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 .
Out of DPCO
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.
Growth in 1999
Betnesol nE/E drops
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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