Hoechst Marion: Operating margin Zooms - Views on News from Equitymaster

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Hoechst Marion: Operating margin Zooms

Jul 30, 2001

Hoechst Marion Roussel Ltd (HMR) has posted a PBT of Rs 215 m, a rise of 47% inspite of 7% reduction in turnover. This rise was on the back of an 810 basis points improvement in operating profit margins of the company. The rise in operating margins was due to company's focus on strategic products, better efficiencies and reduction in operating expenses.

(Rs m) 2QFY01 2QFY02 Change
Sales 1,300 1,212 -6.8%
Other Income 19 13 -31.6%
Expenditure 1,132 969 -14.4%
Operating Profit (EBDIT) 168 243 44.6%
Operating Profit Margin (%) 12.9% 20.0% 55.1%
Interest 13 4 -69.2%
Depreciation 28 37 32.1%
Profit before Tax 146 215 47.3%
Extraordinary Expenses (VRS) (25) (45) 80.0%
Tax 44 48 9.1%
Profit after Tax/(Loss) 77 122 58.4%
Net profit margin (%) 5.9% 10.1%  
No. of Shares (eoy) (m) 23 23  
Diluted Earnings per share* 13.4 21.2  
P/E (at current price) 19.3  
(*- annualised)      

The company's product portfolio now includes a rather unique combination of old, mature brands as well as new products, which have met with remarkable success. Major strategic brands of the company viz Cardace (69 %), Allegra (26%) and Amaryl (58%) continued to grow at a healthy rate. Other mature brands of the company seem to have maintained their revenue contribution. While domestic sales as a whole has remained flat, exports have grown by 19%.

The company's rationalisation of product portfolio in recent years has helped in reducing the DPCO exposure from around 60% to around 35% currently. Some of the strong brands from the company's stable like Avil, Daonil, Soframycin, Novalgin however, continue to be under DPCO coverage.

At the current market price of Rs 410, the stock is trading at 15 times its expected earnings for FY02. The growth in the current year is expected to be fuelled by latest product introductions.The triggers for the stock in the near term are expected outsourcing by the parent company 6-8 months down the line, growth in strategic new products, further introduction of new products and expected dilution of DPCO. However, slowdown in topline is a cause of concern. While the strategic products have recorded good growth rates, it has slowed down compared to 1QFY02. Further, though the company currently has been able to command premium prices for its strategic products till date, it might face stiff price competition from domestic players. Thus, the operating margins might witness a downturn as product portfolio of the company matures.

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