Abbott: 'Diabetic' strengths - Views on News from Equitymaster

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Abbott: 'Diabetic' strengths

Mar 26, 2004

MNC pharma major, <>Abbott India recently announced its 1QFY05 (December 2003 to Feb 2004) results. While the company registered a growth of 13.4% in topline, bottomline shot up by a significant 88%. In this context, let us briefly evaluate the company's performance.

Results at a glance...
(Rs m) 1QFY04 1QFY05 % Change
Net Sales 820 930 13.4%
Other Income 8 76 897.4%
Expenditure 663 732 10.5%
Operating Profit (EBDIT) 157 197 25.8%
Operating Profit Margin (%) 19.1% 21.2%  
Interest 0 0 42.9%
Depreciation 12 10 -14.0%
Profit before Tax 153 263 72.1%
Tax 50 68 37.6%
Profit after Tax/(Loss) 103 194 88.7%
Net profit margin (%) 12.6% 20.9%  
No. of Shares (m) 16.2 15.3  
Earnings per share (Rs)* 25.4 50.9  
P/E (x)   25.5  
(*Annualised)      

The growth of Abbott was in line with the industry growth over the last three months. The performance was fuelled by the company's strong anti-diabetics portfolio. It seems from the results that the company has focused more on trading goods rather than in manufacturing activities. The table below shows the cost break-up. The operating profit margin of the company stood at 21.2%, an improvement of 210 basis points YoY. The net profit margin of the company improved significantly by 830 basis points on the back of 900% jump in other income. The break-up of other income is however, not available. However, even if other income had not grown, still the company would have finished with a healthy 23% growth in net profit.

Cost-Break up...
Rs Million 1QFY04 % of Sales 1QFY05 % of Sales
Material 243.71 29.7% 65.4 7.0%
Staff 49.63 6.1% 60.6 6.5%
Purchase of Goods 291.875 35.6% 507.8 54.6%
Others 127.291 15.5% 98.4 10.6%
Total 712.506 86.9% 732.2 78.8%

Abbott India has a strong presence in the anti-diabetics segment with animal insulins being its major product. Recently, Wockhardt had launched recombinant human insulins at considerably low prices. This could affect Abbott India's performance going forward, as human insulins may be preferred to animal insulins by users who were earlier averse to the switchover on account of the high prices of human insulins. Another major concerning factor is Abbott India's large exposure to DPCO. This has affected the company's ability to fix prices and consequently stunted its topline growth.

At Rs 455 the stock is trading at 9x annualised 1QFY05 earnings. A high DPCO cover and competition can be a cause of concern for the company in the short term. Further, absence of product patents and a consequent reluctance by the parent in launching new products has affected company's growth in the past. However, with product patents being introduced post 2005, things could improve. With the domestic pharma market showing very high double-digit growth, we remain optimistic about the prospects of the company.

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