Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Novartis India: An update - 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?  

Novartis India: An update

Nov 9, 2001

Novartis India has gone through a major restructuring exercise in the last one year. The company has hived off/ discontinued its loss making businesses and vertically integrated its operations. The results of the same are now becoming apparent.

Novartis Restructuring Exercise- How it helped
Dec’99 De-merged Seed/Agri business into Syngenta India Ltd in line
with global operations. Though this was a profit making division,
revenues to a large extent were dependent on the monsoons.
April'00 Ciba CKD Biochem was merged with the company.
The merger with Ciba CKD has given control to Novartis over
its raw material required for its anti-TB business.
Oct’00 Introduced a new division viz, Consumer Healthcare to take advantage
of growing OTC market in India. The idea being to provide
a fillip to the company’s topline growth.
Jan'01 Ciba Vision business- a lens care business was closed down.
The ophthalmic division of Ciba Vision transferred to Novartis India.
The lens care business was a drag on the company’s profitability.

In its latest quarterly results (Sept’01 ended), the company far outperformed its peers in terms of operating profit margins. While average operating margins of MNC pharma companies improved by around 100 basis points, Novartis recorded more than a 1,000 basis points jump in margins.

Novartis, now has three distinct business divisions viz, Pharma, animal healthcare and consumer healthcare (OTC). In the pharma business the company has presence in both mass category (anti-inflammatory, anti-TB segment) as well as super specialty segments (like neurology, Cardiovascular, oncology).

Though Novartis has launched four new products in the last six months, sales growth from the pharma business remained flat, growing at 2.7% in the concerned period against an average Pharma MNC growth of around 4%. This was mainly on account of competition from new generation molecules for its flagship anti-inflammatory brand ‘Voveran’ (which contributes around 20% of its turnover) and higher import duty on its immuno suppressant “ sandimmum” brand (which contributes around 10% of its turnover).

Pharma business commands operating margins of around 23%, which is the best amongst all pharma MNC companies. However, topline growth remains a problem.

Novartis- Division wise Breakup
1HFY02 Sales (Rs.m) Growth % Margins %*
Pharma 1970 2.70% 22.80%
Consumer Health 199 24.40% 4.50%
Animal Healthcare Business 186 40.90% 16.40%
* Profit before interest and tax

In the consumer healthcare division the company has presence in two major categories viz. cough/cold preparations (Otrivin, Tavegyl) and vitamins/mineral supplements (Calcium Sandoz, Sandocal, Hematrine and Nutrisan). The ‘Calcium Sandoz’ and ‘Otrivin’ brand are leaders in their respective segments.

The newly established consumer healthcare division is showing healthy growth albeit on a smaller base. However, the operating margins in this segment were under severe pressure due to high brand building exercises and severe price competition in the segment. The animal healthcare business is also growing at an encouraging rate of above 40%, with fairly good operating margins.

On the financial front, Novartis is expected to make considerable interest cost savings, as the company repays its debt of around Rs 948 m from sale of property (at Goregoan) and internal accruals. The sale of land is expected to accrue Rs 725 m over a period of four years.

The fact remains that in the pharma business the company has presence in niche specialty segments and its products command respectable market share in their respective therapeutic segment. However, the company is heavily dependent on some core brands (Tegretol, Voveran and Sandimmum) for its revenues, which together contribute a major chunk of its revenues.

It is clear that the growth in the pharma business is purely subject to new product introductions from the parent’s stable. However, the parent company seems uncomfortable to introduce new drugs in India until patent protection is granted.

To summarise, the restructuring exercise undertaken by the company has certainly yielded results but going forward the challenge for the company is two fold.

  • Improve topline growth in the pharma business
  • Make Consumer Healthcare business profitable.

At the current market price of Rs 240, the stock trades 11x our expected earnings for FY02, which is at a discount to its peers.

Equitymaster requests your view! Post a comment on "Novartis India: An update". Click here!


More Views on News

NOVARTIS Announces Quarterly Results (4QFY19); Net Profit Down 26.2% (Quarterly Result Update)

May 30, 2019 | Updated on May 30, 2019

For the quarter ended March 2019, NOVARTIS has posted a net profit of Rs 195 m (down 26.2% YoY). Sales on the other hand came in at Rs 1 bn (down 11.9% YoY). Read on for a complete analysis of NOVARTIS's quarterly results.

NOVARTIS Announces Quarterly Results (3QFY19); Net Profit Down 31.3% (Quarterly Result Update)

Feb 13, 2019 | Updated on Feb 13, 2019

For the quarter ended December 2018, NOVARTIS has posted a net profit of Rs 129 m (down 31.3% YoY). Sales on the other hand came in at Rs 1 bn (down 13.1% YoY). Read on for a complete analysis of NOVARTIS's quarterly results.

Aster DM Healthcare (IPO)

Feb 10, 2018

Should you subscribe to the IPO of Aster DM Healthcare Ltd?

Shalby Ltd. (IPO)

Dec 2, 2017

Should you subscribe to the IPO of Shalby Ltd?

More Views on News

Most Popular

7 Stocks That Will Remain Evergreen in this Era of Technological Disruption(The 5 Minute Wrapup)

Jun 13, 2019

We are living in an era of disruption. Are your stocks well equipped to adapt to changes that disruption will bring along?

The Great Indian NBFC Bubble Has Burst but I Will Still Recommend These Safe NBFCs(The 5 Minute Wrapup)

Jun 11, 2019

One chart that predicted the NBFC crisis back in 2016.

Kenneth Andrade Would Like Our Real Estate Stock Recommendation with Triple Digit Upside(The 5 Minute Wrapup)

Jun 12, 2019

This real estate stock recommended in Smart Money Secrets offers the most favourable upside potential.

Why Modi 2.0 Will Be Great for These 7 Stocks(Profit Hunter)

Jun 10, 2019

The government's focus on Infra, electricity, water for all will be the key factors for Sensex 1,00,000.

Why I Believe Smallcaps Will Catch up to the Sensex(Profit Hunter)

Jun 14, 2019

Smallcaps have gone nowhere even as the Sensex makes new all-time highs. Find out why Richa believes this a good opportunity to invest in smallcaps.


Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


Jun 20, 2019 02:21 PM


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