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Nicholas Piramal: An update - Views on News from Equitymaster
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  • Dec 2, 2003

    Nicholas Piramal: An update

    The recent bull run has been a broad based one with companies across sectors making strong gains. In the pharma sector, domestic major, Nicholas Piramal too has been making strong gains, which is evident from the following table. As can be seen from the table, Rs 100 invested in Nicholas Piramal and the BSE-Sensex on 1st April '03, would have yielded Rs 279 and Rs 164 respectively. In this article, we shall see what has changed for the company during the past eight months.

    To start with, let's look at Nicholas Piramal's half yearly results. Powered by a respectable growth in the domestic market, sharp export growth coupled with acquisition (Global Bulk Drugs and Fine Chemicals), the company recorded a 20% topline growth and a 27% growth in net profit during 1HFY04. This was impressive given the slump in the domestic pharma market during April '03 - June '03. Apart from the impressive performance, another positive for the company was the announcement of its alliance with Biogen Idec of USA for marketing in India of Biogen's 'Avonex', a leading life saving drug for multiple sclerosis. It is estimated that there are roughly 50,000 cases of multiple sclerosis in India. This translates into higher revenues for the company going forward.

    Nicholas Piramal has identified biotechnology as one of its key focus areas going forward apart from contract manufacturing. The company has strong marketing capabilities in oncology, nephrology, virology and critical care. The company already markets products for Gilead Sciences and Roche. Although Biotek segment contributed merely 6% to the company's FY03 earnings, it is expected to record impressive growth going forward.

    Contribution of Biotek segment
    (Rs m) 1HFY04 1HFY03 FY03
    Biotek 342 315 706
    Gross revenues 5,748 4,611 11,361
    % of gross revenues 5.9% 6.8% 6.2%

    While the impressive half yearly performance and the alliance are a positive for the company going forward, the news of the National Pharmaceutical Pricing Authority (NPPA) lowering the price of Vitamin A bulk drugs has certainly acted as a dampener. The NPPA has announced an 18% to 23% drop in prices. With Vitamins accounting for roughly 7% of the company's revenues, the performance of the company could be impacted in the short term, in view of this price reduction.

    At Rs 584 Nicholas Piramal is trading at a P/E of 15x annualised 1HFY04 earnings. Although the company has outperformed the industry in the domestic market, the uncertainty regarding the market scenario post the implementation of product patents in 2005 is a cause for concern. However, the company has been able to gradually increase its exports focus and de-risk its business from the vagaries of the domestic market. This apart, Nicholas Piramal's initiatives for becoming a partner of choice for contract manufacturing translate into good prospects for the company going forward. To this extent, we are optimistic about the prospects of the company.



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