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Knoll Pharma: An update - Views on News from Equitymaster
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  • Aug 29, 2001

    Knoll Pharma: An update

    Knoll Pharma is a leading player in the domestic insulin, anti-diabetic, pain control and antacid market with around 55% market share in the insulin business. However, most of the company's drugs are under DPCO coverage. The company’s financials went through a bumpy ride in the last six months due to two important price changes ordered by DPCO.

    Knoll Pharma- A bumpy ride
    Particulars 1QFY01 1QFY02 % Change 2QFY01 2QFY02 % Change
    Sales (Rs. Mn.) 731 813 11.2% 897 932 3.9%
    Operating Profit Margins (%) 16.8 13.8 _ 14.9 17.6 _
    Profit Before Tax (Rs.Mn.) 147 125 -15.0% 143 248 73.4%
    PBT (%) 20.1 15.4 _ 15.9 26.6 _

    In the first quarter, NPPA reduced prices of Ibuprofen (pain management bulk drug), which adversely impacted the company. As Knoll pharma is a market leader in the Ibuprofen market, the price cut had a severe impact on the company’s financials. The impact was evident from a 300 basis points fall in operating margins. PBT dropped 15%.

    However, there was some good news on the cards also. The NPPA revised the prices of Insulin injections in March. Since then, Insulin vial prices increased in the range of 22%-25%, directly adding to the company’s bottomline. The effect of price hike was quite evident in 2QFY02. While sales grew by just 4%, PBT jumped 73%. Operating margins went up by 270 basis points. Insulin remains the biggest revenue generator for the company, contributing around 40% of the company’s revenues

    Following the parent company’s consolidation with Abbott Inc., the latter recently announced an open offer to acquire 20% of the company’s equity. A major concern for Knoll Pharma ,till recently, was the absence of a strong parent pipeline unlike other pharma MNC companies. The product basket of the company is expected to receive a boost with a new parent in place. However, there is still uncertainty on this matter as Abbott Inc, also has a 51% subsidiary operating in India.

    Another obvious concern for the stock is its high DPCO exposure, the profitability of the company remains dependent on the vagaries of NPPA. The DPCO exposure of the company is close to 60%.

    Particulars Hoechst SmithKline
    Glaxo Pfizer Knoll
    CMP (Rs.) 401 135 268 429 260
    Market Capitalisation (Rs. Mn.) 9236 3960 16005 10054 4212
    Sales- FY02 E 5365 3568 7665 3710 3320
    Market Cap/sales (x) 1.7 1.1 2.1 2.7 1.3
    P/e (x) 12.3 11.4 27.8 13.1 8

    At the current market price of Rs 260, the stock is trading at a P/E of 8x FY02 expected earnings. The stock trades at considerable discount to its peers. Knoll Pharma’s financials are expected to look up in the short term, mirroring the Insulin price revision. However, in the long term competition is expected to set in this business with other domestic players evincing interest in entering the Insulin market. Further, the company desperately needs to introduce new products to fuel growth.



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