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Nicholas Piramal: Lifestyle segment thrust

Jun 12, 2003

Nicholas Piramal India Limited (NPIL) has reported a healthy growth in topline for FY03 while its bottomline has grown at a more robust rate. In its results announced for FY03, the company has reported a 11% growth in topline while its bottomline has improved by 145%. Improvement in the company's performance in FY03 was mainly on account of better operating margins and lower interest expenses.

(Rs m)FY02FY03Change
Net Sales 8,662 9,642 11.3%
Other Income 374 506 35.2%
Expenditure 7,378 7,863 6.6%
Operating Profit (EBDIT) 1,284 1,779 38.5%
Operating Profit Margin (%)14.8%18.5%
Interest 320 206 -35.7%
Depreciation 169 235 39.1%
Profit before Tax1,1701,84457.7%
Extraordinary items (442) (600)
Tax 245 63 -74.2%
Profit after Tax/(Loss) 482 1,181 144.9%
Net profit margin (%)5.6%12.3%
No. of Shares 38.0 38.0
Diluted Earnings per share* (Rs)12.731.1
P/E Ratio (x) 9.4
(* annualised)

NPIL has seen strong growth (20%) in its core business of formulations. NPIL has indicated that due to its focus on the lifestyle segment, it has been able to grow faster than the industry average of 6% in the formulations segment. Its acquisition of the ICI's pharma business has helped it further in increasing its exposure to the lifestyle segment. NPIL acquired ICI Limited's pharmaceutical business in FY02. However since this acquisition was done on 26th March 2002, the full effect of the acquisition was seen in FY03.

The company also acquired Global Bulk Drugs & Fine Chemicals, in FY03. Global Bulk Drugs & Fine Chemicals produces active pharmaceutical ingredients (APIs) and intermediaries and has strong demand for its products in the US and the western European market. ICI Limited on the other hand has a strong exposure to cardiovascular and anaesthetic therapeutic segment. The company also has significant export presence for its bulk drug business. NPIL's growth in topline has also been fueled to an extent by growth in its export revenues. Exports as a percentage of total revenues now stand at 3.4% compared to a negligible amount in FY02.

The company has also significantly improved its operating margins in FY03. The improvement is to the tune of 370 basis points. This improvement was mainly on account of fall in other expenses. Other expenses as a percentage of total revenues have fallen to 23% compared to 27% in FY02. The company has also significantly benefited from a low interest rate regime. The company has managed to reduce its interest expenses by 35% in FY03. This has improved profitability significantly.

NPIL's acquisitions in FY03 have resulted in an increase in its depreciation expenses. Depreciation has gone up by 39% in FY03. However the company has seen significant benefits from its acquisition of Global Bulk Drugs & Fine Chemicals. NPIL got a tax benefit of Rs 265 m due to its acquisition. Profit growth however has been restricted due to extraordinary expenses to the tune of Rs 600m, which was mainly comprised of VRS expenses.

The stock, at Rs 291, is trading at a P/E multiple of 9x its FY03 earnings. The company seems to have benefited from its acquisitions made in the past and recently. Acquisitions have helped it enter into the lucrative and fast growing lifestyle therapeutic segment. Going forward, the company is likely to see growth in its topline from its inorganic growth initiatives and strong growth from its new products in the lifestyle segment. Profitability is also expected to improve due to rationalisation of interest costs and better operating margins.

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