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Dabur Pharma: New kid on the block - Views on News from Equitymaster
 
 
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  • Oct 5, 2004

    Dabur Pharma: New kid on the block

    Dabur Pharma listed on the Indian exchanges last week. The company mushroomed as the pharma division of the over 120 year old Dabur Limited, with a significant focus on oncology (anti cancer). The company received a warm response on its listing. Let's look at what makes Dabur Pharma tick.

    Dabur Pharma is a very small sized speciality pharmaceutical company (Rs 2 bn FY04 revenues). Its activities include basic research, reverse engineering and of course, manufacturing and marketing of oncology products. The company also has a portfolio spread across therapeutic areas like CNS, gastro and antibiotics. Dabur Pharma has the largest share in the domestic oncology market (20% share). The company was formed by the demerger of the pharma division of Dabur India in April, 2003. The shareholders received one share of Dabur Pharma for every two shares held in Dabur India.

    (Rs m) 1QFY04 1QFY05 Change FY04
    Net sales 529 588 11.1% 2,136
    Expenditure 475 525 10.5% 1,929
    Operating profit (EBDITA) 54 63 16.1% 206
    EBDITA margin (%) 10.3% 10.7%   9.7%
    Other income 7 4 -46.3% 21
    Interest 5 2 -57.3% 16
    Depreciation 4 8 111.4% 31
    Profit before tax 52 57 8.3% 181
    Tax 7 8 3.2% 41
    Profit after tax/(loss) 45 49 9.2% 140
    Net profit margin (%) 8.5% 8.3%   6.6%
    No. of shares (m) 143.6 143.6   143.6
    Diluted earnings per share (Rs)* 1.2 1.4   1.0
    Price to earnings ratio (x)   29.3    
    (* annualised)        

    The Dabur management segregated the two businesses, viz, FMCG and pharma, in a bid to lend focus, as well as for unlocking shareholder value. The strategy seems to be working so far. While Dabur reported a 22% topline and 102% bottomline growth during the June quarter, Dabur Pharma reported 11% topline and 9% bottomline growth during the same period. The company's R&D expenses continued to be in the range of 8%-9% of sales.

    As per the management, cancer is set to become the top killer disease in the US over the next few years. It is estimated that about US$ 15 bn worth of oncology drugs will go off patent over the next decade. Dabur Pharma has been formed to cater to this segment. In a bid to give shape to its growth plans, the company has entered into a 10 year exclusive agreement with US$ 17 bn Abbott Labs, for the US market. The MNC is very strong in the hospital segment in the US. The tie up will be focused on servicing Abbott's hospital oncology portfolio. The US hospital market for oncology products is about US$ 8 bn - US$ 9 bn (Source: Company). The agreement however, is exclusively for generics and does not cover R&D products.

    Segmental snapshot
    (Rs m) 1QFY04 1QFY05 Change FY04
    Formulation 426 387 -9.3% 1,624
    PBIT margin (%) 26.3% 28.1%    28.3%
    Bulk Drug 113 213 88.3% 572
    PBIT margin (%) 36.5% 29.3%   23.2%
    Total sales 539 600 11.2% 2,196
    Total PBIT margin (%) 28.5% 28.5%   27.0%
    Less: Inter segment revenue 10 12 15.7% 61
    Net sales 529 588 11.1% 2,136

    Besides this, the company has decided to go in for different tie-ups in the European countries. On the R&D front, the company expects to file its first ANDA by the end of 2004. Also, it has got approval for conducting Phase II clinical trials on its NDDS product - 'paclitaxel nanoparticle'. Phase II trials have also begun on its NCE (new chemical entity), namely DRF 7295.

    What should an investor make of all this?

    At the current price of Rs 40, the stock trades at 29 times annualised 1QFY05 earnings. The valuations no doubt, look rich at this juncture. Investors need to keep in mind that the results of the Abbott tie up will start reflecting only in 2006. Therefore, if one does invest in the company, it is better to take a long term view.

     

     

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