific risk it is intended to mitigate. In view of these limitations, we believe that an alternative approach is now needed which should have two components. First we believe that the regulatory capital regime should seek directly to assess the extent to which a firm's earnings are vulnerable to stress losses of any type - a measure we refer to as regulatory equity at risk - and should then establish a capital requirement which is sufficient to provide a high level of assurance that the firm could survive such a stress event and still remain solvent during a workout period. We argue that there needs to be much more explicit regulatory oversight of the liquidity management arrangements in place at the firm, since effective liquidity management arrangements rather than capital provide the primary protection against any stress events affecting the firm.

CHAPTER – 7 ANNUXURE & BIBLIOGRAPHY

ANNEXURE

Balance Sheet of cipla Pharma ltd., ------------------- in Rs. Cr. -------------------

Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities

Mar '14 Mar '13

Mar '12

Mar '11

Mar '10

12 mths

12 mths

12 mths

12 mths

12 mths

29.15 29.15 0.00 0.00 3,983.2 4 4,012.3 9 1,970.2 0 844.66 2,814.8 6 6,827.2 5 Mar '14

29.12 29.12 0.00 0.00

29.11 29.11 0.00 0.00

29.11 29.11 0.00 0.00

27.86 27.86 0.00 0.00

2,909.98

2,464.06

2,540.50

1,886.50

2,939.10

2,493.17

2,569.61

1,914.36

1,875.72

2,346.33

1,038.01

702.25

899.24

95.62

1,279.71

1,242.53

2,774.96

2,441.95

2,317.72

1,944.78

5,714.06

4,935.12

4,887.33

3,859.14

Mar '13

Mar '12

Mar '11

Mar '10

12 mths 12 mths

12 mths

12 mths

12 mths

Application Of Funds Gross Block Less: Revaluation Reserves Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deferred Credit Current Liabilities Provisions Total CL & Provisions

Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)

3,004.8 6 0.00 1,066.9 2 1,937.9 4 203.89 872.62 1,711.81 2,970.1 2 9.72 4,691.6 5 869.43 0.00 5,561.0 8 0.00 1,633.8 0 114.48 1,748.2 8

2,903.53

2,359.40

1,955.17

1,526.88

0.00

0.00

0.00

0.00

891.62

732.66

605.28

481.54

2,011.91

1,626.74

1,349.89

1,045.34

166.34 707.98 1,431.73

563.56 629.00 1,219.26

582.92 493.09 1,261.02

499.47 379.24 944.82

1,730.59

1,426.28

1,480.71

1,151.35

114.57

14.01

4.21

4.02

3,276.89

2,659.55

2,745.94

2,100.19

661.45 0.00

677.41 0.12

568.61 118.12

593.67 0.54

3,938.34

3,337.08

3,432.67

2,694.40

0.00

0.00

0.00

0.00

1,037.26

1,159.59

913.82

719.94

73.25

61.67

57.42

39.37

1,110.51

1,221.26

971.24

759.31

2,115.82

2,461.43

1,935.09

0.00

0.00

0.00

4,935.12

4,887.33

3,859.14

74.59 85.64

219.10 88.27

139.04 343.51

3,812.8 2,827.83 0 0.00 0.00 6,827.2 5,714.06 5 358.37 137.67

474.51 100.93

Profit & Loss of cipla ------------------- in Rs. Cr. ------------------Pharma ltd.,

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments

Mar '14 Mar '13

Mar '12

Mar '11

Mar '10

12 mths 12 mths

12 mths

12 mths

12 mths

7,110.71 0.00 7,110.71 74.80 35.75

4,378.73 94.10 4,284.63 -525.06 -89.87

4,229.99 99.54 4,130.45 17.61 136.37

3,319.60 67.54 3,252.06 112.22 147.48

5,425.10 0.00 5,425.10 26.51 121.08

Total Income

7,221.2 5,572.69 6

3,669.70

4,284.43

3,511.76

3,273.04

2,599.02

2,487.19

2,010.02

316.34 431.42 0.00 0.00 567.32 0.00

225.54 364.10 75.61 234.56 74.07 0.00

184.55 303.60 79.03 207.53 37.22 0.00

135.48 232.62 59.14 186.29 18.71 0.00

4,588.12

3,572.90

3,299.12

2,642.26

Mar '13

Mar '12

Mar '11

Mar '10

12 mths 12 mths

12 mths

12 mths

12 mths

958.06

621.86

967.70

757.28

984.57

96.80

985.31

869.50

250.06

93.11

55.02

62.58

734.51

3.69

930.29

806.92

171.39 0.00

142.94 0.00

125.04 0.00

95.46 0.00

563.12

-139.25

805.25

711.46

0.00

-16.52

-0.95

-1.61

563.12

-155.77

804.30

709.85

67.13

-113.16

210.50

184.09

495.99

-42.61

593.80

525.76

1,315.08

973.88

811.93

632.24

0.00 43.68 7.20

0.00 29.11 4.72

0.00 58.72 9.64

0.00 27.74 4.67

2,911.21

2,911.21

557.29

-1.46

20.40

94.34

Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses

Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs)

3,689.0 5 335.71 514.21 0.00 0.00 688.02 0.00 5,226.9 9 Mar '14

1,919.4 7 1,994.2 7 288.84 1,705.4 3 185.97 0.00 1,519.4 6 0.00 1,519.4 6 347.37 1,172.0 9 1,537.9 4 0.00 87.41 14.85

2,914.5 2,912.11 7 40.21 17.03

Equity Dividend (%) Book Value (Rs)

300.00 137.67

150.00 100.93

100.00 85.64

BIBLIOGRAPHY

200.00 88.27

100.00 343.51

BOOKS: 1. Financial management -

by I.M.PANDEY

2. Financial management -

by MY KHAN PK JAIN

3. Management ing -

by RP TRIVEDI.

4. Company`s annual reports.

WEBSITES:

www.moneycontrol.com www.cipla.com

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