Cipla Cash flow analysis for three projects in anti-microbial /allergy field

More than 1 billion people suffer from various allergic infection worldwide and there is a significant
increase in number suffering from fungal, athletes foot etc. The growth in anti-allergic market is due
to many reasons.
1. Fungal have developed to various therapies available.
2. There is high level of toxicity present and several side effects which requires more effective
therapies
Due to these factors the anti-fungal market is as large as 6 billion.
NPV
It is the difference between the present cash inflows and the outflow value .NPV is an important part
of capital budgeting to analyse the profitability of investment. NPV is used to check the sensitivity of
future cash flows that a project yields. All the cash flows have been considered .The time value of
money is used to assign weight to the future cash flows. Before doing NPV, there is a need to
understand opportunity and threats of the market.
What is Anti-microbial/allergy?
It is a drug which is used to cure allergy caused by fungus/microbes. It dilapidates the cell and kill the
parasite, but no effect on mammalian cells wall, so there is no effect on the host.

Variables important in NPV analysis

1.
2.
3.
4.
5.
6.

Is net present value analysis used to come at right decision?

Are expenses and earnings of rupee estimates correct?
Time of estimates of expenses and earnings is right?
All discount factors are taken in to account or not?
Are all factors are calculated on proper discount rate?
All cash flows are considered?

Cipla Market in Anti-microbial/allergy

The market of anti-microbial continues to grow. There have been many conferences from last 5
years on various microbial fungi like Fusarium, Aspergillius and Candida. These microbes are the
main reason for death and critical conditions in patients suffering from various allergies. So Cipla
has a huge market in anti-allergy market

Cipla Strategy
Cipla has decided to produce an anti-allergy/microbial drug. It has narrowed down its choices to
TERFENADINE 120 MG, CETIRIZINE HCL 10 MG and CHLORPHENIRAMINE.Due to constraint of
resources Cipla has decide to produce one of them which has most positive cash flow

Result
We have arrived at a discount rate of 12.56% .This discount rate is used to calculate the NPV
using future cash flows.
Over all NPV for each Drug is given below
TERFENADINE 120 MG
-70647847.58

CETIRIZINE HCL 10 MG
120347263.1

CHLORPHENIRAMINE
393229417.5

As Cipla has decided to purse only single drug production. NPV for TERFENADINE 120 MG is
negative so option of TERFENADINE 120 MG should be rejected. Between CETIRIZINE HCL 10
MG and CHLORPHENIRAMINE Cipla should go for CHLORPHENIRAMINE, as it has higher
magnitude of positive cash flow.