MNC pharma major, Novartis, announced dismal 2QFY04 results yesterday. The company has reported a 5% drop in topline and a 17% decline in bottomline. For 1HFY04, while the net sales have dropped marginally, pressure on margins has resulted in a 9% drop in net profits. In this context, let us briefly evaluate the company’s performance during the period under review.
Results at a glance...
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (m)
Earnings per share (Rs)*
Intense competition in its generics business has resulted in Novartis registering a decline in topline during 2QFY04 as compared to the corresponding previous quarter. Poor performance of the company’s ‘Rifampicin’ business (a key ingredient for the anti-TB range) has put further pressure on the topline. ‘Rifampicin’, has come under intense pricing pressure due to the downward revision of prices by National Pharmaceutical Pricing Authority (NPPA). In view of the continued poor performance of this business, Novartis is now evaluating options to reduce its exposure in the same.
Expenditure as a % of sales
Purchase of materials & finished goods
On the operations front, rise in other expenditure and staff cost as a percentage of net sales has resulted in Novartis recording a 600 basis point drop in operating profit margins. The other expenditure has increased due to higher promotional expenses. However, the increased investments in promotional expenses have not translated into higher revenues for the company. Despite a reduction in interest cost and lower depreciation provision, pressure on operating profit margin and lower other income has resulted in Novartis recording a 17% drop in bottomline. The other income has declined due to lower profit on sale of land as compared to corresponding previous period.
At Rs 298, Novartis is trading at a P/E of 11x its annualised 1HFY04 earnings. Novartis is in a restructuring phase and is in the process of selling off its surplus property and reducing its workforce. Although the above initiatives augur well for the company going forward, in the near term, the company is facing intense pricing pressure. Moreover, with the implementation of the new DPCO, a major portion of its product portfolio is expected to come under DPCO cover. In view of the above, we expect the company to continue to witness low growth in the medium term.
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