The Gujarat based listed pharmaceutical companies have consolidated operations by investing into expansion plans and R&D during last couple of years. After establishing their strong presence in the domestic market, these companies are now entering aggressively into the highly lucrative regulated markets. The investment in upgradation and expansion will further strengthen the brand image. The Gujarat based companies managed their resources prudently during the 2004-05 and now set to announce healthier performance in the current year. This will enhance return on investment to investors.
Gujarat is the first state in the country to implement the Schedule M norms strictly and started cancelling the manufacturing licences of companies found to violate the directive. The Gujarat FDA had categorized the 940-odd revised Schedule M applicable units in the state into six groups as part of monitoring the implementation process. The state FDA had issued show cause notices to 256 units in the state for non-complying with the provisions of Schedule M and to stop manufacturing with immediate effect. These steps will improve quality of products and companies adhering to cGMP will be benefited.
The five major Gujarat based companies with registered office in Ahmedabad or Vadodara viz., Alembic Ltd, Cadila Healthcare, Dishman Pharmaceuticals, Themis Medicare and Torrent Pharma achieved strong performance during the first nine months of the current year. These companies operations are covering major segments like cardiovascular, gastrointestinal, women's healthcare, respiratory, pain management and anti-infectives.
Their aggregate net sales of five Gujarat based companies increased by 22 per cent to Rs 2239.56 crore from Rs 1836.12 crore in the corresponding period of last year. The net profit of these five companies went up sharply by 34.1 per cent to Rs 315.53 crore from Rs 235.33 crore. It is evident from the above figures that these companies are set to announce significant growth in profitability in 2005-06 with higher returns to their investors.
The better financial health and improved prospects for pharma business pushed the market capitalization of these companies. The aggregate market capitalization of five major companies from Gujarat worked to over Rs 8250 crore on March 22, 2006 as against their aggregate equity capital of Rs 102 crore.
The Rs 5 face value Cadila Healthcare scrip touched to its 52-weeks peak level at Rs 685 on March 22 Alembic share of Rs 10 each is currently hovering around Rs 350 with market capitalization of Rs 970 crore. After achieving excellent performance in nine months, Torrent Pharma scrip of Rs 5 each moved up to Rs 270 and currently moving around Rs 195 with market capitalization of Rs 1645 crore. This shows the investors' confidence in Gujarat pharma companies.
However, few Gujarat based companies like Ambalal Sarabhai Enterprises Ltd (ASE), Torrent Gujarat Biotech (TGB) and Lyka Lab are passing through difficult phase and incurring heavy losses. ASE's net loss for the year ended March 2005 increased to Rs 111.38 crore from Rs 104 crore. Similarly, TGB's carried-forward loss went up to Rs 136 crore at the end of March 2005. Though, Lyka Lab shown a net profit of Rs 9.62 crore for the year ended September 2005, the company has not provided huge amounts in respect to debtors considered doubtful of recovery, overdue sundry debtors, and arrears of ex-gratia, etc. However, small-cap companies like Lincoln Pharma and Hester Pharma strengthen their bottomline and overall business operations during 2004-05 and nine months of current year.
Gujarat firms are focusing on regulated markets. Zydus Cadila has set up operations in US, France, Brazil and South Africa and registered a growth of 138 per cent on year-on-year in its formulation exports upto December 2005. The group received approval for ribavirin capsules, promethazine tablets and tentative approval for gatifloxacin tablets from the USFDA. In all, it has received 10 generic approvals so far. The group's cumulative filings stand at 30 ANDAs and 35 DMFs. It also received approval from the AFSSAPS, the French regulatory agency to market sertraline capsules in the French market.
Torrent Pharma incorporated a wholly owned subsidiary Torrent Australasia Pty. Ltd in Australia during December 2005. This is the sixth subsidiary of Torrent outside India. The integration of the operation of Heumann with Torrent's India operations is progressing smoothly and is expected to achieve significant savings in production and product development costs over the next three years. The company invested Rs 137 crore in new Baddi plant, which commissioned during November 2005. The company employs over 500 scientists and has a combined experience of around 3000 scientific man-years in drug discovery and development. It is spending over 9 per cent of sales in R&D.
Alembic's exports remained flat during the third quarter ended December 2005. The company launched twelve products in its domestic formulation business in third quarter. It launched a Zero calorie Sucralose based cooking powder under the brand name 'Zero Cook and Bake'. Alembic filed 43 DMFs till end of December 2005, of which 9 are in the USA.
Dishman Pharma raised $50 million through issue of FCCBs in August 2005. The company has set up a subsidiary Dishman Switzerland Ltd during November 2005. The company's revenue from CRAMS went up to Rs 77.67 crore during the first nine months of 2005-06 from Rs 50.73 crore and that from marketable molecules moved up to Rs 74.23 crore from Rs 61.39 crore in the corresponding period of last year. Lyka Labs also issued GDR of the value of US $ 5 million during December 2005.
The state-of-the-art facilities have been set up as per USFDA and other regulatory standards. The Gujarat government has created better infrastructure for the growth of industrial development and attracted large investments from private corporate sector. The pharmaceutical companies have taken advantage of government policies and number of major players entered Gujarat during last decade.
Sun Pharma has set up its formulations and bulk drugs facilities at Vapi, Silvassa, Halol, Panoli, Vadodara and Ankleshwar. Its two research centres are located in Vadodara district. Similarly, Wockhardt has established its bulk drugs plant at Ankleshwar. Ipca Lab has expanded its capacities at Athal (Silvassa) to meet the growing formulations export business. J B Chemicals received TGA (Australia) approval for its facility at Panoli during 2004-05 and MHRA approval in August 2004. These companies exporting their products in international markets and also undertaking contract manufacturing activity.
R&D expenditure
The Gujarat based pharma companies are spending significant amount on R&D activities to strengthen their international presence. The aggregate amount spent on R&D during 2004-05 worked out to Rs 205.61 crore or 9-10 per cent of the total net sales. Cadila Healthcare incurred R&D expenditure of Rs 103 crore and worked out to 9.17 per cent its total turnover. Followed by Torrent Pharma with an R&D expenditure of Rs 67.32 crore (14.3 per cent of total turnover) and Alembic of Rs 31.12 crore (5.44 per cent). Dishman is spending only a meager amount on R&D activities. These investments in R&D will assist these companies to boost their turnover in next couple of years. Themis Medicare, a Indo-Hungarian joint venture, introduced few molecules like Anablok Hemolok, and E Mal.
Exports
The investment in R&D and focus on lucrative regulated market by these four companies will boost the exports earnings despite stiff competitions and higher marketing expenses. The aggregate export earnings of Alembic, Cadila, Dishman and Torrent increased only marginally by 0.2 per cent to Rs 430.68 crore from Rs 429.95 crore in the 2003-04. Alembic and Cadila received setback on export front due to competitive pricing pressure. Alembic's exports' declined 14.8 per cent to Rs 105.91 crore from Rs 124.29 crore mainly due to fall in price of penicillin G. The export earnings of Cadila declined to Rs 138 crore from Rs 177.30 crore due to stiff competition in the international market.
Though Alembic and Cadila suffered heavy setback on export front, Torrent and Dishman improved export earnings during 2004-05. Torrent recorded export earnings of Rs 80.88 crore as compared to Rs 44.94 crore and Dishman's exports moved up to Rs 105.89 crore from Rs 83.42 crore.
The pharmaceutical companies in Gujarat are investing in expansion programmes to cater the rising demand from the domestic as well as international market. Cadila has set up a new formulations manufacturing facility at Baddi in Himachal Pradesh for the manufacture of solid orals with a capacity of 200 million tablets per annum and 10 million hard gel capsules. It has commissioned facility for hormone products at Moraiya. With US FDA approval for its Moraiya facility, the company signed two contract-manufacturing deals viz., Zambon, Italy and Mayne Pharma, Australia during 2004-05.
Alembic commissioned US FDA and EDQM approved API plant at Panelav and is now building 5 block multi-product facility, which will also support a pilot plant. Torrent received approval from MHRA of UK, TGA of Australia, MCC of South Africa and ANVISA of Brazil for its oral solid formulation facility. The company is now implementing further expansion of this plant, which is likely to be commissioned shortly.
Dishman entered an agreement with a leading British company NU Scaan for the development and manufacture of bulk activities for neutraceutical products. It has acquired the business from C6, UK. The company is setting up a joint venture project with Arab Company for Drug Industries and Medical Appliances for forming a JV project initially to manufacture 20 APIs. ACDIMA is promoted by 18 Arab nations.
Coming back to financial performance for the year 2004-05, the aggregate net sales and net profit of Alembic, Cadila, Dishman, Themis and Torrent increased only 3.9 per cent to Rs 2314 crore and 3.9 per cent to Rs 270 crore respectively. Except Alembic, all other four companies improved sales. Alembic sales declined to Rs 524.46 crore from Rs 556.46 crore. However, its net profit improved to Rs 51.82 crore from Rs 31.26 crore. Cadila suffered setback on profit front and its net profit declined to Rs 131 crore from Rs 143 crore. Torrent's net also declined to Rs 52.92 crore from Rs 64.17 crore.
The aggregate equity capital stood at Rs 101.98 crore and reserves and surplus touched to Rs 1326 crore as against Rs 1057 crore, a growth of 25.4 per cent. Cadila and Torrent maintained the equity dividend at 120 per cent and 80 per cent respectively during 2004-05 and Alembic and Dishman stepped up equity dividend to 30 per cent and 25 per cent respectively. Themis Medicare paid equity dividend of 25 per cent.
Claris is setting up new state-of-the-art facility at Ahmedabad to launch new products. The new facility will be operational by December 2006.
The strong growth in financial performance during the first nine months of 2005-06, focus on new markets, enhance investment in R&D and expansion will give upper hand while fighting stiff competition to Gujarat based companies. With significant rise in market capitalisation of these companies in recent times these companies are enjoying investors' support.