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MNC Pharma: Losing out to locals - Views on News from Equitymaster
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  • Nov 3, 2001

    MNC Pharma: Losing out to locals

    The gap between the domestic pharma companies and the MNCís seems to be widening with each quarterly scorecard. Reflecting this, while market capitalisation of MNC companies has taken a severe beating in last 18-24 months, on the other hand, domestic pharma companies have generated super normal returns for investors.

    Let us consider the latest financial results to analyse this further.

    Domestic pharma companiesí performance summary
    Sales OPM %
    % Growth Sept'01 Sept'02
    Dr. Reddy's 103.50% 25.90% 49.40%
    Ranbaxy 16.30% 16.50% 17.10%
    Cipla 25.00% 23.50% 21.30%
    Wockhardt 14.60% 18.40% 21.40%
    Sun Pharma 29.20% 22.40% 27.10%
    Consolidated 35.80% 20.70% 28.50%

    Defying slowdown in the domestic pharma market, net sales of top 5 pharma companies leapfrogged more than 35% while operating margins improved by 780 basis points. Both sales and operating margins jumped on the back of higher contribution from export sales.

    Within exports too, companies are shifting focus from low margin bulk exports to specialty formulations. Exports contributed more than 40% of top 5 companies total revenues.

    MNC companiesí performance summary
    Sales OPM %
    % Growth Sept'01 Sept'02
    Glaxo -0.90% 9.70% 8.60%
    Aventis Pharma (Hoechst) 7.70% 16.40% 19.20%
    Novartis 4.00% 14.90% 25.00%
    Knoll 3.40% 14.50% 17.30%
    Pfizer 2.40% 12.20% 12.50%
    Consolidated 1.30% 11.60% 12.80%

    Multinationals on the other hand registered a marginal 1.3% rise in sales, far below the industry average. Operating margins improved marginally by 120 basis points mainly on the back of restructuring exercise undertaken by almost all the pharma companies. The restructuring exercise was in the form of discontinuing of unviable brands/divisions, shifting manufacturing locations to low cost areas, product extensions and specific relaxation in DPCO. The dismal topline performance of MNCís was obviously due to continued lack of new product introductions. Consider this, while Sun Pharma launched more than 25 new products in last one quarter, Novartis launched just 4 new products in last one year.

    The multinationals seem quite content in postponing the launch of their blockbuster products in India till the product patent becomes a reality. They would rather compromise revenues from Indian operations than to allow their products getting copied. The scenario for MNCís post 2005 is anybodyís guess, but in the meantime overall performance of MNC pharma companies at best would be line in with domestic industry growth which in itself is not exciting. On the other hand, Indian companies are laughing all the way to the bank on the back of huge export generic opportunities opening up.



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