Comparison and Analysis

GlaxoSmithKline Pharma Ltd. and Sanofi India Ltd. are both leading names in the healthcare industry.
GSK Pharma is a subsidiary of GSK Plc., which is one of the oldest and globally recognized healthcare and
pharmaceutical company. It was founded on 13 November, 1924 as H.J.Foster & Co. Sanofi is a France
based Multinational Company which ranks 5
th
largest in terms of prescription sales.
GSK is currently trading in the range of Rs. 2510 to Rs. 2520 on BSE and NSE with a Market Capitalization
of 21,286 Cr. Its profit has declined in the June, 2014 Quarter by 14.56% (Sales rose 2.84%) and by
42.88% (Sales rose 5.11%) in the March, 2014 Quarter. The London based company recently, through an
open offer valid till March had sought to increase its own stake in the Indian Subsidiary from 50.67% to
75%.
Sanofi currently trades around Rs. 3050 in both the markets with a Market Capitalization of Rs. 7022 Cr.
Sanofi has recently entered into a partnership with Emcure Pharmaceuticals, indicating a positive
growth outlook. It has posted positive profit trends in the past few Quarters.
Analyzing the trends over the past 5 years with the help of the Balance Sheet we realize that the
Reserves for GSK have been growing but the growth has slowed down to less than 1%, reversing to a
negative trend too in between, whereas the reserves for Sanofi have grown at an increasing pace,
reflecting retention of funds, usually signifying aggressive growth plans. Sanofi is an efficient firm,
however in terms of size, it is almost 1/3
rd
the size of GSK in terms of Market Capitalization.
GSK makes more use of leverage as is visible through its liabilities, which is not the case for Sanofi. The
application of the sourced firm is also different for both the Organizations. Where, in case of GSK, the
funds are mostly used to finance current assets, the fund usage is focused on fixed assets in Sanofi.
Contingent Liabilities for both the Companies has approximately doubled, indicating an increased
chance of incurring liabilities which may be on account of litigations.
In case of the Income Statement, for Sanofi, the topline has rapidly expanded over the past half-decade
and the rate of increase though varying Year on Year(YoY), has been constantly over 10%. The same can
however not be said for GSK, for whom, the YoY growth in topline has crossed into the negative sphere
with a 5.71% decline in Gross Turnover in the last year. However, in absolute terms, the topline figures
for GSK still exceed the figures for Sanofi, indicating its large scale of operations. GSK is still the market
leader in terms of its competitor, however, Sanofi is fast narrowing the gap by improving its efficiency,
as will be explored with the help of ratio analysis.
The bottomline, which refers to the final profits earned by the business are twice in absolute terms for
GSK when compared to Sanofi, reinstating the fact that GSK is the market leader in terms of its sheer
size and scale of operations and considering the gap between the bottomline of the two companies is
much wider than the gap in the topline, GSK holds the advantage of having the benefits of Economies of
Scale and also the experience and expertise developed over almost a Century of Operations. The
bottomline for GSK has declined by ~13% from the last year, indicating turbulent times for the company,
whereas, in contrast, it has grown by more than 50% for Sanofi, though the growth was negative in
previous years.
The Earning per Share (EPS) is constantly higher for Sanofi, indicating the fact that, an investor with
Sanofi will earn more returns on his investment in the high growth firm. However, the previous analysis
of Reserves and the current Equity Dividend analysis also indicate that as compared to GSK, Sanofi does
not distribute majority of its profits as Dividends, but prefers retaining them to ensure funds for future
expansion plans. Its plans for expansion can be judged from the recent activity of collaborating with
Emcure.
In support of the growth claims, the idle Cash Balance for Sanofi is much higher (almost twice) for Sanofi
as compared to GSK. Sanofi has in the final year, invested heavily, which is signified by almost a
10000%increase in its investment out flows from the previous year. The operating flow of funds, though
seeing a declining trend from previous years on account of increasing costs and regulations, are
otherwise still high.
Turning to ratio analysis, which will enable better understanding of the trends and relation between the
different variables of Balance Sheet, Profit and Loss Account and Cash Flow Statement we analyze that
in case of Sanofi, the Net Profit Margin, which refers to the final Net Profit earned with respect to the
Gross Revenue of the Organization, and reflects the efficiency in managing of various direct and indirect
expenses by a company, Sanofi has a lower ratio as compared to GSK, re-stressing the inference from
the Profit and Loss account of the gap between revenues and profits of the two companies.
Overall, an investor in GSK holds higher wealth in terms of his investment and return on it as compared
to Sanofi. The Return on Adjusted Net Worth is higher for GSK, indicating the Scale of operations and
the profitable business success.
Reflecting on Liquidity ratios, the Current Ratio for both the companies is more or less the same and is
much near the ideal current ratio 2:1, which is based on the relation between sourcing of funds and its
usage, but may differ from company to company and industry to industry.
The Debtor Turnover ratio for GSK is very high which maybe on account of its reputation, which enables
it to negotiate more stringent Debtor Payback Conditions. The number of days in working Capital is 235
and 109 for GSK and Sanofi respectively. The average days in working capital includes the average days
of inventory, average payback period, average inventory holding period and the days allowed to pay
creditors. A longer Working Capital Cycle indicates higher Working Capital or Cash requirements as the
funds and capital are caught in the investment cycle for a longer duration.
The cash earnings retention ratio, indicated the amount of cash earnings retained by the organization
which might be used to source future growth needs is very high for Sanofi at ~68 as compared to an
approximate 14 to 15% retention in case of GSK.
GSK and Sanofi are both renowned names and extensive market players in the Healthcare and
Pharmaceutical Industry. They are major competitors and follow different capital structures and modes
of operation, as discussed, which provide them with different levels of efficiency and working structures.
GSK, being one of the initial market entrants, still holds the advantage in terms of efficiency of
operations and is working at a constant level, indicating a mature organization. Sanofi, on the other
hand is a focusing on high growth of its scale and operations. GSK has recently seen a declining trend in
its profitability which needs to critically evaluated. However its recent increase of stake in its Indian
subsidiary reinstates confidence in the companys operations. Sanofi can be a good investment for
future purposes as the organization is on a growth path and is also going into aggressive hiring to
support such claims. It can be observed that both GSK and Sanofi are healthy organizations, and
profitable investments depending on investor objectives of immediate dividends and conservative
capital appreciation or less dividends and long term high capital appreciation.