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Knoll Pharma: Better days ahead

Apr 30, 2001

Knoll Pharmaceuticals, (formerly Indian subsidiary of Knoll AG) has declared a drop in net profit for 1QFY02 by 23%. Knoll Pharma is the leading player in the domestic insulin, anti-diabetic, pain control, antacid market. The drop in net profit was in line with our expectations following a cut in Ibuprofen prices by NPPA in January this year. Ibuprofen is a bulk drug which is used in pain management segment. As Knoll Pharma is a market leader in Ibuprofen market, the price cut had a severe impact on the company's financials.

(Rs m) 1QFY01 1QFY02 % Change
Sales 731 813 11.2%
Other Income 37 25 -32.4%
Expenditure 608 701 15.3%
Operating Profit (EBDIT) 123 112 -8.9%
Operating Profit Margin (%) 16.8% 13.8% -18.1%
Interest 1 1 0.0%
Depreciation 12 11 -8.3%
Profit before Tax 147 125 -15.0%
Extraordinary Income     -
Tax 28 33 17.9%
Profit after Tax/(Loss) 119 92 -22.7%
Net profit margin (%) 16.3% 11.3%  
No. of Shares (eoy) (m) 16 16  
Diluted Earnings per share* 29.4 22.7  
P/E (at current price) 10.2 13.3  
(*- annualised)      

But there's some good news on the cards also. In March, NPPA did an upward revision of four formulations of Insulin injection. The insulin vial prices have been increased in the range of 22-25%. Insulin is the biggest revenue churner for Knoll where the company has a market share of close to 60%. However, since the price revisions become effective only after 15 days from the notification, the impact will only be felt in the coming quarter.

The stock is currently trading at a P/e multiple of 11 times our projected earnings for FY02. Meanwhile, Abbot Labs has made an open offer at Rs 328 per share to the shareholders of Knoll Pharma covering 20% of the company's equity. This follows Abbot's acquisition of Lupharma UK Holding One Ltd. which in turn holds a 51% stake in Knoll Pharmaceuticals.

Though the prospects of the company look bright in light of recent price revision of Insulin as also further price revisions expected in the coming months, the open offer price (which is 9% above the current market price) seems to be an impediment for the stock performance in the near term.

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