Pranay Pharmaceuticals Private Limited: Capital Rationing and Inflation Dilemmas

Pranay Pharmaceuticals Private Limited: Capital Rationing and Inflation Dilemmas

Pranay Reddy (Pranay), Founder and Chairman of Pranay Pharmaceuticals Private Limited (PPPL), was waiting to board the flight to Singapore. He was travelling to Singapore to attend a Global Pharmacuetical conference on May 1st 2015. The conference was on “Advances in New Drug Discovery & Development”, which would provide key insights into the emerging technology and advancements in drug discovery. He was very keen on attending this conference as his company’s expansion plans were underway.

However, it was announced that the flight was delayed by an hour. In the meanwhile, Pranay walked to the cafeteria to refresh himself. Unexpectedly, he met one of his old friends, Srinath Dasari (Srinath) at the cafetaria. Srinath although surprised was pleased to see Pranay after a very long time. He was all the more surprised to know that Pranay was the Founder and Chairman of a pharmaceutical company..............

Formation of PPPL

Pranay was a B.Pharm graduate from a reputed institute in India. After completing his graduation, he thought of getting some work experience before pursuing higher studies. However, as his father suggested him to complete his education at one go, he went ahead and pursued M.Pharm. Soon after completing his Post Graduation, Pranay was placed with a research and development firm with a reasonably good salary package. After gaining few years of industry experience, Pranay joined the Institution of Pharma Research as a Senior Professor. During his tenure at the institution, he attended many seminars, published papers in few journals as well as presented papers in many conferences on recent developments of Pharma industry..............

PPPL’s Dilemmas

Pranay started a drug manufacturing facility, Pranay Pharmaceuticals Private Limited (PPPL), at Jeedimetla in Hyderabad, Telangana, India. To start with, his company manufactured quick revenue generating drugs where the initial investment of the project amounted to `30,00,000. The factory was running successfully and the annual revenues for the company amounted to INR25,00,000 at a time when the costs were `10,00,000 per annum (Exhibit I).........

Assignment Questions

I. What do you understand by capital rationing? What are the various types of capital rationing?
II. How do capital rationing methods help firms in taking the right capital investment decisions?
III. ..................

Exhibits

Exhibit I: Details of PPPL’s Ongoing Project

Exhibit II: Product Projects Planned

Exhibit III: Products Projects’ Details

Pranay Pharmaceuticals Private Limited: Capital Rationing and Inflation Dilemmas

This caselet aims to introduce the participants/students the concept of capital rationing and the impact of inflation on evaluation of capital investment decisions. Pranay Reddy (Pranay) after completing his Post Graduation in M.Pharm and acquiring relevant industry as well as academic experience, ventured to start his own pharmaceutical firm. Although the business started yielding revenues, he was worried about the inflation rate, which could dampen the profit margins. Besides, Pranay had planned to expand his product portfolio. He has shortlisted nine pharmaceutical projects. However, he had a capital constraint of `45,00,000. Given the limitation of funds, he wanted to start the projects, which would yield better returns. Nevertheless, he was clueless how to go about resolving his dilemmas. So, he took the help of one of his friends Srinath Dasari (Srinath), a financial consultant to get him out of this puzzled state.

Case Positioning and Setting

This caselet can be used in the following course in an MBA Program:

• • Financial Management – To understand the concept of capital rationing and impact of inflation on capital investment decisions

Assignment Questions

• I. What do you understand by capital rationing? What are the various types of capital rationing?
• II. How do capital rationing methods help firms in taking the right capital investment decisions?
• III. ..................

Preamble to the Case Analysis

This caselet is meant for a 60-minute session. The caselet is meant to introduce the students/participants to the concept of capital rationing. The caselet lets the participants know about various types of capital rationing, decision making under capital rationing situations and impact of inflation on the profit margins of the projects. In total, capital rationing techniques and inflation effects are highlighted in the caselet. Accordingly, the caselet was analyzed in the following suggested way................