Corporate Treasury Management

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AFF5250 Corporate Treasury Management Lecturer: Shrimal Perera

Sigma Pharmaceuticals Limited,
96 Merrindale Drive
South Croydon, VIC, 3136

Mr. Shrimal Perera
Lecturer, Monash University
900 Dandenong Road
Caulfield East VIC 3145

Dear Shrimal,

Attached is the report you requested on for the 19th of May 2008. As requested by Sigma Pharmaceutical board of directors, this report consists of a financial performance assessment and a recommended growth strategy for Sigma Pharmaceuticals in order to build on and improve their current operations.

This report consists of a step by step analysis of the current situation of the internal and external environment including PEST, Porter, and McKinsey 7-s as well as a detailed financial analysis to provide an outlook of the company’s strength, weaknesses, opportunities and threats.

The report then puts forward two diverse strategies– one to enter into the Chinese pharmaceutical market via a joint venture and the other is to enter into a new market segment; biotechnology.

Finally the report then discusses which option put forth seems the most appropriate. To support these decision details of the projected costs, proceeds, funding decision, risk management, dividend policy and the financial summary of the company for the next three years is included.

We would be happy to discuss this report with you in the future in regards to any clarification that you may require.

Yours sincerely,

Sagar Mehta
Sahil Kirpalani
Shanya Samarasekera
Shaohua Lu
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Shaolin Yang

Executive Summary

Over a prolonged period, Sigma Pharmaceuticals Ltd. has built its name and position in the Australian pharmaceutical market by providing quality and in demand medical products / drugs that works hand-in-hand with the medical fraternity. Constant quality improvement and innovation in drug manufacturing has led us to consider expansion as a primary objective to retrieve and safeguard Sigma’s position in the pharmaceutical market.

With a detailed analysis, this report critically evaluates the firm’s success and failure in managing its resources optimally for maximizing return in comparison with the past and present performance. Methods adopted to evaluate Sigma’s position are PEST Analysis, Peer Analysis, McKinsey’s 7S, Porter 5 Forces and standard financial analysis. With the internal analysis, it has been found that a reduction in the increasing proportion of revenues have contributed to increase in debt. Two different business strategies have drawn from the SWOT Analysis – Project 1: Overseas expansion in China Pharmaceutical market with Jilin Aodong Medicine Industry Group Co. Project 2: Acquisition of Biota Holdings Limited for diversification and expansion in bio-technology research and project.

Detailed financial and quantitative analyses for the two strategies have been shown in the report. After evaluating, it is recommends that Sigma expands overseas into the Chinese Pharmaceutical market for our strategic plan. The entry cost of China is estimated to be $108M and is expected to give $437M of NPV.

With the examination of Sigma’s capital structure and related financing decision factors, we recommend Sigma to adopt internal financing. Following the Damodaran and manual optimal capital structure calculation, by reducing our debt proportion, Sigma Pharmaceuticals’ would be able to enjoy lower WACC,...
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