X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Nicholas Piramal: A review - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jul 17, 2003

    Nicholas Piramal: A review

    Nicholas Piramal India Ltd (NPIL) is one of the leading domestic pharma companies with strong focus on the domestic market. The company has over the years adopted the inorganic growth strategy. In line with this, it has recently acquired the pharmaceutical business of ICI India and Global Bulk Drugs and Fine Chemical. The company has also gradually improved its product portfolio by increasing the share of lifestyle drugs. Moreover, NPIL has also started focusing on R&D. However, will all these initiatives culminate into a better future for the company? Let’s find out!

    Business mix
      FY02 FY03
    Formulations 78% 80%
    Vitamins & fine chemicals 7% 7%
    Diagnostic & patient care 7% 6%
    Generics 8% 5%
    others 1% 2%

    Let us first understand the NPIL’s business structure. NPIL has a different business model as compared to its domestic peers. While most of the domestic pharma companies have adopted the strategy of exploiting the generic market in the US and derive a major portion of the revenues from the US market, in case of NPIL, exports contribute only 3.5% of the total revenues. Moreover, generics itself forms only 0.3% of total revenues. Formulations and bulk drugs contribute a major portion of the exports. Going forward, the acquisition of Global Bulk Drugs and Fine Chemical could help the company in recording an increase in exports.

    On the domestic front, the formulations segment saw an increase in contribution to the revenues. This was primarily on account of the acquisition of the pharmaceutical division of ICI India. Let us now briefly evaluate the company’s domestic formulation business.

    Domestic formulations break-up
    Therapeutic
    segment
    % of domestic
    formulations
    Growth over
    FY02
    Market growth
    rate
    Respiratory 22.4% 11.1% 5.6%
    CVS 10.4% 45.9% 12.4%
    Anti-infectives 10.2% 0.6% -0.2%
    CNS 9.4% 16.8% 13.4%
    Biotek 8.0% 27.0% NA
    Nutritional 7.7% 3.6% 4.4%
    Gastro-intestinal 4.8% 5.2% 7.5%
    Anti-diabetic 3.9% 27.8% 20.3%
    Others 23.2% NA NA
    (Source: Company annual report)

    Commoditisation of the anti-infectives market has affected the NPIL’s growth rate in this segment. However, recognizing this, the company started increasing its focus on high-value lifestyle segments like CVS, CNS and anti-diabetics segment. Consequently, the contribution of these segments taken together has increased to almost 23% of revenues. Moreover, new product launches have further helped the company in improving its market share. NPIL has made 35 new product launches in the past two years. Resultantly, NPIL has been able to record higher growth rates in most of the segments as compared to the average industry growth rate.

    In the vitamins and fine chemicals division, although NPIL has managed to record a strong growth on the back of cost reduction initiatives and launch of value added products, dumping of low-cost imports and drop in the demand from the user industry is a cause of concern for the company going forward. To counter this drop in demand, this division has entered into new business areas like perfumery and speciality chemicals. The success of these new business initiatives remains to be seen.

    In the diagnostic and patient care division, NPIL registered strong volumes growth. However, price reduction has resulted in the company recording a marginal growth in value terms. Among the major products in this segment, meter sales grew 38% in FY03, with the company introducing new range of products in this segment. The contribution of generics to NPIL‘s total revenues has seen a gradual decline primarily on account of negative growth recorded by the company in the domestic generics market.

    NPIL’s R&D initiative is at a very nascent stage. The company is concentrating on developing NCEs in the diabetes, oncology and infectives segments. NPIL is currently focusing on obtaining critical mass in areas like pharmacokinetics and early metabolism studies which are crucial for predicting the success of NCEs in clinical development. Moreover, NPIL has recently filed a US patent application for its oncology molecules. However, development of NCE being a high-risk initiative, the performance of the company could be severely affected by its failure.

    Financial overview
      FY01 FY02 FY03
    Revenues (Rs m) 5,064 8,662 9,642
    Growth in revenues - 71.1% 11.3%
    PAT (Rs m) 665 482 1,181
    Growth in PAT - -27.5% 145.0%
    OPM (%) 16.7 14.8 18.5
    NPM (%) 13.1 5.6 12.2

    On the financial front, on account of NPIL’s inorganic growth strategy, the financials of the company are not comparable. Focus on lifestyle segments has helped the company to record higher than industry growth rates in the top line. NPIL has taken steps to bring down the interest costs like restructuring of high-cost loans with low cost ones, and this is reflected in the performance of the company in the form of an improvement in the net margins of the company.

    Comparative Valuation
      Nicholas Piramal Cipla Wockhardt Sun Pharma
    Current Price (Rs) 329 827 375 363.7
    EPS (Rs) 31.1 41.3 28.7 24.7
    P/E (x) 10.6 20.0 13.1 14.7
    OPM (%) 18.5 20.1 18.3 30.0
    M Cap/Sales (x) 1.3 3.2 1.8 3.9
    *All valuations pertain latest declared annual results

    NPIL is currently trading at a P/E of 11x its FY03 earnings. The company has seen strong growth in revenues in recent times. However, a major portion of this growth has come from the acquisition route. The new business segments in which the company is entering, nascent stage of R&D initiatives and the risk involved therein seem to be the prime reasons for the company’s stock receiving a lower valuation as compared to its peers. This coupled with the lack of management direction and introduction of product patent post 2005 could affect the performance of the company going forward.

     

     

    Equitymaster requests your view! Post a comment on "Nicholas Piramal: A review". Click here!

      
     

    More Views on News

    Sun Pharma: Bottomline Slips into the Red Amidst Challenging Environment (Quarterly Results Update - Detailed)

    Aug 14, 2017

    A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.

    Lupin: Bigger Challenges or Bigger Margin of Safety? (Quarterly Results Update - Detailed)

    Aug 14, 2017

    GST impact coupled with price erosion in US leads to lower profits for the quarter.

    Dr Reddy's: US Pressure Continues to Haunt (Quarterly Results Update - Detailed)

    Aug 8, 2017

    Profits plunge due to higher raw material costs.

    Biocon: Lower Licensing Income Leads to Muted Growth for the Quarter (Quarterly Results Update - Detailed)

    Jun 23, 2017

    Net Profit lower due to exceptional items in the previous year.

    Sun Pharma: Price Erosion in US Impacts Growth (Quarterly Results Update - Detailed)

    May 30, 2017

    US markets decline while other geographies grow in the quarter.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    PIRAMAL ENTERPRISES SHARE PRICE


    Aug 18, 2017 (Close)

    TRACK PIRAMAL ENTERPRISES

    • 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

    MORE ON PIRAMAL ENTERPRISES

    PIRAMAL ENTERPRISES - ADCOCK INGRAM COMPARISON

    Compare Company With Charts

    COMPARE PIRAMAL ENTERPRISES WITH

    MARKET STATS