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Abbott India: Modest growth

Oct 3, 2003

MNC pharma major, Abbott India has recently announced its 3QFY04 results. While the company registered a modest 7% increase in topline, bottomline shot up by a significant 60%. For 9mFY04, Abbot registered a 5% growth in net sales and 29% rise in net profits. In this context, let us briefly evaluate the company’s performance.

Steady growth…
(Rs m) 3QFY03 3QFY04 Change 9mFY03 9mFY04 Change
Net Sales 969 1,041 7.4% 2,632 2,754 4.6%
Other Income 20 23 12.2% 117 152 29.0%
Total expenditure 749 780 4.2% 2,065 2,144 3.8%
Operating Profit (EBDIT) 220 261 18.4% 567 610 7.5%
Operating Profit Margin (%) 22.7% 25.1%   21.6% 22.2%  
Interest 0 0 20.0% 1 0 -78.5%
Depreciation 15 11 -31.2% 42 31 -25.0%
Profit before Tax 225 273 21.2% 642 730 13.7%
Extra-ordinary items (31) 0 -100.0% -31 0 -100.0%
Tax 72 77 6.7% 198 199 0.2%
Profit after Tax/(Loss) 123 196 60.3% 413 531 28.7%
Net profit margin (%) 12.6% 18.9%   15.7% 19.3%  
No. of Shares (m) 16.2 15.3   16.2 15.3  
Earnings per share* 30.2 51.4   34.0 46.4  
P/E ratio   6.6     7.3  
*(Annualised)

During 3QFY04, the domestic pharma industry has seen a revival in demand. However, the industry has still not witnessed its traditional double-digit growth rates. In line with the industry performance, Abbott India has managed to register a modest growth its topline. The growth was fuelled by the company’s strong anti-diabetics portfolio. On the operations front, a drop in the raw material cost and other expenditure by 2 percentage points and 1 percentage point respectively has helped Abbott India improve its operating margins. This coupled with a drop in the depreciation provisioning has resulted in the company recording a sharp 60% growth in the bottomline. However, it is to be noted here that in 3QFY03 last year, the company had reported for extra-ordinary loss of Rs 31 m on the sale of its Jejuri undertaking. If the same is excluded, the net profit growth drops to 28% YoY.

For 9mFY04, Abbott India’s performance was affected by the slowdown in the domestic market and the VAT fiasco. Infact, the company recorded stagnant/negative growth in most therapeutic segments other than the anti-diabetics segment. Resultantly, the topline grew by 5% and the bottomline by 29%. However, here again, if the losses booked during 9mFY03 in relation to the sale of the Jejuri undertaking are ignored, the net profit growth becomes 20%.

As was mentioned earlier, Abbott India has a strong presence in the anti-diabetics segment with animal insulins being its major product. Recently, Wockhardt had launched recombinant human insulins at low prices. This could affect Abbott India’s performance going forward as human insulins might be preferred to animal insulins by users who were earlier averse to the switchover on account of the high prices of human insulins. Another major concerning factor is Abbott India’s large exposure to DPCO. This has affected the company’s ability to fix prices and consequently stunted its topline growth. Recently, National Pharmaceuticals Pricing Authority (NPPA) ruling resulted in reduction of 3 Abbot products. This is likely to affect the performance of the company in the near term.

NPPA effect…
Formulation/Composition Name Pack Size Existing Price (Rs.) Revised Price (Rs.) Change (%)
Erykid-125 DIS Tablet 10's Blister 18.0 15.1 (16.3)
Erythromycin Ethyl Succinate Tablet 6's Al_St 45.3 35.8 (21.1)
Erythromycin Ethyl Succinate Tablet 6's Al_Bl 45.0 35.5 (21.2)

At Rs 338, Abbott India is trading at a P/E of 7x its 9mFY04 earnings. A high DPCO cover and competition led drop in human insulins prices could affect the performance of the company in the near term. Further, absence of product patents and a consequent reluctance by the parent in launching new products has affected company’s growth in the past. However, with product patents being introduced post 2005, things could improve. With the domestic pharma market now showing signs of recovery, we remain optimistic about the prospects of the company given the fact that it recorded a 6% growth in revenues in August ’03.


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