Reminiscences of a trade-learner , journey to become a PRO

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oilman5

Well-Known Member
#11
Again repeating:here i shall give only name of topic .......because of time constraint
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1.basic accounting
..........debit/credit .......ledger entry.........rule of entry
3statement.........balance sheet,profit&loss, cash flow
bank reconcilation statement
2.cost a/c
................value, labour,production and profitability
abc.........activity based costing
budget concept & control
break even pt idea
3.material management
...........purchase policy guideline,abc..........fifo,lifo
4.management a/c
............depreciation,ratio analysis,tax provision,time value of money
5.investment management
..........risk management, risk /reward,risk free return ,capm,dividend return concept vs. plough back
6. corporate finance
........idea of maximization of stock value,debt vs equity,future earning forecast,constraint,understanding discounting.irr .......apm,npv
7.valuation of a company
...........dividend discounting model,cash flow discounting with future projection,relative value in market,replacement policy theory


strategic management
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STRATEGY requires thinking ,an ability to visualise future,analytical skill and to take well informed decision after collecting data and analysing info.Next come its implementation.

Normally we say an issue is strategic ,when it requires top management involvement,commitment of major resources or an longterm impact.
design,planning and positioning model....................doing SWOT,thoroughing analysis of sector and then visualise and see from perspectives.
POWER MODEL :at micro level involve in bargaining, persuasion and confrontation.at macro level use power over its partners,joint ventures and network relationship .
ENVIRONMENT MODEL :HERE WE COPE WITH ENVIRONMENT .strategy is a response to the challange/ situation perceived /imposed by external environment.
configuration model : AN ORGANISATION DO MOVE FROM A STATE TO ANOTHER AS PER REQUIREMENT , PLASTICITY IDEA TO TAKE ITS SHAPE .......FITMENT .
ECONOMIC GOAL OF AN ORGANISATION
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3STAGE.....SURVIVAL,PROFITABILITY AND GROWTH. firm has to survive first[also applicable to any budding trader]dont take it as granted.reckless shortterm oriented decision,complacency.......quick fix idea to tackle larger root cause problem is the reason failure.
PROFIT TO BE SEEN WITH SUSTAINABILITY.PROFIT FROM CORE BUSINESS NOT BY A/C MANIPULATION.
GROWTH, PRECISELY PROFITABLE GROWTH IS AIM. IF COMPNY NOT ABLE TO GRASP OPPURTUNITY TO WIN OVER COMPETITOR,EXPANDING MARKET SHARE,DEVELOP NEW PRODUCT ........IT WILL MARGINALISE.
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STRATEGIC PLANNING:VISION AND MISSION...........FUTUISTIC VIEW AND STATEMENT
CORE COMPETENCE:TANGIBLE AND INTANGIBLE ASSET COMPANY HAVE & COMPETIVE ADVANTAGE OVER OTHER COMPETITORS
VALUE : CULTURE AND ETHICS.
STRATEGIC OBJECTIVE : TARGET IDEA TO MEASURE KEY PERFORMACES LIKE MARKET SHARE, CUSTOMER LOYALTY, QUALITY SERVICE HUMAN CAPITAL ........ITS WORTHINESS
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Business environment needs to be analyzed carefully before a strategic plan is prepared.2 environment..........remote and operating . remote environment includes .......political factor, economic factor,social factor,industry factor.OPERATING ENVIRONMENT MEANS how a company sells its product/service profitbly..........competitive position,reputation in labour market,credit worthiness,creditors view.operating environmnt is under the control of company,........where as for remote environment it has to adjust.
DURING THE PLANNING STAGE IDENTIFY KEY ISSUE.............WEAKNESS OF PRODUCT/SERVICES.........WHERE LIES OPPURTUNITY .CHANGE NEEDED IN COMPANY TO SUPPORT STRATEGY.........PRESENT SKILL AND RESOURCES.UNDERSTAND EFFECTIVE IMPROVEMNT...............some key issue r cost, service,new market,products,expansion, acquisition,organisation structure, core competence,new technology,info system.
ANY STRATEGIC PLAN ALSO MAXIMISE PRESENT RESOURCES ,SKILLS AVALABLE ,TRAINING NEED TO FACE CHANGE, NEW VIEW OR ORIENTATION .....AND OVERALL COMPATIBILITY.
STRATEGIC MANAGEMENT APPLIES TO VARIOUS LEVEL........CORPORATE LEVEL DECISIONS R MACRO AND COCEPTUAL IN NATURE ........LIKE CHOICE OF BUSINESS , GROWTH STRATEGY ,CAPITAL STRUCTURE.BUSINESS UNIT LEVEL R MORE SPECIFIC........DISTRIBUTION CHANNEL ,INVENTORY LEVEL OF A FACTORY.
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STRATEGIC IMPLEMENTATION................ITS THE KEY.TRANSLATE INTO ACTION.....TIMELINESS,RESOURCE NEEDED,X-FUNTIONAL COLLABORATION,DEMAND IDENTIFICATION WITH ANNUAL OBJECTIVE .
SAY ........ANNUAL OBJECTIVE IS ..........to reduce employee attrition by 10%in the end of year,to reduce time ........from order receipt to order execution by 20%.to get quality certification within 6month.
FUNCTIONAL STRATEGY: SAY FOR PRICING ...........which segment to be targeted........mass market or premium product,how much price discrimination be allowed in various customer segment......cost structure vs. actual pricing, discount factor.....for push sell,competive price or ........premium concept
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POLICY R THERE WITH CLEAR STATEMENT .........FOR OPERATION MANAGERS TO ENSURE DISCIPLINED DECISION MAKING WITHOUT NEED OF INTERVENTION BY TOP MANAGEMENT..............METHOD IS STANDARDISATION......WITH DEFINED ACCOUNTABILITY.
ACCOUNTABILITY AND RESPONSIBILITY GOES TOGETHER.
ANOTHER FACTOR BY INDIVIDUAL IS CONFIDENCE.HOWEVER EFFECTIVE COMMUNICATION IS KEY TO IMPLEMENT STRATEGY
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EFFECTIVE COMMUNICATION DERIVES FROM COLLECTIVE RESPONSIBILITY.......BY RATIONALISING COMPANY STRATEGY /CORPORATE STRATEGY TO STAFF LEVEL,IMPLEMENTING THE PLAN ........WHAT SHALL HAPPEN [CONSEQUENCE] IF IT FAILS .
CHANGE MANAGEMENT CONCEPT................SHARP DECLINE IN FINANCIAL PERFORMANCE..........CALLS FOR DRASTIC CHANGE ..........WITH A CLEAR VISION WHAT TO BE DONE..PREFERENCIALLY PUTTING AN OUTSIDER AS CEO.
NORMALLY PEOPLE HATE CHANGE..........hence counceling/mentoring is given to fit old workforce before retrencment.
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strategic control...................suitable midcourse corrective measure is reqd as demand of situation ,internal or external.4aspect to be seen........
1]premise control.................whether assumption made at start hold good,if they r changed.........reevaluate........change plan and act accordingly.
2]implementation control...........overall strategy to be changed in view of new scenario[external environment]...........reqd milestone review.........fullscale reassessment of strategy...........study major resource allocation.
3]strategic surveillance...............monitor broad range of event,internal /external ..........which may influence original strategic implementation.spl alert concept to quickly fix the problem ..........firms strategy in unexpected event.....contingency plan.
4]lower level control.........with set performane std vs actual performance.......identify deviation and corrective measure in it.......without involving top managment.following a budget allocated plan......however deviation to be regularised from competent authority.
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EVALUATING AND REWARDING PERFORMANCE..............QUALITITIVE VS QUANTITIVE MEASURE,EXPECTATION VS REALITY.GIVE PRIORITY TO INDIVIDUAL WHO R READY TO LEARN,WORK TOGETHER AS TEAM.............UNDERSTAND CORE COMPETENCE.
so milestone is fixed.........and try to achieve it.,......reward must be given for good performance.
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ROAD AHEAD..................CLASSICAL STRATEGIC VIEW GIVE PRIORITY ON UNDERSTANDING INDUSTRY STRUCTURE, CAPABILITY OF A FIRM IN RESPECT TO COMPETITOR.BUT PRESENT SCENARIO SUGGEST PRIORITY ON 1-2YR SHORT TERM OPPURTUNITY,.......WHICH IN NATURE BASICALLY REACTIVE.......MODERN VIEW OF .....STAY FOCUSSED.hence an intermittant view on short term,independent of long term view r called for.acronym..........FAST
FOCUS..........LONG TERM POSITIONING,SPECIALISATION AND CAPABILITY IN CHOSEN FIELD.
ACCELERATE..........moving fast in small time frame.
STRENGEN...............to move faster,building trust,appropriate quick info to act right...network,remove administrative road block to improve speed of work,
TIE ........put it all together
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SUPERIOR DECISION MAKING SKILL
1.GATHERING INFO ON REAL TIME BASIS/EARLIER THE BETTER
2. DISCUSSING WITH OPEN VIEW WITH CORE COMPETENT PEOPLE.
3. TAKE A DECISION WITHIN A STIPULATED TIME ACT ON IT.
4.KNOW WHEN TO DECIDE AND DELIBERATE AND WHEN TO FREEZE.
5.A CLEAR FIXATION OF RESPONSIBILITY
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MODERN GROWTH OF KNOWLEDGE MANAGEMENT
2IDEA...........3S VS 3P
STRATEGY,STRUCTURE ,SYSTEM ........VS,....PURPOSE PROCESS...PEOPLE.
INSTEAD OF COMPLIANCE FOCUS ON COOPERATION OF PEOPLE.
..........MUST ESTABLISH A PURPOSE WITHIN COMPANY
GIVE PRIORITY TO INTERPRENAURSHIP MINDSET .......DO DEVELOP FULL POTENTIAL WITHIN INDIVUAL, HOWEVER HARMONY WITH COMMON STRATEGIC GOAL.
SENIOR MANAGER SHOULD PLAY THE ROLE MENTOR.
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study porter competitive strategy
..........understand modern concept of applied FLEXIBILTY in strucural growth of an organisation
 

oilman5

Well-Known Member
#12
I am doing some compilation on FUNDAMENTAL ideas……
Views r general…thorough put has to be checked and digested by individual

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What is Fundamental Analysis

Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock.

Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.

Earnings
It’s all about earnings. When you come to the bottom line, that’s what investors want to know. How much money is the company making and how much is it going to make in the future.

Earnings are profits. It may be complicated to calculate, but that’s what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.

When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.


While earnings are important, by themselves they don’t tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools.

Fundamental Analysis ToolsThese are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.

Earnings per Share – EPS
Price to Earnings Ratio – P/E
Projected Earning Growth – PEG
Price to Sales – P/S
Price to Book – P/B
Dividend Payout Ratio
Dividend Yield
Book Value
Return on Equity

No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments.

One has to observe all the ratios over a 3-5 year period and observe how they are increasing/decreasing.

One should also compare all with different companies of the same industry to get a good relative idea. For example the P/E ratio can be compared to the p/e ratios of other companies and p/e ratio of industry.

Another parameter is capital:Free reserves which makes the company a suitable bonus candiadate. Free reserves are out the the earnings of the company and not revaluation of assets.

Stock prices are determined in the marketplace, where seller's supply meets buyer's demand. There is no clean equation but now r trying to understand
Fundamental Factors

In an efficient market(which is rarely true), stock prices would be determined primarily by fundamentals, which, at the basic level, refer to a combination of two things: 1) An earnings base (EPS, for example) and 2) a valuation multiple (a P/E ratio, for example).


An owner of a common stock has a claim on earnings, and earnings per share (EPS) is the owner's return on his or her investment. So, when you buy a stock you are purchasing a proportional share of an entire future stream of earnings. That's the reason for the valuation multiple: it is the price you are willing to pay for the future stream of earnings.

Part of these earnings may be distributed as a dividend, while the remainder will be retained by the company (on your behalf) for reinvestment. We can think of the future earnings stream as a function of both the current level of earnings and the expected growth in this earnings base.

the valuation multiple (P/E), or the stock price as some multiple of EPS, is a way of representing the discounted present value of the anticipated future earnings stream.

Although we are using EPS, an accounting measure, to illustrate the concept of earnings base, there are other measures of earnings power. Many argue that cash-flow based measures are superior. For example, free cash flow per share is used as an alternative measure of earnings power.

The way earnings power is measured may also depend on the type of company. Many industries have their own tailored metrics. Real estate investment trusts (REITs), for example, use a special measure of earnings power called funds from operations (FFO). Relatively mature companies are often measured by dividends per share, which represents what the shareholder actually receives.

About the Valuation Multiple
The valuation multiple expresses expectations about the future. As we already explained, it is fundamentally based on the discounted present value of the future earnings stream. Therefore, the two key factors here are 1) the expected growth in the earnings base, and 2) the discount rate, which is used to calculate the present value of the future stream of earnings. A higher growth rate will earn the stock a higher multiple, but a higher discount rate will earn a lower multiple.

What determines the discount rate? First, it is a function of perceived risk. A riskier stock earns a higher discount rate, which in turn earns a lower multiple. Second, it is a function of inflation (or interest rates, arguably). Higher inflation earns a higher discount rate, which earns a lower multiple (meaning the future earnings are worth less in inflationary environments).
In summary, the key fundamental factors are the following: the level of the earnings base (represented by measures such as EPS, cash flow per share, dividends per share); the expected growth in the earnings base; and the discount rate--which is itself a function of inflation and the perceived risk of the stock.


(For example, economic growth indirectly contributes to earnings growth.)
• Inflation - We mentioned inflation as an input into the valuation multiple. But inflation is a huge driver from a technical perspective as well. Historically, low inflation has had a strong inverse correlation with valuations (low inflation drives high multiples, and high inflation drives low multiples). Deflation, on the other hand, is generally bad for stocks because it signifies a loss in pricing power for companies.
• Economic strength of market and peers - Company stocks tend to track with the market and with their sector or industry peers. Some prominent investment firms argue that the combination of overall market and sector movements--as opposed to a company's individual performance--determines a majority of a stock's movement. (There has been research cited that suggests the economic/market factors account for 40%weigjtage) For example, a suddenly negative outlook for one retail stock often hurts other retail stocks as "guilt by association" drags down demand for the whole sector.
• Substitutes - Companies compete for investment dollars with other asset classes on a global stage. These include corporate bonds, government bonds, commodities, real estate, and foreign equities. The relation between demand for U.S. equities plays an important role.
• Incidental transactions - Incidental transactions are purchases or sales of a stock that are motivated by something other than belief in the intrinsic value of the stock. These transactions include executive insider transactions. Another example is an institution buying or shorting a stock to hedge some other investment. Although these transactions may not represent for or against the stock, they do impact supply and demand and therefore can move the price.
other factor: 1) middle-aged investors are peak earners who tend to invest in the stock market, while 2) older investors tend to pull out of the market in order to meet the demands of retirement. The hypothesis is that the greater the proportion of middle-aged investors among the investing population, the greater the demand for equities and the higher the valuation multiples.

lower p/e ratio coupled with high book value is very good for LONG term investments. Whereas if the scrip is a FANCIED scrip, even with high p/e, it may quote more. those scrips may be good for short term. hence, companies with low p/e ratio which are not fancied may take a long time to appreciate. but they are worth investing for long term
as per The Little Book That Beats the Market

Contrary to efficient-market naysayers, Greenblatt (You Can Be a Stock Market Genius), a Columbia Business School adjunct professor, touts a "value-oriented" approach that looks for bargain stocks whose share price is cheap relative to the company's profitability. His version is a "magic formula" that ranks stocks on the basis of two variables—the earnings yield and the business's return on capital. Greenblatt offers lots of statistical proof of the formula's success, but emphasizes the importance of faith in seeing the investor through inevitable short-term downturns:

In indian market context, i think FII net purchse & sale trend should also be considered.
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PEG is the ratio of the Price Earnings Ratio to the expected Growth of the companies earnings per share.
PEG < 1 is a great Buy
A very high PEG means the stock is overvalued.
A PEG=1 implies fair valuation
Try to read 'Investment Valuation' and 'Damodaran on Valuation' by Aswath Damodaran.

It's an unfortunate fact that few investors can consistently beat the market. That's because it often takes one or more of the following rare traits...

1)The vision to identify breakthrough products, leaders, and brands

2)The knowledge to spot an undervalued gem in a sea of glass

3)The courage to buy and hold when others are running scared

4) The courage to not get depressed when everyone around him is making money and he is not (the investor is not envious).
Warren Buffet doesn't ever needs charts he buy & holds onto a stock as long as he finds value in it.
Try www.indiaearnings.com. Registration required
cash flow!
Investors love companies that produce plenty of free cash flow (FCF). It signals a company's ability to repay debt, pay dividends, buy back stock and facilitate the growth of business – all important undertakings from an investor's point of view. In the past we have given our readers a perspective on valuation parameters like price to earnings (P/E) and price to book value (P/BV). While both these valuation parameters reflect the present earning capabilities, they do not signal the ‘future’ prospects.
How and what of FCF
The formula for calculating Free Cash Flow (FCF) is as:
Net Profit + Depreciation – Capital expenditure – Changes in working capital – Dividend
FCF takes into account not only the earnings of the company but also the past (depreciation) and present capital expenditures, capital inflows and investment in working capital. Growing free cash flows are frequently a prelude to increased earnings. Companies that experience surging FCF due to revenue growth, efficiency improvements, cost reductions, share buy backs, dividend distribution (from subsidiaries) or debt elimination can reward investors in the future. Better free cash flows are therefore a reason for the investment community to cherish. On the other hand, an insufficient FCF for earnings growth can force a company to boost its debt levels. Even worse, a company without enough FCF may not have the liquidity to stay in business
From a company’s point
better FCF definitely indicates better efficiency on the part of the company. But what is pertinent for investors to note is that simply assessing the FCF on the basis of its absolute value is not prudent. It is imperative to also assess as to what components have contributed to the same.
Let us take a hypothetical example of two companies, A and B, both of which have garnered the same FCF for the current financial year.
Estimated free cash flow
(Rs) Company A Company B
Net profit 75 120
Add: depreciation / amortisation 20 5
Less: Capital expenditure 5 15
Add/ (Less): Decrease /(Increase)in wkg capital 10 (10)
Less: Dividend 20 20
Free cash flow 80 80
Prima facie although appearing similar, if you delve a little deeper there is a sharp difference in their performances. While company ‘A’, despite having lower earnings has benefited by adding back depreciation and decrease in working capital,
company ‘B’ has invested in capex and working capital. This indicates that while company ‘B’ is investing for future growth, company ‘A’ is not sufficiently geared up for the impending challenges. This also means that investors in company ‘B’ can expect ‘ better future return , if management views materialise.
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From a sector’s point of view
As explained earlier, cash flows are dependant on the capital expenditure and working capital liabilities borne by the company. This however, differs as per the dynamics of the sector in which the company is operating and should be seen in that light. While sectors like banking require minimum expenditure on capex (as a % of their turnover) those in pharma, engineering, FMCG or commodity sectors require to invest a substantial amount in R&D and capacity expansions. Thus, you would find SBI trading at a very attractive price to free cash flow valuation of 3 times, while an equally competitive Infosys is trading at 40 times (due to lower cash flows).
To conclude...
FCF is not only a mirror image of the present but also a sneak preview into the future. The implications of the components of cash flow may not be explained in the annual reports, but is left to the investor’s prudence to diligently scrutinize the same and try to read between the lines.
The legendry investor Benjamin Graham once said, “The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than worth his purchase

What Is Free Cash Flow?
By establishing how much cash a company has after paying its bills for ongoing activities and growth, FCF is a measure that aims to cut through the arbitrariness and "guesstimations" involved in reported earnings. Regardless of whether a cash outlay is counted as an expense in the calculation of income or turned into an asset on the balance sheet, free cash flow tracks the money.

To calculate FCF, make a beeline for the company's cash flow statement and balance sheet. There you will find the item cash flow from operations (also referred to as "operating cash"). From this number subtract estimated capital expenditure required for current operations:
Cash Flow From Operations (Operating Cash) - Capital Expenditure ---------------------------= Free Cash Flow

To do it another way, grab the income statement and balance sheet. Start with net income and add back charges for depreciation and amortization. Make an additional adjustment for changes in working capital, which is done by subtracting current liabilities from current assets. Then subtract capital expenditure, or spending on plants and equipment
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The gap between Cash Flow and Earnings has to be seen in light with that during the previous financial years as well as the average for the industry. Besides, year end window-dressing will certainly not generate any cash flow for the year but current year's Cash Flow will certainly include cash generated as a result of window dressing which took place at the end of the previous year.

A wide gap between cash flow and earnings may indicate that all is not well for the company but one can't jump to the conclusion only on the basis of this gap that the accounts have been manipulated.
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oilman5

Well-Known Member
#13
ACTUAL APPLICATION OF FUNDAMENTAL ANALYSIS:
order getting is actually affect profitability of a company
Next :without vision management is doomed to failure
pl understand typical constraint what makes a business failure in reality
btw i find rarely people know fa.......those whom we see r parrot........an mba/cfa..without vision......maximum they produce a report for a company.....on a structured format.
 

oilman5

Well-Known Member
#14
a layman term i try to explain...........CYCLE
shm........simple hormonic motion .........repeating cycle.
in human ..........born ........grow......maturity..........death
in company......start.....growth ......expotential growth....other competitor try to expand...........a stable position........decay
in ECONOMY BOOM- BUST CYCLE
at low of gdp, recession .........bank interest cut........create idea generator. to do business........easy margin ....confidence..........make business click,now further money creates expansion ........creates boom.........growth rate improve........ultimately expansion r parabollic.........fools try to make without knowing what to make........paper business tiger.......unnecessary expansion,excessive supply of creates demand down....further rate rise by bank.......add the balloon ready to bust......inflation show its ugly head.prudent sells share........take cash.......suddenly based on a rumour , panick reaction .........make bubble busts.........slowly recession moves up,....economic growth rate comes down............this CYCLE occurs again again.in stock market we call it bull-bear cycle,trough -peak analysis.
just see indian market.........guess what state it is NOW
 

oilman5

Well-Known Member
#16
Market Sentiment
Market sentiment refers to the psychology of market participants, individually and collectively. This is perhaps the most intrigue because we know it matters critically, but we actually know a little. Market sentiment is often subjective, biased, ........, you can make a solid judgment about a stock's future growth prospects, and the future may even confirm your projections, but in the meantime the market may myopically dwell on a single piece of news that keeps the stock artificially high or low. And you can sometimes wait a long time in the hopes that other investors will notice the fundamentals.

Market sentiment is explored by behavioral finance. It starts with the assumption that markets are apparently not efficient much of the time, and this inefficiency can be explained by psychology and other social sciences. The idea of applying social science to finance was fully legitimized when Daniel Kahneman, a psychologist, won the 2002 Nobel Prize in Economics. Many of the ideas in behavioral finance confirm observable suspicions: that investors tend to overemphasize data that come easily to mind; that many investors react with greater pain to losses than with pleasure to equivalent gains; and that investors tend to persist in a mistake.

Some investors claim to be able to capitalize on the theory of behavioral finance. For the majority, however, the field cannot explain .
 

oilman5

Well-Known Member
#17
Dear Oilman,

OMG - more downside expected :annoyed:.
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seen u for detail.but u know -7th aug, I trade for long , 8th also long,..........even u miss chance of high probability long.
...........this view may be valid for another 2days.
further study reqd from my end
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trade only as per your plan, not my view.
regards
 

oilman5

Well-Known Member
#18
Sorry, again try to put forward some idea as hot topic on pharma sector(after seeing ballistic move of Ranbaxy)
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• The Indian Pharmaceutical industry is highly fragmented with about 24,000 players (around 330 in the organised sector). The top ten companies make up for more than a third of the market. The revenues generated by the industry are approximately US$ 7.6 bn and have grown at an average rate of 10% over last five years. The Indian pharma industry accounts for about 1% of the world's pharma industry in value terms and 8% in volume terms.
• In the recent past, Indian companies have targeted international markets and have extended their presence there. While some companies are exporting bulk drugs, others have moved up the value chain and are exporting formulations and generic products. India also offers excellent exports opportunities for clinical trials, R&D, custom synthesis and technical services like Bioinformatics.
• The drug price control order (DPCO) continues to be a menace for the industry. There are three tiers of regulations – on bulk drugs, on formulations and on overall profitability. This has made the profitability of the sector susceptible to the whims and fancies of the pricing authority. The new Pharmaceutical Policy 2006,with its new lists,which proposes to bring many essential drugs under price control has been officially a varied factor, has been stiffly opposed by the pharmaceutical industry.
• The R&D spend of the top five companies is about 5% to 10% of revenues. Despite growing at a CAGR of over 50% over the last four years, the ratio is still way below the global average of 15% to 20% of sales. However, despite the relatively low R&D spending, Indian companies are stepping up their research activities to make themselves more self sufficient in terms of product development, now that the product patent regime has come into force.
Key Points
Supply: Higher for traditional therapeutic segments, which is typical of a developing market. Relatively lower for lifestyle segment.
Demand :Very high for certain therapeutic segments. Will change as life expectancy, literacy increases.
Barriers to entry : Licensing, distribution network, patents, plant approval by regulatory authority.
Bargaining power of suppliers : Distributors are increasingly pushing generic products in a bid to earn higher margins.
Bargaining power of customers:High, a fragmented industry has ensured that there is widespread competition in almost all product segments. (Currently also protected by the DPCO).
Competition :High. Very fragmented industry with the top 300 (of 24,000 manufacturing units) players accounting for 85% of sales value. Consolidation is likely to intensify.

•Presently a mixed year for domestic pharma companies as after the global financial crisis,the sharp depreciation of the rupee against the dollar had a huge impact on most of the domestic pharma companies. While revenues were enhanced, those with substantial foreign debt on their books had to book considerable forex losses, which impacted profitability.
At the same time companies such as Dr.Reddy’s and Sun Pharma may be able to garner exclusivity for certain drugs which bolstered revenues and profits.
• Another problem which impacted the pharma sector was the stringency of the US FDA while inspecting manufacturing plants. As a result many companies such as Ranbaxy, Lupin and Sun Pharma’s subsidiary Caraco were found guilty by the US FDA for not complying with quality manufacturing standards. This impacted their performance . This is a critical issue.
• The European market posed a set of challenges for Indian generic companies. While the UK was bogged with severe pricing pressure, the government’s of Germany and France undertook various healthcare reforms, which impacted the revenues of companies having a presence in these countries. Further, the global economic slowdown only worsened matters.
• In the domestic market, its a decent year for the pharmaceutical industry with most of the top players managing to clock a good growth. However, it was the chronic therapy segment, which once again took centre stage relegating the acute therapy segment to the background. While the former recorded a robust growth, the latter grew less on YoY.
• MNC companies did well as compared to last year wherein they had performed poorly. On an average, MNC companies were able to clock topline growth in the range of 10% to 15%. On the margin front, performance was mixed with only GSK Pharma managing to expand margins on account of a superior product mix. Aventis also did well with exports surging once again .
Prospects
• The product patents regime heralds an era of innovation and research resulting in the launch of new patented product launches.
In the longer run, domestic companies would face fresh competition from MNCs, as they would make aggressive new launches. However, the latter would most likely be subject to price negotiation.
• Drugs having estimated sales of over US$ 108 bn are presently to go off patent. With the governments in the developed markets looking to cut down healthcare costs by facilitating a speedy introduction of generic drugs into the market, domestic pharma companies will stand to benefit. However, despite this huge promise, intense competition and consequent price erosion would continue to remain a cause for concern.
• The life style segments such as cardiovascular, anti-diabetes and anti-depressants will continue to be lucrative and fast growing owing to increased urbanisation and change in lifestyles. Growth in domestic sales in the future will depend on the ability of companies to align their product portfolio towards the chronic segment.
• Contract manufacturing and research (CRAMS) is expected to gain momentum going forward. India’s competitive strengths in research services include English-language competency, availability of low cost skilled doctors and scientists, large patient population with diverse disease characteristics and adherence to international quality standards. As for contract manufacturing, both global innovators and generic majors are finding it profitable to outsource production. Currently, India has the highest number of US FDA approved plants outside the US at 75 plus

The case for an MNC pharma company for retail investors as far as equities are concerned stems from the fact that earnings visibility is relatively stronger compared to domestic pharma companies.
Unlike Indian peers, risks regarding R&D is also absent. However, while MNCs, in general, bring in a culture of professionalism, there have also been instances of Indian shareholders getting an unfair deal when these very MNCs delist from the domestic stock exchange or when they are taken over by another company . Now we shall understand the various factors that should be borne in mind while investing in an MNC pharma stock.
Consider various revenue streams for an MNC pharma company first. A global pharma company establishes an Indian subsidiary with an intention of taking advantage of the huge potential that the Indian market holds in view of its large population and growing health awareness. Hence, it derives a major portion of its revenues from the domestic market. The company’s revenues from the domestic market are influenced by various factors that are briefly discussed in the following paragraphs.
The most important aspect that influences an MNC pharma company’s revenues from the domestic market is its parent’s outlook and strategy for India. The parent’s view on the growth prospects of the domestic pharma industry which is influenced by factors such as rate of growth of population, per capita medical expenditure and health insurance infrastructure in the country. It is pertinent to understand that global pharma major, as the name itself suggests, have a worldwide presence. So, the parent will focus on those subsidiaries that could make a meaningful contribution in the long term. Though the contribution could be even less than 1%, consider the rate of growth of the Indian subsidiary with the parent company’s growth in revenues.
One of the ways in which parent’s commitment towards the Indian company can be evaluated is by calculating the contribution the Indian arm makes to the topline and the bottomline of the parent. This will help us know the relative importance the Indian subsidiary holds for the parent. Another aspect that needs to be looked into is the core segment-wise product profile of the parent. We must compare the Indian arms therapeutic break-up with that of the parent. Here, one should check whether the Indian arm has a similar therapeutic break-up as compared to its parent. The higher the resemblance, the better it is for the Indian subsidiary. This also suggests that the parent major is keen on the Indian market.
This apart, the parent’s R&D pipeline should also be looked into. This will help us know the prospective launches in the future. The Indian arm could benefit immensely.
Further, an investor should also keep in mind that the global pharma industry is consolidating. If the existing parent is acquired by another global major (like Pfizer and Pharmacia), it will have a direct influence on the Indian arm. It could dilute the importance of the Indian arm or result in an unfair deal for the domestic shareholders. Given the fact that Indian subsidiaries market capitalisation is mini-scule as compared to the parent’s market cap, the parent may be tempted to buyback and delist it from the Indian stock markets. There have been numerous instance of this kind in the past and retail shareholders have no option but to participate in the buyback/delisting.
Finally, a very important aspect that needs to be looked into while evaluating the MNC’s parent is the existence of parent’s 100% subsidiary in India. In such an instance, what if the parent launches new products through the other 100% subsidiary and not through the listed entity? Shareholders will lose out significantly in the long term.
Once, we have made a detailed study on the parent, the next aspect that could affect the company’s revenues is the therapeutic segment in which it operates.
If the company generates a major portion of its revenues from the high margin lifestyle segments like diabetes, cancer and asthma as compared to low margin traditional therapeutic segments like anti-infectives and anti-biotics, obviously, the growth prospects and margins of the company will be higher.
Revenues in the domestic market are also influenced by the prices fixed by the regulatory bodies like the DPCO and NPPA. These organizations fix very low ceiling prices for bulk drugs and formulations, thereby limiting pricing power. Although, powers of these bodies is expected to reduce tremendously with the introduction of product patents, there is an apprehension that they might survive in some form even after product patents are implemented.
A company’s product portfolio age is also a crucial factor that affects the company’s growth prospects. As a drug matures, its volumes decline. Thus, a company with a relatively older product portfolio is likely to witness slower growth rates as compared to a company that makes aggressive new product launches. Moreover, aggressive new product launches also demonstrates parent’s commitment towards the Indian arm.
Outsourcing is the second avenue of revenue available for an MNC pharma company. Here, the company can either manufacture its parent’s patented drugs or act as an R&D base. An MNC pharma company can utilize the lowest cost manufacturing ability of the Indian subsidiary for drugs sold globally. However, to get such manufacturing contracts, the Indian arm will have to prove its cost effectiveness not only in comparison to its fellow subsidiaries but also Indian companies specializing in the same. This apart, the demand for the parent’s product is another key factor that could influence the flow of revenues from this avenue. MNC pharma companies could also act as an R&D base for its parents. This is in view of the fact that highly skilled scientist and research personnel are available in India at a relatively lower cost as compared to other countries. Moreover, they could also act as a clinical research center for the parent given the availability of large number of patients with ethnic diversity at a much lower cost.
Key parameters to be kept in mind while investing in an MNC pharma stock:
 Relative importance of Indian arm to the parent: As was mentioned earlier, Indian arm’s topline and bottomline as a percentage of the global revenues and profits of the parent should be calculated. This will give us an idea about the relative importance of the Indian arm to the parent.
 Parent’s R&D expenditure as a percentage of sales: In a regulated market, new drug discovery research and product launches are key to a global pharma company’s survival. Aggressive new product launches can only be made if the company is committed towards making R&D investments. This can be numerically measured by calculating the parent’s R&D expenditure as a percentage of its sales. The higher this ratio, the more committed the company is towards its R&D initiatives.
 Advertising and sales promotion expenses as a percentage of sales: In the domestic market, an MNC pharma company has to compete with generics manufacturers who sell drugs at a much lower price as compared to the MNC. Hence, to justify its premium price, an MNC pharma company has to undertake nation-wide product awareness programs and also conduct seminars and conferences. Although these initiatives eat into the company’s margins, they are essential in the long term.
 Market capitalization to sales: This is a very important ratio while analyzing an MNC pharma company, as it will give us an idea about the market’s perception of the company’s brand value. Higher the ratio, bigger the company’s brand.
 Other parameters: Apart from the above ratios, the usual ratios like operating profit margin, net profit margin and P/E ratio should also be considered before investing in an MNC pharma stock. As far as price to earnings is concerned for an MNC pharma major, better earnings visibility (provided the parent is committed) and access to the parent’s global expertise could result in a premium valuation compared to domestic pharma majors.

There is a famous saying that ‘while investing in equities, investors are actually buying the business of the company and not the scrip per se’. If this is the case, there are lots of complexities involved when it comes to picking a pharma company for investment.

Now an attempt is made to enable a retail investor to identify a domestic pharma company for investment.

We know- Indian pharma companies derive revenues from the domestic and international market.
Domestic market:The domestic market can be broadly divided into two categories i.e. bulk drugs and formulations. Two key factors that have to be borne in mind are that the Indian pharma market is highly fragmented due to the lack of a patent regime. Therefore, pricing power is very less and any player can duplicate a product in a very short span of time.
Coming to bulk drugs, they primarily represent the basic raw materials used in the manufacture of a formulation. If the company is engaged in the bulk drugs business, what the investor must look into is the extent of the Drug Price Control Order (DPCO) cover on the company’s products. DPCO is a government regulation that fixes the ceiling prices for the bulk drugs. Thus, a company manufacturing drugs covered by the DPCO loses its pricing power, resulting in lower margins. Therefore, lower the exposure to products covered by DPCO, the better.
Another important thing to be looked at is whether the bulk drug company carries out any contract manufacturing activity. In this case, the company acquires a contract from another company for manufacturing its products, which will subsequently be sold by that other company. But why contract manufacturing? Low labour costs and US-FDA approved plants are advantages on which the Indian pharma companies can capitalize and increase revenues.
On the other hand, if a company is dependent on formulations, the investor must ascertain the extent to which its products fall under the National Pharmaceutical Pricing Authority (NPPA) cover. NPPA fixes the ceiling price for formulations. Thus, as in the case of bulk drugs, lower the exposure to products covered by NPPA, the better for a formulations company. Here again the company could enter into a manufacturing contract with an MNC.
Even in formulations, there are two broad categories i.e. lifestyle segment and traditional segment. Lifestyle segment comprises of drugs that are used to cure diseases that are linked to stress, urbanization and changing diet pattern and lifestyle of high-income level population. Major drugs in this segment are anti-diabetes drugs, cardiovascular system drugs, gentio-urinary and sex hormones drugs, CNS drugs, anti-depressants and psychiatry. These segments are not price sensitive and are less fragmented.
The traditional segment, on the other hand, comprises of anti-infectives, pain management and anti-biotics. This segment is highly fragmented. Thus, if a company has higher exposure in the lifestyle segment, the growth prospects and margins of the company will be higher.

International market:As far as international markets are concerned, as apparent from the graph above, is broadly divided into three categories viz. generics, Novel Drug Delivery System (NDDS) and developing a New Chemical Entity (NCE).
Generics are a bio-equivalent of a patented drug. Simply, if ‘erythromycin’ is coming out of patent, a company can launch the same erythromycin, but with a different composition (end effect however, is the same). Every year, a number of drugs come out of the patent regime. So, a company in India who does not have the R&D capabilities or funds to invest in R&D launches the generic version of the drug that is coming off patent. The advantage here is that the Indian company need not invest large sums in R&D. However, legalities are very complex (like Para I to IV) and time consuming. When the company’s research is at a very nascent stage, it concentrates on the sale of off-patent drugs.
Read in detail about Pharma R&D and its structure.
Starting from Para I to III, there is no restriction on the number of players that can enter the market (competition is global in nature). Margins therefore, are not very high. It is basically a volume driven strategy.
Gradually, as the company grows, it shifts its focus onto developing a new drug delivery system for an existing drug and also challenges existing patented drugs by introducing their bio-equivalents. A company files an ANDA for NDDS when it has developed a new method or dosage of delivering a patented drug to the patient. When a generics company challenges an existing patent, it is required to prove that the patent is not infringed or that the patent is invalid. He is thus required to prove that his drug is bio-equivalent to patented drug. If successful, the company gets a 180-day exclusivity period during which it has the sole right to sell the drug in the market. Consequently, the company enjoys very high margins during this period of exclusivity. However, the litigation expenses are very high in such a case.
An investor has to put more emphasis on the total number of Para 4 ANDA filings rather than the aggregate number of ANDAs filed. Further, the investor should look into the long-term prospects of the company and not base his decision on the outcome of a single legal suit, or a single blockbuster generic success.
Read in detail about New Chemical Entity: What is it all about?
Major aspects that need to be observed:
Government policies have a major influence on the domestic pharma sector. As can be seen from the table below, due to the absence of a good health insurance policy, India has one of the lowest public health expenditure as a percentage of GDP. Moreover, even on the health infrastructure front, India has a long way to go as compared to other developing nations.

For Country Public health expenditure as % of GDP, Per capita health expenditure ($) and No of hospital are important data.
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Management is the most crucial aspect for any company’s success. While this is true for every industry, it attains even more significance in the pharma sector. Being an extremely specialized sector, it is very important that the management has the requisite expertise and skills to handle the complexities involved it this business. Thus having ‘the right person at the right place’ is key to the success of a company. Watch out for this in the annual reports.
R&D expenditure as a percentage of revenues is a very useful tool for evaluating the company’s R&D thrust. As product patents come into effect, only companies with high R&D investment will survive. Thus, higher the ratio, higher will be the R&D focus of the company and the better placed will it be to face the uncertainties of the future. Of course, R&D has its inherent risks as well.
Last but not the least, keeping aside growth prospects, the sector has significantly high-risk profile due to the dynamism. Even erstwhile big names in the global pharma industry like Burroughs, Knoll, SmithKline Pharma, Pharmacia and Hoechst, found the going tough alone. Ultimately, they had to join hands with bigger players in a bid to survive. Indian companies are still relatively small. If this is the case, a retail investor has to exercise caution. So ‘pick and choose’
There has been a lot of hoopla about the need to invest in Research & Development (R&D) by the Indian pharmaceutical companies to remain competitive after the product patent regime is implemented in India in 2005. We feel the importance laid on R&D by domestic pharmaceutical companies can be better understood by understanding the global R&D scenario.

The Global R&D process:
It can be safely said that the pharmaceutical industry is more research-intensive, as compared to the any other industry. One of the activities of research and development of the companies is directed towards finding newer molecules as a cure for diseases.
The innovator company synthesizes a New Chemical Entity (NCE), which can probably be a cure for a disease. The synthesis of a NCE takes place in the pre-clinical testing period. The innovator company, after synthesizing a NCE, files an Investigational New Drug (IND) application, prior to commencing clinical trials. The FDA grants patent to the NCE at this stage.
The drug discovery process

As can be seen above, after the IND filing it takes around 10 years for a NCE to pass through the three phases of clinical trials, attain the final FDA (Food & Drug Administration) review approval and post marketing tests to ultimately launch the product. As already mentioned, the FDA grants patent to the NCE at the time of the IND filing and the duration of such patent is around 20 years. In this context, a drug ultimately enjoys patent protection after its market launch for only around 10 years, to recover its costs.
After the expiry of a patent, generic companies immediately launch the products and consequently, there is a sharp downward correction in the price of the particular drug. The fall in prices can be as much as 90% depending upon the number of generic manufacturers and the nature of the drug. The fall in prices also result in a fall in the margins for the branded drug. The generic market has witnessed significant growth over the years. While generics account for around half of the prescriptions in the US, it accounts for only around 10% of the pharmaceutical market in the US in value terms. The reason for the same is low realizations of generics vis-à-vis patented drugs.

Generics:
A generic drug has similar effects in terms of its rate and extent of absorption of an approved product, which has to be proved by the generic company. In other words the generic drug has similar effects in curing a disease as the approved product. The generic approval process is called Abbreviated New drug Application (ANDA).
While filing an ANDA, the generic company has to choose one of the following four options (referred to as paras)
• Para I - The drug has not been patented
• Para II - The patent for the drug has already expired
• Para III - The patent for the product exists but the generic company wants to enter the markets after the date of patent expiry passes.
• Para IV - Patent is not infringed upon or is invalid
In a Para III filing the company acknowledges the patent of the approved drug and intends to enter the market after the patent for the approved product expires and there exists a scenario of falling prices for the drug, whereas in Para IV filing the company claims that the generic product of the company does not infringe upon the existing patent or the patent of the branded product is invalid and the company strives to win an exclusivity of 180 days during which the margins for the product are very high. For instance, recently Dr. Reddy's filed an application with the US FDA to market a generic form of Eli Lilly's schizophrenia drug ‘Olanzapine’ in the United States.
In all the generic filings, the FDA has 180 days to deem the generic application complete and accept it for review, or incomplete and reject for filing.
In case of Para I and Para II filing, once the application is deemed complete, it is simply processed for approval. In case of Para III the application is processed for approval, however its approval status depends upon the products patent expiry. Apparently Para IV filings are the most lucrative, tedious, time consuming and expensive of the above.
The approval process of the Para IV is as provided below:

Post 2005 scenario

After the patent regime is implemented in India in 2005 no company would be allowed to launch products patented after 1995. In other words Indian companies will still be allowed to launch NCE patented before 1995 in the market. As already discussed it takes around 10 years for a NCE to be commercially launched, as a result of which the Indian companies will have additional cushion in terms of time to gear up fully for the patented regime
Already Indian companies have forayed into basic research and their success has so far been very very limited. However, as it is said, the secret of getting ahead is getting started and every small step by Indian companies will raise their probability to succeed in the future.

Pharma – Future Diagnosed

The Indian pharmaceutical industry has come a long way since 1970 when the government introduced regulation in the pharmaceutical industry in the form of Drug Price Control Order (DPCO) and more recently, through the price-monitoring agency-National Pharmaceutical Pricing Authority (NPPA). These regulations were essentially to control the prices of drugs in the domestic market. This has helped the industry in providing quality drugs at reasonable prices. But with India now required to comply with the WTO regulation of providing product patents by 1st January 2005, the face of the Indian pharmaceutical industry is about to change in the coming future.
Indian companies have traditionally concentrated on low priced generic drugs. They were thus not able to obtain critical size and hence restricted their research expenditure to low cost research activities such as reverse engineering of patented products. The R & D expenditure in India as a percentage of sales was only 2% in FY00 as against 15% for the global pharmaceutical majors. However, after 1st January 2005, Indian companies will not be able to reverse-engineer patented products and will have to increasingly invest in research to develop new products. There is hence an apprehension that Indian companies might find it difficult to survive in the post-patent period. In this scenario, let us analyse the various avenues open to Indian companies once the patent regime comes into effect.
Licensing out an NCE:
Indian companies could use their expertise in chemistry and process development to develop New Chemical Entities (NCE). NCE is a chemical molecule developed by the innovator company in the early drug discovery stage, which after undergoing clinical trials could translate into a drug that could be a cure for some disease. Synthesis of NCE is the first step in the process of development of a drug. Once the synthesis of the NCE has been completed, Indian companies have two options before them. They can either go for clinical trials on their own or license the NCE to another company. In the latter option, Indian companies can avoid the expensive and lengthy process of clinical trials, as the licensee company would be conducting further clinical trials and subsequently launching the drug. Companies adopting this model of business would be able to generate high margins as they get a huge one-time payment for the NCE apart from entering into a revenue sharing agreement with the licensee company.
For example, Dr Reddy’s Laboratory has licensed its NCE for diabetes DRF 2725 to Novo Nordisk and received a milestone and upfront payment of Rs 334 m and its NCE for Type 2 diabetes DRF-4158 to Novartis Pharma AG for Rs 55 m during the financial year 2002. The following table shows the major drugs licensed by Indian companies.
Innovator Company Licensed to Name of the NCE Segment
Dr. Reddys Laboratory Ltd. Novartis Pharma AG DRF-4158 Anti-Diabetes
Dr. Reddys Laboratory Ltd. Novo Nordisk DRF-2725 Anti-Diabetes
Dr. Reddys Laboratory Ltd. Novo Nordisk DRF-2593 Anti-Diabetes
Ranbaxy Ltd. Bayer AG CiproXR Anti-Infective
However, there is a risk of failure of the drug at any of the phases of the clinical trials and could adversely affect the performance of the company. For instance, the phase 2 clinical trials of Dr. Reddys Laboratory’s NCE DRF-272 (Ragaglitazer), being carried out by Novo Nordisk, were suspended resulting in a loss of huge potential revenues for the former, had it reached the commercial stage.
In the other option, Indian companies could instead of licensing out the NCE, carry out the entire process of clinical trials, obtain the required regulatory approvals and launch the drug in the market. The company would have the patent for such a drug and hence be able to enjoy marketing exclusivity for a long period, in which time they are able to generate large revenues. The margins in this kind of initiative are also comparatively large. Ranbaxy Ltd. has taken lead in this field. Phase 2 clinical trials for its first NCE for curing Urological disorders, RBx-2258 is being carried out at different centers in India. Another molecule RBx-6198 is in its’ early discovery stage.
However, passing of the NCE through various phases of clinical trials takes atleast 8-10 years and entails huge R & D expenditure. It is estimated that on an average, development of a new drug costs around US$ 400 m. Moreover, risk of the new drug failing at any of the different stages of clinical trial is also extremely high and the company could loose the entire R & D investment made by it on the failed NCE.
Contract Research:
The availability of highly skilled and low cost research specialists and scientists makes India an ideal destination for many MNCs for outsourcing their research activities. Indian companies could thus act as Contract Research Organisations (CRO) and carry out research on behalf of the MNCs. Nicholas Piramal India Ltd. has recently established a CRO, called Wellquest, for conducting research on behalf of foreign companies as well as for generic research for Indian companies. Many bulk drug producers like Morpean and Suven Pharma are also evaluating the possibility of venturing into this field, as the margins are high.
Contract Manufacturing:
India has a cost advantage in the manufacture of drugs. The cost of setting up an FDA approved plant in India is almost half of that in the USA. With the government now allowing 100% FDI, many foreign companies are planning to outsource the manufacture of their off patent drugs to Indian companies and concentrate more in the development of new products. For Indian companies, this is an area of large potential. Indian companies have already started capitalizing on this opportunity. Nicholas Piramal Ltd. has recently entered into an agreement to manufacture various Allergen Inc products.
Co-marketing:
One of the major plus points of the Indian pharmaceutical industry is its’ well established marketing and distribution network. For a commission, Indian companies can capitalize on their existing distribution network and enter into marketing agreements with other companies that have a product but do not have the sales force required to market the same. Wockhardt has entered into a marketing agreement with Bayer AG for the marketing of the anti-diabetic drug Acarbose.
Generics:
Finally the Indian companies can continue to specialize in generic drugs and formulations. A company can wait for the patent of a drug to expire and bring out the generic version of the same. It is estimated that 15 of the 35 block bluster molecules will be off patent by 2005. Moreover, there is increasing pressure on the US government to reduce healthcare expenditure by enabling a faster generic entry in the markets. This gives the generic companies the opportunity to flood the US markets with quality generic drugs at competitive prices. The generic drugs business is, however, characterised by low pricing and hence the margins are bound to be low. The following graph indicates the value of the drugs likely to go off patent by 2005. However, it should be noted that the generics sales would not increase by such high amounts as the generics are sold at much lower prices as compared to their patented counterparts.

Indian pharmaceutical industry is highly fragmented with 23,000 players and no company enjoys more than 7% market share. However, with the introduction of product patents, many companies have started going in for Mergers and Acquisitions and thus gain synergies in research and development, cut costs, sustain revenues and increase market share. This will also help the companies in being better prepared once the product patent is introduced. Recognizing this, Nicholas Piramal India Ltd. acquired Rhone Poulenc in FY02 and the pharma business of ICI (India) Ltd. and Global Bulk Drugs and Fine Chemicals Ltd. in FY03.
From this article, we see that there is a wide range of business models that Indian companies can adopt in order to survive the post 2005 era. Thus companies that are able to recognize their strengths and capitalize on the same are the ones that will survive. Many Indian companies have realized this and are in the process of identifying the business line that would yield optimum returns. From here on, success for Indian companies in the pharmaceutical industry will be a factor of viable long-term strategies.
 
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Mr.G

Well-Known Member
#20
btw i find rarely people know fa.......those whom we see r parrot........an mba/cfa..without vision......maximum they produce a report for a company.....on a structured format.
What do you mean by this? As I am fundamental investor myself.
 
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