GlaxoSmithKline India is a 41% subsidiary of world's second largest pharmaceutical company, GlaxoSmithKline Pharmaceuticals Plc. - UK, which has a sales turnover of US$ 27 bn. In Indian market, Glaxo is the largest player with 5.6% share of the Indian pharma market and has been the undisputed leader for the last 27 years. The company has a wide drug portfolio and caters to different therapeutic segments. Augmentin - a brand owned by the company has consistently been the No. 1 vaccine in the domestic market. The company has three manufacturing facilities at Thane, Nashik and Mysore. Glaxo has a very strong field presence with a good brand recall amongst doctors. The strong presence in the field makes it strong competitor in the Indian domestic pharma markets.
Glaxo has grown (more or less) in line with the growth in the pharmaceutical industry. Revenue growth shows a CAGR of 7.7% over the last five years while profits have clocked a 22% CAGR. The following graph illustrates the same.
Owing to the process patent regime prevalent in India, Glaxo shied away from introducing new drugs from its parent's product stable. Hence, its product folio has become old and faces stiff price competition from the local Indian companies in therapeutic categories it operates in. The company's pharmaceutical business constitutes 81% of revenues, while animal healthcare and chemical business constitutes the remaining 19%.
With new patent regime coming into effect from January 1st, 2005 the company is gearing itself for the opportunities that will unfold. With product patent regime it is very much likely that the parent company will introduce new chemical entities, which will considerably strengthen the product portfolio of the company in the market. Also, the parent may also look at the company as a major hub for outsourcing several bulk drugs. Glaxo is already making base (raw material) for Ranitidine and exporting it to the parent.
Glaxo is in advanced stages of negotiations for its Worli property in Mumbai, which is expected to give its extraordinary income a fillip in FY05. The company is gearing itself towards 2005, when the patent regime comes into force. It has also finalised the much awaited merger with Burroughs Wellcome. The merger ratio has been fixed at 10:14 (for every 14 shares of Burroughs, shareholders will get 10 shares of Glaxo). At the current price of Rs 579, the stock is trading at a P/E of 25x FY04 earnings. The company has declared a dividend of Rs 10 per equity share for FY04 (Rs 7 in FY03). Though the valuations seem at the upper end of the spectrum, future benefits during the patent regime post 2005, as well as expectations of an extra-ordinary income is keeping the investor interest alive.
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