A comparative study of the performances top ten MNCs and 10 leading Indian pharma companies did by Pharmabiz reveal certain interesting trends in their operations. Firstly, MNCs are increasingly transferring huge amounts to their parent companies year after year through annual dividend remittances. Investments in fixed assets of MNCs are steadily declining with low borrowings and least interest burden as compared to their Indian counterparts. Another trend is the high turnover of MNCs with better profit levels helping these companies to build up investor's confidence during last couple of years. These positive indicators are thus helping the MNCs scrip to hover near to their 52-weeks highest level on stock exchanges.
MNCs are getting adequate support from their parent companies in terms of technology and they don't have to invest in R&D activities in India like domestic companies. Therefore MNCs can concentrate on Indian market rather than the export market. Whereas, Indian companies have to spend large sums on approvals and launching of products in the highly regulated overseas markets. All these have ultimately helped MNCs to build huge reserves as compared to Indian pharma companies.
The net profit of 10 MNCs viz., Abbott India, AstraZeneca Pharma India, Aventis Pharma, Fulford (India), GlaxoSmithKline Pharma, Merck, Novartis India, Pfizer, Solvlay Pharma India and Wyeth, during the year 2008-09 improved only by 3.6 per cent to Rs 1,513 crore from Rs 1,459 crore in the previous year. The net profit as per cent of net sales of these companies worked out to 24.7 per cent as against 26.1 per cent in the last year. The net profit of Abbott India, Fulford (India), Merck and Pfizer declined during the year. Pfizer's net profit nosedived by 11.9 per cent to Rs 299.57 crore from Rs 340 crore in the previous year and that of Abbott's net profit moved down by 8.1 per cent to Rs 62.87 crore from Rs 68.43 crore.
The net sales of 10 MNCs increased by 9.6 per cent to Rs 6,123 crore during 2008-09 from Rs 5,586 crore in the previous year. GSK remained on top with net sales of Rs 1,693 crore during 2008-09 followed by Aventis Pharma with net sales of Rs 983 crore and Pfizer with net sales of Rs 682 crore. Merck's net sales went up by 23.7 per cent to Rs 389.46 crore and that of Solvay increased by 19.4 per cent to Rs 200.34 crore.
The total investment of 10 MNCs in net fixed assets is very low as compared to few leading Indian companies. The aggregate net fixed assets of ten MNCs, including capital work in progress and goodwill, improved by 18.1 per cent to Rs 563.91 crore during 2008-09 from Rs 477.55 crore in the previous year. With lower investments in assets, these companies are generating significant higher revenue. Similarly, the total assets (net fixed assets, investments and current assets) of these 10 companies increased by 16.5 per cent to Rs 7,106 crore from Rs 6,105 crore in the previous year.
If the above figures are compared with the 10 leading Indian companies, one can find that the Indian companies have invested huge amounts in assets and generating large volume of sales. But the margins of MNCs are better as compared to Indian companies and MNCs reserves position is stronger than the Indian companies.
The 10 leading Indian companies viz., Cipla, Dr Reddy's Laboratories, Sun Pharmaceuticals, Lupin, Wockhardt, Jubilant Organosys, Piramal Healthcare, Biocon, Divi's Laboratories, and Stride Arcolab have achieved growth of 37.4 per cent in total assets to Rs 52,735 crore during 2008-09 from Rs 38,392 crore in the previous year. Their net sales increased by 30.6 per cent to Rs 31,456 crore from Rs 24,089 crore in 2007-08. However, their net profit remained almost stagnant at Rs 5,994 crore as compared to Rs 5,971 crore.
With low investment in assets, the returns of MNCs are better than the 10 Indian companies. The net profit as per cent of net sales of 10 MNCs worked out to 24.7 per cent during 2008-09 as compared to 19.1 per cent of 10 Indian companies. The same was 26.1 per cent for MNCs in 2007-08 as compared to 24.8 per cent for Indian companies.
The equity capital of 10 MNCs remained at same level at Rs 221 crore. However, these companies built up strong reserves position during 2008-09. Their reserves increased by 15.7 per cent to Rs 4,898 crore from Rs 4,232 crore. With strong reserves position, 10 MNCs paid handsome dividend to their shareholders. As the majority equity stake is with their holding companies in foreign, these companies offered huge funds to foreign partners through dividend remittances. Total dividend amount distributed by these companies worked out to Rs 614.54 crore as compared to Rs 625.40 crore in the 2007-08. With more than 50 per cent equity holding with foreign companies, the dividend remitted reached at Rs 322.82 crore during 2008-09 from Rs 313.91 crore in the previous year.
Except Fulford (India) all other MNCs declared dividend over 100 per cent during 2008-09. AstraZeneca paid dividend of 750 per cent, Wyeth 325 per cent, GSK 220 per cent, Novartis 200 per cent, Solvay Pharma and Merck 175 per cent. Abbott India and Aventis paid equity dividend of 140 per cent and 160 per cent respectively during 2008-09.
The equity capital of 10 Indian companies reached at Rs 758.84 crore as at the end of March 2009 and their reserves amounted to Rs 25,892 crore as compared to Rs 20,552 crore in the previous year. The net worth of 10 MNCs worked out to Rs 5,119 crore for the year 2008-09 as compared Rs 26,651 crore of 10 Indian companies.
The Indian companies have to depend more on borrowings to finance their expansion programmes. The total borrowings of 10 Indian companies during 2008-09 increased to Rs 11,459 crore from Rs 7,336 crore in the previous year. This inflates their interest cost in P&L A/c to Rs 608 crore from Rs 360 crore. However, MNCs borrowings are very negligible as compared to their business in India. MNCs total borrowings amounted to only Rs 72 crore during 2008-09 as against Rs 10 crore in the previous year and their interest cost is meager Rs 6 crore and Rs one crore. Thus the interest cost of Indian companies is putting more pressure on bottom line as compared to MNCs.
During the quarter ended June 2009, the net sales of 10 MNCs increased by 10.4 per cent to Rs 1,700 crore from Rs 1,540 crore in the corresponding period of last year. However, their net profit remained almost at same level at Rs 327 crore as against Rs 324 crore in the similar period of last year, a growth of only 0.7 per cent. Abbott India, AstraZeneca Pharma, Merck and Pfizer received setback in profitability, which impacted the overall performance of these companies.
During the last couple of years, the majority equity stake of three important Indian pharma companies like Ranbaxy Laboratories, Matrix Laboratories and Dabur Pharma acquired by Daiichi Sankyo of Japan, Mylan Inc. of USA and Fresenius Kabi of Germany respectively. Thus there are now 13 listed MNCs operating in India. Recently Matrix Lab scrip delisted from the stock exchanges. With challenging world market conditions, more and more major Indian companies are likely to fall in the net of MNCs in the coming years through acquisition route. These three companies are excluded from the study mainly on account of their acquisition period. Besides, several other MNCs are entering partnership with Indian firms for R&D activities, clinical trials and CRAMS.
Thus, lower investments in fixed assets as compared to turnover and lower borrowings and interest cost strengthen the financial position of MNCs. This reflected in share price of these MNCs. Currently, GSK scrip touched to its 52-weeks peak level at 1,495 on September 10, 2009. Similarly, Pfizer scrip reached at Rs 824 as compared to its highest level of Rs 864. Aventis scrip moved to Rs 1495 and AstraZeneca at Rs 800. Except Pfizer scrip, all MNCs scrip achieved their 52-weeks highest level during August and September 2009.
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