Profitability of the pharmaceutical sector in the country is on steep decline for first time after several years of excellent performance. A Pharmabiz study of top 10 pharmaceutical companies having turnover of above Rs 2500 crore shows that their net profits came down by 60.9 per cent during the year ended 2008-09.
The consolidated net profit of these 10 companies declined to Rs 2,082 crore in 2008-09 from Rs 5,322 crore reported in the previous year. One of the main reasons for the poor performances was the foreign exchange losses. The aggregate provision for foreign exchange loss reached at Rs 3,031 crore during the year under review as against a gain of Rs 628 crore in 2007-08.
Apart from foreign exchange losses, these companies also experienced stiff competition, economic slowdown, volatile exchange rates and regulatory problems in the global markets during the year 2008-09.
Overall sales of the 10 companies, however, moved up during the year. The consolidated sales of the Pharmabiz sample of ten leading companies increased by 26.1 per cent to Rs 43,454 crore during 2008-09 from Rs 34,467 crore in the previous year. Ranbaxy Laboratories, now a subsidiary of Daiichi Sankyo of Japan, has remained on top with consolidated net sales of Rs 7,421 crore followed by Dr Reddy's Labs (Rs 6,791 crore), Cipla (Rs 4,973 crore), Sun Pharmaceutical (4,272 crore), Lupin (Rs 3,776 crore), Wockhardt (Rs 3,593 crore), Jubilant Organosys (Rs 3,518 crore), Piramal Healthcare (Rs 3,281 crore), Aurobindo Pharma (Rs 2,966 crore) and Cadila Healthcare (Rs 2,862 crore).
Pharmabiz analysis shows that there are 21 pharma companies in India with consolidated net sales of above Rs 1,000 crore during 2008-09. Two new companies viz., Dishman Pharma and Strides Arcolab achieved the milestone of Rs 1000 crore during 2008-09 and another two companies viz., Aventis Pharm India (Rs 983 crore) and Ankur Drugs (Rs 964 crore) are very close to touch Rs 1,000 crore marks in the current year.
The highest growth in net sales was recorded by Jubilant Organosys of 41.3 per cent. This was followed by Lupin 39.5 per cent, Dr Reddy's Labs by 38.2 per cent, Wockhardt by 35.4 per cent. Cipla, Sun Pharma, Aurobindo and Cadila Healthcare recorded sales growth of above 20 per cent during 2008-09. Only Ranbaxy achieved single digit growth of 9.4 per cent in sales. These players have established there brand image in cardiovasculars, gastrointestinals, central nervous system, respirator, musculoskeletal and pain management.
The profitability was quite bad for Ranbaxy Laboratories, Dr Reddy's Laboratories, Aurobindo Pharma, Piramal Healthcare and Jubilant Organosys. Out of ten companies, net profit of six companies declined or ended up in net losses. Three companies viz., Ranbaxy, Dr Reddy's Lab and Wockhardt incurred net losses of Rs 951 crore, Rs 917 crore and Rs 139 crore respectively as against profits made during 2007-08. Ranbaxy provided Rs 1,855 crore for foreign exchange loss and DRL provided Rs 1,463 crore for impairment of goodwill and intangibles. The net profit of Aurobind declined by 58.1 per cent to Rs 100 crore from Rs 238 crore in the previous year.
Ranbaxy provided a total Rs 1,855 crore for foreign exchange loss during 2008-09 as against a gain of Rs 508 crore in the previous year. Similarly, Wockhardt, Jubilant Aurobind also incurred a foreign exchange loss of Rs 711 crore, Rs 104 crore and Rs 255 crore in 2008-09. Piramal Healthcare provided Rs 255 crore for foreign exchange loss and Cadila of Rs 23 crore. DRL, Cipla, Sun Pharma and Lupin have not incurred any foreign exchange loss or gain during 2008-09.These provisions put pressure on aggregate profitability of 10 companies.
Sun Pharma remained star performer in profitability terms and its net profit touched to Rs 1,818 crore as compared to Rs 1,487 crore in the last year, a growth of 22.2 per cent. Similarly, net profit of Lupin also moved up by 22.9 per cent to Rs 501.54 crore from Rs 408.25 crore. The net profit of Cipla improved only by single digit of 9.5 per cent to Rs 768 crore. Cadila Healthcare recorded a profit growth of 17.7 per cent to Rs 303 crore.
The aggregate other income, including in-licensing income, of 10 companies increased by 23.6 per cent to Rs 1,373 crore from Rs 1,111 crore in the previous year. The raw material cost remained relatively stable and increased by 22.1 per cent to Rs 16,924 crore as compared to Rs 13,861.07 crore. The interest cost of these 10 companies went up sharply by 77.1 per cent to Rs 904 crore from Rs 511 crore. Though Sun Pharma earned interest income of Rs 122 crore, the interest burden of all other companies moved up during 2008-09. The provision for depreciation increased by 29.6 per cent to Rs 1,797 crore from Rs 1,387 crore.
The huge foreign exchange losses have not stopped Indian pharma companies from investing in R&D activities. Even after demerger of R&D activities the spending is rising. Out of ten companies, six have provided figures for R&D expenditure during 2008-09 which showed an increase of 12.6 per cent to Rs 1,541 crore from Rs 1,368 crore. Lupin's research spending went up by 40 per cent to Rs 232 crore from Rs 166 crore in the previous year. Ranbaxy's R&D expenditure reached at Rs 431 crore, a marginal growth of 0.8 per cent. Dr Reddy's spending moved up by 18.7 per cent to Rs 409.27 crore and that of Sun Pharma, which de-merged its R&D activities, increased by 11.1 per cent to Rs 332.04 crore.
The profit before tax, foreign exchange loss and other adjustments increased modestly by 18.1 per cent to Rs 6,807 crore from Rs 5,762 crore in 2007-08. Aurobindo's profit before tax has taken a quantum jump of 74 per cent and touched to Rs 386 crore from Rs 222 crore. Similarly, DRL's profit before tax moved up by 48 per cent to Rs 806 crore. However, the extra ordinary items of foreign exchange loss and impairment of goodwill and intangibles put pressure on bottom line of these two companies. Sun Pharma's profit before tax reached at Rs 1,949 crore as compared to Rs 1,599 crore, a growth of almost 22 per cent and that of Cipla amounted to Rs 910 crore as against Rs 838 crore representing a growth of 8.6 per cent. Ranbaxy's profit before tax, however, declined by 27.4 per cent to Rs 355 crore.
Despite negative growth in profit, several companies have declared handsome dividend during 2008-09. Sun Pharma recommended equity dividend of 275 per cent, Piramal Healthcare announced dividend of 210 per cent, DRL and Lupin declared 125 per cent; Jubilant stepped up dividend to 150 per cent. But, Ranbaxy and Wockhardt did not declare any dividend for the year.
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