Natco Pharma: Manufacturing Affordable Medicines
(6 pages of text)
In 2015, the chief executive officer of Natco Pharma Limited, a commercial manufacturer of pharmaceutical drugs in India, needed to raise funds either through debt or equity to meet the company's capital expenditure and working capital requirements of ₹3.41 billion. The company could finance a loan at an interest rate of 12 per cent or raise funds through public deposits at an interest rate of 13 per cent. The company could also use equity to raise the requisite funds through either a rights offering or a seasoned equity offering. The chief executive officer needed to present his recommendation to the board of directors the following week. Which option should the company adopt?
This case is intended for graduate-level courses on corporate finance, accounting, or strategy. The case discusses the role of research and development in a pharmaceutical company in the context of capital structure and it emphasizes the qualitative evaluation of capital structure decisions. After working through the case and assignment questions, students will be able to do the following:
- Assess a company’s proposal with regard to the mobilization of funds through debt or equity, with special emphasis on various alternatives within these routes.
- Understand a company’s financing proposal from the perspective of qualified institutional buyers.
- Appreciate the role of research and development in the pharmaceutical industry.
India, Large, 2015
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