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Another tough year for Glaxo - Views on News from Equitymaster
 
 
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  • Jun 8, 2000

    Another tough year for Glaxo

    India’s premier pharmaceutical company Glaxo India seems to be undergoing yet another tough year. While the prime reason seems to be the continuing slowdown in the pharmaceutical industry the threat from unbranded generics is eating into the company’s margins.

    Unbranded generics constitute products of pharmaceutical companies who sell their formulations to the trade without their labels at discounted prices. The discounts in case of unbranded generics are almost 50% higher than the normal trade margins .

    Products Wholesale margins Retail Margins
    Under DPCO 8.0% 16.0%
    Out of DPCO 10.0% 20.0%

    Even last year, through Glaxo’s premier anti–ulcer product Zinetac saw a 27.7% growth overall, the company had to drop its prices by 33%. In the current year even the top Indian companies such as Ranbaxy, Cipla, Dr. Reddy’s and Cadila Healthcare have ventured aggressively in the unbranded generic segment which has further aggravated the situation for companies such as Glaxo.

    Overall only 5 products viz. the Betnovate range, Zinetac, Corbadex, Betnesol and Becadexamin capsules showed a decent growth last year and this year the company would have to continue depending on these.

    Products Category Growth in 1999
    Betnovate Range Dermatological 22.0%
    Betnesol Tab. Dermatological 2.0%
    Betnesol Inj. Dermatological -5.0%
    Betnesol nE/E drops Dermatological 18.0%
    Zinetac Tab. Anti–ulcer 22.0%
    Cetzine Tab. Anti–histamine 2.0%
    Corbadex/Vibelan Cap. Mineral supplement 28.0%
    Ceftum Antibiotic 6.0%
    Phexin Antibiotic 1.0%
    Becadexamin Cap. Vitamin 17.0%
    Supacef Antibiotic 8.0%
    Priton Antibiotic -23.0%
    Dilosyn Antibiotic -2.0%
    Betnelan Tab. Antibiotic -10.0%
    Ostocalcium Mineral supplement 9.0%

    At the analysts meet held in February, Mr. Khusrokhan had announced a three pronged strategic direction for the company in the coming years

    • Concentrate on the therapy areas of the future such as respiratory, anti–virals
    • Consolidation in the therapy areas of dermatologicals, antibiotics, gastrointestinals
    • Sell of the tail end brands and continue with the cash cows of cough cold, analgesics, vitamins and systemic steroids.

    There have been unconfirmed reports that Glaxo has reportedly sold one of its tail end brands in the current year. However, it is not known as to which of the brands the company has sold.

    The stock currently quotes at Rs 404 which implies an earning multiples of 34.5 times if one takes into account the expected FY2000 EPS of Rs 11.70. Over the last fortnight the stock has gone up smartly by almost 33% but we believe the outperformance cannot continue for long.

     

     

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