Hoechst Marrion Roussel: A strong formulation - Views on News from Equitymaster

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Hoechst Marrion Roussel: A strong formulation

Sep 4, 2000

A 51% subsidiary of the $ 14.6 bn Aventis (formed with the merger of HMR AG and Rhone Poulenc), Hoechst Marion Roussel (HMR) is the fourth largest player in the domestic market with strong products and a diversified product mix. The company’s brands such as Combiflam, Daonil, Avil, Soframycin, Baralgan–M and Novalgin are household names.

Key Products
Brand % of Sales Therapeutic Category
Combiflam 13.0% Anti–inflammatory
Daonil (Oral) 12.0% Anti–diabetic
Avil 10.0% Anti–allergic
Soframycin 7.0% Topical antibiotic
Novalgin/Baralgan M 13.0% Analgesic
Trental/Cardace 10.0% Cardiovascular
Hostacycline 4.0% Antibiotic

The company has had an indifferent performance over the last few year’s primarily due to the restructuring that the management had undertaken after the merger with Roussel. It closed down two of its plants in high cost Mumbai and shifted to relatively low cost areas such as Goa (formulations plant) and Ankleshwar (bulk drugs production). It discontinued with more than a dozen old products and sold off tailend brands such Haemaccel and Omnatax to Nicholas Piramal. This helped it fund the Voluntary Retirement Scheme (VRS) payments to the workers of the two plants based in Mumbai.

Simultaneously HMR’s parent allowed it access to new products which the latter introduced in the country. HMR introduced new products such as Cardace (cardiovascular) Amaryl (an oral anti–diabetic), Cefrom (antibiotic) Frisium (anti–epileptic) etc. over the last two years which have been well received in the Indian market.

The hugely profitable exports to Russia have also restarted in the current year though they are no where near the levels they were a couple of year’s ago.

All these measures have helped the company post a 35% growth in its bottomline in FY2000 despite a 1.4% rise in the turnover. This is primarily due to the fact that almost 60% of its revenues accrue from products that are under price control. With new products being out of price control we expect the company to report a 10% increase in the topline for FY2001.

With the restructuring almost over and the costs of restructuring written off, the company’s bottomline is likely to grow much faster in the coming years. The stock currently quotes at a price of Rs 442 (52 week range: Rs 1340/357), which implies a multiple 27.5 times FY2001 earnings.

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