Novartis has reported a 38% growth in its annual net profit on the back of a 10.3% growth in its topline.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
Earnings per share
A part of the profits have accrued due to other income accruing from the grant of development rights by the company on its real estate in Goregaon (a suburb of Mumbai). These amount to almost Rs 66 m. (Novartis’ real estate can fetch it around $ 1.5 bn if it were to give development rights for its entire estate.) Even last year other income amounted to 21% of its PBT (in the current year the ratio works out to 40%) and this can be expected to recur in the current year too. If one were to exclude other income from the PBT, growth in PBT amounts to 22%. During the year the company also wrote off Rs 56 m due to VRS payments made to employees. If one were to add this back then the growth in PBT (excluding other income) works out to 27% which is quite creditable.
Novartis India is a 50.99% subsidiary of the Novartis Switzerland, which is among the top companies in pharmaceuticals and agrochemicals. The healthcare business (this includes the vision care division and the animal health division) contributes approx. 50% of the Novartis total turnover with agro–chemicals contributing to the rest. The health care business has grown by 15% outstripping the overall pharma industry growth of 11% during the year.
The company has 5 brands that contribute almost 45% of its formulation sales. The overall operating margins of the company are around 17% and these can be expected to increase to around 22% post the hive off of the agrochemical division.
Besides, the company has launched five new products over the last two years all of which are out of the purview of the Drug Price Control Order. This can be expected to improve the margins further.
The improvement in profits, the removal of a seasonal business, the introduction of new products coupled with the almost zero debt status of the company should spell good times for the company. The stock which is up almost 40% over the last week (the last time equitymaster wrote about Novartis) currently quotes at Rs 865, an earning multiple of 27 times its FY2000 earnings.
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