1. [SEARLE PAKISTAN LTD.]
INTRODUCTION:
Searle Pakistan Limited (SPL) was incorporated in Pakistan as a Private Limited
Company on October 5, 1965 as a subsidiary of G.D. Searle & Co., U.S.A. In 1966,
Searle Pakistan (Private) Limited acquired a small manufacturing facility in S.I.T.E. and
production of Aldactone, Lomotil, Diodoquin, Ovulen, Neomycin Sulphate, Probanthine
and Hydryllin, etc. started there. Over the years the operation expanded and during 1984
construction of a new factory started. During mid 1986 manufacturing operations of high
quality pharmaceutical products commenced at this newly built factory at Plot # F-319,
S.I.T.E. Area, Karachi, measuring 5.24 acres.
On 29th April 1993, G.D. Searle & Company as part of its global policy disinvested its
shares in Pakistan. On November 14, 1993, the company was converted into a Public
Limited Company.
As a further milestone, during 1996 Ministry of Health, Islamabad, also allowed the
manufacturing of Antibiotic products in a dedicated area constructed within SPL present
manufacturing facility where production of some excellent antibiotic drugs is being
carried out.
During 1996 SPL also joined a limited group of Pharmaceutical Companies, which are
allowed to manufacture semi-basic active raw material for pharmaceutical preparations in
their manufacturing facilities.
SPL is one of the leading pharmaceutical companies in Pakistan having a state-of-the art
manufacturing facility. The present manufacturing plant of the company is one of the
most modern in the country. The company has consistently invested heavily in new
technologies and state-of-the-art equipment, which has been instrumental in improving
plant efficiencies and curtailing manufacturing costs.
Searle enjoys an excellent reputation in the field of pharmaceuticals and health care
products throughout the country and is recognized as a dedicated provider of quality
healthcare products committed to research and development and its ethical and
professional standards.
Our Vision
To lead in improving the quality of human life by introducing new research products
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2. [SEARLE PAKISTAN LTD.]
Our Mission
is to build an organization…
• which provides its customers with the best possible products and services in the
Health care and Consumer Industry.
• that is ever evolving in-step with the changing market place to maintain its
leadership role.
• which is a responsible corporate citizen contributing to society and protecting the
environment.
• that promotes team spirit amongst its employees whilst maintaining their
individuality, in a culture where people are encouraged to think and strive to
achieve their true potential.
• which cares for its employees and shares in their dreams.
• which works today for a better and secure tomorrow for all it’s stake holders
through innovation, new product development and sound business practices.
• which would grow and live beyond each one of us.
The company employs 586 permanent staff members including a dedicated sales force of
302 persons who call on doctors, pharmacists, retail outlets and wholesalers to promote
the company’s products. The sales force is assisted by a team of 30 marketing support
personnel. The hallmark of SPL’s success has been the highly motivated and well trained
sales and marketing team which is consistently engaged in a wide variety of professional
marketing activities including seminars, symposia, round table discussions, film shows
and clinical trials.
• Searle Pakistan Limited was awarded ISO 9001 certification in June 1999.
• Searle Pakistan Limited implemented the internationally recognized Occupational
Health and Safety Assessment Series (i.e., OHSAS 18001:1999) at our
manufacturing facility and Office premises.
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3. [SEARLE PAKISTAN LTD.]
OHSAS 18001 is an International Occupational Health and Safety Management System
taken from a number of the world’s leading national standards and certification bodies.
Production:
Searle is a ISO-9001 : 2000 and OHSAS 18001 – 1999 certified company and has well-
designed pharmaceutical manufacturing facility located at Plot # F-319, S.I.T.E., Karachi.
The entire facility is environmentally controlled. Plant is well equipped with all the
necessary and most modern production manufacturing equipments required under The
Drugs Acts, 1976.
Searle has facility and capabilities to produce following dosage forms:
• TABLETS (coated & uncoated)
• LIQUID / SUSPENSION / SEMI SOLID
• POWDER
• CAPSULES
• INJECTABLES (unit under commissioning process)
• SEMI BASIC CHEMICAL MANUFACTURING
Three year Financial Analysis:
We have analyzed the three years performance of Searle Pakistan Limited. In this regard
we have analyzed following ratios and in addition to this, for the purpose of Industry
analysis we have selected two Pharmaceutical companies in Pakistan (Abbott Labs. &
Wyeth Pakistan) All the calculations of Ratio analysis regarding the Searle Pakistan
Limited and of industry average (Abbott & Wyeth) are calculated.
First of all we calculated Liquidity Ratios:
Current Ratio: (See Exhibit 3.1 & 4.1) Current ratios of Searle Pakistan limited are
almost equal in 2006 (1.71) & 2007 (1.69) but there is an increase in current ratio of SPL
in 2008 (1.77). The reason for this increase is due to decrease in current liabilities of the
company w.r.t. year 2007 and a smaller increase in current assets of the company, while
the current ratio of the industry is 3.24. It shows that industry has more current assets in
its possession to meet its current liabilities that are maturing in one year.
Quick Ratio: (See Exhibit 3.1 & 4.1) Quick ratio of the company remains almost same in
year 2006 (1.23) & 2007 (1.24) although there is increase in 2008 (1.35). The reason for
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4. [SEARLE PAKISTAN LTD.]
this is increase is, increase in current assets and also decrease in prepaid expenses.
Industry average of quick ratio is (1.84). It means that industry is more liquid than Searle.
First sign towards the insolvency of company is liquidity crisis. Here we see that SPL is
facing liquidity crisis w.r.t. to industry.
Asset Management:
Asset management ratios measure how effectively the firm is managing its assets. These
ratios answer this question. Does the total amount of each type of asset is reported on the
balance sheet seem reasonable, too high, or too low.
A/R turnover: (See Exhibit 3.2 & 4.2) A/R turnover means that in a year how many
times a company can receive its debts. In 2006 the A/R turnover was (3.10), and in A/R
turnover was 2007 (2.28), A/R turnover in 2008 is (2.16). The reason of this decrease is
due to increase in debtors, although there is increase in sales but the point is that the A/R
turnover is very less than industry average. It means that company can recover its whole
A/R only for two or three days. The company should be careful about this. The industry
average on this ratio is (34.86). So, it seems a matter of concern.
A/R turnover in days: (See Exhibit 3.2 & 4.2) The A/R turnover in days is also
increasing in proportion to decrease in the A/R turnover. In 2006 the A/R turnover in
days is 118 days; in 2007 it was 160 days while in 2008 the A/R turnover in days is 169
days, it means that in 2008 it takes about 169 days to the company for the whole recovery
of its A/R. While the industry average on this point is 14 days. So, in future company
should be careful about the choice of its debtors.
Inventory turnover: (See Exhibit 3.2 & 4.2) Inventory turnover of the company is
decreasing in2006-07 (6.92-5.65), while in 2008 the ratio is also decreasing (5.57). The
reason is that the COGS and inventories are decreasing, but there is also a smaller
increase in inventories in 2008, while the CGS also shows a smaller decrease. Inventory
turnover is 5.57 in 2008. It shows that the SPL can sale its inventory 5.57 times in a year.
While the industry average on this ratio is 2.80. This increase can be due to increase in
sales as compared to industry average or company can maintain fewer inventories than
industry average. Here the company is maintaining fewer amounts in inventory than
industry average
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5. [SEARLE PAKISTAN LTD.]
Inventory turnover in days: (See Exhibit 3.2 & 4.2) Inventory turnover in days for the
SPL is increasing. This increase is due to decrease in inventory turnover. In 2006
inventory turnover in days was 53 days while in 2007 it was 65 days and in 2008
inventory turnover in days is 66 days. It shows that it takes 66 days in 2008 to the
company to completely sale its inventory. The industry’s turnover in days is 134 days. It
shows that industry has either huge inventory in stock or sales are less as compared to
SPL.
Fix Asset turnover: (See Exhibit 3.2 & 4.2) It shows that how many rupees, a company
is earning against one rupee of its fix assets. Fix asset turnover ratio of SPL is 3.74 in
2006, 3.15 in 2007 and 3.20 in 2008. The reason for this decrease in 2006 is due to
decrease in net sales, although there is decrease in fix assets but the decrease in sales is
more. In 2008 the sales again decreases but this only 1% decrease than year 2007, while
in 2007 there is a decrease of 13% in net sales. The industry average is of 7.35. It shows
that industry has either less fix assets or has more sales, and managing its assets more
effectively than Searle. It also means that industry is using its assets effectively to
generate sales.
Total Assets turnover: (See Exhibit 3.2 & 4.2). The ratio of SPL in total assets turnover
is decreasing in 2006 (1.12) in 2007 (0.90) and in year 2008 again (0.90) Again the main
reason for this decrease is decrease in net sales. Industry average is 1.33. It means that
industry has either less total assets or there is an increase in net sales of industry. The
interpretation from this ratio results is that industry is utilizing its assets more efficiently
than Searle Pak. Ltd.
Long Term Debt Paying Ability:
It means that how much a firm is capable to pay its long term debts.
Debt Ratio: (See Exhibit 3.3 & 4.3). Debt ratio of the company is decreasing. In 2006
debt ratio was 58.77 in 2007 ratio was 56.72 and in 2008 debt ratio is 51.09. It means that
the liabilities of the company are decreasing. It is also possible that assets of the company
are increasing but in this case this doesn’t happen, but the liabilities of the company are
decreasing. The industry average in debt ratio is only 25.75%. It means that in 2008
almost 51% of assets are financed by debt.
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6. [SEARLE PAKISTAN LTD.]
Debt/Equity Ratio: (See Exhibit 3.3 & 4.3). In 2006 debt/equity ratio was 1.43 in 2007
ratio was 1.31 while in 2008 debt equity is 1.04. This figure shows that assets are
financed 1.04 times by debt as debt is more than equity. So firm is risky. In industry
average the debt/equity ratio is 0.35.
Coverage Ratios:
Times Interest Earned: (See Exhibit 3.4 & 4.4). It means that extent to which operating
income can decline before the firm is unable to meet its annual interest cost. The times
interest earned ratio is 2.99 in 2006, 2.09 in 2007 and 3.00 in 2008. It shows that margin
of safety is very low. If SPL borrow additional funds it will create many difficulties. The
Searle is risky because it is operating on debt more than 50%. Industry average in times
interest earned ratio is 310.26.
Profitability:
These ratios are used to calculate profit per rupee of sale.
Gross profit margin: (See Exhibit 3.5& 4.5. This ratio tells us about the gross profit per
rupee of sales. The gross profit ratio of the company is increasing per year. This ratio is
increasing because CGS is decreasing. Although the net sales are also decreasing but
there is only 1% decrease in net sales of the company, while there is 5% decrease in
CGS. So, the Gross Profit margin in 2006 was 34.92% in 2007 gross profit margin was
38.84% and in 2008 it is 41.23%. while the industry average is 32.31%. It shows that
company is managing its Cost of Goods sold more effectively than industry.
Operating Profit Margin: (See Exhibit 3.5 & 4.5). Operating profit margin of the
company also increased in year 2008, because the amortization of tangible assets is
decreasing as well as decrease in administrative expenses. However in year 2007 the
operating profit margin is decreased because of increase in administrative expenses. In
2008 the operating profit margin of SPL is 13.53%, while the industry average is 11.53%.
It shows that company is managing its administrative expenses and reducing these
expenses to increase profitability.
Net Profit Margin: (See Exhibit 3.5 & 4.5). The net profit margin of Searle is increased
because the profit after tax has been increased more 100% from the previous year. The
reason for this increase is increase in operating profit. The net profit margin for the year
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7. [SEARLE PAKISTAN LTD.]
2008 is 6.78%, while the industry average in the net profit margin is 8.25%. The reason
for increase in net profit margin is due to less financial charges than Searle Pak Ltd.
In Relation to Investment:
Return on Assets: (See Exhibit 3.6 & 4.6). Return on assets measure the firm’s ability to
utilize its assets to create profit by comparing the profit with the assets they generate the
profit. Return on assets of SPL is decreased due to decrease in sales of the company as
well as decrease in assets. Decrease in assets is due to mainly due to decrease in prepaid
expenses, taxation recoverable and cash and bank balances. ROA in 2006 is 1.02 in 2007
it was 0.91 and in 2008 ROA is also 0.91, while the industry average on ROA is 1.29. it
shows that the industry is utilizing its assets more effectively to generate profits.
Return on Equity: (See Exhibit 3.6 & 4.6). Return on Equity is increased in year 2008,
while ROE decreased in year 2007. The main reason for this increase or decrease is
increase or decrease in Profit after taxation. The ROE in year 2008 is 0.16, while in
industry average the ROE is 0.14.
The main explanation of ROE is given below in DuPont analysis.
DuPont Analysis:
(See Exhibit 5).
We have calculated the ROE in three step DuPont analysis. In this situation we break
down the formula of ROE in three parts. First is (net income/sales), second is
(sales/assets) and third step is (assets/shareholder’s equity).
In this calculation we can easily see that why the ROE is increasing. First part is (net
profit margin) second is (asset turnover) and third is (equity multiplier). If ROE of the
company goes up due to net profit margin or asset turnover then it is a very positive sign
for the company, and if the ROE is increasing due to equity multiplier then it shows that
the company is already appropriately leveraged and it is making things more risky. And if
the ROE remains unchanged bit there is decrease in net profit margin and asset turnover
but there is increase in equity multiplier then it can be a bad sign and it is making the
company risky. In this way we can clearly analyze the reasons for changes in ROE.
When we see the calculation of DuPont analysis on Exhibit 5, we see that ROE is
increasing due to increase in net profit margin, while there is a decrease in equity
multiplier. Then it can be a positive sign for the company.
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8. [SEARLE PAKISTAN LTD.]
Z-Score Model:
(See Exhibit 6).
Z-score tells us about the possibility of bankruptcy of the company. If the Z is less 3 but
more than 1.8, then we cannot say about the possibility of bankruptcy of company. Here
the Z is 0.93. So, according to this model there are possibilities of bankruptcy in Searle
Pakistan Ltd.
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