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Nicholas Piramal: Inorganic growth

Oct 24, 2003

Nicholas Piramal (NPIL) announced its 1HFY04 results recently. While the company reported a 21% increase in topline, bottomline grew by 27%. For 2QFY04, the company recorded a 22% and 82% growth in net sales and net profits respectively. However, it is to be noted here that as the figures of 2QFY04 include the results of the erstwhile Global Bulk Drugs and Fine Chemicals, which was merged with the company w.e.f. 1st January ’03. In this context, let us evaluate the company’s performance.

Results at a glance…
(Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
Net Sales 2,595 3,167 22.1% 4,857 5,858 20.6%
Other Income 37.1 13.9 -62.5% 153 22 -85.7%
Expenditure 2,063 2,496 21.0% 3,877 4,658 20.1%
Operating Profit (EBDIT) 532 671 26.2% 980 1,200 22.5%
Operating Profit Margin (%) 20.5% 21.2%   20.2% 20.5%  
Interest 56.1 17.3 -69.2% 129 40 -69.1%
Depreciation 48.9 65.9 34.8% 114 136 19.7%
Profit before Tax 464 602 29.7% 890 1,046 17.6%
Extraordinary income (expense) (29.7) (34.7)   (54.3) (116.5)  
Tax 172.5 90 -47.8% 263 201 -23.6%
Profit after Tax/(Loss) 262 477 82.4% 573 729 27.2%
Net profit margin (%) 10.1% 15.1%   11.8% 12.4%  
No. of Shares (m) 38 38   38 38  
Earnings per share (Rs)* 27.5 50.2   30.2 38.4  
P/E (x)   9.2     12.0  

An analysis of NPIL’s topline growth reveals that while domestic sales grew by 14%, exports grew by a strong 194%. However, if we exclude the bulk drugs sales (i.e., sales of Global Bulk Drugs and Fine Chemicals), we observe that for 1HFY04, domestic sales grew by 13% and exports grew by 12%.

Sales break-up
(Rs m) 1QFY03 1QFY04 Change 1HFY03 1HFY04 Change
Domestic
Formulations 1,934 2,259 16.8% 3,686 4,164 13.0%
Generics 134 147 9.9% 255 270 5.9%
API - 24 - - 76 -
Vitamins & Fine Chemicals 221 213 -3.5% 337 378 12.4%
Diagnostics & Patient Care 154 203 31.9% 334 378 13.2%
Total (A) 2,443 2,847 16.5% 4,611 5,265 14.2%
Exports
Branded Formulations 69 83 20.9% 112 147 31.5%
API - 169   - 299 -
Vitamins & Fine Chemicals 31 12 -62.7% 53 37 -30.6%
Total (B) 100 263 163.7% 164 483 193.8%
Grand Total ((A)+(B)) 2,543 3,110 22.3% 4,775 5,748 20.4%

In the domestic market, NPIL managed to outperform the industry in the formulations business with a 13% growth during 1HFY04. The industry grew by a mere 4.4% during the same period. The top ten brands of the company (36% of portfolio) grew by a strong 16%. While new products made up for 8.2% of domestic formulation sales, contribution from the lifestyle segment grew to 32.2% of domestic formulation sales (up from 29.7% in 1HFY03). A therapeutic segment wise break up of domestic formulations sales reveals that the lifestyle segments of anti-diabetics and CVS were the key growth drivers. However, anti-infectives and gastro segments reported negative growth.

Domestic formulations break-up
(Rs m) 1HFY03 1HFY04 Change
Respiratory 745 825 10.8%
Anti-infectives 447 434 -3.1%
CVS 321 413 28.7%
CNS 336 396 17.9%
Nutritional 325 388 19.3%
Biotek 315 342 8.7%
Anti-diabetic 123 193 57.1%
Gastro 197 181 -8.0%
Others 1,271 1,354 6.6%
Total 3,686 4,164 13.0%

In the vitamins and fine chemicals business division, although growth suffered during 2QFY04, for 1HFY04, NPIL recorded a 12% growth. The growth was primarily driven by the inclusion of Vitamin C and E into the product portfolio of the company. In the Diagnostics & Patient Care division, the new product launches were the key growth drivers, contributing 17% of the division’s sales. Another encouraging aspect is that 60% of the company’s portfolio is the lifestyle segment. NPIL plans to make product launches in the diabetes and osteoporosis segments.

On the exports front, NPIL is pursuing the strategy of entering into manufacturing partnerships with innovator company for both formulations and bulk drugs. Although branded formulations sales recorded a 32% growth, the gains were pared by the poor showing in the Vitamins and Fine Chemicals segment. During the period under review, the company filed two new drug master files (DMFs). On the R&D front, NPIL is in the process of setting up a 0.2 m square feet facility at Goregaon. The company plans to make a capex on R&D of Rs 800 m over the next two years.

NPIL has seen a decline in the other income due to lower dividend from its subsidiaries and joint ventures. However, despite the drop in other income and a rise in extra-ordinary expenditure (comprising of VRS and separation cost), strong topline growth and a sharp drop in interest expenses has helped the company improve its net margins.

For 2HFY04, NPIL has projected a sales growth of 18-20% with exports crossing Rs 1 bn for the year. The company has also stated that it plans to maintain the dividend payout over 30% for FY04. At Rs 461, NPIL is trading at a P/E of 12x its 1HFY04 annualised earnings. Acquisitions have been the key growth driver for the company in the recent past. As NPIL derives most of its revenues from the domestic market, the implementation of product patent is likely to affect its performance. Even in the export market, which is NPIL’s new thrust area, being a late entrant it could face intense competition.


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