Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Abbott India: On a weak wicket - Outside View

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Abbott India: On a weak wicket
May 27, 2010

It is indeed a pity that Abbott Laboratories has so little to crow about especially when it is celebrating an epoch making achievement in 2010 - namely the completion of 100 years of operations in India. It became a legal entity in 1944 though it started operations in the subcontinent as early as 1910. It is really sad that in such a fast growing healthcare market Abbott chooses to be a mere bit player. And it is this very fast growing healthcare market that the directors’ report harps on. It is of course good to know that its products reach out to 50m patients in India. A net profit margin of a mere 10% (with some additional help from other income) on a sales revenue of Rs 7.9 bn in 2009 is all that it has to show for its 100 year innings (thankfully , sales in the last decade has grown at a steady if muted rate - up 117% between 2000 and 2009.) But it is the topsy turvy post tax profits that it has carved out in the last decade that catches the eye and should logically drive shareholders to the exit ramp in a hurry. In some sort of gallows humor that is precisely what happened.The shareholder base in the last decade has declined from a peak of 16,156 nos. in 2000 to 13,422 in 2009.

In a competitive environment as in the West the top management would have been shown the door for the dismal state of affairs, but then please remember that in India anything goes.

The company is also not lacking in humor in the exit effort. It bought back 7.98 lakh shares in 2008 at a princely price of Rs 630 per share involving an outflow of over Rs 500m in the process. In a way it was the company’s way of paying back its minority shareholders for it poor showing and simultaneously fattening the control levers of the parent company in the Indian subsidiary. It is now a 69% subsidiary of the parent. In the process the paid up equity got reduced to an even more paltry Rs 136.7m.

The Indian subsidiary of course was unnecessarily loaded with the responsibility of using its meager resources to complete this buyback exercise and in the process issue ‘sweat equity’ of sorts to the parent. The downside benefit of this exercise is that it also helps to show a higher EPS in subsequent years. Interestingly enough the management has also rolled out a stock option scheme for its employees!

Like all MNC pharma companies it chose to grow inorganically by the M&A route, and through divestments. So in the last decade it acquired Boots and Knoll Pharma and sold its Jejuri unit in Maharashtra. Not that it proved to be of much help. And what happens when it runs out of MNC units to acquire? Which is precisely the conundrum that the company is faced with today.

These MNCs dare not acquire Indian pharma companies (Ranbaxy is an exception)as Indian companies primarily specialize in generics, making and selling what are copycat drugs of patent expired molecules. Besides, these MNCs are waging a war against Indian MNCs which seek to market these generics in the West. Even if it acquires an Indian pharma unit it will be unable to sell the generic molecules abroad.

For the present the company makes do with a judicious mix of both traded and inhouse manufacture.By this process one can have both the cake and eat it too.Bought out sales account for more than 60% of gross revenue and some 8% of all bought out sales appear to be routed through Abbott Netherlands and Abbotts USA. Significantly the company generates more than 51% of gross revenue from sales of injectables. And, it is this product line which is completely outsourced.Its miniscule plant at Goa which makes tablets and capsules is not being utilized quite to the extent that it can be. In these 2 product lines too there is quite some emphasis on bought out sales. Pushing its products in the market has also proved to be quite a strain on its finances in 2009 based on a perusal of its funds flow statement.

The company’s mode of operation is difficult to comprehend in the context of it harping on the good work of its R&D laboratory at Goa on which it spent more than Rs 60 m in 2009. In 2007 the company also launched its Corporate Hospitals Division. But there is not much evidence of this division having taken off, inspite if the report dwelving on hospital chains providing world class medical facilities in India.

The company also has some dealings with an Indian entity called Abbott Healthcare Pvt Ltd , an affiliate, but Abbott India has no equity stake in this affiliate.

One hopes that the re-appointed CEO Mr. Vivek Mohan will be able to deliver in his new tenure as he is more than adequately compensated for his troubles.

Disclosure: Please note that I am not a shareholder of this company

This column "Cool Hand Luke" is written by Luke Verghese. Luke has been a business journalist, financial analyst and knowledge management head with a professional experience of more than 20 years. An avid watcher of the stock market, he has written extensively on stock market trends. His articles have featured in Business Standard, Financial Express and Fortune India amongst others. He has also been the Deputy Editor, Fortune India and the Financial Editor of The Business and Political Observer.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.
© Equitymaster Agora Research Private Limited

Equitymaster requests your view! Post a comment on "Abbott India: On a weak wicket". Click here!


More Views on News

ABBOTT INDIA Announces Quarterly Results (4QFY18); Net Profit Up 137.9% (Quarterly Result Update)

Jul 20, 2018 | Updated on Jul 20, 2018

For the quarter ended March 2018, ABBOTT INDIA has posted a net profit of Rs 1 bn (up 137.9% YoY). Sales on the other hand came in at Rs 8 bn (up 10.2% YoY). Read on for a complete analysis of ABBOTT INDIA's quarterly results.

Dr Reddy's: Milestone Payment Drives Sales (Quarterly Results Update - Detailed)

Feb 9, 2018

US business was hit by pricing pressure although there was growth sequentially led by new product launches.

Lupin: US market Declines Due to Higher Base Effect of FY17 (Quarterly Results Update - Detailed)

Feb 9, 2018

Price erosion in generic US drugs continues but seems to be bottoming out.

Biocon: US Pricing Pressure Takes Toll (Quarterly Results Update - Detailed)

Feb 2, 2018

Pricing pressure in the US and costs of the Malaysian facility hit Biocon's profits in the third quarter.

Aster DM Healthcare (IPO)

Feb 10, 2018

Should you subscribe to the IPO of Aster DM Healthcare Ltd?

More Views on News

Most Popular

How to Avoid a 90% Loss Suffered by This Super Investor(The 5 Minute Wrapup)

Jul 12, 2018

Blindly following super investors is a dangerous game to play. Here's how you can avoid such mistakes.

The Answer to Your Wealth Worries: Small Caps (Especially Now)(Profit Hunter)

Jul 10, 2018

If you're worried about the markets - you are on the wrong track. This is opportunity - put your wealth-building hat on, instead - Richa shows you how...

The Multiple Problems with the Minimum Support Price (MSP) System(Vivek Kaul's Diary)

Jul 11, 2018

The price signals that MSP sends out, creates its own set of problems.

ICICI Pru Mutual Fund Tarakki Karega! - The Unethical Way?(Outside View)

Jul 11, 2018

PersonalFN explains how ICICI Prudential Mutual Fund flouted the norms of related party transactions while subscribing to the IPO of ICICI Securities.

PPF v/s Mutual Funds: Which Is Better?(Outside View)

Jul 10, 2018

PersonalFN highlights the key points of distinction between PPF and mutual funds.


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jul 20, 2018 (Close)


  • Track your investment in ABBOTT INDIA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks