Feb 13, 2006|
Pharma: Big guns, big dreams!
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
* Includes Ranbaxy, Dr. Reddy's, Cipla and Sun Pharma
|Operating profit (EBIDTA)
|EBIDTA margin (%)
|Profit before tax
|Profit after tax/(loss)
|Net profit margin (%)
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.
More Views on News
Sep 22, 2017
Muted growth in CRAMS segment continues to impact topline.
Aug 14, 2017
A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.
Aug 14, 2017
GST impact coupled with price erosion in US leads to lower profits for the quarter.
Jun 16, 2017
Here's what you can expect from The 5 Minute Wrapup in the coming months and years.
Aug 8, 2017
Profits plunge due to higher raw material costs.
More Views on News
Sep 11, 2017
The question is, whether real estate buyers are financial creditors or not.
Sep 13, 2017
Nifty is above 10,000 once again. Have you missed the bus?
Sep 16, 2017
We take a glimpse of Equitymaster's results from rule based investing.
Sep 18, 2017
Welcome to a bold, new initiative designed for the truly contrarian investor.
Sep 11, 2017
The Government has extended the linking of the unique Aadhaar number to nearly all financial transactions.
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407