The Indian Pharmaceutical segment is set to overcome several odds and achieve a bottom line growth of over 25-30 per cent in the Fiscal Year 2005-06. This growth should be considered as significant when compared to the last year's single digit growth. The Pharma segment suffered quite badly during 2004-05 and the growth in net sales and net profit of top 50 companies was restricted to only single digit due to stiff competition, higher spending on R&D and rising cost of launching of new products, implementation of VAT and MRP base excise duty, and introduction of patent regime.
The PHARMABIZ Study of 50 large pharma companies for the nine months period ended December 2005, the net sales went up by 23.1 per cent while their net profit moved up as much as 38 per cent. The net sales touched Rs 18,483 crore in the first nine months of 2005-06 as against 15,013 crore in the corresponding period of last year. The net profit stood at Rs 2,656 crore as compared to Rs 1,925 crore in the last period. The earning before interest, depreciation, taxation and extra-ordinary items (EBDIT) improved by 30.8 per cent to Rs 4,141 crore from Rs 3,166 crore.
The net profit as percentage of net sales improved to 14.4 per cent in the first nine months of 2005-06 from 12.8 per cent in the similar period of last year. The substantial rise in other income of few companies and also higher extra-ordinary items pushed the margins. The EBDIT as percent of net sales, however, improved marginally to 22.4 per cent from 21.1 per cent.
The study has not included several MNCs as well as few large Indian companies on account of different set of year ending. Few companies like Ranbaxy, Wockhardt, GlaxosmithKline Pharma, Pfizer, Merck, Abbott India, Astra Zeneca Pharma India, Fulford (India), Solvay Pharma, Aventis Pharma India and Stride Acrolab have closed their year in November-December 2005.
Based on the performance of 50 companies for first nine months, Pharmaceutical sector will end the FY 2005-06 on a better note. The pharma segment has adopted strategic changes to overcome odds and consolidated its position by mergers & acquisitions, new product launches, investment in R&D, expansion of manufacturing facilities, aggressive entry into regulated and semi-regulated markets, marketing & R&D tie-ups and focus on contract manufacturing. Further, several pharma companies raised funds through FCCBs to cater financial needs for expansion and takeovers. Though the generic competition in highly regulated market is impacting adversely, the Indian companies are going ahead with filling of DMFs and ANDAs.
Implementation of 'Schedule M' regarding good manufacturing process and quality has strengthened the working of cGMP companies. Several state governments have closed down the operations of small manufacturing units on account of not adopting to the Schedule M norms. This will automatically improve the business for other operational units in the current year. Though, the Union Budget for the year 2006-07 failed to provide any significant help to Pharma industry in respect of investments in R&D, the companies are investing more and more funds to create healthy product pipeline.
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Among the sample of 50 companies, the net sales of Venus Remedies and Polar Pharma recorded a growth of 163 per cent and 129 per cent to Rs 62.06 crore and Rs 30.15 crore respectively. There were six companies i.e. Panacea Biotec, Ind-Swift Ltd, Surya Pharmaceutical, Hiran Orgochem, Suven Life Sciences and Vivimed Labs notched up sales growth of more than 50 per cent. Cipla, largest among the sample of 50 companies, achieved net sales of Rs 2115 crore during the first nine months of 2005-06 as against Rs 1707 crore in the corresponding period of last year, recording a growth of 23.9 per cent. Dr Reddy's Laboratories, which recently acquired Betapharm, Germany, clocked a net sales growth of 25.7 per cent to Rs 1511 crore as against Rs 1202 crore in the last period and remained at the second spot in our sample. Sun Pharmaceuticals' net sales increased by 36.9 per cent to Rs 1291 crore from Rs 942.78 crore.
The net sales of major companies like Nicholas Piramal, Biocon, Novartis India, Divi's Laboratories, Vinati Organics, Syncom Formulations and Vimta Lab improved only by single digit in the first nine months of 2005-06. Nicholas Piramal's net sales touched to Rs 1073 crore as against Rs 1021 crore in the previous period, registering a growth of only 5.2 per cent. Biocon's net sales increased by 3 per cent, Novartis India by 7.3 per cent Divi's Lab's by 6.8 per cent.
On the profitability front, Orchid Chemicals and Pharmaceuticals remained on top with significant jump of over 340 per cent during the first nine months of current year. Its net profit went up to Rs 63.52 crore from Rs 14.41 crore in the corresponding period of last year. Venus Remedies and Dr Reddy's Lab also notched up net profit growth of 312 per cent and 203 per cent. Surya Pharma, Ahlcon Parenterals, Panacea Biotec and Lupin also achieved significant growth of 164 per cent, 156.6 per cent, 117.9 per cent and 111.6 per cent respectively. RPG Life sciences and Hiran Orgochem pushed their bottomline to Rs 16.16 crore and Rs 14.52 crore from Rs 0.45 crore and Rs 1.56 crore respectively.
The net profit of major companies like Nicholas Piramal, Biocon, Ind-Swift, Ipca Laboratories, Wyeth and Glenmark Pharmaceuticals declined in the range of 10 to 30 per cent during the first nine months of 2005-06. The net profit of Nicholas Piramal declined to Rs 132.77 crore from Rs 182 crore and that of Biocon declined to Rs 101.05 crore from Rs 139.19 crore.
The other income of 50 companies went up sharply by 84.7 per cent to Rs 619.83 core during the first nine months of 2005-06 from Rs 335.58 crore. The other income of Cipla increased to Rs 84.34 crore from Rs 60.49 crore and that of Dr Reddy's moved up toRs 100.53 crore from Rs 50.97 crore. Similarly, Lupin's other income increased toRs 31.49 crore from Rs Rs 8.55 crore and Matrix Lab's went up sharply to Rs 121.88 crore from Rs 6.31 crore. Further, other income of Novartis India and Sun Pharmaceuticals increased to Rs 49.24 crore and Rs 59.84 crore from Rs 21.95 core and Rs 4.16 crore respectively.
The cost of raw materials increased by 25.4 per cent to Rs 9094.10 crore from Rs 7252.49 crore in the corresponding nine months period of last year. With the expansion of activities, the spending on staff increased by 17.8 per cent to Rs 1466.98 crore from Rs 1245.30 crore. Cipla's staff cost touched to Rs 104.73 crore as against Rs 84.84 crore and that of Dr Reddy's increased to Rs 157.30 crore from Rs 135.09 crore. Lupin incurred staff cost of Rs 115.15 crore as compared to Rs 96.97 crore in the last period. The depreciation provision for 50 companies worked out to Rs 653.39 core as against Rs 543.21 crore in the corresponding period of last year..
The low interest rates assisted the companies to push their bottomline. The interest cost of 50 companies increased by 9.5 per cent in the first nine months of 2005-06 to Rs 335.18 crore. Aurobindo Pharma's interest cost increased to Rs 43.86 crore from Rs 27.96 crore and that of Orchid Chemical's moved up to Rs 66.97 crore from Rs 53.73 crore. Dr. Reddy's interest burden increased by 49.3 per cent to Rs 12.23 crore from Rs 8.19 crore. Lupin's interest remained almost unchanged at Rs 20.80 crore.
The good financial performance by pharma segment and better overall investors' sentiment is giving necessary push to pharma scrips. Several pharm shares touched to their new peak level recently. This rally is likely to continue in next few sessions also on account of strong economic indicators and better individual financial presentation.
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