2019

Technology & Innovation

Management
Group 7

SUBMITTED BY:
PRANAV ANKUSH - 17020841104
KHUSHBOO RAJ - 17020841174
NEHA DUDHORIA - 17020841125
MIHIR JAIN - 17020841123
ABISHEK BHATT - 17020841100
GAURAV SOLANKI - 17020841054

[COMPANY NAME] | [Company address]

 QUALITATIVE ANALYSIS

I. AUTOMOBILE INDUSTRY

In 2500 enterprises worldwide, automobile sector was clearly in lead with the highest expenditure on
R&D in 2016. Volkswagen was first (EUR 13.67b) followed by General Motors(11th), Daimler
(12th), Toyota (13th), Ford (15th). Automobile companies’ spending on research and development
(R&D) grew 6.28 per cent in 2017-18.
This moderation is despite record sales, and changing regulations which require more research and
development spends. New advanced emission, fuel efficiency and safety rules are to take effect over
the next three to four years which will require companies to develop the technology to meet these
norms.
In Indian perspective, Tata Motors (excluding its UK subsidiary, Jaguar Land Rover Automotive)
leads in this spending. The maker of the Tiago and Hexa models spent almost Rs 24 bn in FY18, up
14 per cent over a year and its highest in at least five years. This was part of the company’s effort to
turn around in passenger vehicles and strengthen its position in the commercial vehicle segment.
Mahindra and Mahindra, the second largest in this order, has been spending in excess of Rs 10 bn a
year. However, its R&D expense dropped to Rs 19.9 bn in FY18, from Rs 20.8 bn a year before.
Expenditure on testing and validation of new technologies is seeing a spike. Also, implementation
of BS-VI emission norms is coming closer which will require additional expenditure."
Below are some of the research areas in which companies are investing their time, money and
efforts:

A. TOYOTA:
Toyota’s R&D aimed at creating a solid-state battery that will serve as a high-performance
next generation battery. They are acquiring technologies through in-house development while
advancing business innovation to prepare for the anticipated pressures on production site
management resources arising from electrification. Toyota and Nippon Telegraph and
Telephone Corporation are collaborating on R&D related to ICT platforms for connected
cars.
Toyota believes that the development of automated driving technologies and the use of big
data with artificial intelligence (AI) technologies can solve a range of issues faced by society.
Toyota has established Toyota Research Institute Inc. in the United States to reinforce its AI
research. Moreover, they’ve spent around 1 trillion yen on R&D investment, capital
expenditure, and shareholder returns each to date.

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 B. MARUTI SUZUKI:
The Company with a team of 1600 R&D engineers, is making efforts to develop products
which are attractive, equipped with latest technologies, provide comfort, convenience, safety
and digital connectivity.
The Company unveiled the `Concept Future S’ and `E-survivor’ concept during the Auto
Expo 2018. It encompasses all future possibilities i.e. “Four-Wheel Drive, Autonomous,
Connected & Electric”. Suzuki’s Hybrid electric vehicle technology was also showcased
during the Auto Expo. Their R&D expenditure is focussed towards providing better Comfort
& Convenience, Improved Aesthetics, NVH & Safety, Weight Reduction & Fuel Efficiency
improvement.
Company’s R&D team is working proactively in the following areas:
• Introducing new models, full model and facelift change of existing models.
• Upgrading platform and engine to meet upcoming safety, emission and Corporate
Average Fuel Economy (CAFE) regulations being announced by the Govt. of India.
• Developing Electric Vehicle (EV) and HEV technology for multiple platforms.
• Advancing engineering projects in the field of infotainment, powertrain and safety are
under progress with technology partners to launch India relevant technologies at
affordable cost.
• Building stronger, safer and lighter vehicles

C. HYUNDAI MOTORS:
Hyundai Motor is focusing its R&D activities on developing eco-friendly vehicles that will
be as free as possible from environmental issues. Top five R&D spending focussed towards
Ride & Handling Noise, vibration, & harshness Durability Safety Powertrain & Fuel
Efficiency.
Hyundai Motors is putting efforts on R&D to develop technologies that will improve fuel
economy and decrease our dependency on fossil fuels. They are also focusing on eco-friendly
cars like electric vehicles, hybrid cars, plug-in hybrid cars, and fuel cell EVs that can
dramatically reduce pollutants.

II. Information Technology (IT) Industry:

The Information Technology (IT) industry has been one of the key driving forces helping in India’s
massive economic growth. India has a location advantage along with availability of skilled talent by
being 5-6 times less expensive than US has helped in emergence as a global outsourcing hub in the
global competitive market. Data innovation may be on the cusp of its watershed minute. 2019 may
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check the start of fast reception of new-advances that are upsetting the manner in which organizations
work.
Facts about the industry in general:
Accounts for approximately 55 per cent of the US$ 185-190 billion market in 2017-18. Revenue of
India’s IT industry reached US$ 167 billion and exports stood at US$ 126 billion in 2017-18. Revenue
from digital segment is expected to comprise 38 per cent of the forecasted US$ 350 billion industry
revenue by 2025. Private Equity (PE)/Venture Capital (VC) investments in India's IT & ITeS sector
reached US$ 7.6 billion during April-December 2017. (data extracted from the ibef report)
Evolution of Indian IT Sector: Timeline and Trend
 Pre-1995: US based companies started outsourcing the work because of high cost advantage
and skilled pool in India
 1995-2000: R&D investments picked up which in turn helped India to become product
development hub.
 2000-05: The scope of the services offered increased and lead to more western companies being
setup in India. To drive advancement in new innovation, Asian firms have begun setting up
their innovative work (R&D) units, otherwise called GICs, in India
 2005-2015: Turnaround point moving from enterprise service to enterprise solution with
delivery centres all over the globe. Focus on emerging technologies as the solution and setting
the platform for the future
 2016-18: Specific areas of R&D investments include Big Data Analytics to discover patterns
and turning them into actionable knowledge, automation improvements, augmented reality and
the focus has increased towards creating a secured platform.
Major players and companies in focus: Infosys, TCS, Wipro, HCL Technologies
Organizations are currently putting a great deal in R&D and preparing representatives to make an
effective workforce, improving efficiency and quality. R and D shapes a huge part of organizations'
costs, which is basic when edges are in weight, to advance developments in the changing scene.
 Tier II and III urban areas are progressively picking up among IT organizations, planning to set
up business in India. E.g.: In October 2018, HCL Technologies established the framework for
another worldwide IT improvement focus at Vijayawada. The office will come up over 29.86
sections of land at a speculation of Rs 700 crore (US$ 99.74 million)
 Cheap work, moderate land, positive government directions, tax cuts and SEZ plans
encouraging their development as another IT goal
 Giving ascent to the domestic hub and spoke model, with Tier I urban areas going about as
centres and Tier II, III and IV as system of spokes
 Investments in SMAC (Social, Mobility, Analytics, Cloud), a change in perspective in IT-BPM
approaches experienced up to this point, is prompting digitisation of the whole plan of action
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  The business dynamics is changing as a result conveyance models are being changed, as the
business is moving to capital use (Capex) based models from operational consumption (Opex),
from a client’s edge of reference
 Sectors like Knowledge services, data analytics, legal services, Business Process as a Service
(BPaaS), cloud-based services are growing fast within the BPM domain
 “Building Tomorrow’s Enterprise” by Infosys is an initiative towards product differentiation
and branding among other services
 Development of BOTs, R&D expenditure in cognitive, predictive and federated learning

Thus, the trend in the industry is constantly moving up and towards reducing the end failure, time
optimisation, integrated build, and constant innovation to improve customer experience and change
the way things operate by also training the employees on newer technologies and the company’s effort
in that path.

III. Education Industry

The gross spending in R&D in India has been on the ascent in last decade, but it is commanded by public
investment. As of now, net spending on R&D has demonstrated a reliably expanding pattern from Rs.
18,078 crores in 2004– 05 to Rs. 60,869 crores in 2016– 17 (Economic Survey, 2017-18). Nonetheless,
as a small amount of GDP, public spending on R&D has been constant – between 0.6-0.7percent of
GDP in the course of recent decades. This is essentially less than most of the other developed nations
and even China's expenditure is of about 2% of GDP on R&D with a ratio of 0.7:1.3 from public and
private area, individually. India's R&D spending is dominated by public investors. This is rather opposite
to different nations where private segment is the real player in R&D venture.

1.) Research and Development (R & D) Spending by Education Industry

The industry is spending heavily on R & D every year and the areas where the expenditure is being done
are:
A. Digital products and solutions
With advent of online education and digital literacy, the institutions are spending on digital
products like digital boards in schools, online teaching content, digital libraries, e-learning, etc.
Another advantage of this platform is transferring knowledge and education to small rural towns
and villages. There are many companies investing in these areas like Educomp Ltd. which has
a R&D cell at Noida and runs a program DIPS (Digital products and Solutions). They have many
academic experts and a team of software engineers to find solutions in enhancing the learning
spectrum across India. There is a consistent need of enhancing the level of education provided
in rural India and small towns. With internet reaching every corner of our country, it is more
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 feasible to reach everywhere in the country and companies are driving their resources and money
here. More examples are Usha Martin Education and solutions ltd. which is working to
provide education in remote areas through e-learning.

B. Research and Incubation centres

Institutions are setting up R & D labs and incubation centres in technological universities to
come out with solutions to enhance learning process. Government is also setting up its own
incubation centres and research parks across India to come up with new learning solutions. The
industry is funding into these labs and centres. There are various platforms where these
companies connect industries and academicians like C L Educate Ltd. They have a program
known as WIAN. In this program, they create a platform for institutions and companies to
coordinate their work. Here they work on talent sourcing and training. They are expanding their
scale of R&D spending and getting first hand access to new innovations.

C. Funding new start-ups and academia experts

There are many new start-ups coming into this sector and the industry is supporting them. There
are also funding’s given for specific areas and fellowships for bright students. There are many
start-ups which are coming into technology solutions in education sector and the industry is
supportive in funding such companies or either buying technology from such start-ups. They are
also funding academicians who are working into specific areas in education.

D. AI Initiatives
One important example here is of C L Educate Ltd. which is working with Amazon to create
smart solutions for people. Like voice-bots on amazon Alexa, they have voice-enabled
educational skills built on Alexa to help learning experience. There are many student service-
oriented products available like aspiration.ai, they have testing modules, mentor help, peer
connections and chat options, eBooks, etc. to help students learn better than traditional practices.
Companies are investing heavily today in AI related solutions in learning sector.

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 2.) Trends in R & D Spending in higher Education Industry:

Trends in R & D Spending

4200
4010.05 3989.01
4000

3800 3708.96
3664.01
Values (Rs. Crore)

3600 3506.62
3365.49
3400

3200

3000
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Year

Higher Education Sector Linear (Higher Education Sector)

Based on the above data and also from the annual report data in the C L Educate Ltd., we can see that
the R&D expenditure by companies is rising gradually year on year. The trend line clearly speculates
that the spending is increasing in future also.

3.) R & D Intensity

It is used to monitor resources used in research and development by the firm. This metric is defined as
total R&D expenditure divided by sales.
R&D intensity = Total expenditure in R&D / Sales
 C L Educate Ltd. (31st March 2018) – R&D Spending = 15.29 and Total sales = 16865.63 (Rs. Lacs)

R&D intensity = 15.29/16865.63 = 0.0009065 or 0.09065%

 Edu comp Solutions Ltd. (31st March 2016) – R&D Spending = Nil and Total Sales = 2230.88 (Rs.
Millions)

R&D Intensity = 0

Firm’s Performance
P/E Ratio = Market value per share / Earnings per Share
 C L Educate Ltd.

Market value of share on BSE = 121.30 (15th Feb)

Earnings per share = total profit for fiscal year / shares outstanding = 72441000/14165678 = 5.11

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 P/E = 121.30/5.11 = 23.73
Inference: It tells us that people are willing to invest 23.73 Rs for 1 Rs of profit from shares of C L
educate Ltd. Current industry average is around 17-22 and higher P/E indicates growth in the future.
P/B Ratio = Market price per share / book value per share
Book value per share = (Total assets – Total liabilities) / shares outstanding = 3619286000/14165678
P/B = 121.30/255.49 = 0.474
Inference: Values below 1 indicates that stock is undervalued. Ratio is very useful only in capital
intensive businesses.
 Aptech Ltd.

Market value of share on BSE = 156.85 (15th Feb)

Earnings per share = total profit for fiscal year / shares outstanding = 328723000/39893560 = 8.24
P/E = 156.85/8.24 = 19.03
Inference: It tells us that people are willing to invest 19.03 Rs for 1 Rs of profit from shares of
Aptech Ltd. It helps us understanding the market value of this stock compared to the earnings by the
company.
Book value per share = 2474252000/39893560 = 62.02
P/B = 156.85/62.02 = 2.52
Inference: We can identify some general parameters for Aptech Ltd by its P/B Ratio. This ratio is
used to identify potential investment for investors and any value less than 3 is a benchmark. This
tells us this is a potentially good stock to invest.

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 IV. Drugs and pharmaceuticals industry:

According to The Association of the British Pharmaceutical Industry, in between 2007 to 2016, the
global pharmaceutical industry invested about $1.36 trillion in R&D and forecasts predict an annual
investment of $181 billion by 2022. The US has the highest share of R&D expenditure.
India is the largest provider of generic drugs in the world. India provides 50% of global demand for
various vaccines, 40% for generic demand in the US and 25% of all medicine in the UK.
Beside building on the traditional generic product pipeline, pharma companies are also investing in
research on complex generics, specialty and differentiated products, and biosimilars. In 2018, R&D
expenses constituted 9.1% of the cumulative revenues of the companies. The cumulative R&D spend
of top 10 companies was close to Rs. 9500 crores last fiscal and considering the medium and small
companies, the total R&D expenditure reached Rs. 20,000 crores.

A. Dr. Reddy's Laboratories Ltd.:

The company has a full-fledged R&D division. It is continuously engaged in implementing
Continuous Improvement by performing research on new products and process improvement
on existing products. Further, working on technology absorption and adoption, the technology
is first developed for the product, the company tests it in the pilot plant and then goes for
performing commercial production. The company acts towards incremental innovation
approach towards cost, time, quality and develops cutting edge technology for complex
product development.
In 2018, R&D expenses were Rs. 18,265 million (12.9% of revenue). The company is focussed
on cost optimisation, productivity improvement and prioritization of products.

B. Mylan Laboratories Ltd.:

Mylan Laboratories limited operates its active pharmaceutical ingredient (API) business
through Mylan India. R&D expenditure for 2017-18 was $783.3 million. It has the R&D
Centre of Excellence at Hyderabad and technology driven R&D sites in Bangalore which
enables the company to create unique and efficient R&D capabilities. The manufacturing
capabilities include dosage forms such as tablets, capsules and injectable. Mylan India has ten
API and intermediate manufacturing facilities and fifteen finished dosage form facilities.
Mylan is a pioneer in providing anti-retroviral therapy (ARV) products for people living with
HIV/AIDS.
Mylan has invested more than $250 million dollars in developing niche level ARV production
capability and thus manufactures more than 4 billion ARV tablets and capsules per year.

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 Mylan India has obtained new generic products mostly through internal product development
and it further moves into licensing or co-development agreements including R&D partnerships
for biosimilars.

C. CIPLA LTD.
Cipla’s R&D investment in FY18 was 7.1% of revenue, with 24 new ANDA filings (including
7 NCE-1s), it is a strong show exceeding guidance. Cipla’s target in R&D this year will be
focus on continuing this momentum of 20+ filings, and building assets in Specialty and
respiratory medicine a to steadily to develop respiratory franchise in regulated markets
Cipla’s emphasis on R&D continues unabated. Cipla has developed a unique breath-actuated
inhaler with a dose counter called Synchro-breathe for the benefit of asthma patients.
Cipla’s R&D investments for 2017-18 was ₹1,074 crore corresponding to 7.1% 1 of sales.
Short term outlook for coming years for R&D:
To Build Specialty portfolio for CNS and respiratory for US market through licensing or
acquisition opportunities, complemented by focused internal R&D

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D. SUN PHARMACEUTICAL INDUSTRIES LTD.
Sun Pharma had determined R&D as a backbone and a key determinant of future growth and
profitability. It’s R&D centre has mainly focused developing complex generics and specialty
products also it is disciplined in identifying future R&D projects for the generics market
R&D at sun pharma is developing specialty products pipeline with a focus on improving
patient outcomes by addressing unmet medical needs or enhancing patient convenience
through differentiated dosage forms.
R&D Investment at Sun pharma for FY 2018 was 22 Billion, and it will be about 8-9% of
revenue for FY19
Sun Pharma has commercialised a product pipeline with successful offerings in liposomal
products, lyophilised injections, nasal sprays, ointments, liquids and oral products among
others.
Short term outlook for coming years for R&D:
Sun Pharma is focusing on identifying future R&D projects for the generics market and
increase its R&D expenditure to about ₹130 Billions.

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 QUANTITATIVE ANALYSIS

Listed below are the correlation results between Research and development expenses with respect to
each of the below expenses. The sample size of 200 is selected based on the presence of BSE and
NSE codes for those companies/industries, availability of relevant data such as Research and
development expenses, marketing expenses, advertising expenses etc.
1. Sales: - There is weak correlation between R&D expenses and sales. It increases slightly year-
on-year but is still less than 0.3. Hence, among the sample data selected the sales of the
companies increase only very slightly by the increase in the R&D expenditure.
2. Profit after tax: - There is weak correlation between R&D expenses and profit after tax. It
increases slightly year-on-year until 2014 but then there is a fall till 2017. PAT of the
companies increases only very slightly by the increase in the R&D expenditure and is constant
for the past 3 years.
3. Net fixed assets: - Net fixed assets are independent of R&D expenditure.
4. Marketing expenses: - There is moderate correlation between marketing expenses and R&D
expenses. The highest correlation is in 2014 and 2015 where the number goes up to 0.43.
Hence, the increase in R&D expenses for the firms is partly due to the increase in the spend on
marketing.
5. Advertising expenses: - There is a very weak correlation between spending on advertising and
R&D but it has been increasing constantly year-on-year.

Other expenses do not have much of a correlation with respect to the R&D expenditure of the
firm. As the graph suggests that there is irregular increase and decrease in the degree of
correlation.

Sales
Profit after tax
0.3
0.4
0.2 0.3

0.1 0.2
0.1
0
2012 2013 2014 2015 2016 2017 0
2012 2013 2014 2015 2016 2017

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 Net fixed assets Marketing expenses
.150 0.5
0.4
.100 0.3
0.2
.050
0.1
.000 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

Paid up equity capital (net

Advertising expenses of forfeited equity capital)
.300
.060
.200 .040

.100 .020
.000
.000
2012 2013 2014 2015 2016 2017
2012 2013 2014 2015 2016 2017

Long term borrowings Gross fixed assets

excl current portion .200

.040 .150
.100
.020 .050
.000 .000
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

Short term trade Other short term

payables and receivables
acceptances .200

0.5 .100

0 .000
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

Short term trade Social and community

receivables & bills expenses
receivable .400
0.5
.200

.000
0 2012 2013 2014 2015 2016 2017
2012 2013 2014 2015 2016 2017 -.200

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