Glaxo’s bottomline dips 11% despite growth in sales
Glaxo India has registered a 11% fall in the net profit (to Rs 770 million) while the topline has increased by around 11% (to Rs 8555 million).
Glaxo India is a 51% subsidiary of the £ 8 billion Glaxo Plc. UK which has blockbusters like Zantac and Zovirax to its credit. It has two other group companies Burroughs Wellcome India and Biddle Sawyer. The company has almost 60% of its revenues accruing from products, which are under price control.
The company’s results are decent when one factors in the fact that formulation sales in India have grown only by 7–8% in the past one year as against a normal growth of around 15–16%. In a slowdown the largest segments are always hit the hardest.
In India the largest segments are antibiotics, vitamin supplements and dermatologicals which comprise slightly less than 50% of the Indian pharmaceutical market. For Glaxo in particular these segments comprise slightly less than 65% of the company’s sales. All the major brands across these segments are under price control.
Glaxo’s performance seen in this light is actually quite creditable. This is as far as the impact on the growth of the topline is concerned. The company’s costs increased during the year due to the increase import duty of its imported bulk drug cefuroxime axetil. The bulk drug is used for the manufacture of Ceftum, an antibiotic, which contributes around 4.5% of the company’s turnover. This is the reason for the decline in the profits.
Most analysts have rated Glaxo as a buy for three reasons. Firstly, on account of the parent’s product pipeline post its merger with Smithkline. Second, the fact that Glaxo India has not followed minority shareholder unfriendly policies such as setting up a 100% subsidiary or payment of hefty royalties to the parent. And third, the company has substantial cash in its balance sheet that can be used for future acquisition as the Indian pharmaceutical sector consolidates in the foreseeable future.
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