Abbott sounds profit warning - Views on News from Equitymaster

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Abbott sounds profit warning

Aug 9, 2000

Abbott Laboratories has sounded a profit warning. “It’s a snake and ladder situation for us” said Mr. Tapan Ray, the Managing Director at the Annual General Meeting of the company held yesterday. The reason off course is due to the impact of the 24.6% price reduction on erythromycin stereate formulations and a 55% reduction on its vitamin formulations ‘Surbex–T’ and ‘Zenbex–T’ imposed in July. These products account for almost 40% of the turnover of the company and the impact is likely to be in the region of almost Rs 100 m in the current financial year.

Even last year the government imposed a price reduction on the products manufactured by the company but there was a corresponding reduction in the prices of the bulk drugs. This year with no such benefits, the cost of production would remain unchanged and the bottomline would take a hit.

Of the multinational pharma companies operating in India, Abbott is one of the few companies with a portfolio extending to hospital products and pediatric nutrition. The parent was voted as among the “50 best companies for minorities” by the Fortune magazine. In India too the company is among the few pharma companies which has not established a 100% subsidiary in India.

Perhaps the only grey area is the lack of liquidity in the stock. With the latest profit warnings from the management, the stock (CMP: Rs 475) is unlikely to fly.


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