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Impressive results from E Merck

Apr 25, 2000

A 10% increase in sales has lead to tripling of profits at the net level. This has to do with the fact that last year the company provided Rs 27 m for the VRS payments to workers and closed its Taloja plant. However, even if one were to add this back to the last year's pre-tax profit, the net profit has still grown by 55%.

Besides, E Merck repaid almost a third of its borrowings last year which has led to a 32% decline in the interest payments and contributed to the surge in the bottomline.

(Rs m) FY99 FY00 Change
Sales 615 676 9.8%
Other Income 10 13 23.8%
Expenditure 575 589 2.5%
Operating Profit (EBDIT) 41 87 113.8%
Operating Profit Margin (%) 7% 13%  
Interest 10 7 -32.1%
Depreciation 17 21 20.8%
Profit before Tax 24 72 201.7%
Other Adjustments      
Tax 7 22 234.3%
Profit after Tax/(Loss) 18 51 189.7%
Net profit margin (%) 2.8% 7.5%  

E Merck derives almost 70% of the vitamins with three products Evion, Polybion and Neurobion contributing almost 45% of the company's turnover. All the three are under price control and are likely to remain that way for some time to come.

The company has introduced products in the cardiovascular and dermatological segments both of which are out of price control and these should boost revenues in the future.

The company's stock price performance is in sharp contrast to its fundamentals. In line with other pharmaceutical stocks the company's stock has also been hammered and actually touched its 52 week low (Rs 260) yesterday! This could be partially explained by the apprehension created due to a wrong news report which said that government has banned vitamins B1, B6 and B12 from January 2001. Since E Merck is the bigget player in this segment, this meant that the future revenues would be hit. However, the actual fiat was with respect of injectibles of an irrational combination of B1, B6 and B12 which has already been banned worldwide. Thus the company can continue selling these vitamins in the oral or injectable form except for the particular combination. However the fall in stock price represents a good opportunity for long term investors.


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