The financial performances of pharmaceutical companies in India during 2007-08 present a rather confusing picture of this sector. On the one hand, overall performances of top pharma companies appear to be quite good with a smart rise in their turnover and net profit. The number of companies which have crossed Rs 1000 crore turnover mark is steadily rising and they should be 18 in number now. But, an analysis of the annual figures of these companies indicate that their performances improved during the year not because of operational efficiencies but on account of other factors. A Pharmabiz study of 13 top pharmaceutical companies in the country during 2007-08 shows a 21.4 per cent growth in net profit and a 13.8 per cent growth in sales. The figures of 5 other companies could not be included in the study as their financial results are not available. The 13 companies had a consolidated profit of Rs 5579 crore during the year ended March 2008 as against a profit of Rs 4594 crore reported in the previous year.
The consolidated net sales of the 13 companies moved up to Rs 36035 crore during 2007-08 as against a sales of Rs 31666 crore reported in the previous year. An interesting development during last year's performance is the return of Ranbaxy as the largest Indian pharmaceutical company displacing Dr. Reddy's Labs in terms of turnover. Ranbaxy's consolidated sales stand at Rs 6982 crore registering a notable growth from Rs 6132 crore in the previous year. Dr. Reddy's net sales reached a peak of Rs 6435 crore during 2006-07 with the acquisition of Betapharm in Germany but it could not improve its turnover or profit much during the last year. Dr. Reddy's setback in 2007-08 was mainly on account of generic competition in the US with its net profit declining by 54.6 per cent to Rs 438.13 crore from Rs 965.89 crore. GSK, the leading multinational in the country with a net sales of Rs 1577 crore, reported a 1.4 per cent drop in net profit at Rs 537.66 crore from Rs 545.51 crore. The net profit of Cipla was also under pressure and moved up by just 4.9 per cent to Rs 700.48 crore from Rs 668.03 crore. A main contributing factor to the profitability of the pharmaceutical sector seems to be the other income as emerged from the Pharmabiz study. The other income of 13 pharma companies increased by 68.3 per cent to Rs 1506 crore during 2007-08 from Rs 895 crore in the previous year. The other income of Ranbaxy alone went up sharply to Rs 443.35 crore from Rs 68.28 crore in the previous year.
Ranbaxy's other income increased mainly on account of export benefits, forex gains and share of revenue from Bayer AG on Ciprofloxacin OD. Dr. Reddy's, Cipla, Cadila, Glenmark, GSK, Torrent Pharma and Biocon have also reported more than 25 per cent increase in their other income during 2007-08. In other words, most of the top pharmaceutical companies did not actually perform well during last year despite their notable rise in domestic sales and exports. This is not a sustainable growth model and Indian pharmaceutical sector needs to reframe their growth strategies to survive in the changed environment of lower margins from domestic and export markets.