SmithKline tumbles on import duty hurdle - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

SmithKline tumbles on import duty hurdle

Apr 28, 2000

SmithKline Pharmaceutical has reported disappointing results for the first quarter ended March 2000. While the turnover has declined by 22%, the net profit has actually halved from what was achieved in the corresponding quarter of the last year. During last year’s budget the government had imposed a basic import duty of 35% on Engerix (the Hepatitis B vaccine that the company produces). If one takes into account the special additional duty and the surcharge the duty goes up to almost 42.5%. SmithKline was adversely hit since it imports the vaccine from its parent’s Belgian plant.

The company took a hit on the margins rather than increase the price of the vaccine. This was in view of the competition from the likes of Shanta Biotech (which tied up with Pfizer for marketing) and Wockhardt. Even Hoechst Marion Roussel plans to introduce a Hep–B vaccine in the current year, which would further intensify the competition in this segment.

Besides, Zevit (B complex vitamin) which contributes around 15% of the turnover was also was also brought under price control during 1999. The company was forced to reduce the prices of the product by almost 50%. This has hit the turnover and the margins further.

(Rs m) FQFY99 FQFY00 Change
Sales 879 681 -22.6%
Other Income 20 24 21.1%
Expenditure 790 642 -18.8%
Operating Profit (EBDIT) 89 39 -56.4%
Operating Profit Margin (%) 10.1% 5.7%  
Interest 1 0 -67.6%
Depreciation 5 10 111.8%
Profit before Tax 103 52 -49.3%
Other Adjustments      
Tax 24 13 -44.7%
Profit after Tax/(Loss) 80 39 -50.7%
Net profit margin (%) 9.1% 5.8%  
Earnings per share* 10.83 5.34  
(annualised)      

The company has also explained that lower export sales as a result of order phasing as compared to the same quarter of last year also contributed to the de–growth in sales.

‘Iodex’ the company flagship over the counter brand also seems to have recorded relatively lower growth in the light of competition from ‘Moov’, ‘Amritanjan’ and ‘Tiger Balm’. However two other vaccines ‘Havrix’ for Hepatitis A and ‘Varilix’ for chicken pox have done reasonably well and are expected to contribute almost 15% of the company’s turnover.

However the full year impact of the customs duty on Engerix and the price control on Zevit would more than nullify the growth from the two new vaccines. One way out for SmithKline would be to introduce new products from the parent’s stable. Avandia, the parent’s anti–diabetes blockbuster is slated to be introduced in India. However, the vehicle that the parent will use (whether the 100% subsidiary or the listed company) is still open to question.

The stock currently quotes at Rs 188 at an earnings multiple of 33.7 times. This is more than half the earnings multiple it was quoting at last year.


Equitymaster requests your view! Post a comment on "SmithKline tumbles on import duty hurdle". Click here!

  

More Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

TRACK SMITHKLINE PHARMA

  • Track your investment in SMITHKLINE PHARMA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MARKET STATS