It seems that India is slowly but steadily evolving as a favourite playing ground for multinational pharma companies in the country, as they have registered a moderate growth rate in 2007. The adoption of patent laws in January 2005 has by and large helped the multinational (pharma) companies (MNCs) in India to gain a foot in the country's pharma market and make further inroads into it.
A recent study by Pharmabiz showed that the net sales of eight MNCs - Abbott India, AstraZeneca Pharma India, Aventis Pharma, Fulford (India), GlaxoSmithKline Pharma (GSK), Merck Ltd, Pfizer Ltd and Solvay Pharma India - for the year ended in November-December 2007, clocked a growth of 3.8 per cent to Rs 4665.98 crore from Rs 4497.89 crore in the previous year. The drug major GSK remained on top with net sales of Rs 1577.14 crore during the period under review, followed by Aventis at Rs 873 crore and Pfizer at Rs 672 crore.
However, after adjustments these companies reported a net profit of Rs 1269.63 crore, up 16.1 per cent from Rs 1093.97 crore in the last year. But, the net profit of Aventis Pharma, GSK and Merck declined during 2007 to Rs 144 crore, Rs 537.66 crore and Rs 68.82 crore, respectively from Rs 169.30 crore, Rs 545.51 crore and Rs 133.35 crore, respectively. The study hasn't taken Novartis India, Wyeth Ltd and Matrix Laboratories into account.
These eight major pharma multinationals reported other income, including services rendered, sales of assets and interest and dividend of Rs 599, up 142.3 per cent from Rs 247.37 crore in the previous year. Pfizer's other income went up to Rs 342.70 crore from Rs 59.53 crore as the company sold its Chandigarh property for a consideration of Rs 273.69 crore. Similarly, Aventis' income from services rendered increased to Rs 22.30 crore from Rs 4.70 crore in the last year and its other income climbed to Rs 74 crore in 2007 from Rs 47.10 crore in 2006.
Besides, the MNCs managed their raw material cost very well and the aggregate raw material cost increased only by 1.4 per cent to Rs 1144.89 crore from Rs 1129.21 crore in the previous year. Out of total raw material cost, the purchases of raw material amounted to Rs 1179.14 crore, as compared to Rs 1220.74 crore in the last year, mainly due to rupee appreciation in 2007. The staff cost of eight MNCs increased by 8.4 per cent to Rs 516.59 crore from Rs 476.63 crore. While the staff cost of Aventis increased to Rs 103.70 crore from Rs 78.50 crore, GlaxoSmithKline Pharma's staff cost declined slightly to Rs 151.26 crore from Rs 153.67 crore.
The earnings before interest, depreciation, taxation and adjustment (EBDIT) of these eight companies rose by 26.7 per cent to Rs 1744.16 crore from Rs 1376.58 crore in the previous year. With significant rise in other income, Pfizer's EBDIT surged to Rs 477.08 crore from Rs 198.52 crore. Except Aventis Pharma and Merck, all other companies reported higher EBDIT during 2007. Aventis' EBDIT declined by 9.8 per cent to Rs 241.50 crore from Rs 267.80 crore and that of Merck moved down marginally to Rs 106.45 crore from Rs 110.65 crore.
The MNCs are focusing on cost cutting measures and also not taking any major expansion programme based on borrowings. Due to this, their interest burden is negligible at Rs 0.30 crore during 2007 as compared to Rs 0.53 crore in the last year. Further, only GSK and Aventis are providing double digit depreciation. The total depreciation of eight MNCs worked out to Rs 68.56 crore as compared to Rs 69.16 crore in the previous year. With lower interest and depreciation provisions, the profit before tax went up by 28.2 per cent to Rs 1675.31 crore from Rs 1306.89 crore.
The taxation of these companies amounted to Rs 526.27 crore as against Rs 439 crore in the previous year. The exceptional items income was Rs 120.59 crore during 2007 as compared to Rs 226.08 crore. While GSK reported an exceptional income of Rs 137.94 crore on account of sales of its Fine Chemicals business, Pfizer incurred exceptional expenditure of Rs 17.35 crore on VRS during 2007.
With the buy-back of equity by Abbott India, the aggregate equity capital of eight companies declined to Rs 182.82 crore from Rs 183.63 crore. The MNCs have created strong reserve position by registering a 19.2 per cent growth to Rs 3524.49 crore from Rs 2957.93 crore in the previous year. The earnings per share of Aventis, GSK and Merck nose-dived during 2007, but all other remaining companies improved their EPS.
Despite strong reserves position, MNCs are reluctant to announce bonus shares. But they are distributing higher dividends to shareholders. AstraZeneca stepped its equity dividend to 750 per cent from 600 per cent in the last year. Similarly, Solvay Pharma also recommended equity dividend of 400 per cent as compared to 80 per cent in 2006. Abbott and Merck maintained dividend at 200 per cent. Pfizer and GSK enhanced their equity dividend to 275 per cent and 360 per cent from 125 per cent and 310 per cent, respectively.
With limited concessions in the latest Union Budget for the pharma industry, issues such as spurious drugs, stiff competition, price control policy of Government, non-clarity regarding patent law, rupee appreciation against dollar and limited new launches by the pharma companies, are expected to put pressure on working of the sector.