Pharma: Big guns, big dreams! - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Pharma: Big guns, big dreams!

Feb 13, 2006

Companies from the pharma sector posted mixed results in the recently concluded December quarter. Barring Ranbaxy, the other large-cap pharma companies showed a relatively better performance. We have included four large-caps for the purpose of analysis of the sector's performance during the December quarter. These include Ranbaxy, Dr. Reddy's, Sun Pharma and Cipla. Glaxo has been excluded as the company has yet to declare its results.

The big guns in the pharma space
(Rs m) Dec-04 Dec-05 Change
Net sales 27,847 31,909 14.6%
Expenditure 23,063 27,497 19.2%
Operating profit (EBIDTA) 4,784 4,412 -7.8%
EBIDTA margin (%) 17.2% 13.8%  
Other income 597 1,665 178.9%
Interest (net) 183 295 61.2%
Depreciation 871 1,233 41.6%
Profit before tax 4,327 4,549 5.1%
Tax 453 252 -44.4%
Extraordinary item - 285  
Minority interest 22 42 90.9%
Profit after tax/(loss) 3,856 4,540 17.7%
Net profit margin (%) 13.8% 14.2%  
* Includes Ranbaxy, Dr. Reddy's, Cipla and Sun Pharma

What does the analysis say?
The consolidated topline grew by a decent 15% YoY driven mainly by the strong growth in exports. While the generics markets of US and Europe continued to face pricing pressure (both Ranbaxy and Dr. Reddy's witnessed a decline in its US generics business), exports to the semi-regulated markets of Russia, CIS, Latin America fuelled the exports growth. These companies also performed well in the domestic market with the lifestyle portfolio chiefly contributing to this growth. Margins for the sector fell by 340 basis points on the back of a rise in R&D expenditure and selling & distribution expenses. All the four companies have stepped up their R&D expenditure both in the generics space (to capitalise on the generics upswing in 2006) and NCE space (as a long-term strategy). However, the R&D spend was relatively much lesser in Dr. Reddy's case due to its partnership deal with ICICI Venture.

Other income bloated by 179% YoY, which was mainly due to compensation received by Cipla against the insurance claim pertaining to damage of the company's inventory during the floods. Extraordinary item includes the consideration received by Ranbaxy for divesting its allied businesses in a bid to focus on its core business of pharmaceuticals. Depreciation witnessed a 42% YoY rise on account of the considerable spurt in Cipla's depreciation charges. This was due to substantial additions made to fixed assets at Goa and Baddi. All these factors put together, resulted in an 18% YoY growth in the bottomline.

What to expect?
While the fundamentals driving the generics market continue to remain strong, the brutal pricing environment is a cause for concern. It must be noted that while competition has tremendously increased, the patent expiries this year slowed down to a trickle, escalating the extent of price erosion. Having said that, while the competition most probably will show no signs of abating, a considerable rise in the patent expiries of blockbuster drugs in the coming years is likely to provide a breather to generic companies and boost revenues. The ability to manufacture drugs at the cheapest cost and leverage one's marketing and distributing network to increase reach will be the key to survival.

We believe that partnerships are likely to play a crucial role in driving growth. This could be in generics (contract manufacturing, authorised generics) or research (R&D collaboration, contract research, out-licensing of molecules) or custom manufacturing for innovator companies. In the domestic markets, with the introduction of the patent law and subsequent slowdown of product launches, albeit at a gradual pace, companies entering into in-licensing agreements with innovator companies will have the upper hand. This will ensure a steady flow of product launches in the domestic market.

Equitymaster requests your view! Post a comment on "Pharma: Big guns, big dreams!". Click here!

  

More Views on News

5 Stocks to Watch Out for Amid the Omicron Outbreak (Views On News)

Dec 3, 2021

As the new variant of Covid-19 emerges, keep an eye on these stocks.

3 Indian Pharma Companies that are Investing Big Time for the Future (Views On News)

Nov 9, 2021

In 2021, R&D of pharma companies roared to life in a never-before-seen way.

Demerger of Financial & Pharma Businesses puts Piramal Enterprises in Limelight (Views On News)

Oct 8, 2021

The company's shareholders will be issued 4 shares in the demerged entity for every 1 held in Piramal Enterprises.

This Stock Just Made a Historical Debut on the Exchanges (Views On News)

Nov 15, 2021

Shares of the company listed at premium of 253% from its IPO price, the highest ever.

Krsnaa Diagnostics IPO Opens Tomorrow: Key Points to Consider (Views On News)

Aug 3, 2021

Krsnaa Diagnostics grey market premium is at around Rs 440 from its issue price of Rs 933-954.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE HEALTHCARE


Dec 6, 2021 09:05 AM

S&P BSE HEALTHCARE 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS