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German Remedies: Time for a relook? - Views on News from Equitymaster
 
 
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  • Sep 26, 2000

    German Remedies: Time for a relook?

    Last week’s bloodbath took a toll on the valuations of quite a few fundamentally sound stocks. One such stock is German Remedies (GRL). The stock actually touched its 52–week low of Rs 487, before closing at Rs 490 yesterday. Thus it has come off almost 65% from its highs of Rs 1388 touched during the year.

    GRL is owned by a group of German drug companies Boehringer Ingelheim, Asta Medica, Schering AG, Heller Vermog and Beecham Pharma GmbH. These companies today own around 37% of the company’s Rs 82.45 m equity. The highest shareholding is that of Asta Medica which currently owns over 20% of the company's equity. Asta Medica specialises in oncology (anti–cancer) and respiratory drugs.

    Over the last two years GRL has introduced 12 new formulations and discontinued 4 products. These products have been the key drivers of topline growth. It's main products include Deriphyllin (for bronchitis), Dulcolax (laxatives), Primolut N and Proluton (both for hormonal imbalances). All these brands are within the top 250 brands of ORG and contribute over 25% to the company's turnover. Both Deriphyllin and Dulcolax are market leaders in their respective market segments.

    Key Products
    Product Collaborator Therapeutic area
    Deriphillin Asta Medica Anti–asthamatic
    Endoxan Asta Medica Anti–cancer
    Primolut–N Schering AG Oral progestogen
    Proluton Depot Schering AG Injectable progestogen
    Dulcolax Boehringer Ingelheim Laxative
    Duoluton–L Schering AG Menstrual cycle regulator
    Holoxan Asta Medica Anti–cancer

    The company has a strong marketing set up with around 20 C & F agents and 550 distributors. As far as the financials are concerned GRL has reported a 15.8% compounded growth in turnover over the past three years and a 40% growth in net profits over the same period. In FY 2000 its cash flow from operating activities nearly doubled from Rs 159.5 m to over 290.6 m. These were used to primarily to reduce the company’s debt from a level of Rs 136 m to Rs 55 m. Also, its Return on Net Worth and Return on Capital Employed (i.e. profit before interest, depreciation and tax divided by capital employed) worked out to 28% and 40% in FY 2000.

    In the first quarter of the current year the company has reported a 10% growth in the topline to 468 m and a 14.9% growth in the bottomline. This performance seems to have disappointed the market since it’s in line with the growth in the overall pharma market whereas the bigger boys such as Glaxo have reported a relatively better performance. The annualised per share earnings works out to Rs 20.9 which implies an earning multiple of 23 times.

     

     

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