India's top ten pharmaceutical companies have reported a record 77.6 per cent growth in their consolidated net profits during 2006-07 much higher than their stand alone performances. Consolidated sales of these companies also recorded a 43.5 per cent growth in the same year.
The top ten companies reported a consolidated net profit of Rs 4,317 crore during 2006-07 as against Rs 2,431 crore in the previous year. The stand alone net profit of these companies, at the same time, registered only 67.5 per cent growth at Rs 4,009 crore in 2006-07.
The consolidated sales of the top ten companies rose by 43.5 per cent to Rs 28,453 crore in 2006-07 from Rs 20,031 crore reported in the previous year. Here, the stand alone sales of these companies increased only by 28.3 per cent to Rs 20,736 crore from Rs 16,158 crore in the 2005-06.
The figures indicate that sales from acquired companies, existing subsidiaries and joint ventures added almost Rs 8,017 crore to total sales of these companies during 2006-07 as compared to Rs 3,873 crore in the previous year. Consolidated net profit of these companies, in absolute terms, added Rs 308 crore in 2006-07 as against only Rs 38 crore in the previous year.
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These figures show that the investment in mergers and acquisitions or in subsidiaries is giving higher returns to the Indian pharma companies. Further, the integration of acquired companies during 2006-07 has strengthened the market base with several new brands under their fold. Now, most of these companies are planning to shift their foreign manufacturing facilities to India to save costs. Indian leading companies are aggressively entering into other markets through M&A which effectively complemented for organic growth during 2006-07.
Consolidated figures include working of holding company, wholly owned subsidiaries as well as acquired companies abroad and in the domestic market. As per the Pharmabiz sample of top ten Indian pharma companies, with consolidated net sales of above Rs 1000 crore, the net profit margins (Net profit as percentage of net sales) and operating margins (Operating profit as percentage of net sales) of standalone basis is worked out to better than consolidated figures. The net profit margin on consolidated basis of ten companies improved to 15 per cent in 2006-07 from 12.1 per cent. However, the same figures for standalone basis worked out to 19.3 per cent in 2006-07 as against 14 8 per cent in the previous year. The study is based on audited or unaudited figures announced by the companies.
The Pharmabiz sample of top ten listed companies viz., Dr Reddy's Laboratories, Ranbaxy Laboratories, Cipla, Nicholas Piramal India, Sun Pharmaceuticals, Lupin, Cadila Healthcare, Wockhardt, Torrent Pharma and Glenmark Pharmaceuticals have posted strong growth of over 15 per cent in net sales in respect of consolidated and standalone working during 2006-07. Dr Reddy's Laboratories, with sharp jump of 174 per cent in net sales, moved to first rank, pushing its old competitor, Ranbaxy Laboratories to second place. However, on standalone basis, Ranbaxy still hold first spot. Torrent Pharmaceuticals and Glenmark Pharma crossed Rs 1000 crore mark for the first time in respect of consolidated basis.
GlaxoSmithKline Pharma (GSK) and Matrix Laboratories were not included in the study as these companies are MNCs as per latest shareholding pattern. Aurobindo Pharma is not included as the company has not yet announced its results for the year 2006-07. Similarly, Jubilant Organosys is not included in the study despite its sales of Rs 1,810 crore in 2006-07 because its pharmaceutical sales were less than 50 per cent of its total sales. The sample of ten companies includes Cipla, though it's consolidated and standalone working is same because it does not have any subsidiary or merger and acquisition during last two years.
The consolidated net sales of GSK reached at Rs 1,582 crore and that of Matrix Lab Rs 1,648 crore during the year ended 2006-07. Matrix was acquired by Mylan Laboratories of the US during in 2007.
Despite significant rise in cost of raw materials, employee costs, sales and marketing expenses, etc., the operating profit of 10 companies on consolidated basis improved by 84.3 per cent to Rs 6,798 crore during 2006-07 from Rs 3,689 crore in the previous year. The raw material cost on consolidated basis increased by 38.6 per cent to Rs 11,317 crore, staff cost went up by 43 per cent to Rs 3,398 crore from Rs 2,376 crore and other expenditure including R&D expenditure, moved up by 25.6 per cent to Rs 8,154 crore during 2006-07. On the standalone basis, the raw material cost, staff cost and other expenditure of ten companies increased only by 20.8 per cent 22.8 per cent and 17.1 per cent respectively.
There was significant pressure on earnings from interest burden during 2006-07 on ten companies mainly due to borrowings for acquisitions and mergers. The interest cost on consolidated basis jumped by 67 per cent to Rs 412 crore from Rs 247 crore in the previous year. The interest burden of ten companies, on standalone basis, increased only by 4.5 per cent to Rs 178 crore from Rs 170 crore in the last period. Similarly, the depreciation provision in respect of consolidated working went up by 51 per cent to Rs 1,098 crore from Rs 726 crore as against only 20 per cent on standalone basis to Rs 668 crore. These lower provisions for interest and depreciation on standalone working pushed the net profit margins as compared to consolidated basis.
The consolidated figure of taxation provision for 10 companies increased by 185 per cent to Rs 831.86 crore from Rs 291.50 crore and the same for standalone basis moved up by 109 per cent to Rs 642.99 crore from Rs 307.21 crore. Extra ordinary items including minority interest in the case of consolidated working or in the case of standalone working dose not have much impact. Except Cipla and Wockhardt all other companies notched up double digit growth in profitability. Wockhardt suffered setback and its net profit declined by 6.2 per cent during 2005-06.
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Dr Reddy's Laboratories group consist of its 29 subsidiaries, joint ventures and acquired companies during 2006-07. Its consolidated net sales increased by 174 per cent to Rs 6435 crore as against its standalone net sales of Rs 3750 crore with growth of 87.1 per cent. The company acquired Betapharm Group, Germany, leading generics pharmaceuticals company, for a consideration of Rs 2606 crore during March 2007 and included its working in its consolidated statement.
Further, DRL also acquired marketing authorisations of the pharmaceutical specialities, marketing authorisation and trademark from Laboratories Leaper, S.A., and South Africa during May 2006. The international revenues accounted for 86 per cent of its total sales during .2006-07 as against 66 per cent in the previous year. Out of the consolidated net sales of Rest 6,435 core, the sales of Beta harm worked out to Rest 800 core as against rest 71 core in the last year. The company also acquired custom pharmaceutical services in Mexico which added revenue of Rest 539.7 core during 2006-07 as against Rest 80.5 core in the previous year. Thus the acquisitions helped the company to push its top line growth significantly.
Ranbaxy, the second largest company in terms of consolidated net sales, achieved net sales growth of 16.3 per cent to Rest 6143 core from rest 5282 core in the previous year. Its standalone net sales increased by 15.2 per cent to rest 3925 core with first rank in Indian pharmaceutical industry. The consolidated net profit moved up by 95 per cent to Rs 510 crore as against standalone net profit growth of 72.8 per cent to Rs 386 crore. Dr Reddy's Lab is much ahead of Ranbaxy in growth of top line as well as bottom line.
Ranbaxy concluded nine M&A deals amounting to a value close to US$450 million during 2006. These acquisitions have significantly expanded its presence in emerging and profitable markets, such as Romania and South Africa. Now it is spreading its wings by acquiring products in upcoming markets like Spain, Italy and Belgium. Its revenue from developed market contributed 42.3 per cent whereas emerging markets contributed 49.1 per cent. Recently the company has acquired strategic stake in Jupiter Biosciences, Krebs Biochemicals and Zenotech Laboratories. The acquisition o Terapia SA in Romania and Be-Tabs Pharma in South Africa will play crucial role in future development.
Glenmark Pharmaceuticals, first time entering into the club of Rs 1000-crore sales, has recorded strong growth of 73.6 per cent in consolidated net sales during 2006-07 as against 44.3 per cent growth on standalone basis. The company's consolidated net sales touched to Rs 1,207 crore as compared to its standalone net sales of Rs 802 crore. Its consolidated net profit also went up by over 253 per cent to Rs 311 crore as compared to 100 per cent growth in standalone profit. The company acquired Medicamenta as, a pharmaceutical marketing and manufacturing company in Czech Republic and got its first commercial foothold into the strategically important market of Europe.
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Nicholas Piramal included the results of NPIL Pharmaceuticals (UK) Ltd and Torcan Chemicals Ltd, Canada, acquired during December 2005. Further, it also included the figures of acquired Pfizer's manufacturing facility at Morpeth, UK. The company fully integrated Morpeth facility with its global custom manufacturing operations. NPIL has completed turnaround of Avecia Pharmaceuticals, UK, which it acquired during December 2005.
The company's consolidated net sales increased by 55 per cent to Rs 2,472 crore during 2006-07 and its net profit moved up by 80.7 per cent to Rs 218 crore. Its standalone net sales and net profit increased only by 15.5 per cent and Rs 10.5 per cent to Rs 1638 crore and Rs 188 crore respectively.
Torrent Pharmaceuticals (TPL), Ahmedabad-based pharma major, also put up good show during 2006-07 with consolidated net sales of Rs 1263 crore, representing a growth of almost 35 per cent. Continued impressive performances in Brazil, and Russia coupled with improved sales from Heumann Pharma GmbH & Co Generica KG, Germany (Heumann) were the major drivers of this growth. The company acquired Heumann during 2005-06 for a cash consideration of Euro 3.31 million (Rs 17.20 crore). Besides this acquisition, the company has subsidiaries Brazil, Russia, Germany, Philippines, USA, Japan Mexico and Australia.
The share of international sales in consolidated sales of TPL increased to 47 per cent from 43 per cent in the previous year. Heumann achieved sales of Rs 268 crore as against Rs 169 crore in the previous period of nine months. The German market has faced severe price erosions. However, its consolidated net profit moved up by 83.9 per cent to Rs 94 crore. The standalone net sales and net profit increased by 27.8 per cent and 71.6 per cent respectively.
The study shows that the Indian companies are entering the international market more aggressively during last couple years and the trend is likely to continue in the next few years. The analysts pointed out that the extra cash available with the Indian companies and easy availability of funds through FCCBs may trigger more mergers and acquisitions, which will help to push business operation successfully. The fast integration of acquired company with the operations of holding will be crucial as the Indian companies will ready market.