Novartis: Dwindling margins - Views on News from Equitymaster

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

  • MyStocks

MEMBER'S LOGINX

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

Novartis: Dwindling margins

Aug 11, 2003

MNC pharma major, Novartis announced its 1QFY04 results recently. While the company has recorded a marginal growth in topline, the operating profits have seen a 25% drop. However, sharp rise in other income and lower tax provisions have helped Novartis register a 6% growth in the bottomline. In this context, let us briefly evaluate the performance of the company.

(Rs m) 1QFY03 1QFY04 % change
Sales 1,275 1,328 4.1%
Other Income 40 81 101.7%
Expenditure 1,032 1,144 10.9%
Operating Profit (EBDIT) 244 184 -24.6%
Operating Profit Margin (%) 19.1% 13.8%  
Interest 2 2 -4.5%
Depreciation 21 38 81.0%
Profit before Tax 261 225 -13.7%
Tax 94 48 -48.5%
Profit after Tax/(Loss) 167 176 5.9%
Net profit margin (%) 13.1% 13.3%  
No. of Shares (eoy) (m) 31.7 31.7  
Diluted Earnings per share* 21.0 22.3  
P/E (at current price) 11.0  

Novartis derives a major portion of its revenues from the pharma business. This segment saw a 6.6% YoY growth to Rs 810 m. The company’s strategy of revitalizing its mature product portfolio by introducing product extensions and variants seems to be paying off. New line extensions of a nasal decongestant and a Calcium Sandoz variant were key to the 19.7% growth in the OTC sales to Rs 134 m. Pricing pressure and a decline in the anti-TB business resulted in Novartis recording an 18.4% decline in the generics business to Rs 248 m.

Expenditure as a % of sales
(Rs m) 1QFY03 1QFY04
Purchase of materials & finished goods 50.1% 54.2%
Staff cost 8.8% 9.4%
Others 22.0% 22.6%

Despite an increase in net sales, a rise in the materials cost from 50% of revenues to 54% of revenues has resulted in Novartis recording a steep 25% decline in the operating profits. The company has incurred VRS expenditure of Rs 9 m during the current quarter. However, a sharp rise in the other income coupled with a drop in the tax provisions has enabled the company record a marginal increase in net profit. Other income has increased on account of a reversal of provision for wealth tax of Rs 21 m (1QFY03 – Nil) and interest from tax authorities of Rs 18 m (1QFY03 – Nil). Tax provisions, on the other hand, have declined due to a write back of provisions for earlier years of Rs 23 m (1QFY03 – Rs 8 m).

At Rs 245, Novartis is trading at a P/E of 11x its 1QFY04 earnings. Novartis has received shareholder’s approval for the buyback of shares upto an amount not exceeding 25% of its paid up share capital and free reserves at a price not exceeding Rs 250 per share. The company has been witnessing intense pricing pressure and declining margins in the recent times. Further, with the implementation of the new DPCO order, a major portion of its product portfolio is expected to come under DPCO cover. This could put additional pressure on the margins of the company going forward. Hence, the prospects of the company in the medium-term remain a cause of concern.


Equitymaster requests your view! Post a comment on "Novartis: Dwindling margins". Click here!

  

More Views on News

NOVARTIS Announces Quarterly Results (3QFY20); Net Profit Down 39.9% (Quarterly Result Update)

Feb 17, 2020 | Updated on Feb 17, 2020

For the quarter ended December 2019, NOVARTIS has posted a net profit of Rs 77 m (down 39.9% YoY). Sales on the other hand came in at Rs 1 bn (down 13.4% YoY). Read on for a complete analysis of NOVARTIS's quarterly results.

NOVARTIS Announces Quarterly Results (1QFY20); Net Profit Down 92.1% (Quarterly Result Update)

Aug 13, 2019 | Updated on Aug 13, 2019

For the quarter ended June 2019, NOVARTIS has posted a net profit of Rs 8 m (down 92.1% YoY). Sales on the other hand came in at Rs 1 bn (down 20.8% YoY). Read on for a complete analysis of NOVARTIS's quarterly results.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

NOVARTIS SHARE PRICE


Sep 29, 2020 (Close)

TRACK NOVARTIS

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

NOVARTIS 8-QTR ANALYSIS

COMPARE NOVARTIS WITH

MARKET STATS