MNC Pharma: And the performers are... - 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?  

MNC Pharma: And the performers are...

Sep 6, 2005

The first half of the year has gone by and MNC pharma companies, which largely follow a calendar year, have managed to stage a comeback after the difficult first quarter (March 2005 ending), which was plagued by VAT related issues. In this article, we compare the 1HFY06 performance of the 4 MNC pharma companies under our research coverage viz., Pfizer, Abbott India (both November ending), Glaxo and Aventis (both December ending).

Financial performance: A snapshot
Pfizer Glaxo Aventis Abbott
Net sales (Rs m) 2,679 7,412 3,884 2,035
Net sales growth (%) -1.4% 3.0% 10.1% 4.3%
Operating profit (Rs m) 474 2,282 1,019 353
Operating profit margin (%) 17.7% 30.8% 26.2% 17.3%
Operating profit growth (%) 59.1% 11.5% 11.2% -16.2%
Interest (Rs m) 2 - - -
Depreciation (Rs m) 66 75 87 19
Net profit (Rs m) 289 1,503 578 278
Net profit margin (%) 10.8% 20.3% 14.9% 13.7%
Net profit growth (%) 60.6% 9.8% -11.6% -34.7%

What has driven performance in 1HFY06?
Revenues: The confusion related to VAT took a sever toll during the January to March 2005 quarter (leading to de-stocking at the wholesalers' levels) affecting most of the companies in the Indian pharmaceutical industry. However, the 4 MNC pharma companies considered here felt the impact of this differently. Pfizer, for instance, being a November ending company, was impacted by VAT concerns in both the quarters (1Q and 2QFY06), the effect being more pronounced in the second quarter. Therefore, while its peers recovered in the second quarter to post gains, Pfizer saw a decline in its topline (down 1.4% YoY).

Glaxo has been at the two extreme ends of the pole. This can be gauged by the fact that while the VAT impact was most severe in Glaxo's case in the first quarter (23% YoY decline in revenues), it posted the strongest revenue growth (29% YoY) in the second quarter, enabling it to register a 3% YoY growth in 1HCY05. For both Aventis and Glaxo, their power brands have helped propel growth. In Pfizer's case, most of its key brands, except 'Corex', registered growth. Abbott India also performed relatively well as compared to its peers and is actually the second best performer on the revenue front (up 4.3% YoY).

Margin story: The 'Big 3' i.e. Glaxo (up from 28.4% in 1HFY05 to 30.8% in 1HFY06), Aventis (up from 26.0% in 1HFY05 to 26.2% in 1HFY06), and Pfizer (up from 11.0% in 1HFY05 to 17.7% in 1HFY06), have witnessed considerable margin improvement in the first half of the year. This is owing to various cost containment measures undertaken by these companies at the operating level. However, despite a tight leash over costs, on the margin front, Pfizer is lagging well behind Glaxo and Aventis. This is owing to its stagnant revenue growth. Aventis' margin improvement has been a result of increasing share of outsourcing (export sales) and better product mix, which is due to its strong focus on strategic brands. Abbott faced pressure on its margins (fell from 21.6% in 1HFY05 to 17.3% in 1HFY06), owing to the levy of excise duty on the basis of MRP and a considerable increase in the purchase of finished goods.

Profitability picture: While efficiencies at the operating level translated into higher profitability for Glaxo and Pfizer, in Aventis' case, a higher tax outgo has dented the bottomline picture. As far as Abbott is concerned, a fall in operating profits coupled with a 65% YoY reduction in other income resulted in a 34% YoY decline in net profits.

What to expect?
The new patent regime, which has come into force from 2005, will be significant for these MNC pharma companies, which have been preparing themselves for the same. Most of these companies have restructured themselves to take advantage of the new patent regime. While there is not likely to be any significant impact of the same in the topline of these companies in the initial couple of years, in the long run, there is a high probability that these MNC companies will gain market share in high value patented products.

Pfizer still needs to catch up with Glaxo and Aventis on the margin front. The margin improvement is expected to come from an increase in turnover, price increases in products wherever it is possible and continued efficiency at the operating level. As far as new patented launches are concerned, while Glaxo and Pfizer will introduce patented products only from 2007 onwards, Aventis being more aggressive, is likely to launch them earlier.

Considering the fact that both Glaxo and Aventis have been strong on the revenue and profitability front and the fact that they have a strong parent company from whose folio we can see the launch of new patented products, these companies are our preferred plays in the MNC pharma space for the long term.


Equitymaster requests your view! Post a comment on "MNC Pharma: And the performers are...". Click here!

  

More Views on News

PFIZER Announces Quarterly Results (1QFY21); Net Profit Up 10.3% (Quarterly Result Update)

Aug 26, 2020 | Updated on Aug 26, 2020

For the quarter ended June 2020, PFIZER has posted a net profit of Rs 1 bn (up 10.3% YoY). Sales on the other hand came in at Rs 5 bn (down 5.4% YoY). Read on for a complete analysis of PFIZER's quarterly results.

PFIZER Announces Quarterly Results (3QFY20); Net Profit Up 5.4% (Quarterly Result Update)

Feb 19, 2020 | Updated on Feb 19, 2020

For the quarter ended December 2019, PFIZER has posted a net profit of Rs 1 bn (up 5.4% YoY). Sales on the other hand came in at Rs 5 bn (up 4.7% YoY). Read on for a complete analysis of PFIZER's quarterly results.

PFIZER 2017-18 Annual Report Analysis (Annual Result Update)

Jan 1, 2019 | Updated on Jan 1, 2019

Here's an analysis of the annual report of PFIZER for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of PFIZER. Also includes updates on the valuation of PFIZER.

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

PFIZER SHARE PRICE


Sep 28, 2020 03:14 PM

TRACK PFIZER

COMPARE PFIZER WITH

MARKET STATS