Nicholas Piramal: Where to from here? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Nicholas Piramal: Where to from here?

Jun 8, 2005

Domestic pharma major, Nicholas Piramal announced disappointing FY05 results due to VAT related concerns. In this article, we take a look at how the company has performed over the years and future prospects.

About the company
Nicholas Piramal is one of the leading Indian pharma companies with strong focus in the domestic market. It is the 4th largest company with 4.3% market share (FY05) in the domestic market with a large sales force covering 10 therapeutic segments of the pharma industry. The company has started focusing on the exports market too and the contribution of exports in total sales has increased to 12% from zero in the space of three years. It has gradually improved its product portfolio by increasing the share of lifestyle drugs and has also started focusing on R&D off late. The biggest contributor to company's revenue is respiratory and cardiovascular segment. The other major therapeutic segments in which the company operates are anti-infectives, nutritional, and gastro intestinal.

How the numbers stack up
(Rs m)FY02FY03ChangeFY04ChangeFY05Change
Net sales8,039 9,642 20.0%12,890 33.7%12,583 -2.4%
Expenditure6,754 7,887 16.8%10,312 30.7%10,847 5.2%
Operating profit (EBIDTA)1,285 1,755 36.6%2,578 46.9%1,736 -32.6%
Operating profit margin (%)16.0%18.2%  20.0%  13.8% 
Other income374 530 41.7%45 -91.5%178 295.6%
Interest (net)313 206 -34.3%164 -20.3%175 6.7%
Depreciation169 235 39.1%411 75.0%474 15.3%
Profit before tax1,176 1,844 56.8%2,048 11.0%1,265 -38.2%
Exceptional items (449) (600)33.6% (217)-63.8%796  
Tax245 63 -74.1%(52)  367  
Profit after tax482 1,181 144.9%1,883 59.4%1,694 -10.0%
Net profit margin (%)6.0%12.2%  14.6%  13.5% 
No. of shares (m)38 38   38   190  
Diluted earnings per share (Rs)* 2.5 6.2   9.9   8.9  
P/E ratio (x)          29.6  
(* annualised)             

The journey over the years...
FY03: Topline registered a 20% YoY growth largely driven by the formulations business. The company grew faster than the market in 7 of the 9 main therapeutic areas in which it has a presence. Due to its focus on the lifestyle segment, the exposure to the slowly growing anti-infectives segment was reduced. The company aggressively launched 21 new products during the year out of which 14 were in the lifestyle segment. Operating margins increased from 16% to 18% on the back of increased revenues aided by benefits arising from the integration of ICI India's pharma division with Nicholas and continuous cost cutting efforts.

Bottomline jumped 145% YoY aided by lower interest costs and tax outgo. Interest burden reduced due to substantial repayment of debt and substitution of high cost with low cost debt.

FY04: Topline during the year clocked a robust 33% YoY growth propelled by growth in the domestic branded formulations business and exports. Exports contributed about 8.5% of the total revenues in FY04, which was aided by a huge surge in API exports mostly to the US and European markets. However, it must be noted that some part of this growth came from the merger of Sarabhai Piramal Pharmaceuticals with itself. If one were to consider the organic growth (without considering the Sarabhai merger), the company grew by 17% YoY while the growth in formulations business was 13% against the overall growth of 7.3% of the domestic market for FY04.

The company outperformed the market in 9 out of 10 therapeutic areas in which it operates and the overall market for lifestyle drugs grew faster than other therapeutic segments in the domestic market. Operating margins improved from 18% to 20%. This was despite the 79% rise in R&D expenditure. Bottomline registered a 59% YoY growth on account of lower interest costs, higher operating efficiency and a tax write-back. During the year, the company launched 23 new products.

FY05: Nicholas witnessed a drop in revenues by 2% YoY, which was due to VAT-led de-stocking and retailers' industry-wide boycott relating to psychotropic and narcotic drugs. The company continued its focus on the high growth lifestyle segment, which constituted 27% of sales. Respiratory drugs continued to dominate the branded formulations segment (22% of sales). Despite savings in material cost, increased R&D spend aided the 5% YoY rise in expenditure. The R&D spend as a percentage of sales rose from 2% in FY04 to 4% in FY05. However, it must be noted that lower offtake also skewed this ratio. Operating margins dipped by 420 basis points chiefly on account of reduced sales.

During the year, the company snapped ties with Roche Diagnostics and received consideration to the tune of Rs 862 m. This provided a cushion to the bottomline which fell 10% YoY. But for this receipt, the fall in the bottomline would have been much sharper. Also, the company acquired the global Inhalation Anaesthetics (IA) business from Rhodia Organique Fine, which will give it access to the manufacturing technology and facilities as well as global sales and marketing rights for IA products. 35 new products were launched by the company in FY05.

What to expect?
At Rs 264, the stock is trading at a P/E of 26 times its estimated FY08 earnings. Contract manufacturing is going to be the growth driver for the company going forward. The company secured 2 agreements (one with a Fortune 500 company and the other with Allergan Inc. USA). Also, negotiations are underway to secure 2 more such contracts.

Now that India has begun to realise product patents, it remains to be seen how Nicholas will cope with the same in the long term, as majority of the company's revenues is derived from the domestic market. The company will find it difficult to introduce new products at the same rate like it had done in the past. Despite the increase in R&D spend, we believe that the company is unlikely to make any significant breakthrough on the R&D front in the next 3-4 years.

We had given a Sell recommendation on the stock on January 1, 2005. In view of the high valuations, investors are better off keeping away from the stock.

Equitymaster requests your view! Post a comment on "Nicholas Piramal: Where to from here?". Click here!


More Views on News

PIRAMAL ENTERPRISES 2020-21 Annual Report Analysis (Annual Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

Here's an analysis of the annual report of PIRAMAL ENTERPRISES for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of PIRAMAL ENTERPRISES. Also includes updates on the valuation of PIRAMAL ENTERPRISES.

Demerger of Financial & Pharma Businesses puts Piramal Enterprises in Limelight (Views On News)

Oct 8, 2021

The company's shareholders will be issued 4 shares in the demerged entity for every 1 held in Piramal Enterprises.

PIRAMAL ENTERPRISES Announces Quarterly Results (1QFY22); Net Profit Down 20.0% (Quarterly Result Update)

Aug 9, 2021 | Updated on Aug 9, 2021

For the quarter ended June 2021, PIRAMAL ENTERPRISES has posted a net profit of Rs 4 bn (down 20.0% YoY). Sales on the other hand came in at Rs 29 bn (down 1.0% YoY). Read on for a complete analysis of PIRAMAL ENTERPRISES's quarterly results.

5 Stocks to Watch Out for Amid the Omicron Outbreak (Views On News)

Dec 3, 2021

As the new variant of Covid-19 emerges, keep an eye on these stocks.

This Stock Just Made a Historical Debut on the Exchanges (Views On News)

Nov 15, 2021

Shares of the company listed at premium of 253% from its IPO price, the highest ever.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 3, 2021 (Close)


  • Track your investment in PIRAMAL ENTERPRISES with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks