In the quarter ended June’08, the aggregated Indian Pharmaceuticals industry, comprising of 67 domestic and 7 MNCs subsidiaries/ associates, together posted a healthy 23% growth in net sales to Rs 13690 crore. Margins improved marginally by 30 bps to 20.0%, operating profit registered at Rs 2741 crore, an increase of 25% on y-o-y basis. But 35% fall in other income pulled down the growth in PBIDT to 11% over the corresponding previous period. The interest outgo rose whopping by 191% to Rs 509 crore and depreciation went up by 17% to Rs 432 crore led into PBT to decline by 3% to Rs 2224 crore. However, as effective tax rate fell by 330 bps to 14.9%, the net profit grew by 1% only to Rs 1893 crore.
Domestic Pharmaceutical Companies
The aggregate net sales of 67 domestic companies posted an impressive growth of 24% to Rs 12528 crore. Operating margins grew by 30 bps to 19.3% and resulted into operating profit posting a healthy growth of 26% to Rs 2423 crore. However, fall in other income of 67 companies by 42% to Rs 332 crore restricted growth in PBIDT to 11% only at Rs 2755 crore. The sharp fall in rupee lead to higher interest outgo, up by whopping 190%, and depreciation rose by 18%, the profit before tax fell by 7% to Rs 1830 crore. Fall in effective tax rate by 460 bps to 10.7% restricted degrowth in the bottom line to 2% at Rs 1634 crore.
International business is a driving factor for companies like Aurobindo, Cipla, Wockhardt, Cadila healthcare, Lupin and Sun pharmaceuticals. Aggregate exports, for these six companies, registered an impressive growth of 67%, on y-o-y basis. These companies, in the same order, registered 58%, 50%, 65%, 43%, 59% and 59% growth, in their export business respectively. International business contributed 58% of six company’s aggregate sales.
Aggregate Domestic revenue for these six companies grew by 15% on y-o-y basis. Aurobindo and Cadila increased marginally by 2% and 7%. Cipla, Wockhardt and Sun pharmaceuticals grew by 16%, 14% and 15%. Lupin showed an impressive growth of 41% over corresponding previous period. Domestic operations contributed 42% of six company’s aggregate sales.
The domestic companies reported good operating performance and poor financial performance. This is due to depreciation of Rupee and increase in the raw material cost. The leading companies like Ranbaxy, Aurobindo and Dr Reddy are reported impressive topline performance and poor bottom line performance. These companies, in the same order, registered 13%, 28% and 25% growth in their revenues and 91%, 73% and 51% fall in their bottom line.
Multinational Pharmaceutical Companies
The aggregate set of seven MNCs pharmaceutical companies reported moderate performance with a growth of 10% to Rs 1162 crore. Margins surged by 180 bps to 27.4% resulted into operating profit to increase by 17% to Rs 318 crore. An increase of 12% in other income to Rs 92 crore catapulted PBIDT to post a growth of 16% at Rs 410 crore. The interest cost reported at Rs 2 crore and depreciation remains flat at Rs 14 crore, respectively; PBT grew by 16% to Rs 394 crore. However, as effective tax rate declined by 80 bps to 34.3%, the bottom line increased by 18% to Rs 259 crore.
GlaxoSmithKline Pharmaceutical, the biggest MNC Pharmaceutical Company in India reported only 5% growth in net sales. However, as operating profit margins improved by 240 bps to 36.3%, operating profit reported at Rs 151.14 crore, resulting a growth of 13% over corresponding previous period. The other income grew by 47%, interest income rose by 21%, depreciation marginally up by 5% and effective tax rate decline by 200 bps respectively. Resultantly, bottom line increased by 19% to Rs 114.86 crore.
Other MNC companies showed mixed performance. The companies like Novartis, ArstraZeneca, Solvay and Merck topline rose by 11%, 16%, 20% and 26%, respectively. The bottomline of the companies in the same order grew by 30%, 46%, 46% and 10%, respectively. Fulford reported growth of 9% in topline and degrowth of 10% in bottom line.
Outlook
We find that the spike in intermediate and bulk drug prices were partly due to restriction on production and export of hazardous chemicals by China, ahead of Olympics. China is likely to resume production in full swing post Olympics, which can lead to normalization of prices of the inputs.
Also, if the commodity prices in general and crude oil prices in particular continue to ease, then Indian rupee can sustain the post June 2008 quarter trend of appreciation. This can lead to reversal of forex losses booked in the quarter ended June 2008 in the subsequent quarters, depending on the pace of appreciation of the rupee.
On the industry front, we expect better growth in the domestic market, and the players’ initiatives to focus on Contract Research and Manufacturing Services (CRAMS) and generics in advanced markets can sustain the growth in International markets. Overall, we believe that the pharma industry is heading for better performance from the current quarter ending September 2008.
Pharma Sector Aggregates: MNCs perform better| Total | Domestic | MNCs | |||||||
| 0806(3) | 0703(3) | Var (%) | 0806(3) | 0703(3) | Var (%) | 0806(3) | 0703(3) | Var (%) | |
| Sales | 13690 | 11126 | 23 | 12528 | 10068 | 24 | 1162 | 1058 | 10 |
| OPM (%) | 20.0 | 19.7 | 19.3 | 19.0 | 27.4 | 25.6 | |||
| OP | 2741 | 2187 | 25 | 2423 | 1916 | 26 | 318 | 271 | 17 |
| Other income | 424 | 654 | -35 | 332 | 572 | -42 | 92 | 82 | 12 |
| PBIDT | 3165 | 2841 | 11 | 2755 | 2488 | 11 | 410 | 353 | 16 |
| Interest | 509 | 175 | 191 | 507 | 175 | 190 | 2 | 0 | PL |
| PBDT | 2656 | 2666 | 0 | 2248 | 2313 | -3 | 408 | 353 | 16 |
| Depreciation | 432 | 368 | 17 | 418 | 354 | 18 | 14 | 14 | 0 |
| PBT | 2224 | 2298 | -3 | 1830 | 1959 | -7 | 394 | 339 | 16 |
| Tax | 331 | 419 | -21 | 196 | 300 | -35 | 135 | 119 | 13 |
| Net Profit | 1893 | 1879 | 1 | 1634 | 1659 | -2 | 259 | 220 | 18 |
| Figures in Rs crore, Source: Capitaline Corporate Database PL: Profit to Loss | |||||||||
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