Chapter-III PROFITABILITY IN PHARMACEUTICAL INDUSTRY

Transcription

1 Chapter-III PROFITABILITY IN PHARMACEUTICAL INDUSTRY The main objective of this chapter is to study the profitability of the Pharmaceuticals and Public limited companies and identify the reasons for the lower profits. The study is also intended to analyze whether the industries have paid and diverted more of its profits, instead of retaining them for modernizing and stabilizing the industries. The efficiency of the business concern is measured by the amount of profits it earned. The larger the profits, the more efficient and profitable the business is deemed to be. The word profitability is composed of two words profit and ability. The concept of profitability may be defined as the ability of a given investment to earn a return from its use. 1 This ability is also referred to as earning power or operating performance of the concerned investment. Analysis of profitability shows how far the business is successful in its aim. Profit is the positive and fruitful difference between total revenue and total expenses over a period of time. Profit is the ultimate output of a business and business will have no future, if it fails to make sufficient profits. Therefore, a financial manager should continuously evaluate the efficiency of his business in terms of profit. But unfortunately there is no general agreement about the meaning of the term corporate profits and this has led to diversity of opinion on the subject of profits. The controversy seems to be prevailing in respect of what constitutes profit, how profit should be measured and how profit contributes towards a healthy and a vigorous economy. 2 As such it is not surprising to find people coming up with different interpretations of profits while analyzing the same set of financial data. These differences may arise simply because people apply different values to the data or bring different insights into their interpretations. One of the examples of this problem is the difference in the concept of profits as per economists and accountants. The differences get manifested in their concern for the future and the past while viewing the

2 profits. Like wise, the business manager, and the trade union leader quite obviously emphasize interpretations of profits that represent their best interests. Academicians differ among themselves about theoretical concepts of profits and the process of decision- making. 3 The term profits can also be used by any of these people in respect of both to a single firm and to the aggregate of many firms. The meaning attributed to the word Profits ranges from the view point that it is the entire return received by the business to the view point that it is the entire return received by the business to the view that Pure profit is the residual in nature as it arrived at after deductions are made from total income for wages, interest and rent. Clark argued that profit results exclusively from dynamic change e.g. inventions, which yield temporary profit to entrepreneurs. 4 Hawley holds risk bearing is the essential function of the entrepreneur and is the basis for profit. 5 While differing in their views about the causes of profits, proponents of both these views regard profits as residual. It is to be recalled that profit has been connected F.H.Knight with uncertainty 6, by Schumpter with innovations 7, by Hawley with risk bearing 8, and by Mrs, Robinson, Cahmberlin and Kalecki with the degree of monopoly power. 9 The dominant motive behind business activities is to earn profit. Lord Kyenes remarked, Profit is the engine that drives the business enterprise. 10 It is indeed a magic eye that mirrors all aspects of entire business operations including the quality of output. Professor Liberman remarks, Because profit generalizes all aspects of business operating including the quality of output. Profit is used merely as the main generalizing and stimulating indicator of efficiency as a device for rating the operations of enterprises. 11 The overall objective of business is to earn at least a satisfactory return on the funds invested in it, consistent with maintaining a sound financial position. Satisfactory return depends up on several factors including the nature of business, risk involved in business etc. If an enterprise fails to earn profit,

3 invested capital is eroded and if this situation prolongs, the enterprise may ultimately cease to exist. The efficiency of a business concern is measured by the amount of profits earned. The larger the profits, the more efficient and profitable the business becomes. Profitability has been considered to a great extent one of the main criteria to judge the extent to which the management has been successful in efficiently utilizing the funds at its disposal, or in other words, how far the management has been successful in maximizing its profits or minimizing its losses. Profit determines investment and investment is essential to growth. Thus, a steep and continuing decline in profit is likely to mean a serious drop in the investment and therefore, slower growth for the economy. In these circumstances, higher profit would mean higher investment and faster the economic growth would be. Further, it is by no accident that business profits, business investment and un employment form three economic indicators that depict the level of economic activity. More business investment is needed to provide more jobs for the rapidly growing labour force and one of the very dependable ways to get more investment is to plough back adequately from the profits. The decline of profits during the post war period has in fact been accompanied by a short decline in the business investment in many countries in the world. In the USA for example the business expenditures for new plant and equipment averaged 7.9 per cent of gross national product from 1947 through 1957, but only 6.8 per cent after In 1963, business investment amounted to only 6.7% of gross national product, well below the lowest level of the earlier post-war years. This is no pretty change. It represents a decline of 14% in the share of gross national product going into business investment. To put it differently, if business investment in 1963 had been at the level, instead of its actual level, billion more would have been spent on new plant and equipment. An additional billion in such expenditure would have made a great difference in the performance of the economy. 12

4 Reducing taxes may increase profits. But tax cut is not a panacea and does not guarantee that profit will rise or the investment will continue to rise, its benefit could be lost if rising business costs lead either to inflation or to the reduction of profits or both. Conversely, the benefit of tax reduction can be greatly enhanced if business costs can be reduced. 13 The profitability of an industry has obviously a direct bearing on its growth. This is principally due to the psychological incentives and the financial resources that the profitability provides. High profitability makes possible to plough back substantial resources, helps to raise equity capital in the investment market; and make it possible to raise loans. Thus, it is business confidence in the level of profitability, which is the primary determinant of the decision to invest. Despite the vilification of profit by forces on the extreme left, a mixed economy will not undertake productive investment in plant and machinery unless management is reasonably assured of earning a rate of return at least commensurate with the risks involved. 14 PROFITABILITY IN PHARMACEUTICAL INDUSTRY & PUBLIC LIMITED COMPANIES: The Indian Pharma industry is largely a controlled industry and it is only inevitable that the various aspects of controls on imports, production, prices and so on affect the profits. On the one side, there is a popular belief that the profits in the Indian Pharma industry are both high and secure because of the sheltered market and on the other belief that profits in Indian Pharma industry are throttled by the industrial licensing and price controls. Certainly, the price-controlled industries have been hard hit (for example, sugar indus try) in that in spite of the considerable liberalization in price controls during the first size years of the seventies, the annual average of the profits after tax as percentage of net worth of medium and large public limited companies was only 9.2 per cent in case of sugar; 7.7 per cent in case of cement; 4.2 per cent in case of iron and steel and 8.7 per cent in case of electricity generation and

5 supply 15 there fore it is clear that one of the most important reasons for the overall depressive state of the stock markets has been the operation of direct or indirect price controls. Due to the joint operation of price controls and highinterest rates, the genuine investor has got a raw deal in recent years. While the new investor who makes investment in new industries has by and large done well, the pure long term investor whose primary interest to get fair and reasonably steady income and who, therefore, invested the bulk of his savings in blue chips, such as electricity, steel etc shares has been hit the hardest. His income has suffered and also his capital has substantially depreciated. He has even begun to wonder and is even advised to take his loss and liquidate these long-term investments and to put the funds in deposits with companies to earn higher income. 16 KEY PROFITABILITY RATIOS: Key Profitability Ratios for the period to are presented in Table-3.1 for the both Pharmaceuticals and Public limited sectors. It can be observed from the table below by considering gross profit margin, Profit margin, return on capital employed and return on net worth. Gross Profit Margin: The determinants of this ratio are the gross profit and sales, which mean net sales obtained after deducting from total sales the value of goods returned by the customers. Gross profit is the return between net sales and cost of sales. The cost of sales in the present study has been calculated by adding inventory at the beginning, purchases, direct labour and all manufacturing expenses including depreciation and deducting inventory at closing. There is a difference of opinion regarding the inclusion of depreciation in cost of sales. 17 Some do not include it in the cost of sales. Roy A Foulke and Professor S.B.Choudary have included it in cost of sales. The rationale for inclusion of depreciation in cost of sales given by Professor Choudary is as follows.

6 Depreciation at least to the extent to which it means physical deterioration of the assets must be a charge on cost of sales as truly as are fuel and labour. When depreciation is not included in the cost of sales, the price can not be said to be really reflective of the cost. 18 The problem of inter-comparison also arises due to inclusion under study provide depreciation on assets in accordance with the provisions of Indian Income Tax Act. The ratio is calculated as follows: Gross Profit Margin= Gross Profit X 100 Net Sales There is no norm for judging the gross profit ratio and therefore, evaluation is a matter of judgment. The gross profit margin reflects the efficiency with which the management produces each unit of production. A high gross profit margin is a sign of good management. 19 Gross Profit margin may increase due to any of the following factors: i) Higher sale price, cost of goods sold remaining constant ii) Lower cost of goods sold, sales price remaining constant iii) A combination of variations in sales price and costs, the margin widening iv) An increase in the proportionate volume of higher margin items 20 If any of these factors is reversed, the gross profit margin decreases. An analysis of these factors can reveal to the management how a depressed gross profit margin can be improved. On the other hand the A summary of the annual average rate of profitability during the six periods viz., to ; to ; to ; to ; to

7 ; to is presented in Table 3.1 to highlight the pattern of profitability of the Pharmaceutical industry in India. Gross Profit Ratio: Pharmaceutical Industry: Table 3.1 presents data on gross profit as percentage of sales in Pharmaceuticals during to It can be observed from the table that the percentage was decreasing continuously from 14% in the year and reached to 11% during the year Further from the year the percentage was approximately 10% up to the year , except in the year ; where as from the year the percentage was revolving around 9%-10% up to the year ; from the year the percentage increased continuously from 11% and reached to 15.7% in the year , but from the year to it was almost maintained 14.4%; where as from the year the percentage with fluctuations it reached to 16.3% during the year The gross profit as percentage of sales in quinquennial terms the gross profit declined from 13.4% during to 10% during the year and further the gross profit reduced to 8.9% during In the years the profit raised to 11.6%; and in the years it rose to 14.7%, where as in the last five years i.e the profit recorded to 16.5%. During the Study period the whole Gross profit Ratio is 12.5% (Chart-3.1) Medium & Large Public Limited Companies: The Gross Profit as percentage of sales of all other industries in India is also presented in the table 3.1 for comparison purposes. The profit increased continuously from 9.0% in the year to 10.1% during the year ; From the year onwards the profit from 9.8% started reducing continuously and reached to 8% during the year and from the year onwards the profit it was maximum maintaining 9% up to 1988-

8 1989; where as from the year the percentage increased continuously and reached to 14.0% in the year and from the year the percentage decreased continuously from 12.9% to 9.6% during the year and increased continuously up to 12.3% during the year In the terms of quinquennial averages the gross profit during the year s was 9.6% decreased to 8.7% during the decade of and the profit increased to 9.6% in the years of ; where as in the years the profit raised to 12.5% and during the periods & the percentage of profit came down to 11 percent..on the whole, period of the study i.e the profit on average was around 10.4% as against 12.4% in the case of Pharmaceutical industry. CHART 3.1 GROSS PROFIT % OF SALES Pharmaceuticals M&LP During Gross Profit as % of Total Income: Pharmaceutical Industry: The percentage of Gross profit as percentage of Total income can be observed from the table 3.1 in Pharmaceuticals is around 13.8% in the year was reduced continuously to 7.6% during the year ; where as from the year onwards it started raising continuously from 8 percent and reached to 14.8% in the year ; But from the year 1997-

9 1998 onwards with fluctuations from 13.6% and reached to 15.3% during the year In terms of quinquennial averages the gross profit as percentage of total income was 12.9% during the year ; where the percentage reduced to 9.6% in the years of ; in the years of also the percentage reduced to 8.4% and where as in the years it raised to 11%, during the years the percentage raised to 13.9%; in the years of the percentage increased to On the whole, during the study period i.e it was around 11.9%. Medium & Large Public Limited Companies: In case of Gross profit as percentage of Total income was around 8.7% in the year which raised continuously and reached to 9.8% during the year , and from the year the percentage started reducing from 9.4% to 7.8% in the year ; from the year onwards the percentage revolves around 8% -9% in the year , and from the year the percentage rounds between 10% to 12% up to the year ; But from the year the percentage 8.8% with fluctuations it reached towards 11.7% in the year Gross Profit as percentage of Total Income in terms of quinquennial averages it was around 9.2% in the year and in the year the percentage reduced to 8.3 and immediately in the year the percentage increased to 9.1 where as in the year it raised to 11.8%. But the years & maintained 10.7%. During the study period i.e the Gross Profit as percentage of Total Income was 10.0%. Rate of Return: Pharmaceutical Industry: Rate of Return is revealed by gross profit as percentage of total capital employed. It can be observed from the table 3.1 that the rate of return of

10 Pharmaceutical industry during the year was 21.3% with fluctuations it reached down to 16.2% in the year ; from the year the rate of return was approximately 13% up to the year and from the year onwards the rate of return is between 12-13% approximately up to the year and from the year the percentage 15% with fluctuations reached to 11.2% during In terms of quinquennial averages, the rate of return was 20.1% during the years and in the years the percentage reduced to 13.9; during the years the rate of return decreased to 11.9% and where as in the years the percentage raised to 12.6, in the years of the percentage inclined to 13.4% ; during the years of the rate of return was 14.3%. On the whole, during the study period i.e it was around 14.4%. Medium & Large Public Limited Companies: The rate of return revealed as 12% in the year with fluctuations it reached towards 10.8% during the year ; from the year the return revolves between 8%-11% approximately up to the year and in the year the percentage reduced to 5%, during the year onwards the rate of return from 7% increased continuously and reached to 10.5% during the year In terms of quinquennial averages we can observe that during the years the rate of return was 12.4% started reducing towards 10.3% in the year ; during the year the return was reduced to 9.1%, where as in the years the rate of return raised to 10.2%. During the years the percentage decreased to 7.4 and in the years of the rate of return was 8.6%. On the whole, period of the study it was around 9.7%. as against above 14% in case of pharmaceutical industry. Return on Stock Holders Equity: Pharmaceutical Industry:

11 Return on Stock Holder s Equity as revealed by the Profit after Tax as percentage of net worth on the other hand, PAT percentage of Net worth reveals as 14.6% during the year , with fluctuations it reached to 14.4% during the year ; But from the year the return on stock holders equity from 8.8% with fluctuations it reached to 18.2% in the year In terms of quinquennial averages during the years it was 15.3% decreased to 11.8% in the years and in the years the return raised to 13.3%, and immediately in the years the percentage increased to 16.4%, where as in the years the return decreased to 14.7% and immediately in the year the percentage increased to On the whole, period of the study the return on stock holder s equity was 15.2%. (Chart-3.2) CHART-3.2 PAT % OF NETWORTH Pharmaceuticals M&LP During

12 TABLE- 3.1 KEY PROFITABILITY RATIOS OF PHARMACEUTICALS & M&LP COMPANIES- DURING (In terms of Percentages) Gross Profit as Percentage of Sales Gross Profit as % of Total Income Gross Profit as % of Total capital employed Profit after tax as % of Net worth Years Pharmaceutical M &LP Pharmaceutical M &LP Pharmaceutical M &LP Pharmaceutical M &LP

13 to to to to to to During Source: Appendix-II c

14 Medium & Large Public Limited Companies: On the other hand the PAT percentage of Net worth was around 9.5% in the year with fluctuations it reached to 16.6% in the year In terms of quinquennial averages during the years it was 12.6% decreased to 10.1% in the years and in the years return reduced to 8.8%, but immediately in the years the percentage increased to 12.3% where as in the years the return decreased to 7.2% and immediately in the year the percentage increased to On the whole, period of the study the return on stock holder s equity was 10.4%. (Chart-3.2). TOTAL INCOME, TOTAL COST AND GROSS PROFIT: After having observed the profitability in both sectors are low from the analysis of the various ratios, now let us go through the trends in the Total Income, Total Cost and Gross Profit to understand how far the rise in the various costs is responsible for the lower profits. Pharmaceutical Industry: Table 3.2 presents data on total income, total cost, and gross profit of Pharmaceuticals during The table also provides the data on the total cost and gross profit as percentage of total income. It can be observed from the table that the aggregate total income of Pharmaceuticals increased continuously from Rs Lakhs in the year to Rs Lakhs during the year The total cost of the industry is also increasing in rupees continuously from Rs Lakhs in the year and it reached to Rs Lakhs during the year In terms of percentages the gross profit as percentage of total income revolves around approximately from to , where as from the year onwards the percentage revolves between 8 to 10 up to the year But from the year onwards the percentage with fluctuations it came down to 10.8%. we can observe the same pattern of

15 fluctuations in case of total cost as percentage of total income, during the year as 89.2, where as in the years the percentage raised to 90.9 and in the years the percentage was 91, But from the years the percentage reduced to 88%-85.8% in the years of ; where as in the years the percentage decreased to The gross margin left by the industry during the year as 10.8% where it reduced to 9% approximately during the years and in the years it increased to 12%; during the years the percentage raised to 14.2% where as in the last years the gross margin increased to high as 16.4%. Medium & Large Public Limited Companies: It can be observed from the table 3.2 given below that the total cost, total income and Gross profit were increasing continuously in amounts during the decade. In terms of percentages the gross profit as percentage of total income was 91% in the year with fluctuations it reached to 87.3% in the year The gross profit as percentage of total income was showing some negative stages during the study period in some years and reached to 12.7% in the year from 9% in the year In terms of quinquennial averages the total cost as percentage of total income is 95.4% in the years ; in the years of it reduced to 91.2% to 92.7% in the years where as in the years it occupied 100%, during the years the percentage reduced to % in the last years of The gross margin was reduced to 4.6% in the years and in the years the percentage increased to 8.8% where as in the years the percentage reduced to 7.3 to negative in the years and in the years the gross margin increased to 10.6%. On the whole, decade the total cost as percentage of income was 93.7% which reducing the gross margin 6.3 percent.

16 TABLE- 3.2 TOTAL INCOME, COST & GROSS PROFIT IN PHARMACEUTICALS & M&LP COMPANIES DURING (Rs in Lakhs & In terms of Percentages) Years Total Cost as % of Gross Profit as % Total Income Total Cost Gross Profit Total Income of Total Income Pharmace Pharmace Pharmace Pharmace M&L Pharmace M&L M&LP M&LP M&LP uticals uticals uticals uticals P uticals P

17 to to to to to to During Source: Appendix II c

18 COST STRUCTURE: Before going to discuss various components of gross profit and the impact of the interest burden and corporate tax on the gross profit, let us now discuss the cost structure of Pharmaceutical companies and Public limited Companies so as to know the structural changes. Cost consciousness has become by the word of management literature. Since costs have a profound influence on the financial strength of any enterprise, a clear understanding of costs and their behavior in the corporation is necessary prerequisite for effective financial management. 21 The two factors affect the growth; profitability and survival of any organization are revenue and cost. Profits (excess of revenue over cost) can be increased either by augmenting revenues or decreasing costs, or if both of them increase simultaneously revenue must rise at faster rate than cost. The Cost structure was presented in the Table 3.3. Pharmaceutical Industry: The analysis of the Table 3.3 clearly shows the various changes in the cost structure of the Pharmaceutical companies in India. It can be observed from the table that the manufacturing expenses are increasing from 53.5% during the years to 57.6%-60% in the years of ; further it fall down to 55.8% in the years ;further it reduced to 53.5% in the last years of In case of Managerial remuneration we can observe the percentage was around 0.2% during the years , where the percentage reduced continuously to 0.1% and maintained up to the year 1996 s and in the years of it increased to 0.3%; further it raised to 0.5% in the year The Depreciation provision was approximately maintaining 2% during the years to and raised to 3% during the years to The Other Expenses were continuously decreasing from 33.7% and reached to 25.6% in the years of , where the remaining years it was approximately 27% in ; is 28%. Due to the fluctuation changes in the total cost the gross profit as percentage of total income was showing slight changes in the margin.

19 TABLE- 3.3 COST STRUCTURE IN PHARMACEUTICALS & M&LP COMPANIES DURING (In terms of Percentages) Mftg Expenses Mngrl Depreciation Remuneration Provision Other Expenses Total Cost Gross Profit Years Pharmace M& Pharmace M& Pharmace M& Pharmace M& Pharmace M&L Pharmace M& uticals LP uticals LP uticals LP uticals LP uticals P uticals LP

20 to to to to to to During Source: Appendix II c

21 Medium & Large Public Limited Companies: The analysis of table 3.3 clearly shows the various changes in the cost structure of the Public Limited Companies. It can be observed from the table the manufacturing expenses was around 68.3% during the years and it increased to 64.6% in the years ; during the years the expenses were reduced to 63.7% to 61.8% in the years But from the years the percentage increased from percent. In case of Managerial Remuneration it was 0.1% in all the years except in the years of and in the year 2000 s it raised to 0.8%. The depreciation provision was 2.8% during the year and raised to 3.4% to 4.1% in the year 1991; further it reduced to 3.8% in the years and increased to 4.2% in the years of and in the years it increased to 4.4%. The other expenses was showing 24.2% in the years and reduced to 23% approx in the years and gone to steep percentage in the last years of 1990 to 36.7% and where as in the last five years of 2000 s it came down to 20.7%. Due to the increase in the Total cost the gross profit as percentage of total income with fluctuations it recorded as 6.3% during the study period. The high costs in Public limited companies resulted in reduction in profits substantially during the study period. The public limited companies on whole maintained around 5-11 percent gross margin, while it was between percent in case of pharmaceutical industry. Components of Gross Profit: Let us now further extend our discussion to know how the gross profit of the industry was allocated. The aggregate Gross profit and its components of the selected Pharmaceuticals and Public Limited Companies can be observed from the tables 3.4 & 3.5. Pharmaceutical Industry: The Components of Gross Profit are Interest on borrowings; tax Provisions, profits after tax (PAT). It can be seen from the Table 3.4 given below, that the aggregate gross profit of the industry increasing continuously

22 from Rs 6521 Lakhs during and a maximum of Rs Lakhs during On the other hand, the burden of interest on aggregate increased at a faster rate up to the years from where as the next 10 years started reducing from 29.4% in the year to 16.6% during The PAT is increasing at a faster rate from Rs 2054 Lakhs during to Rs maximum Rs Lakhs in the years Further study of the table reveals that the interest was increased to 41.7% during the years from 19.5% in the years ; where as from the years onwards the burden of interest was reducing from 36.5% and reached to the least minimum 16.6% during the years On the other hand the tax as percentage of gross profit is continuously decreasing from 52.2% during to 21.5% in the years The PAT as percentage of Gross profit which was 31.4 during increased continuously up to 66.3% in the years Thus it can be concluded from the above analysis due to low increase of gross profits and increase of interest rates up to 1990 s from 1970 s resulted in lower profits after tax in the same periods. On the whole, period of the study leads to low PAT (46.8%) due to the increase in the borrowings and cost of borrowings increasing the burden of the company s taxation. However, the profits after tax inclined due to the increase in the commitments of the companies sector towards interest and tax during 2000 s. Medium & Large Public Limited Companies: The aggregate gross profit and its components of the selected public limited companies are given in the table 3.5. It can be observed from the table that the aggregate gross profit increased continuously from Rs Lakhs in the years to Rs Lakhs during the year period While the interest & taxes were also increasing in the same pattern. In terms of percentages the interest as percentage of gross profit is increasing from 37.3% in the years to 54% during the year ; 60% in the years , where as in the years the percentage reduced to 48.9 and immediately in the period the interest percentage raised to 56.9;

23 Years TABLE- 3.4 COMPONENTS OF GROSS PROFIT IN PHARMACEUTICAL INDUSTRY DURING (Rs in Lakhs & In Percentages) Gross Profit Interest Tax Profit After Tax Interest as % of G.P Tax as % of G.P PAT as % of G.P

24 to to to to to to During Source: Appendix II c

25 TABLE- 3.5 COMPONENTS OF GROSS PROFIT IN M& L P LIMITED COMPANIES DURING Years Gross Profit Interest Tax Profit After Tax Intere st as % of G.P (Rs in Lakhs & In Percentages) Tax as PAT as % of % of Gross G.P Profit

26 to to to to to to During Source: Appendix-II c

27 but in the last years the interest decreased to 34.4%. The tax provision was declined from 32.9% during to 14.8% in the years of and in the last years the provision was inclined to 19.7%. The PAT as percentage of gross profit was reducing from 33% during continuously up to 27.7% in the period , though it inclined to 43.5% in the years ; during the years the percentage reduced to 34.8 and immediately rose to 50.3% in the decade of Thus, it can be concluded from the above analysis that the interest burden of the public limited companies increased due to the increase in the borrowings and cost of borrowings reducing the burden of the company s taxation. However, the profits after tax declined due to the increase in the commitments of the companies sector towards interest and tax during 2000 s. Share of Interest in Gross Profit: The share of interest in Gross profit is determined by a combination of: (i) Cost of Borrowings and (ii) Volume of Borrowings. Table 3.6 & Table 3.7 present information of the average interest as percentage of Gross Profit, Total Income and Total Borrowings. Pharmaceutical Industry: It can be observed from the table 3.6 that the interest as percentage of gross profit increased phenomenally during the period of the study. On the whole the interest as percentage of gross profit increased from 19.5% during continuously up to 41.7% during ; where as from the years the percentage started reducing from 36.5 and fall down to 16.6% in the years The interest as percentage of total income increased from 2.5 percent during up to 4.1% during ; where as in the years the percentage reduced to 2.5%. The interest as percentage of borrowings have increased from 14.8 percent in the years to 16 percent in the year , where as from the years 1986-

28 Th

29 TABLE- 3.6 SHARE OF INTEREST IN PHARMACEUTICAL INDUSTRY DURING (Rs in Lakhs & In Percentages) Years Gross Profit Interest Borrowings Interest as % of G.P Interest as % of Total Income Interest as % of Borrowings

30 to to to to to to During Source: Appendix-II c

31 TABLE 3.7 SHARE OF INTEREST IN M &L P LIMITED COMPANIES DURING (Rs in Lakhs & In Percentages) Years Gross Profit Interest Borrowings Interest as % of G.P Interest as % of Total Income Interest as % of Borrowings

32 to to to to to to During Source: Appendix-II c

33 1991 on wards the percentage reduced steeply to 8.2% during from 15.3%. Thus the pharma industry paid around the half of its profits as interest. It can be concluded that the raise in the rate of interest is not mainly due to increase in the magnitude of borrowings, but also due to the increase in the cost of borrowings. Medium & Large Public Limited Companies: From the table 3.7 the Gross Profit is continuously gross profit increased continuously from Rs Lakhs in the years to Rs Lakhs during the year period While the interest also increasing in the same pattern. In case of Borrowings the companies were depended a lot and increased their dependence year by year. The borrowings were continuously increasing from Rs 8618 Lakhs to Rs Lakhs during the years from to In terms of percentages the interest as percentage of gross profit is increasing from 37.3% in the years to 54% during the year ; 60% in the years , where as in the years the percentage reduced to 48.9 and immediately in the period the interest percentage raised to 56.9; but in the last years the interest decreased to 34.4%. The interest as percentage of Total income was 3.4% in the year increased to 4.5% during ; 5.4% in the years rose to 5.7% during where as in the years the percentage increased to 6 percent and immediately in the years the interest as percentage of income got down to 3.6 percent. The interest as percentage of borrowings was 13.2% in the years increased to 14.5% in years of ; during the percentage came down to 13% and in the years of the percentage decreased to 12.2%-11% during ; in the years of the percentage got down to the least 7.9%. On the whole, during the study period i.e the interest as percentage of gross profit is 48.6% and income is 4.8%, interest as percentage of borrowings is 12 during the decade.