Novartis: Demerger dose takes effect - 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: Demerger dose takes effect

Nov 14, 2000

The Novartis stock has been at the receiving end over the past one week. The stock hit a 52 week low of Rs 501 yesterday. The primary reason seems to be the adjustment for the spin off of its agrochemical unit. This is in line with the proposal of its international parent Novartis AG to separate its agrochemical arm. This would then be merged with the agrochemical arm of Astra Zeneca to form a new company Syngenta. In India too the same process is underway.The healthcare business (includes the vision care division and the animal health division) is not an asset heavy business since Novartis India outsources most of its production. The top eight brands of the company contribute almost 49% of its formulation sales.

Product profile
Major ProductsTherapeutic area% of pharma
sales (approx.)
VoveranAnti–inflammatory & pain18.0%
TegretolCentral Nervous System (anti–epileptic)7.0%
MethergineGenito–Urinary System6.0%
OtrivinNasal Decongestant4.0%
MacalvitCalcium Supplement3.0%

The overall operating margins (excluding other income) of the company, which were around 17% can be expected to increase to around 20% post the hive off of the agrochemical division. Infact, even in the current year first half results, if one were to exclude the pre–tax sales and profits of the agribusiness the pre–tax margins (excluding other income) improve from 9.81% to 11.7% in the current year itself. Also, the company would be able to reduce its working capital requirements since the inventory days and debtors days can almost be halved from the present levels of 70 days and 55 days respectively.

Consequently, the return on equity would zoom to nearly 35% in FY2001 post hive off. (It stands at 31.6% currently.) Besides, the company has launched five new products over the last two years, all of which are out of the purview of the Drug Price Control Order. This can be expected to improve the margins further.

New Products introduced over the last two years
New ProductsPurpose
FemaraAdvanced breast cancer
ExelonAlzheimer's disease
EpitrilEpilepsy and panic disorders
3FDfor treatment of TB

The improvement in profits, the removal of a seasonal business, the introduction of new products coupled with the almost zero debt status of the company should spell good times for the company. The stock quotes at Rs 501, which implies an earning multiple of 29 times its estimated FY01 earnings.

Another trigger for the stock could be a sizeable sum which would be received from the grant of development rights at its real estate in Goregaon (a suburb of Mumbai). Last year, the company granted development rights on this real estate and this fetched the company an amount of Rs 66 m. (Novartis’ real estate can fetch it Rs 1.50 bn if it were to give development rights for its entire estate.)

The only possible dampener to the stock valuations could be the presence of two 100% subsidiaries of the parent, which would be used to launch nutritional products in the future..

Equitymaster requests your view! Post a comment on "Novartis: Demerger dose takes effect ". Click here!


More Views on News

NOVARTIS Announces Quarterly Results (3QFY20); Net Profit Down 39.9% (Quarterly Result Update)

Feb 17, 2020 | Updated on Feb 17, 2020

For the quarter ended December 2019, NOVARTIS has posted a net profit of Rs 77 m (down 39.9% YoY). Sales on the other hand came in at Rs 1 bn (down 13.4% YoY). Read on for a complete analysis of NOVARTIS's quarterly results.

NOVARTIS Announces Quarterly Results (1QFY20); Net Profit Down 92.1% (Quarterly Result Update)

Aug 13, 2019 | Updated on Aug 13, 2019

For the quarter ended June 2019, NOVARTIS has posted a net profit of Rs 8 m (down 92.1% YoY). Sales on the other hand came in at Rs 1 bn (down 20.8% YoY). Read on for a complete analysis of NOVARTIS's quarterly results.

More Views on News

Most Popular

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

4 Stocks to Make Your Portfolio Immune to the Second Covid Wave (Profit Hunter)

Apr 6, 2021

Rather than predicting the market, successful investing is more about preparing well and placing your bets accordingly.

An India Revival Stock I'm Bullish On... (Profit Hunter)

Apr 9, 2021

This could take India to the position of 3rd largest economy.

Why Did the Market Crash on Monday? (Fast Profits Daily)

Apr 13, 2021

In this video, I'll you what I think is the real reason behind yesterday's market crash.

A Unique Sector for Short-Term Profits (Fast Profits Daily)

Apr 12, 2021

This ignored sector could deliver big short-term profits.


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


Apr 16, 2021 (Close)


  • 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