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Hoechst: VRS write-off depresses earnings - Views on News from Equitymaster
 
 
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  • May 29, 2000

    Hoechst: VRS write-off depresses earnings

    While Hoechst Marion Roussel (HMR) announced a 35% rise in the net profit and this seemed to be on the back of the increased other income which accrued from the sale of its property in Mulund as well the sale of its tail end brands Omnatax and Haemaccel, the company has provided for a huge charge on account of Voluntary Retirement Scheme (included in its total expenditure) amounting to Rs 220 m during the year.

    This signifies that the rise in profits has accrued from operations themselves and is very impressive keeping in mind the fact that almost 60% of the company’s revenues accrue from products under price control.

    A relaxation in the Drug Price Control Order if it were to come about, could lead to an explosive growth in the bottomline. For instance Daonil, the company’s anti–diabetes drug sells at 25 paise per tablet. HMR sells almost a billion tablets annually and even a 15 paise increase in the price would swell HMR’s bottomline by Rs 150 m (i.e. almost 50% from current levels).

    Even if the relaxation in the DPCO does not materialise, the increase in profits would be the led by the relatively higher profits from new products such as Cardace (cardiovascular) Amaryl (an oral anti–diabetic), Cefrom (antibiotic) and Frisium (anti–epileptic), which are outside the purview of the DPCO.

    The fact that the company does not have a 100% subsidiary and has no plans to do so in the immediate future implies that the company will continue to have access to its parent Aventis’ product pipeline.

     

     

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