Profitability Study of Indian Pharmaceutical Industry: A Co Integration Approach

Profitability (ROA) study of the Indian pharmaceutical industry has been studied under dynamic conditions to avoid endogeneity issues. Vector Error Correction Mode (VECM) results suggest short-run and long-run dependency of profitability on working capital intensity, research & development intensity, and physical capital intensity. Physical capital intensity exhibited a negative impact on ROA. Auto Regressive Distributed Lag (ARDL) results suggest short-run and longrun positive dependency on research & development intensity, working capital intensity, and leverage on profitability. Granger causality with two lags from fixed assets invested on net profits along with a strong positive correction suggests a longer payback period. This sector will require continuously high investments in physical capital intensity, operating capital, and research & development. Financing through debt can be undertaken with profitability but with prudence.