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Hoechst restructuring pays off

Oct 30, 2000

The restructuring that Hoechst Marion Roussel has been undertaking over the last two years is apparently paying off with the company's second quarter net profit more than doubling despite a 5.8% decline in the topline. The decline in the topline is partly on account of the sale of two brands Omnatax and Haemaccel to Nicholas Piramal last year.

(Rs m) 2QFQ00 2QFY01 Change
Sales 1,533 1,444 -5.8%
Other Income 14 21 50.0%
Expenditure 1,306 1,229 -5.9%
Operating Profit (EBDIT) 227 215  
Operating Profit Margin (%) 14.8% 14.9%  
Interest 30 8 -73.3%
Depreciation 24 29 20.8%
Profit before Tax 187 199 6.4%
Other Adjustments (70) (27)  
Tax 70 49  
Profit after Tax/(Loss) 47 123 161.7%
Net profit margin (%) 3.1% 8.5%  
Earnings per share* 8.17 21.39  
(annualised)      

Over the last two years the company has sold off two of its plants based in Mumbai and written off a huge amount in VRS expenditure. Meanwhile it has introduced nine new products from its parent's stable. While the revenue from these products will show up in the revenue growth in the future, the repayment of debt using the cash accrued from the sale of its assets has helped the company reduce interest costs.

Almost 60% of the company's revenues accrues from products under price control. These include well known brands such as Combiflam (cough and colds), Daonil (anti–diabetics) and Soframycin (dermatology).

The stock quotes at Rs 453 which implies an earnings multiple of 21 times FY01 annualised earnings. The results are in line with our expectations. Overall, for the first half the company has reported a net profit of Rs 200 m while we had projected a net profit of Rs 370 m for the full year FY01.

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