Capital Structure of Select Pharma Companies Operating in India - An Analysis

One of the important decisions that a finance manager has to take is the capital structure decision. The decision relating to the financing of capital needs to be taken considering a wide variety of factors and the interplay between these factors. Among the sectors in the Indian economy, the Indian pharmaceutical sector has been witnessing steady growth with many of the Indian pharma companies becoming preferred partners for contract manufacturing and also for research and development. Many of the Indian pharma firms have been active in the international space in terms of licensing arrangements and mergers and acquisitions. Among the pharma firms operating in India, Sun Pharma, Biocon and Glaxo Smithkline have reported consistent growth of profits. Therefore this study was undertaken to analyse the changes in the capital structure and growth in firm value. The study is analytical in nature and is based on secondary data. Data for the purpose of the study was sourced from the published annual reports of the companies for the period 2008-09 to 2012-13. On a comparative basis, GlaxoSmithkline has the lowest debt burden and therefore has a lower interest outflow. The company has been able to earn higher returns to the equity shareholders of the company. SunPharma has a higher proportion of debt in its capital structure when compared to the other two companies, however, because of the higher profit earning capacity it is in a comfortable position with regard to debt repayment capacity. Considering the high profitability and very low proportion of debt in its capital structure, GlaxoSmithKline can consider opting for borrowing in its future fund raising plans in order to benefit from leverage.