INDUSTRY INPUTS

Industry Pharmaceuticals
Companies Covered Abbott India Ltd. & Sun Pharmaceuticals
Industries Ltd
Period 2014-2020
Ratio Category Return Ratios | Du Pont analysis | Investment
analysis ratio

A. ROA = Profits after Tax*100/Average Assets

B. ROCE = Profits Before Interest & Tax*100/Average Capital Employed
C. ROE = Profits after Tax*100/ Avg. SHF
D. PAT Margin = Profits after Tax*100/Sales
E. Asset Turnover = Sales / Avg. assets
F. Leverage = Avg. assets/ Avg. SHF
G. PE = Market price per share/ Earnings per share
H. PB = Market price per share/Book value per share
I. Dividend Yield = Dividend per share*100 / Market price per share

Return on Assets
0.3

0.2

0.1

0
2013 2014 2015 2016 2017 2018 2019 2020 2021
-0.1

-0.2

-0.3

-0.4

-0.5
Abbott Sun Pharma

Return on Capital Employed Return on Equity

0.4 Abott Sun Pharma
0.3 0.6
0.2
0.4
0.1
0.2
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 0
-0.1 2013 2014 2015 2016 2017 2018 2019 2020 2021
-0.2 -0.2

-0.3 -0.4
-0.4 -0.6
-0.5 -0.8
Abbott -1
 Abbott Sun Pharma
PAT Margin Asset Turnover PAT Margin Asset Turnover
Leverage ROE- Du Pont Leverage ROE- Du Pont
ROE ROE
3 2.5
2
2.5
1.5
2 1
1.5 0.5
0
1
-0.5
0.5 -1

0 -1.5
2013 2014 2015 2016 2017 2018 2019 2020 2021 2013 2014 2015 2016 2017 2018 2019 2020 2021

PE Ratio
1000
0
2013 2014 2015 2016 2017 2018 2019 2020 2021
-1000
-2000 Abbott
-3000 Sun Pharma
-4000
-5000
-6000
-7000
-8000

PB Ratio
Abbott Sun Pharma
18
16
14
12
10
8
6
4
2
0
2013 2014 2015 2016 2017 2018 2019 2020 2021
 Dividend Yield
9000
8000
7000
6000
Abbott
5000 Sun Pharma
4000
3000
2000
1000
0
2013 2014 2015 2016 2017 2018 2019 2020 2021

OVERALL INDUSTRY EXPECTATION OF RATIO (Average of the 2 companies):

ROA = 6% | ROCE = 10% | ROE = 9% | PAT = -1% | Asset Turnover = 90% | Leverage = 173% | ROE
validation = 9% | PE = 40.85 | PB = 8.48 | Dividend Yield = 5895.898

Company 1 Analysis Company 2 Analysis

 The ROA for Abbott is positive and at a  The ROA starts immensely negative,
decent rate, which shows that the Returns showing that the revenue generated is lower
are higher than the assets invested for the than the invested value, leading us to
company. There has been a dip, steady understand that the company is growing.
increase followed by fluctuation in ROA There has been a persistent, steady growth
through the years. and is positive since 2018. Hence it is
 The profits generated through the capital positive for the company.
have been significant at the start but have  The company was running on loss in the
halved in the year 2015, showing a initial years from 2014-2016, but has seen a
significant change in the profits before significant boost in this value during the
interest and tax. Following this, there again same and has constantly been growing ever
has been significant growth and a since currently standing at 9.5% ROCE.
fluctuating period for the same.
DU-PONT ANALYSIS DU-PONT ANALYSIS

 PAT margin of 11%over 2014-20 suggest  The negative PAT of -13.6% over this
good financial operations in the company period of 6 years indicates bad control of
and costs in the company. The company has
 Asset Turnover Ratio is 1.51 indicates that faced low sales in recent years; this can also
the company is utilizing its assets well to be a reason.
generate sales  Net asset turnover ratio of 0.28 signs of low
 The equity multiplier is 1.75 activity in the company
 The average Return on Equity of Abbott is  The equity multiplier of Sun Pharma is 1.70
0.28; this is a good ROE. The company has  The Return on Equity -0.10, this can be a
low debt finances to run its day-day bad sign for investing compared to Sun
operations and using Shareholder’s Capital Pharma. This indicates poor use of the
well company’s equity. The equity multiplier for
both the companies in the same, yet the
ROE is less for Sun Pharma.
INVESTMENT RATIOS
INVESTMENT RATIOS
 The PE ratio for Abbott is 55.39 for 2020,
which means that it is a good opportunity  The PE for 2020 is 26.3, but the value is very
for investors to invest volatile as it fluctuates between highs and
  The SHF increased by 21% from 2019- lows
2020, and the book value per share  The SHF increased by 7% from 2019-2020,
increased by 21%. Hence the PB ratio has and the book value per share decreased by
increased, which shows a higher intrinsic 14%. Hence the PB ratio has decreased,
strength of its shares which therefore shows a lower intrinsic
 The dividend yield is 11376.37. This value strength of its shares
is high, which shows that it is a good  The dividend yield is 415.43, but given the
investment option share price and dividend per share is
healthy
Status in 2020

Abbott is currently producing more rapid tests for Status in 2020

Covid. The revenue of the company increased only by
2% from 2019 to 2020, and losses that incur has been Sun Pharma has particularly leveraged this trend by
nullified during the economic slowdown because of maximizing investments in R&D, Diagnosis, and
the efficient use of shareholder’s capital other therapeutic treatments. Sun Pharma has
increased its stake in the US, which has led to improve
Trends in 2020 its business

The current economic slowdown has reduced the

investments, but the investments are projected to Trends in 2020
increase in the future. The companies are investing
more in R&D, Biologics, and Vaccines. The external In spite of Volatility, the current situation can give
shocks like price control, regulations have good returns as health care is becoming a critical part
dampened the investments in this sector. of everyone’s life. The current market price of this
company is highest this month

Inter-Company Analysis

The first four years for Sun Pharma have witnessed a negative PE ratio. This implies that they have accumulated
losses over the years.
On the other hand, Abbott exhibits an overall increasing trend, moving up to 55.39 in 2020 from 18.77 in 2014.
This implies that the company is unable to pay back its investors and their market share is overpriced.

In comparison (PE ratio) with Abbott, Sun Pharma did not perform well in 2018 as its share price (388.89) is
over 13x than that of Abbott (28.86). However, the numbers moved the first time in positive figures, which
implies that the company attained profit for the first time. This might be the reason behind the very high PE
ratio.

Abbott’s PB ratio has grown from 4.73 to 13.51 from 2014 to 2020, which implies that investors are trusting the
brand and are constantly investing, resulting in a higher market price per share. On the other hand, Sun Pharma’s
PB ratio has dipped over the same timeline from 16.03 to 3.46, which shows its market price per share is closing
in with its booked share price.

References

1. https://medium.com/minimalist-pharmacist/pharmaceutical-industry-analysis-f4834efbe947
2. https://economictimes.indiatimes.com/markets/stocks/news/abbott-india-shares-climb-over-7-
per-cent-on-stellar-earnings/articleshow/40277771
3. https://economictimes.indiatimes.com/markets/stocks/recos/buy-abbott-india-target-price-rs-
19314-icici-securities/articleshow/78121449
4. Q1FY21 SPIL Financial Results
5. https://www.livemint.com/market/mark-to-market/sun-pharma-s-investor-fortunes-hinge-on-
speciality-product-ramp-up-11601544004419.html
 Table 1: COMPARISON OF THE TWO COMPANIES

SUN PHARMACEUTICALS
RATIO ABBOTT INDIA LTD. INDUSTRIES LTD.
CURRENT RATIO 3.596274268 1.065815522
QUICK RATIO 3.004679609 0.830744912
DEBT-EQUITY RATIO 0.452644435 0.588246458
INTEREST COVERAGE RATIO 95.10199297 8.972843803
PROPRIETARY RATIO 0.688399704 0.629625204
AVERAGE COLLECTION PERIOD 26.48544882 163.0975436
AVERAGE HOLDING PERIOD 50.5596437 79.02198025
ASSET TURNOVER 1.267176967 0.326355573
PAT MARGIN 0.144859448 0.256236669
OPERATING PROFIT MARGIN 18.47432533 21.63792808
CASH PROFIT MARGIN 15.29656938 10.42018269
RETURN ON ASSETS 0.183562556 0.083624265
RETURN ON CAPITAL EMPLOYED 0.251141984 0.095339746
RETURN ON EQUITY 0.26706754 0.135950532
PRICE EARNINGS RATIO 55.38910158 26.3156854
PRICE TO BOOK RATIO 13.50566474 3.463788653

RECOMMENDATION:
Based on the investment ratios, the following evaluation has been carried out.
Lower values of PB indicate the price is closer to the intrinsic values of the share, which is a healthy indicator. Value
investors choose these shares for the same, as in the case of higher values, the intangibles are also taken into
consideration with a higher weightage, which is a risky option as they do not come under any books of accounts.
Hence Sun Pharmaceuticals Industries Ltd. fares better in this criterion and is a cheaper option to pursue.
The value of PE of the stock also depends upon the risk involved. The high PE value also promises a good return
in investments, and a low PE is maybe due to the undervaluation of the company. The lower PE value is a
cheaper option in this case, as the comparison is made with respect to a similar company.
The earnings per share have been increasing comparably for both the companies. The ROA, ROE, and ROCE for
Abbott have a drastic decrease followed by fluctuation in their values, whereas its counterpart has been
steadily increasing in the case of its Sun Pharmaceuticals Industries Ltd.
Although Abbott India Ltd. is faring better in the current scenario, we recommend investing in Sun
Pharmaceuticals Industries Ltd. as they have a cheaper as well as safer option, which is the option to choose in
case stable returns are required, given it is a company which is growing tremendously compared to itself in
2014.