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SmithKline Pharma: Surpassing expectations - Views on News from Equitymaster
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  • Oct 17, 2000

    SmithKline Pharma: Surpassing expectations

    SmithKline Beecham Pharmaceuticals (SKBP) has reported better than expected results for the third quarter ended September 2000. Though the turnover has stagnated at Rs 762.18 m (vis-à-vis Rs 760.14 m reported in the corresponding quarter of the previous year) net profits are up 27.5% to Rs 72.91 m.

    (Rs m) 3QFY00 3QFY01 Change
    Sales 760 762 0.2%
    Other Income 20 23 15.9%
    Expenditure 680 666 -1.9%
    Operating Profit (EBDIT) 81 96 18.5%
    Operating Profit Margin (%) 10.6% 12.5%  
    Interest 3 0 -90.8%
    Depreciation 9 11 26.9%
    Profit before Tax 88 107 21.1%
    Other Adjustments      
    Tax 31 35 10.8%
    Profit after Tax/(Loss) 57 72 26.8%
    Net profit margin (%) 7.5% 9.5%  
    Earnings per share* 7.78 9.86  

    The company seems to have maintained the turnaround it reported in the second quarter when its bottomline shot up 55% over the figure reported in the previous year. And this was after the company reported disappointing results for the first quarter ended March 2000 when its turnover declined by 22% and the net profit halved (from what was achieved in the corresponding quarter of the last year).

    During the quarter the company launched Tritanrix–HB the first vaccine in the world to combine Hepatitis and DTPw vaccine that offers protection against four major diseases. This has been very well received in the market. This has been accompanied by strong performances from the company’s leading brands ‘Augmentin’ and ‘Iodex’. Control over raw material costs and tight working capital management has helped SKBP improve operating margins too.

    These measures have helped the company overcome the effects of the 35% import duty imposed on Engerix (the Hepatitis B vaccine that the company produces) and the 50% cut in the price of Zevit (B complex vitamin) which contributes around 15% of the turnover.

    The company took a hit on the margins rather than increase the price of the Engerix vaccine. This was in view of the competition from the likes of Shanta Biotech (which tied up with Pfizer for marketing) and Wockhardt.

    The stock quotes at Rs 135 which implies an earnings multiple of 14 times its FY01 annualised earnings. SmithKline is slated to be merged with Glaxo India in the current year itself. Glaxo’s is relatively stronger in the prescription products whereas SmithKline’s strengths lie in the over–the–counter segment where its products enjoy a good brand recall. The reason for the low multiple could be the presence of a 100% subsidiary which could, in the future, be used a vehicle for launching new products in the country.



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