Knoll Pharma has reported a 5% jump in the net profit on the back of a 14.3% jump in the turnover. Even last year the company derived a substantial portion of its revenues from other income. Thus on a like to like basis, the profit growth has been an impressive 55%, if one were to exclude the non–recurring other income in both the years after adjusting the tax paid on that.
Over the last two years the company has been restructuring its Indian operations. It has shut down its Sion plant, paid off its workers (via a VRS) and consolidated operations at its Jejuri plant (in Maharashtra) and its Goa plant.
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The company also renegotiated the deal for the sale of its Sion premises during last year. (This was because after paying an advance of Rs 254.5 m for the plot, the buyer, Neo–Pharma expressed its inability to proceed with the transaction. The plot was split into two and one part was given to Neo–Pharma with Knoll allowed to sell the second plot to a new buyer.) It is the deal for the second plot that has gone through and the company has derived a profit on the sale of this property for Rs 131 m.
The company is a leader in the anti–diabetes segment with a market share of more than 70%. (Hoechst Marion Roussel is the company’s closest competitor in this segment.) The company’s insulin business contributes around 40% of the company’s turnover. The incidence of diabetes in India is very high. However, given the low income levels, the percentage of untreated diabetic patients in India is very high. And as more and more patients come under the umbrella of diabetes treatment, the insulin market should see a healthy growth.
However, the company’s other products Brufen and Digene have registered volume declines over the last two years. The stock quotes at a price of Rs 336, which implies an earnings multiple of 10 times (excluding the non recurring other income).
Perhaps, the only grey area is the apprehension (which is common to all MNC pharmaceutical companies) that the parent may in the future introduce new products only through a 100% subsidiary. Another development that could create uncertainty is the anticipated merger with Abbott India after its parent Knoll AG was acquired by Abbott Inc.
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