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Knoll Pharma: Buyback on hold

Jun 18, 2002

Knoll Pharmaceuticals, (now a subsidiary of Abott Labs) has registered a marginal decline in sales for 1QFY03. However, a sharp rise in operating margins helped the company register a 53% rise in profits. Knoll Pharma is a leading player in the domestic insulin, anti-diabetic, pain control and antacid market.

(Rs m) 1QFY02 1QFY03 % Change
Sales 813 802 -1.4%
Other Income 25 48 92.0%
Expenditure 701 643 -8.2%
Operating Profit (EBDIT) 112 159 41.5%
Operating Profit Margin (%) 13.8% 19.8%  
Interest 1 0 -70.0%
Depreciation 11 15 40.0%
Profit before Tax 125 191 52.6%
Extraordinary Income      
Tax 33 50 51.5%
Profit after Tax/(Loss) 92 141 53.0%
Net profit margin (%) 11.3% 17.6%  
No. of Shares (eoy) (m) 16.2 16.2  
Diluted Earnings per share* 22.7 34.8  
P/E (at current price) 13.3 8.7  
(*- annualised)      

The rise in operating margins is on account of two reasons. The current year's financials received a boost on account of upward revision in prices of four formulations of insulin by NPPA last September. Secondly, last year, the company profits dipped following a cut in Ibuprofen prices by NPPA. Ibuprofen is a bulk drug 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 in 1QFY02.

Knoll Pharmaceuticals Ltd had recently announced the buyback of 919,000 fully paid up equity shares from the existing shareholders through a tender offer at a price of Rs 350 per share. This represents around 14% of the free float of the company. However, pending certain regulatory approvals from SEBI, the buyback stands annulled for the time being. The latest available shareholding pattern is as follows:

The stock is currently trading at a P/e multiple of 9x FY02 earnings, a 16% discount to its proposed open offer price. The stock trades at considerable discount to its peers. Knoll Pharma's financials are expected to look up in the short term, mirroring the Insulin price revision. However, in the long term competition is expected to set in quickly, threatening the leadership position of the company. Lot of domestic players like Glenmark, Wockhardt and Shanta Bio-tech already have clear plans to enter the insulin market. Considering the size and price of the proposed buyback offer, the stock price is expected to remain range bound in the near term.

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