The Indian pharma companies are investing heavily in creating new assets in a bid to strengthen their presence in the highly regulated markets as well as in the emerging markets. The total capital-work-in progress of 15 major pharma companies increased by 34.2 per cent to Rs 2,539 crore during 2007-08 as compared to Rs 1,893 crore in the previous year. These investments are expected to start yielding results in next couple of years.
As per a Pharmabiz study, the gross fixed assets including land, buildings, plant & machinery, furniture & fixtures, vehicles, goodwill, patent, trade marks, designs and licences of 15 major companies moved up by 22.9 per cent to Rs 29,486 crore during the year ended March 2008 from Rs 23,990 crore in the previous year.
With investment in fixed assets, 15 pharma companies generated a consolidated net sales of Rs 38,711 crore during 2007-08 as against Rs 33,589 crore in the previous year, a growth of 15.2 per cent. Further, their net profit moved up by 30.7 per cent to Rs 7,043 crore from Rs 5,388 crore. This shows that the pharmaceutical companies are getting better returns on their investments. The net profit as percentage of total net fixed assets improved to 29.3 per cent from 27.2 per cent during 2006-07.
These 15 companies, with consolidated or standalone gross fixed assets of over Rs 500 crore during 2007-08, namely Ranbaxy, Dr Reddy's Labs, Wockhardt, Cipla, Cadila Healthcare, Aurobindo Pharma, Piramal Healthcare, Sun Pharmaceutical, Lupin, Biocon, Dishman Pharmaceuticals, Torrent Pharma, Divi's Labs, Alembic and Ipca Laboratories are continuing their expansion programme. Few important companies like Glenmark Pharmaceuticals, Orchid Chemicals, Panacea Biotec, and Matrix Laboratories have not yet published their audited annual report for the year 2007-08 and not included in this study.
The total provision of depreciation reached at Rs 8,026 crore during 2007-08 as against Rs 6,068 crore in the previous year. After providing for depreciation, the net fixed assets of these 15 companies increased by 19.7 per cent to Rs 21,460 crore from Rs 17,922 crore in the previous year. Thus, the total net assets, including capital-work-in-progress, went up by 21.1 per cent to Rs 23,999 crore from Rs 19,815 crore.
Easy availability of credit at relatively low cost, favourable government policies for export oriented units, concessions in government taxes and duties for Research based companies and establishment of new SEZs is attracting new as well as existing pharma companies to invest more and more in assets. The Indian companies are not only investing in India, but these companies are also building assets in the other parts of world. Further, through mergers and acquisitions the Indian pharma companies are adding to their manufacturing capacities.
A senior pharma analyst said that the Indian pharma segment is not only spending huge amounts in building assets, but they are focusing on quality of products. The economic size is very essential to safeguard the future growth and overcome the stiff competition in domestic and international market. Indian companies are investing to meet the rising outsourcing business from multinational companies. CRAMS business is likely to add considerable revenue for the Indian manufacturers and the country has always been a preferred outsourcing hub.
These companies are concentrating on cost cutting measures and adopting new technology to strengthen bottom line. Falling success rates of innovation and overall rising biologics segment forced companies to invest in R&D activities. Few companies de-merged R&D activities to reduce cost burden. However, several companies are still investing in R&D. This pushed their net assets level during 2007-08.
Ranbaxy, Dr Reddy's Laboratories, Piramal Healthcare, Sun Pharmaceutical and Alembic achieved only single digit growth in net fixed assets during 2007-08. Wockhardt notched up strong growth of 79.9 per cent in consolidated net fixed assets to Rs 3,071 crore from Rs 1,707 crore in the previous year, as its intangible assets (goodwill, licenses & dossiers, trade marks and software) increased by Rs 1,099 crore. Further the company added assets worth Rs 513 crore on acquisition of assets of subsidiaries.
Cadila Healthcare's net assets increased by 43.1 per cent to Rs 1,400 crore from Rs 978 crore and that of Lupin moved up by 39.6 per cent to Rs 1,112 crore from Rs 797 crore. Similarly, Divi's Labs, Ipca Laboratories, Dishman Pharmaceuticals and Cipla recorded strong growth in net fixed assets of over 25 per cent during 2007-08.
Cipla's Rs 250 crore projects in Sikkim for manufacturing of formulation is nearing completion and it has commenced the commercial production at its Rs 100 crore project in at Kurkumbh during 2007-08. However, its project at Goa SEZ is still suspended due to the stop-work order issued by State Government. Cipla's project in Indore SEZ is under construction and likely to be partly operational by 2009.
Dr Reddy's Laboratories invested Rs 629 crore, highest so far in one year by the company, on manufacturing, R&D facilities and other capital expenditure during 2007-08. The company has invested Rs 67 crore in formulation plant in Himachal Pradesh and the same is likely to commission shortly. Further it has commissioned phase I & II of its expansion programme of generic manufacturing facility with capital investment of Rs 63 crore. It received SEZ approval for its plants in Medak district and so far its investments stood at Rs 40 crore.
Dishman is investing Rs 650 crore in SEZ project in coming years and setting up two projects one for pharmaceuticals & fine chemicals segment and another for engineering segment through its subsidiary. The company is investing to create four new API facilities at Bavla. Out of these four facilities, operations commenced in two units and one more unit is ready to start commercial production. The fourth unit for manufacture of cytotoxic compounds will be commissioned in current year. It is investing US$10 million in new plant in Shanghai chemical zone, which is likely to commission by September 2008. Dishman's gross fixed assets increased to Rs 780 crore during 2007-08 from Rs 599 crore in the previous year. Its capital work in progress went up to Rs 148.47 crore from Rs 64.98 crore.
Cadila Healthcare's total net assets went up by 43.1 per cent to Rs 1400 crore mainly due to capital expenditure of Rs 256.30 crore in is formulation manufacturing facilities at Moraiya, Sikkim and other locations. It also invested Rs 77.3 crore in its API and intermediate manufacturing facilities at Ankleshwar and other plants. It is now setting up a fine chemical facility at Dabhasa at a cost of about Rs 20 crore and will commence production in the current year. Cadila acquired Quimica e Farmaceutica Nikkho Do Brasil Ltda in Brazil and Nippon Universal Pharmaceuticals Co in Japan.
Lupin's net fixed assets crossed Rs 1000-crore mark and reached at Rs 1,113 crore, a strong growth of 39.6 per cent. During 2007-08, the capital expenditure, including assets (net) acquired on acquisition of subsidiaries, was Rs 365.06 crore. The company commissioned its formulations plant at Jammu and is now developing fresh capacity at Indore.
Divi's Labs has spent an amount of Rs 176 crore on capital expenditure towards enhancing production capacities. It has set up new production as well as utility facilities in SEZ and EOU units and enhanced its existing capacities at Unit-1. The company commissioned its nutraceuticals manufacturing facility at Divi's Pharma SEZ from June 1, 2008. Torrent Pharma's net investment in fixed assets was Rs 84 crore during 2007-08. This was mainly includes acquisition of land for new projects, capital expenditure on Baddi plant and expansion of R&D facility at Bhat.
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