Following the worldwide merger of Knoll AG and Abbott Inc, Knoll Pharma, is now a subsidiary of Abbott Inc. Though the company remains the leader in the domestic insulin business, it is facing severe heat of competition from domestic players. One would expect that the product basket of the company could receive a boost with new parent in place. However, unless this happens the company would face stiff domestic competition.
Knoll Pharma is a market leader in Ibuprofen and Insulin segments and cumulatively both these products contribute more than 55% of the company’s revenues. Ibuprofen prices have already shown a steep fall. A reduction in the drug price by NPPA early this year and entry of other domestic players is eating up the margins of the company in this business.
In the Insulin business, till recently, there were few players operating in the segment, with Knoll Pharma being the market leader. However, a huge market size, and price revision of Insulin injections by NPPA in March, is attracting domestic pharma companies to the segment. Wockhardt and Glenmark Pharma have already announced their plans and many others are also expected to follow soon. Revision in NPPA prices has resulted in remarkable spurt in operating margins of the company in the last two quarters as shown in the table below. However, with competition setting in it is unlikely that prices will stay at current levels.
Another obvious concern for the stock is its high DPCO exposure; the profitability of the company remains dependent on the vagaries of NPPA. The DPCO exposure of the company is close to 60%.
Knoll Pharma- The DPCO effect
Sales (Rs m)
Operating Profit Margins (%)
Profit Before Tax (Rs m)
Although it is clear that Knoll needs Abbott’s support to grow, however, with Knoll Pharma hardly contributes 0.5% to Abbott Inc.’s global revenues, India may not be the parent’s focus market. Further, there are also concerns over Abbott Inc.’s 51% subsidiary operating in the country.
At the current market price of Rs 237, the stock is trading at a P/E of 7x FY02 expected earnings. The stock trades at considerable discount to its peers, which reflects the company’s heavy dependence on relatively older products.
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