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Novartis: Margins improve, sales lacklustre - Views on News from Equitymaster
 
 
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  • May 2, 2002

    Novartis: Margins improve, sales lacklustre

    Novartis India has ended FY02 on an encouraging note. While sales represent a 7% rise, net profit has grown at a faster pace thanks to a rise in operating margins, lower interest cost and positive impact from the closure of the loss making Ciba Vision operations. A sustained rise in margins for all the four quarters of the current year was ensured on the back of better price realisations, control over input costs and re-launch of its key brands.

    (Rs m) FY01 FY02 Change
    Sales 4,384 4,677 6.7%
    Other Income 299 389 30.2%
    Expenditure 3,849 4,028 4.6%
    Operating Profit (EBDIT) 535 650 21.5%
    Operating Profit Margin (%) 12.2% 13.9%  
    Interest 122 32 -73.4%
    Depreciation 100 86 -14.1%
    Profit before Tax 612 921 50.4%
    Tax 194 268 37.9%
    Profit after Tax/(Loss) 418 653 56.1%
    Net profit margin (%) 9.5% 14.0%  
    No. of Shares (eoy) (m) 32.0 32.0  
    Diluted Earnings per share* 13.1 20.4  
    P/E (at current price)   13.5  

    Operating margins for the year would have been higher but for Rs 47 m incurred on VRS and Rs 23 m provided for on account of change in accounting policy for gratuity. Further, other expenditure included Rs 16.6 m provision towards dimunition in the value of investments in US 64. But for these, operating margins would have been 15.7% for FY02, a rise of 350 basis points. Other income however, includes Rs 169 m on account of profit on sale of property at Goregaon.

    % of sales FY01 FY02
    Raw Materials 4.1% 3.3%
    Staff Costs 8.0% 9.8%
    Purchase of finished goods 49.3% 46.3%

    "Pharma sales for the period closed at Rs 2,678 m registering a growth of 7.4% over the previous period. Growth was impacted by lower sales of the companys transplant and oncology range of products.

    In late 2001, the company has carved out the Biochemie segment from the existing pharma business to align the portfolio with that of the parent company. The Biochemie sector primarily focuses on the therapeutic segments of Anti-TB, Anti-DUB (gynaecology) Anti-histamines, Antibiotics, Anti-ulcerants, Anti-diabetes and Cardiovascular. This sector registered sales of Rs 1,220 m which were almost at the same level as prior year sales. On a like to like basis (pharma and Biochemie division consolidated), the company has grown 5%, underperforming industry growth rates due to absence of new products. "

    Consumer Healthcare achieved 11% growth over last year largely driven by its popular OTC brand Calcium Sandoz. An encouraging growth in animal health care business was primarily driven by intensive marketing efforts in cattle and poultry segments and addition of three new licenced-in products in the cattle segment.

    Table Showing Segmentwise operating margins
    FY02 Sales (Rs m) % Growth Margins %*
    Pharma 2,678 7.4% 19.0%
    Biochemie 1,220 - 15.1%
    Consumer Health 416 10.7% 6.4%
    Animal Healthcare Business 363 19.2% 18.1%
    *- Profit before interest and tax      

    At the current market price of Rs 276, the stock trades at 14x its FY02 earnings. The stock is likely to see upside due to attractive forward valuations. We expect the margins of the company to improve further, both due to good performance of its key products and further, restructuring benefits. However, dependence on imports and growth in pharma business, remain key areas of concern.

     

     

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