2QFY05: Pharma sector revisited - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

2QFY05: Pharma sector revisited

Nov 8, 2004

Be it a bull run or a free fall, pharma sector is there for investors rescue in either cases. In the performance review of June quarter, we noticed that the pharma sector cushioned investors from the disgrace of free fall of the market. In this quarter too, the pharma sector has outperformed the Sensex by almost 4%! While the BSE Sensex has risen by almost 16.4% since July 2004, the pharma index is up by 20.7% in the same period.

The second quarter of the financial year was a mixed bag for pharma companies in our universe (5 MNC and 6 Indian companies). The companies under our universe grew by 11% YoY in sales. While these are just numbers, let’s delve further into the quarter under consideration.

Firstly, investors have to bear in mind that MNC pharma companies largely cater to the domestic market while Indian companies have increased the contribution to revenues from international markets.

Rs m)Sep Q'03Sep Q'04Change
Net Sales39,62543,94310.9%
Operating Profit (EBDIT)8,82810,37517.5%
Operating Profit Margin (%)22.3%23.6% 
Profit after Tax/(Loss)6,7168,55727.4%
Net profit margin (%)16.9%19.5% 

MNC Companies

Looking at MNC’s performance, it can be said that the growth in the topline was pretty good considering their old product portfolio. Glaxo and Aventis Pharma led the pack. In case of Glaxo, the major driver of the topline was its merger with Burroughs Wellcome. If one excludes this merger effect, the growth in topline stands at 13%, which was basically driven by the growth of its vaccine portfolio. Aventis Pharma showed growth on the exports side, which grew by 63% in the quarter. Some of its brands in the domestic market also posted double-digit growth. The other three major companies did not show any significant growth in the quarter. With the impending patent regime, MNC companies are well poised to capitalize on the domestic opportunity. However, the gains will be realised over a period of time as opposed to 2005 itself.

MNC CompaniesNet SalesOperating ProfitNet Profit
Sep Q'03Sep Q'04ChangeSep Q'03Sep Q'04ChangeSep Q'03Sep Q'04Change
Aventis1628 1,841 13.1% 364 618 69.8% 261 425 62.8%
Abbott1041 1,046 0.5% 261 230 -11.9% 196 433 120.9%
Glaxo3114 3,736 20.0% 786 1,180 50.1% 573 1,725 201.0%
Novartis1245 1,254 0.7% 147 245 66.7% 265 217 -18.1%
Pfizer1349 1,342 -0.5% 156 170 9.0% 123 142 15.4%
Total8377 9,219 10.1% 1,714 2,443 42.5% 1,418 2,942 107.5%
Operating Margin20.5%26.5%       
Netprofit Margin16.9%31.9%       

Indian Companies

In the ‘Equitymaster’ pharma universe, we have 6 Indian companies under coverage viz. Cipla, Dr Reddy’s, Nicholas Piramal, Ranbaxy, Wockhardt and Sun Pharma. The consolidated performance of these companies was encouraging (sales growth of 11% YoY).

On the international side, poor performance by Dr Reddy’s and lackluster growth in sales of Ranbaxy subdued the overall performance. Going forward, the growth in topline is likely to accelerate for companies like Ranbaxy and Dr Reddy’s. The stellar performance of Cipla continued in this quarter too (topline growth of 28%). This performance was basically led by the exports of formulations (up 76% YoY).

Indian CompaniesNet SalesOperating ProfitNet Profit
Sep Q'03Sep Q'04ChangeSep Q'03Sep Q'04ChangeSep Q'03Sep Q'04Change
Cipla 4,512 5,814 28.9% 895 1,319 47.4% 695 959 38.0%
Dr Reddy's 5,236 5,242 0.1% 1,134 697 -38.5% 889 464 -47.8%
Nicholas Piramal 3,684 3,757 2.0% 757 824 8.9% 523 560 7.1%
Ranbaxy 12,131 13,614 12.2% 2,801 3,125 11.6% 1,871 2,004 7.1%
Wockhardt 2,852 3,175 11.3% 608 800 31.6% 491 558 13.6%
Sun Pharma 2,833 3,122 10.2% 919 1,167 27.0% 829 1,070 29.1%
Total 31,248 34,724 11.1% 7,114 7,932 11.5% 5,298 5,615 6.0%
Operating Profit Margin22.8%22.8%       
Net Profit Margin17.0%16.2%       

What to expect?

While MNC pharma companies are totally dependent on the Indian market for growth (Aventis being the exception), we expect contribution from exports to increase for Indian pharma majors, despite a challenging environment (the challenge is both on the pricing side as well as on the regulatory side). While Indian companies are looking to grow their topline by focusing in bulk drugs and generics segment, MNC companies are eyeing the opportunity post 2005, when the new patent regime will come into force in India.

In our view, the rationale to invest in Indian pharma company or a MNC is a matter of risk profile. Indian pharma majors will have an uphill task to grow in the domestic market (post the patent regime) and compete with the already established global majors in the international markets. As far as MNC companies are concerned, the access to R&D capabilities and products provide significant competitive advantage. At the same time, Indian companies have cost and scale advantage. And, the R&D activity that is being pursued by Indian pharma companies will bear its fruits in long run.

Equitymaster requests your view! Post a comment on "2QFY05: Pharma sector revisited". Click here!


More Views on News

Sun Pharma's Stock Falls 4% After Its March Quarter Results (Views On News)

May 28, 2021

In the past three months, the stock has outperformed the market by gaining nearly 20%. Can it go higher?

What's Behind the Rally in Pharma Stocks? (Views On News)

May 11, 2021

The second wave of Covid has given a new lease of life to pharma stocks.

SUN PHARMA Announces Quarterly Results (3QFY21); Net Profit Up 87.4% (Quarterly Result Update)

Feb 1, 2021 | Updated on Feb 1, 2021

For the quarter ended December 2020, SUN PHARMA has posted a net profit of Rs 19 bn (up 87.4% YoY). Sales on the other hand came in at Rs 88 bn (up 8.4% YoY). Read on for a complete analysis of SUN PHARMA's quarterly results.

Points to Keep in Mind Before Subscribing to Krishna Institute of Medical Sciences' IPO (Views On News)

Jun 15, 2021

All you need to know about the IPO of Krishna Institute of Medical Sciences.

Why Did Shares of Divi's Lab Rally Today? (Views On News)

Jun 10, 2021

The stock jumped 3.6% in intraday trade to hit its 52-week high.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 18, 2021 (Close)


  • Track your investment in SUN PHARMA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks