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Kopran: An update

May 9, 2002

Building intellectual capital seems to be the new focus area for Kopran. The company is moving out of commodity type business in bulk drugs and turning its focus towards value-added products, in its bid to create intellectual property. The company seems to have identified two key areas for growth going forward, viz. building strong brands in the OTC segment and progressively committing resources on research. The value, which the company got for assigning its brand ‘Aten’ to Cadila, seems to be justifying the company’s strategy. Under the strategic alliance, Kopran has assigned its brand ‘Aten’, along with the technical know how for formulation and bulk drug to Cadila Healthcare. For a brand with sales of around Rs 360 m, the company received Rs 750 m and Rs 200 m as technology transfer fees from Cadila.

Smyle is a major brand in the OTC business, where the company is turning its attention. The Smyle brand is currently a part of a separate company called Kopran Pharmaceuticals Ltd (KPL). It is proposed to merge KPL with Kopran Ltd. The proposal has already received shareholder approval and is awaiting sanction from the high court.

For FY01, KPL achieved a turnover of Rs 207 m and net profit of Rs 13 m. KPL product portfolio comprises a range of over-the-counter (OTC) products under the brand Smyle. The company plans to aggressively expand this portfolio by extending this brand from ayurvedic to other areas like cosmetics and oral care.

Coming to exports, the company has identified two focus areas. One is South East Asia, Middle East, East Africa, and Latin America where one doesn’t have patent issues. And secondly, branded generics markets, which are the regulated markets - UK and other parts of Europe where the focus would be exports in specialty segments.

The idea is to be recognized as a brand marketing company. Added to that would be the company’s US$ 20 m joint venture with Dubai Investment Corporation (Global Pharma, LLC, Dubai). Global Pharma is Dubai's first drug manufacturing company, which is gearing up for its debut in July this year.

The plant has already commenced trial production. One is the production of Amoxycillin+ Clauvanic acid, which is the still one of the large selling generics in the regulated markets and the its patents are now going off. The company is close to finalising contract manufacturing agreements with some leading international companies.

On the research front, which is the other focus area for the company, it already has some early success with two of its New Chemical Entities (NCE’s) viz, KNC–1206 and KNC–6. The former is a laxative, while the latter is an anti-ulcer compound. KNC – 1206 is in advanced pre-clinical trial stages, while KNC–6 has already completed pre-clinical trials and has filed for IND (Investigational New Drug) application in India. Kopran is exploring out-licensing opportunities in this area.

Click here for latest financials

Coming to financials, the company is expected to deploy Rs 550 m of the Rs 950 m it received from Zydus Cadila to restructure the high cost debt. Further, the company also plans to come out with a rights issue, which if successful would help in further improving the debt-equity ratio. One of the major concerns as has been explained by us earlier has been the high debt burden. In FY01, the company’s books showed a debt burden of Rs 2,220 m. Interest cost jumped more than 45% in the first nine months of FY02, which could be an indication of further increase in debt. Interest cost now represents more than 11% of sales. Therefore, even Rs 550 m deployment will not ease the pressure on debt servicing costs. It may be noted that the company also wrote off Rs 306 m as irrecoverable amount given as inter-corporate deposit to a broking firm during 9m FY02.

Post the sale of its Aten brand the contribution of finished dosage has dropped considerably. The company plans to compensate for this by foraying aggressively into high growth areas such as cardiovascular and anti-diabetes. Meanwhile, the company is also looking at co-marketing alliances. Under the broad marketing arrangement with Zydus Cadila, Kopran would soon be marketing a drug under its own brand name.

Further, the company has lined up launches in the OTC business including oral care and cosmetics. However, over here the company will have to fight head on with FMCG companies and establishing strong profitable brands would be challenging.

At the current market price of Rs 54, the stock trades at 8x its annualized 9m FY02 earnings.

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