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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)2QFY032QFY04Change1HFY031HFY04Change
Net Sales2,5953,16722.1%4,8575,85820.6%
Other Income37.113.9-62.5%15322-85.7%
Operating Profit (EBDIT)53267126.2%9801,20022.5%
Operating Profit Margin (%)20.5%21.2% 20.2%20.5% 
Interest 56.117.3-69.2%12940-69.1%
Profit before Tax46460229.7%8901,04617.6%
Extraordinary income (expense)(29.7)(34.7) (54.3)(116.5) 
Profit after Tax/(Loss)26247782.4%57372927.2%
Net profit margin (%)10.1%15.1% 11.8%12.4% 
No. of Shares (m)3838 3838 
Earnings per share (Rs)*27.550.2 30.238.4 
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)1QFY031QFY04Change1HFY031HFY04Change
Formulations 1,934 2,259 16.8%3,6864,16413.0%
Generics 134 147 9.9%2552705.9%
API - 24 --76-
Vitamins & Fine Chemicals 221 213 -3.5%33737812.4%
Diagnostics & Patient Care 154 203 31.9%33437813.2%
Total (A) 2,443 2,847 16.5%4,6115,26514.2%
Branded Formulations 69 83 20.9%11214731.5%
API - 169  -299-
Vitamins & Fine Chemicals 31 12 -62.7%5337-30.6%
Total (B) 100 263 163.7%164483193.8%
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)1HFY031HFY04Change
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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