Efficiency and Performance of Top Indian Pharmaceutical Firms: A Comparative Analysis

Sharma, Gagandeep1, Sharma, Divya2, and Singh, Shreshtha3

1Associate Professor, Department of Economics, Goswami Ganesh Dutta, Sanatan Dharma College, Sector 32 C, Chandigarh

2Assistant Professor, Department of Commerce, D. A. V. College, Sector 10, Chandigarh

3Student BBA, University of the Fraser, Valley, Canada BC

Abstract

The Indian pharmaceutical industry has made significant strides in the past five decades and is an important contributor to the provision of quality healthcare services in any economy. This paper studies the efficiency of selected top ten pharmaceutical companies by applying Data Envelopment Analysis (DEA) under constant return to scale (CRS) model and variable returns t ale (VRS) model. The inputs used in the study are assets, salaries, and wages. The outputs used are Return on Asset, and Net Profits. The study found Divis Laboratories and Sun Pharma to be most efficient under CRS and Sun Pharma was found to be most efficient under VRS models during 2019 – 2023.  Seven pharmaceutical companies were working under Increasing returns to scale, two were working under constant returns to scale and one was performing under decreasing returns to scale. Return on assets, Net Profit margin and Return on Capital Employed Ratio were used to study financial performance of the pharmaceutical companies. Abbot India had the highest return on assets (17.948%). Divis Labs had the highest Net Profit Margin (27.76%). Mankind Pharma led in Return on Capital Employed (27.524%), This result further adds to the result provided by DEA. Companies found to be efficient by DEA were found to have high performance standards. Also, through the regression analysis the impact of variables Return on Capital Employed (ROCE) and Net profits margin (NPM) on Return on Asset (ROA) was studied. Returns on Assets (ROA) are 93.6% dependent on Net profits margin and Return on Capital Employed. There is significant (p-value = 0.000) relationship between Return on Asset (ROA), Net profits margin (NPM) and Return on Capital Employed (ROCE).

Keywords: Pharmaceutical companies, Efficiency, Performance, Returns to scale, Data Envelopment Analysis (DEA), Regression Analysis.

Impact Statement

COVID -19 affected all industries but pharmaceutical industry was affected the most. This paper was undertaken to study the efficiency of the top pharmaceutical companies. The efficiency of pharmaceutical companies was studied by using selected financial indicators. Further this research work helped in differentiating the top pharma companies on the basis of under-utilisation and optimum utilisation of resources for selected financial parameters. 

About Authors

Dr Gagandeep Sharma

Dr Gagandeep Sharma is Associate Professor in Department of Economics, GGDSD College, Chandigarh. He has specialization in field of Statistics, Quantitative Methods, Management Science. He has expertise to use various statistical software viz SPSS, MINTAB, Excel Solver.  He is Coordinator of IGNOU Study Centre, Chandigarh. He is also a visiting faculty of University of the Fraser Valley, Abbostford, British Columbia, Canada. University of the Fraser Valley, Abbostford, British Columbia, Canada has also appointed him as a Member of Staff Selection Committee (SAC) for the appointment of regular faculty. He has authored 19 research papers and presented various papers in National and International seminars. He has authored 06 books also. He has acted as Resource Person in the 3-week Refresher Course in Research Methodology for Social Sciences organized by UGC – Academic Staff College, Himachal Pradesh University, Shimla and Orientation Programme (Economics) for PGT Economics organized by Jawahar Navodaya Vidyalaya Samiti, Ministry of Human Resource Development, Govt. of India.

Dr Divya Sharma

Dr Divya Sharma is Assistant Professor in Department of Commerce, DAV College, Chandigarh. She has twenty-one years teaching experience of under-graduate and post-graduate classes. She specializes in Finance and Banking. She is also a visiting faculty of University of the Fraser Valley, India. She has authored 18 research papers and presented various papers in National and International seminars. She has authored 02 books also. She has acted as sub-editor of research journal ‘Diviner’ published by D.A.V. College, Chandigarh. She is also qualified Company Secretary (CS).

Ms Shreshtha Singh

Shreshtha Singh, a final-year business administration student at the University of the Fraser Valley, Canada has actively contributed to several university projects, notably in the Student Company Program since 2021. With two consecutive internships at Qbiz, she gained practical industry insights.

In addition, Shreshtha serves as a team lead for the Skills and Training team in the Self…Quest to Serve program, a collaboration with Mehar Baba Charitable Trust, Bassi Pathana.

Currently, Shreshtha holds the position of Editor-in-Chief at the university magazine Fraser Crônica, concurrently serving as the Senior Advisor to the Board of Directors for the 10th Student Company Program.

References

1. Bhasa, M. P. (2006). Does ownership affect performance? Empirical evidence from the Indian pharmaceutical industry. Finance India, 20(3), 913–940.

2. Christina, S. S., & Karthikeyan, K. (2012). Financial performance of pharmaceutical industry in India using DuPont analysis. European Journal of Business and Management, 4(14).

3. Mahajan, V., Kumar Nauriyal, D., & Singh, S. P. (2013). Efficiency and ranking of Indian pharmaceutical industry: Does type of ownership matter? Eurasian Journal of Business and Economics, 7(14), 29–50. https://doi.org/10.17015/ejbe.2014.014.02

4. Singh, M. (2023b). Emerging trends of e-commerce in India. Shodh Sari-An International Multidisciplinary Journal, 02(4), 382–391. https://doi.org/10.59231/SARI7646

5. Abdulkareem, A. M. (2020). Financial performance of Indian pharmaceutical companies: Analysis of leverage and cost of capital. Journal of Advanced Research in Economics and Administrative Sciences, 1(1), 13–22. https://doi.org/10.47631/jareas.v1i1.15

6. Panigrahi, A. K., Rode, A., Labhshetwar, S., & Joshi, V. (2019). An analysis of Financial Performance of Indian Pharmaceutical Companies.

7. Ganapathy, V. (2023). AI in auditing: A comprehensive review of applications, benefits and challenges. Shodh Sari-An International Multidisciplinary Journal, 02(4), 328–343. https://doi.org/10.59231/SARI7643

8. Sharma, M. (2020). A study on financial performance of Indian pharmaceutical companies using DuPont analysis. Journal of Emerging Technologies and Innovative Research (JETIR), 7(11). https://www.jetir.org/papers/JETIR2011120.pdf.

9. Verma, T, and Kanchan. (2022). Financial Performance Analysis of Pharmaceutical Industry in India. International Journal for Multidisciplinary Research (IJFMR), 4(5).

10. Negatu, B. S. (2024b). The challenges of conducting business in a global context. Shodh Sari-An International Multidisciplinary Journal, 03(1), 291–316. https://doi.org/10.59231/SARI7673

11. Final report, survey of pharma clusters, centre for market research and social development. (May 2023). Government of India, Ministry of Chemicals & Fertilizers, Department of Pharmaceuticals.

12. Final report, survey of medical devices clusters, centre for market research and social development. (May 2023). Government of India, Ministry of Chemicals & Fertilizers, Department of Pharmaceuticals.

13. https://www.ijfmr.com/papers/2022/5/831.pdf

14. https://www.ibef.org/industry/pharmaceutical-indiahttps://www. http://investindia.gov.in/sector/pharmaceutis

15. http://www.moneycontrol.com

16. http://www.wall-street.com

17. https://www.google.com/finance/. Google

18. https://pharmaceuticals.gov.in/policy/national-medical-device-policy-2023

19. https://indbiz.gov.in/strengthening-indias-position-as-the-pharmacy-of-the-world/