India's top ten pharmaceutical companies recorded a total sales of around Rs 15,000 crore during the year 2003-04 and now set to consolidate their position in the international market. The Indian Pharma segment is spreading its business across the world by launching cost effective new products and giving tough time to large multinational companies. During last couple of years, top ten companies have filed many DMFs and ANDAs with the help of own R&D activities. The cash reach top ten pharma companies are also rewarding their investors handsomely by way of dividend or bonus shares and win shareholders confidence.
Focus on R&D and new technology, thrust on exports, new tie-ups as well as mergers and acquisitions will give edge for the Indian companies. Further, as a part of cost cutting measure several international players are looking at Indian companies for contract manufacturing or tie-ups in R&D activities. During the last couple of years, several MNC in India have sold there plants and offering jobs on contract manufacturing basis to Indian players. This trend is likely to continue in coming years as a step towards cost cutting measure.
The aggressive marketing efforts, focus on R&D and new markets, expansions of market based and strong net worth helped the companies scrips to march ahead with high price earning ratio. The total market capitalization of top 10 companies on November 8, 2004 worked out to Rs 59,415 crore on the BSE and recently many of them reached at there 52-weeks peak level. Except Dr Reddy's scrip, all other company's shares are hovering near to their 52-weeks highest level. Currently, Ranbaxy was quoted around Rs 1121 as against its highest level of Rs 1156 and lowest level of Rs 660.
Dr Reddy's scrip received setback and nose-dived to Rs 780 as against its highest-level of Rs 1470. The overall returns are very good and the analysts are confident about handsome returns from the Indian Pharma segment. The sales of top ten companies viz Ranbaxy Laboratories, Cipla, Dr Reddy's Laboratories, Nicholas Piramal, Aurobindo Pharma, Lupin, Cadila Healthcare, Sun Pharmaceutical, Wockhardt and Orchid Chemical and Pharmaceutical went up by 16.9 per cent to Rs 14,860 crore during the year 2003-04 from Rs 12,715 crore in the previous year. Ranbaxy remained at top position with net sales of Rs 3465 crore followed by Cipla at Rs 2060 and Dr Reddy's Lab at Rs 1740 crore. Nicholas Piramal and Aurobindo maintained their fourth and fifth largest positions with net sales of Rs 1434 crore and Rs 1341 crore respectively. The net profit of these companies moved up by 19.8 per cent to Rs 2389 crore from Rs 1994 crore in 2002-03 basically due to lower interest burden.
The pharmaceutical sector is adding substantial amount to countries export earnings and the segment is known as net foreign exchange earner. The exports on FOB basis of our sample companies increased by 27.9 per cent to Rs 6631 crore from Rs 5184 crore as against there import bill of Rs 2522 crore and Rs 2474 crore in 2003-04 and 2002-03. These companies are focusing more and more on regulated markets of USA and Europe. Ranbaxy remained as star performer in respect of exports and achieved exports of Rs 2346 crore as against Rs 1775 crore. Dr Reddy's exports touched to Rs 982 crore during 2003-04 as against Rs 919 crore in the previous year. Similarly, Cipla, Aurobindo, Lupin and Orchid pushed there export during 2003-04.
Despite stiff competition in the international market and difficult laws of necessary approvals, the Indian companies have created strong image in the profitable market. However, the market situation is likely to change after January 2005 and the companies will have to face stiff competition. Every player is taking special efforts to consolidate position in the coming years.
To fight the future challenging developments, these ten companies are spending higher amounts on research and developments. During the year 2003-04, ten companies R&D expenditure reached at Rs 949 crore. Though Cipla is not spending any amount on R&D, Ranbaxy, Dr Reddy, Sun Pharma, Cadila, Wockhardt, Nicholas are spending huge amounts on R&D. Ranbaxy is spending 7.3 per cent of its total turnover on R&D and Dr Reddy is spending around 13 per cent. Ranbaxy's R&D expenditure touched to Rs 276 crore and that of Dr Reddy's moved up to Rs 226 crore during 2003-04.
Considering the uncertainty regarding the outcome of research activity and longer time span to reach conclusion only cash reach companies can undertake major research activity. However, Ranbaxy is spending over $ 100 million for capacity expansion in the 2003-04 and Nicholas Piramal planning investment of Rs 200 crore on R&D and upgradation. Lupin is investing Rs 20 crore in Aurangabad or manufacturing anti-TB products. It is easy for the company to adopt another way of tie-ups with major international companies. Several Indian companies explore and concluded agreement in this respect.
Mergers and acquisitions are also helping companies to boost their revenues in the more profitable markets. Wokhardt acquired a German Pharmaceutical company Espharma GmbH for Rs 49 crore and Dr Reddy acquired Tringenesis Therapeutics Inc, US in an $ 11 million Deal. Nicholas acquired the API business of Global Bulk Drugs, Lupin entered marketing tie-up with Allergan Inc, US. To expand marketing base, Cadila has setup Zydus Pharmaceuticals USA Inc and also acquired Alpharma France. It also entered into marketing tie-up with global pharma majors such as Schering and Boehringer Ingelheim. Sun Pharma acquired Detorit-based Caraco Pharmaceutical Labs.
To overcome the challenges of competition, the companies are launching new generics for last couple of years. The Indian top companies are going ahead aggressively and filing new DMFs or launching new products. Ranbaxy is set to launch 20 new products and Lupin is launching herbal products. Dr Reddy launched Iburpofen and Nefzodone in North Amemrica. Ranbaxy's subsidiary in US received approval from US FDA for manufacture of Auinapril Hydrochloride tablets for hypertension drugs. During 2003-04 Cipla filed 7 DMFs, Dr Reddy 5 nos and Sun Pharma 4 nos. Lupin filed 32 patents including 10 finished products. Cadila is planning to launch 16-18 ANDAs in current year. Wockhardt also filed 3- DMFs in US. The Indian pharma companies are undertaking new molecular research and around 25 to 30 products are in pipeline. These NCEs will be crucial for post-WTO period.
Over the years, the top 10 companies invested heavily in creating huge capacities. As at the end of 2003-04, the gross fixed assets of these companies reached at Rs 7057 crore from Rs 5818 crore, registering a growth of healthy growth of 21.2 per cent. The investments in subsidiaries or other securities has taken a quantum jump of 200 per cent and amounted to Rs 2195 crore as compared to Rs 1095 crore in 2002-03. Thus the total assets i.e. net fixed assets, investments and net current assets worked out to Rs 13,627 crore from Rs 11,240 crore. Further, these companies created strong networth of Rs 9,616 crore during 2003-04 and these ten companies are paying handsome rewards to there shareholders.
Total amount paid by these 10 companies to investors amounted to Rs 677 crore for the year 2003-04 as against Rs 513 crore in the last year. Ranbaxy stepped up its equity dividend to 170 per cent from 150 per cent, Cipla enhanced its dividend to 150 per cent (100 per cent in the previous year), Nicholas paid 150 per cent (105 per cent), Cadila Healthcare 120 per cent (70 per cent) and Sun Pharma 100 per cent (75 per cent). Dr Reddy maintained dividend at 100 per cent during 2003-04.
The stiff competition and heavy spending on R&D as well as marketing is putting some pressure on pharma segment and the top ten companies sales for the quarter ended September 2004 increased only by 2 per cent to Rs 3850 crore from Rs 3780 crore in the corresponding period of last year. There net profit declined by 16 per cent to Rs 562 crore from Rs 668 crore. However, the analysts from foreign broking firms as well as from domestic institutions are saying that the set back in working is temporary and the Indian Pharma segment is well set to improve working and overcome present problems.
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