• JUNE 30, 2000

Abbott Laboratories: An Attractive Dose?

Abbott Laboratories (India), the 51.5% Indian subsidiary of Abbott USA has practically come back from the dead. The company had reported a loss in 1997-98 but managed to turn around in 1998-99. The current year has seen the company report a 100% jump in pre–tax profits.

The stock however has travelled on an altogether different trajectory over the last one year. In March 1999 the stock was quoting at a price of over Rs 1,400 per share. This was just before the time when the company made a rights issue, in the ratio of 4:25 at a price of Rs 625. It is now available at a price of Rs 408.

Abbott Laboratories USA is a leading healthcare company with over 54,000 employees and a worldwide sales of over $ 12 bn. The company’s leading brands include Biaxin (antibiotic), Hytrin (hypertension), Norvir (anti–AIDS), Zyflo (anti–asthma) and Depakote (for epileptic seizures). Apart from these the company has a lucrative diagnostic portfolio of products too.

Abbott India, is active in the areas of anti–infectives, dermatological (skin infection), anti–diarrhoeal and gastro–intestinal apart from a portfolio of hospital products and nutritional products. The company has introduced Hytrin in India. The product has captured over 55% market share and has been growing at over 50% over the last two years. The company’s Claribid (used in cases of upper respiratory tract infection) also has been growing at over 40% and enjoys a 35% market share.

The company has also been restructuring its operations over the last three years. It closed its Kurla plant and paid of its entire 247 employees. It currently employs around 466 people of which 358 are field staff who form a part of its marketing team. The company also has a wide distribution network with 4 depots, 11 C & F Agents and 1,200 stockists catering to 30,000 retailers.

Abbott outforms projections
  Projected Actual
Sales 1,252 1,136
EBITDA 71 78
PBT 56 63
Ext. items 53 43
PAT 3 18
Equity 26 26.1

The company has outperformed the projections that it had made at the time of the rights issue and can be expected to grow at around 11% in the current year too. If one were to exclude the write off of deferred revenue expenditure, the current stock price implies an earning multiple of around 19 times. The company has already written of the deferred expenditure of Rs 43 m in the current year (the total expenditure to be written off amounted to Rs 65.28 m as at March 31, 1999).

Perhaps, the only grey area is the lack of liquidity in the stock. With 51.5% of the 2.61 m shares with the parent and another 30% with institutions, the liquidity on the counter has always been a problem. The company has announced a stock split of 2 shares of Rs 5 each for every 1 share held which should address the problem to some extent.

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