An Econometric Analysis of Profitability Determinants in the Indian Pharmaceutical Sector

Abstract

Background: The pharmaceutical industry occupies a strategic position in the Indian economy due to its significant contribution to healthcare delivery, exports, and technological advancement. Evaluating financial performance is crucial for understanding the operational efficiency and long-term sustainability of firms within this highly regulated sector.
Objectives: To evaluate and compare the financial performance of selected leading pharmaceutical companies in India and analyse the impact of key liquidity, efficiency, and leverage ratios on profitability (Return on Equity).
Methodology: This study adopts a descriptive and analytical research design utilizing secondary data over a five-year period (2020–21 to 2024–25) for five chosen companies: Sun Pharmaceutical Industries Ltd, Dr. Reddy’s Laboratories Ltd, Cipla Ltd, Aurobindo Pharma Ltd, and Glenmark Pharmaceuticals Ltd. Financial ratio analysis, multiple regression, ANOVA, and coefficient interpretations were conducted using 25 firm-year observations.
Results: The multiple regression model demonstrated a moderately strong relationship (, ) , proving that liquidity, efficiency, and capital structure jointly explain 44.5% of the variations in ROE. The Inventory Turnover Ratio has a statistically significant negative impact on ROE (, ) , whereas liquidity and leverage indicators were statistically insignificant.
Conclusion: Maintaining optimal working capital levels, steady operational asset efficiency, and controlled leverage profiles remain vital pillars for expanding shareholder wealth and sustaining long-term industrial competitiveness.