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E.Merck: Shifting focus

Sep 18, 2001

E.Merck (India), subsidiary of the German multinational Merck, reported a healthy topline performance for 2QFY02. While the company managed to log double digit topline growth operating margins were under pressure. The growth in sales is primarily due to an upward price revision in its vitamin brand Neurobion in June 2000.

(Rs m) 2QFY01 2QFY02 %Change FY01
Sales 791 881 11.3% 3,134
Other Income 9 38 346.3% 67
Expenditure 628 716 14.0% 2,582
Operating Profit (EBDIT) 163 165 1.0% 552
Operating Profit Margin (%) 20.6% 18.7% 17.6%
Interest 1 1 50.7% 23
Depreciation 15 24 59.9% 72
Profit before Tax 156 178 14.0% 524
Other Adjustments      
Tax 44 53 20.1% 139
Profit after Tax/(Loss) 112 125 11.7% 385
Net profit margin (%) 14.2% 14.2%   12.3%
No. of Shares (eoy) (m) 17 17   17
Diluted Earnings per share* 26.6 29.7   22.9
P/E (at current price) 9   12
(*- annualised)        

E. Merck is a market leader in vitamins and derives over 60% of its turnover from this segment. Three of its vitamin brands Evion, Neurobion and Polybion contribute almost 40% of the company’s turnover. During the first half of the current year the company re-introduced Neurobin with better marketing focus. However, the pharma division showed a sluggish growth of 3% mainly on account of competition from generic players. The slow growth in pharma division was more than compensated by a 20% growth in non-pharma division comprising laboratory and speciality chemicals.

One of the major threats to the company is high price volatility in Vitamin E due to fierce competition from Chinese and European suppliers. To overcome this concern, the company is evaluating various options like better utilisation of plant capacity and outsourcing of ingredients. Over the last couple of years the company has made a mark in other therapeutic segments such as cardiology, topical anti–inflammatory and dermatologicals while maintaining its mark in the vitamins segment. Apart from launching new products, the company also acquired Livogen brand from Glaxo India Ltd.

At the current market price of Rs 263, the stock trades at 12x times its FY01 earnings. Valuations going forward would depend on the success in new therapeutic areas, which the company has ventured into.


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