• OCTOBER 31, 2001

Novartis: Restructuring benefits visible

Novartis India has announced a 6.8% growth in sales and 38% growth in PBT for 1HFY02. Subsequent to completion of the demerger of its agribusiness and amalgamation of Ciba CKD Biochem, the company has recast prior period results. The results are thus comparable on a year to year basis.

(Rs m)2QFY01*2QFY02% change1HFY011HFY02% Change
Sales 1,186 1,233 3.9% 2,204 2,355 6.8%
Other Income 76 61 -18.9% 130 108 -17.0%
Expenditure 1,009 925 -8.3% 1,905 1,943 2.0%
Operating Profit (EBDIT) 177 308 73.9% 299 412 37.8%
Operating Profit Margin (%)14.9%25.0% 13.6%17.5% 
Interest 29 4 -85.2% 63 29 -53.8%
Depreciation 22 20 -9.6% 43 41 -4.2%
Profit before Tax 202 345 71.1% 323 450 39.1%
Extraordinary Income - -   - -  
Tax 64 130 102.3% 103 165 60.8%
Profit after Tax/(Loss) 138 216 56.6% 221 285 29.0%
Net profit margin (%)11.6%17.5% 10.0%12.1% 
No. of Shares (eoy) (m)31.931.7 31.931.9 
Diluted Earnings per share*17.327.2 13.817.8 
P/E (at current price) 7.4  11.3 

Though the topline figures were more or less in line with the growth in domestic pharma market, a spurt of more than 1000 basis points spurt in operating margins in 2QFY02, comes as a pleasant surprise. The improvement in operating margins was on the back of new product introductions, a sharp drop in purchase price of pharma products, and closure of its loss making ciba vision business. Though the company's top brand Voveran (an anti-inflammatory) witnessed a degrowth, sales were up due to four new products recently launched by the company.

% of sales2QFY012QFY02
Raw Materials4.9%4.2%
Staff Costs6.7%7.3%
Purchase of finished goods48.8%40.6%

The company has also disclosed it segmental information for 1HFY02 as shown in the table below. Though on a smaller base, both consumer healthcare and animal healthcare business have grown at healthy rates. However, high marketing & sales expenses and stiff competition has impacted margins in consumer healthcare division.

Table Showing Segmentwise operating margins
1HFY02Sales (Rs.m)Growth %Margins %*
Pharma 19702.7%22.8%
Consumer Health19924.4%4.5%
Animal Healthcare Business18640.9%16.4%
* Profit before interest and tax

At the current market price of Rs 202, the stock trades at 12 x its annualised earnings for 1HFY02. The results of the restructuring excerise undertaken by the company is evident in current results. It seems that though would be able to maintain its margins going forward, due to its presence in niche speciality segments the topline is clearly dependent on new product introductions. However, the parent company seems uncomfortable launching new products until patent protection becomes a reality in India.

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