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  • MAY 24, 2000

Novartis India: agrochemical spin off will improve numbers

Novartis India is a 50.99% subsidiary of the Novartis Switzerland, the world leader in pharmaceuticals and agrochemicals. The company has 5 brands that contribute almost 45% of its formulation sales

Major formulations % Pharma
Sales (approx)
Voveran (NSAIDs) 17.0%
Otrivin (Nasal decongestation) 5.0%
Tegrital (anti–epileptic) 12.0%
Rimactizid (anti–TB) 6.0%
Macalvit (calcium Supplement) 5.0%

The international parent has proposed the separation of its agrochemical arm and its merger with the agrochemical arm of Astra Zeneca to form a new company Syngenta. In India too the same process is underway. This is similar to the move that Wockhardt India has made in India i.e. separating its agrochemical arm and becoming a focused pharma company.

Healthcare (this includes the vision care division and the animal health division) contributes approx. 50% of the Novartis total turnover. The overall operating margins of the company are around 17% and these can be expected to increase to around 22% post the hive off of the agrochemical division. Also, the company would be able to reduce its working capital requirements since the inventory days and debtors days can almost be halved from the present levels of 70 days and 55 days respectively.

New Products Purpose
Femara for treatment of advanced breast cancer
Exelon for management of Alzheimer's disease
Epitril for treatment of epilepsy and panic disorders
PZA–1000 for treatment of TB
3FD for treatment of TB

Thus the spin off would leave Novartis India with a stable non–seasonal business (since for agro–chemical business, the first half is normally much better than the second half). Besides, the company has launched five new products over the last two years (see table) all of which are out of the purview of the Drug Price Control Order. This can be expected to improve the margins further.

The improvement in profits, the removal of a seasonal business, the introduction of new products coupled with the almost zero debt status of the company should spell good times for the company. The stock quotes at Rs 618 (52 week range: 1436/618) an earning multiple of 26 times its FY99 earnings.

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