A Study on the Financial Health of Selected Indian Pharma Companies Using Altman’s Z-Score Model

Abstract

The pharmaceutical sector in India plays a pivotal role in the nation’s economy and healthcare system, contributing significantly to global medicine supply. Given the dynamic and competitive nature of this industry, it becomes essential to evaluate the financial health of pharmaceutical companies to ensure their long-term sustainability and growth. This study aims to analyse and compare the financial health of three selected Indian pharmaceutical companies—Cipla Ltd, Divis Laboratories Ltd, and Sun Pharmaceutical Industries Ltd—using the well-established Altman’s Z-Score Model. The Z-Score, calculated using key financial ratios, serves as an effective tool for predicting the likelihood of corporate bankruptcy and assessing overall financial stability. The study employs five years of financial data from 2019-20 to 2023-24 to compute and interpret the Z-Scores for the selected companies. The findings of the study indicate that all three companies maintain Z-Scores well above the threshold of financial distress, signifying a low risk of insolvency. Divis Laboratories Ltd consistently demonstrates the highest financial stability, followed by Cipla Ltd, while Sun Pharmaceutical Industries Ltd, although showing steady improvement, records comparatively lower financial strength. The analysis also reveals that there is a significant difference in the financial health of these companies as measured by their Z-Score values. The study underscores the importance of continuous financial monitoring using robust models like the Altman Z-Score, which aids stakeholders in making informed investment, lending, and managerial decisions in the Indian pharmaceutical sector.