Healthcare drags markets in red

Mon, 16 Aug 01:30 pm

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Indian indices slipped into the red on profit booking in heavy weights over the last 2 hours of trade. Stocks from the pharma and metals space are trading weak while stocks from the consumer durable and FMCG space are trading firm.

The BSE-Sensex is trading down by 32 points while NSE-Nifty is trading 12 points below the dotted line. BSE-Midcap index is up by 0.4% while BSE-Smallcap index is trading 0.5% above Friday's closing. The rupee is trading at 46.82 to the US dollar.

Food and tobacco stocks are trading mixed with Golden Tobacco and ITC trading firm and Wadala Commodities and VST Industries trading weak. As per reports, ITC is in talks with RDB Industries for buying its cigarettes business. The company has offered between Rs 3–3.5 bn for the loss making unit. It may be noted that RDB management had acquired the National Tobacco Company in 1992 and till date has not been able to make it a profitable venture. RDB has a plant capacity of producing over 20 billion cigarettes per annum and owns brands like Regent, Hero and No. 10. These brands are extremely popular in eastern India. ITC had previously offered Rs 2.5 bn for the company which had been refused by the management. What makes this deal attractive is firstly it would give ITC a strong hold in eastern India. Furthermore, there are only six players with tobacco licenses in India. This deal would help ITC secure its complete supremacy in India even if more FDI is allowed in this sector.

Pharmaceutical stocks are currently trading mixed with Wockhardt, Piramal Healthcare and Bilcare trading firm, while Cipla and Biocon are trading weak. Healthcare major, Cipla announced its 1QFY11 numbers recently. The company reported a revenue growth of 8% YoY. Growth during the quarter was led by the company's export formulations business (up 14% YoY). However, its exports API business remained flat. Domestic sales grew by 4% YoY. At the operating level, the company reported a 3% YoY increase in operating profits. Operating margins during the quarter dropped to 23.7% as compared to 24.9% during 1QFY10. Margins contracted largely due to a rise in raw material and staff costs (as percentage of sales).

Cipla's net profits rose by 7% YoY during the quarter. This was higher than the 3% YoY growth in operating profits due to higher other income, reduction in interest costs and lower tax expenses. Interest costs reduced during the quarter due to repayment of short-term working capital loans availed by the company. Depreciation charges were higher on account of additions to fixed assets mainly on account of commissioning of the Indore SEZ factory.