Actual

Particulars 2003 2004 2005 2006

Growth rate (YoY) 0.22% 6.75% 4.89%
COGS (% of sales) 64.9% 65.4% 61.7% 64.3%

Selling cost as percentage of sales 14.0% 14.4% 12.21%

R&D expenses as percentage of sales 13.2% 11.5% 10.73%

Total administrative expenses growth rate 31.0% 12.5%

Income tax rate 29% -43% 42% 55%

Gross profit margin 35.1% 34.6% 38.3% 35.7%

SG&A/Sales 30.0% 32.8% 32.7% 30.3%
Operating profit margin 5.1% 1.8% 5.6% 5.4%

Sales 6768 6783 7241 7595

COGS 4391 4435 4466 4887
Gross profit 2377 2348 2775 2708
Selling cost 950 1043 927
R&D expenses 896 831 815
Administrarive expenses 378 495 557
Total SG&A expenses 2031 2224 2369 2299
Operating profit 346 124 406 409
Extraordinary losses 70 60 152 90
EBIT 276 64 254 319
Interest expense 77 85 90 120
EBT 199 -21 164 199
Income tax 58 9 69 110
EBIT (1-t) 218 55 185 209
Calculation of FCFF
Plus: Depreciation
Minus: Change in NWC
Minus: CapEx
Fress Cash Flow to Firm (FCFF)

Discount Period
Discount Factor
Discounted Cash Flow
Present value 3186
Terminal Value in year 2020 16339
Terminal Value in April 2006 7031
Total Value 10217
Cash in Hand 747
Investment securities 168
Extra Cash available 145
Enterprise Value 10362 94.19903958

Less: Long-term debt (interest bearing) 5944

Equity Value (in JPY millions) 4418
Equity Value (in $ million) 40.16
 Projected
2007 2008 2009 2010 2011 2012 2013
6.46% 15.03% 12.79% 8% 13.70% 5.30% 10.10%
62.80% 62.50% 62% 62% 62% 62% 62%

12.20% 12.20% 12.20% 12.20% 12.20% 12.20% 12.20%

10.73% 10.73% 10.73% 10.73% 10.73% 10.73% 10.73%

1% 1% 1% 1% 1% 1% 1%
42% 42% 42% 42% 42% 42% 42%

37.2% 37.5% 38.0% 38.0% 38.0% 38.0% 38.0%

29.9% 29.0% 28.4% 28.0% 27.5% 27.3% 26.9%
7.3% 8.5% 9.6% 10.0% 10.5% 10.7% 11.1%

8086 9301 10490 11330 12882 13565 14935

5078 5813 6504 7024 7987 8410 9260
3008 3488 3986 4305 4895 5155 5675
986 1135 1280 1382 1572 1655 1822
868 998 1126 1216 1382 1455 1602
563 568 574 580 585 591 597
2417 2701 2979 3178 3539 3702 4022
591 787 1007 1128 1356 1453 1653
0 20 20 20 20 20 20
591 767 987 1108 1336 1433 1633
131 159 159 181 181 181 181
460 608 828 927 1155 1252 1452
193 255 348 389 485 526 610
343 445 572 643 775 831 947

386 391 362

-644 656 642 453 838 368 739
424 543 459
949 -363 -167 190 -63 463 208

1 2 3 4 5 6 7
0.94 0.89 0.83 0.79 0.74 0.70 0.66
893 -322 -139 149 -47 322 136
 2014 2015 2016 2017 2018 2019 2020
7.70% 7.70% 7.70% 7.70% 7.70% 7.70% 7.70%
62% 62% 62% 62% 62% 62% 62%

12.20% 12.20% 12.20% 12.20% 12.20% 12.20% 12.20%

10.73% 10.73% 10.73% 10.73% 10.73% 10.73% 10.73%

1% 1% 1% 1% 1% 1% 1%
42% 42% 42% 42% 42% 42% 42%

38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0%

26.7% 26.4% 26.2% 26.0% 25.8% 25.6% 25.5%
11.3% 11.6% 11.8% 12.0% 12.2% 12.4% 12.5%

16085 17323 18657 20094 21641 23307 25102

9972 10740 11567 12458 13417 14450 15563
6112 6583 7090 7636 8224 8857 9539
1962 2113 2276 2451 2640 2843 3062
1726 1859 2002 2156 2322 2501 2693
603 609 615 621 628 634 640
4291 4581 4893 5229 5590 5978 6396
1821 2001 2196 2407 2634 2878 3143
20 20 20 20 20 20 20
1801 1981 2176 2387 2614 2858 3123
181 181 181 181 181 181 181
1620 1800 1995 2206 2433 2677 2942
680 756 838 926 1022 1125 1235
1044 1149 1262 1384 1516 1658 1811

621 668 720 775 835 899 969

424 481 542 609 681 759 842

8 9 10 11 12 13 14
0.62 0.58 0.55 0.52 0.49 0.46 0.43
262 280 297 314 330 347 363
2021
1%
Computation of Beta
Unlevered Beta (average of four comparable firms) 0.535
E/V 0.400
Levered Beta 1.338

Cost of Equity
Rf 1.70%
Risk Premium 5.80%
Cost of equity for large firms 9.46%
Size premium in Japan 3.95%
Cost of equity 13.41%
Cost of debt for similar companies 2.43%
Tax rate 42%

WACC 6.21%
Particulars No. of days Actual Projected
2003 2004 2005 2006 2007 2008
Note receivables 67 1578 1484 1707
Accounts receivables 106 2549 2348 2701
Inventory 85 2146 1883 2166
Notes payable -46 -949 -1019 -1172
Accounts payable -15 -316 -332 -382
Net Working Capital 197 5008 4364 5020
Change in NWC -644 656
Projected Projected - Scenario 1
2009 2010 2011 2012 2013 2014 2015 2016 2017
1926 2080 2365 2490 2741 2953 3180 3425 3688
3047 3290 3741 3939 4337 4671 5031 5418 5835
2443 2638 3000 3159 3478 3746 4034 4345 4679
-1322 -1428 -1623 -1710 -1882 -2027 -2183 -2351 -2532
-431 -466 -529 -557 -614 -661 -712 -767 -826
5662 6115 6953 7321 8061 8681 9350 10070 10845
642 453 838 368 739 621 668 720 775
 2018 2019 2020
3972 4278 4608
6285 6769 7290
5040 5428 5846
-2727 -2937 -3164
-889 -958 -1032
11680 12580 13548
835 899 969
 Comparable multiples Valuation based on
Sawai Nichi Towa Fuji
Multiple Pharma lkoPharma Pharma Pharma Median Maximum
EV/Sales 2.69 1.9 1.96 1.2 141.9 197.7
EV/EBIT 17.02 15.4 15.4 9 82.8 91.5
PE Ratio 29.07 24 26.77 17.2 61.6 70.5

What about valuation based on the recent transactions?

Valuation based on

Minimum Average
88.2 142.4
48.4 76.4
41.7 58.9
No Particulars
1 Savings in API Procurement (US $Millions)
Savings from API Variation Molecules

Pravastatin
Amlodipine
Risperidone
Phase I
Lansoprazole
Omeprazole
Simvastatin
2
Total

Beraprost Na
Zonisamide
Epinaspine
Phase 2
Tansulosine
Zopiclone
Total

No of units to be shifted to India (in millions)

3 Savings due to manufacturing site variation Cost Savings
0.0096

Savings from capacity increase No of units where savings are possible (in US
Current Mgf Cost / Unit
4
0.0114

5 Total change in profit before tax (PBT) (1+2+3+4)(US $ millions)

6 Tax benefits due to shifting of operations (US $ millions)
Total synergy benefits (5+6) (US $ millions)
Time period (Year 0 = April 2006)
Discount Rate 6.21%
PV of synergy (US $ million)

Continuing synergy benefits 10.61

Perpetual growth in rate (assumed) 0%
Value of perpetual savings = 170.96
PV of perpetual synergy benefits 112.15
Total value of synergy (US $ millions) 127.61
 Savings over the years
Projected Savings Potential Savings 2009 - 10 2010 - 11 2011 - 12
0.44
Qty (Kg) Savings / Kg Savings ($ m) % Savings compared to potential
50% 100%
152 11000 1.67 0.84 1.67
250 2000 0.50 0.25 0.50
60 9000 0.54 0.27 0.54
130 1750 0.23 0.11 0.23
180 2500 0.45 0.23 0.45
60 10000 0.60 0.30 0.60
0 1.99 3.99
50%
0.112 3000000 0.34 0.17
780 200 0.16 0.08
60 3500 0.21 0.11
1 300000 0.30 0.15
80 2000 0.16 0.08
0 0 0.581

be shifted to India (in millions) 0 100 250

Freight Charges Cost Savings / tab
0.0021 0.0075 Total savings => 0.75 1.875

here savings are possible (in US $ millions) 100 300 500

Cost Savings/ Unit (13%)
0.001482 Total savings => 0.148 0.445 0.741

0.588 3.189 7.187

0.22 0.26 0.44
0.81 3.45 7.63
4 5 6

0.64 2.55 5.31

r the years
2012 - 13

ompared to potential
102%
1.71
0.51
0.55
0.23
0.46
0.61
4.07
100%
0.34
0.16
0.21
0.30
0.16
1.162

500

3.75

750

1.112

10.093
0.52
10.61
7
Total
6.96 15.46