The profitability of Indian pharmaceutical companies as reflected in their balance sheets during 2007-08 seems to mask the growing weakness of this sector. While most of the large and medium scale companies listed in the stock exchanges reported a smart growth in sales and profits during the year, the key factor that contributed to their improved performances is income from other sources. The margins from exports and domestic market continue to be poor. A Pharmabiz study of 75 companies shows that, 48 companies recorded double digit growth in net sales and profitability during the year. But, a string factors contributed to the growth of net profits other than manufacturing operations. For instance, Ranbaxy Labs stood as No 1 company during the year with its consolidated net sales at Rs 6,982 crore among the 75 companies. And it has reported a net profit of Rs 774.49 crore during 2007-08 but a major part of its net profit is made up of other income of Rs 443 crore mainly foreign exchange gains of Rs 307 crore. Similarly, Pfizer's other income rose to Rs 343.07 crore during the year from Rs 59.60 crore reported in the previous year on account of sale of assets. There are many more companies in the study which showed better net profits not because of their core activity of drug manufacturing. Overall, the study shows that the other income of 75 companies increased by 62.4 per cent to Rs 2,858 crore during last year from Rs 1,760 crore. Some of the leading companies in this category apart from Ranbaxy and Pfizer are Stride Arcolab, Aurobindo Pharma, Aventis Pharma, Dishman Pharma, Glenmark and Biocon.
A notable feature of the pharmaceutical industry, observed during last year, is that as many as 19 companies out of 75 recorded net sales of Rs 1000 crore or more as against 14 companies in the previous year. The total net sales of these 19 companies increased by 16.9 per cent to Rs 46,981 crore as against Rs 40,201 crore. The aggregate net sales of these 19 companies worked out to 71.7 per cent of the 75 companies. The net profit of these 19 companies increased by 24.1 per cent to Rs 7,512 crore which accounted for 63.1 per cent of total net profit of 75 companies. Thus, the overall performance of the industry during the year is impacted by these large companies. Two major companies which reported exceptionally good performance during the year were Lupin and Wochkardt. Net sales of Lupin grew by 34.4 per cent to Rs 2,706 crore whereas Wockhardt's net sales jumped up by 53.4 per cent to Rs 2,653 crore. But, in terms of profitability, Sun Pharma stood as the most profitable Indian company among the 75 companies during the year with net profit rising to Rs 1,488 crore from Rs 784.27 crore in the previous year, a significant growth of 89.6 per cent. And the worst performer during the year under review was Dr. Reddy's with its net profit declining to Rs 438.13 crore from Rs 965.89 crore. The net sales of the company also declined sharply by 23.6 per cent. The overall outlook of Indian pharmaceutical industry, therefore, is not promising with adverse factors started hitting the top companies. Window dressing is not the solution to the crisis that is ahead. Industry has to change its traditional growth plans and figure out new strategies for survival.