If the lacklustre standalone performance of the top 15 Indian pharma companies in the first quarter of 2008-09 is any indication, they are reeling under pressure to better their profit margins for the best interests of the stakeholders.
The consolidated net sales of India's companies amounted to Rs 27,628 crore during the quarter ended June 2008 compared to Rs 23,353 crore in the corresponding period of the last year, revealed a study conducted by Pharmabiz. Also, the standalone net sales of these companies went up by 23.4 per cent to Rs 7,662 crore from Rs 6,210 crore in the similar period of the prior year.
Also the consolidated net profit of these companies grew 1.4 per cent to Rs 2,714 crore in the first quarter of 2008-09 from Rs 2,677 crore in the first quarter of 2007-08. However, The major 15 pharma companies' standalone net profit for the first quarter of the current financial year declined 28.6 per cent to Rs 938 crore from Rs 1,313 crore in the corresponding period of the previous year.
The study showed that standalone net profit of the companies under review - Ranbaxy Labs, Dr Reddy's Labs, Sun Pharma, Piramal Healthcare, Lupin, Wockhardt, Jubilant Organosys, Aurobindo Pharma, Cadila Healthcare, Glenmark Pharma, Matrix Laboratories, Torrent Pharmaceuticals, Orchid Chemicals and Drugs, Biocon and Shasun Chemicals - was mainly impacted by the tardy performance of major players like Ranbaxy, Wockhardt, Jubilant Organosys, Aurobindo Pharma, Biocon and Cadila Healthcare.
These companies reported a standalone net sales growth of 23.4 per cent and a consolidated sales growth of 18.3 per cent during the quarter under preview.
While Sun Pharma, Lupin, Piramal Healthcare and Glenmark improved their consolidated and standalone net profit during the quarter ended June 2008, the standalone net sales of Glenmark declined by 26.2 per cent to Rs 193.98 crore from Rs 262.95 crore. However, its consolidated net sales moved up by 31.2 per cent to Rs 460.82 crore.
For the quarter ended June 2008, these companies consolidated forex loss and mark to market provision amounted to Rs 265.81 crore as against forex gain of Rs 184.94 crore in the corresponding period of the last year. Similarly, on the standalone basis, the forex loss including mark to market provisions went up sharply to Rs 449.28 crore from a gain of Rs 383.82 crore in the last year. This put significant pressure on bottom line of these 15 companies in the quarter ended June 2008.
Ranbaxy's standalone net profit declined sharply by 92 per cent to Rs 23.73 crore from Rs 291.15 crore, but its consolidated net profit improved marginally by 0.2 per cent to Rs 1,608 crore. While Dr Reddy's standalone net profit improved by 44.2 per cent to Rs 210 crore from Rs 146 crore, its consolidated net profit moved down by 51 per cent to Rs 91.97 crore from 187.23 crore. Cadila's standalone net profit declined by 16.2 per cent but its consolidated net profit moved up by 21.3 per cent to Rs 89.68 crore. Matrix Labs failed to improve its consolidated bottom line but managed to improve its standalone net profit. Orchid Chemicals and Shasun Chemicals incurred net loss on standalone as well as consolidated basis. Biocon's net profit on consolidated and standalone basis, also declined during the quarter ended June 2008.
Exports
If the current growth rate is any indication, Indian pharmaceutical industry is all set to emerge as an export oriented sector in the years to come. A Pharmabiz study of the export performance of leading 25 Indian pharma companies shows that their exports grew by 36.2 per cent to Rs.15,574 crore in 2006-07 from Rs.11,436 crore in the previous year.
The figures also indicate that exports of these companies accounted for almost 49 per cent of their net sales during the year, compared to 44.6 per cent in the previous year. With their thrust towards developing new markets through focused product development, export growth of these 25 companies could be much faster.
There was remarkable shift in revenue composition and several companies strengthened their international operations during 2006-07. The strong export growth of over 36 per cent is quite remarkable considering that overall pharmaceutical growth in the highly regulated market was restricted to 6-7 per cent.
Despite stiff generic competition, reduction in healthcare spending by a few countries, stringent regulatory norms for drug approvals, higher marketing and administrative costs, pricing pressure, a renewed focus on product safety by regulatory agencies and legal battles including challenges to patents, Indian companies have successfully turned the corner into their favour in the international market.
The revenues from all important markets like US, Canada, Europe, Latin America, Common Wealth of Independent States (CIS) and Russia, Middle East, Africa and other emerging markets added to export earnings of Indian pharma companies. Export business is dominated by generics segment followed by active pharmaceutical ingredients and intermediates, formulations and biotech products.
The important factors like higher filing of drug master files (DMFs) and abbreviated new drug applications (ANDAs), higher approvals from US and European regulatory authorities, investments in latest technologies, focus on research and development (R&D), cost effective product range, expiration of patents protection, merger and acquisition, marketing tie-ups, in-licensing and contract research and manufacturing services (CRAMS) assisted Indian pharma segment during 2006-07. Further, the aging of the world's population continues unabated, generating steady increase in demand for medicines.
The multinational companies are investing huge funds in R&D to create strong product pipeline. The outcome from these investments in R&D is not giving expected returns to them or there is a slow down in research productivity. Though the companies are trying to develop new breakthrough molecules, the final results are not so promising. This factor has also helped export growth of Indian companies. Further, the timely launch of new generic and 180-day exclusivities in the US also pushed their export earnings.
As per the available data, Dr Reddy's Laboratories (DRL), the second largest pharma company in terms of standalone net sales, was the star performer on export front with export earnings of Rs 2,848 crore. DRL's exports contributed 76 per cent to its standalone net sales of Rs 3,750 crore. The company launched simvastatin and finasteride, the generic versions of Zocor and Proscar, respectively as authorized generic products of Merck. These products alone contributed Rs 1,581 crore or 24 per cent of its total revenue. The company also launched ondansetron and fexofenadine during 2006-07.
Besides, Plethico Pharmaceuticals and Divi's Laboratories reported strong export earnings growth of 112 per cent and 100 per cent, respectively. Plethico Pharmaceuticals' export earnings amounted to Rs 184.64 crore in 2006-07, while Divi's Laboratories registered export earnings of Rs 671.21 crore. While exports accounted for 57.9 per cent of Plethico Pharmaceuticals' sales, Divi's Laboratories' exports contributed 92.7 per cent to its sales.
The export earnings of Ranbaxy Laboratories increased by 16.4 per cent to Rs 2,589 crore from Rs 2,224 crore in the previous year, while Cipla's exports increased by 17.6 per cent to Rs 1,780 crore. Also, Aurobindo's export went up by 32.9 per cent to Rs 1,085 crore. Similarly, Lupin, Orchid Chemicals and Divi's Lab recorded export earning of more than Rs 500 crore during 2006-07.
Out of Pharmabiz sample of 25 companies, 15 companies' contribution of export earnings to net sales worked out to more than 50 per cent during 2006-07. However, the percentage of export earnings to sales of seven major companies - Cipla, Wockhardt, Ipca Laboratories, Aventis Pharma, Torrent Pharma Stride Arcolab and Shasun Chemicals - was lower during 2006-07. Lupin's export earnings as percentage of net sales remained same at 48.6 per cent. The export earning of Aventis Pharma and Shasun Chemicals declined by 06 per cent and 1.8 per cent, respectively during the period.
The leading 10 pharma companies, with standalone net sales of more than Rs 1,000 crore, recorded export growth of 39.6 per cent during 2006-07 to Rs 10,713 crore from Rs 7,672 crore in the previous year. All the ten top companies recorded double digit export growth. DRL, Aurobindo Pharma, Sun Pharma, Nicholas Piramal and Cadila Healthchave notched up export growth of over 25 per cent. Though the export earnings of GlaxoSmithKline Pharma (GSK) were only Rs 30 crore, we have included GSK in our study on account of its size of net sales of Rs 1,553 crore during 2006-07. GSK's exports increased only by 10.5 per cent and contributed only 1.9 per cent to its total net sales.