Multinational drug companies operating in India are gradually discontinuing their existing production facilities and are not making any major fresh investments on new plants, while domestic pharmaceutical companies are on an assets creation spree by setting up a string of fresh manufacturing facilities across the country.

A Pharmabiz study of top ten Indian companies and multinational companies (MNCs) during 2006-07 reveals that the value of total assets created by 10 top Indian companies increased by 27.7 per cent to Rs 32,508 crore, whereas that of MNCs grew by only 16.3 per cent to Rs 6,883 crore.

The Indian companies have also shown much higher growth in major other financial indicators like return on investment, net profit margins, return on net worth and debt/equity. In absolute terms, the growth of Indian companies has been significantly higher than MNCs during 2006-07.

The Pharmabiz study of growth in assets of leading Indian companies like Dr Reddy's Laboratories, Ranbaxy Laboratories, Cipla, Lupin, Nicholas Piramal India, Cadila Healthcare, Sun Pharmaceuticals, Wockhardt, Orchid Chemicals and Pharmaceuticals and Ipca Laboratories have shown gross fixed assets growth of 20.6 per cent during 2006-07. Their gross fixed assets increased to Rs 11,944 crore from Rs 9,903 crore in the previous year.

However, the gross fixed assets of ten MNCs - Aventis Pharma, Abbott India, AstraZeneca Pharma India, Fulford (India), GlaxoSmithKline Pharma, Matrix Laboratories, Merck Ltd, Novartis India and Wyeth - increased only by 7.5 per cent to Rs 1,659 crore from Rs 1,544 crore in 2005-06. The net fixed assets of Indian companies amounted to Rs 8,234 crore, as compared to Rs 883 crore of MNCs.

The MNCs' investments in future expansion is negligible, as compared to investment made by Indian companies. The capital work-in-progress of Indian companies increased by 12.1 per cent to Rs 1,629 crore during 2006-07 from Rs 1,453 crore in the last year. However, the multinational companies have reduced their investments in new expansion programme to Rs 53 crore from Rs 79 crore in the prior year.

The investment in subsidiaries, joint ventures, mutual funds and other securities of 10 Indian companies went up sharply by 83 per cent to Rs 5,411 crore during 2006-07, while MNCs recorded a growth of 31.3 per cent to Rs 2,128 crore.

The current assets of Indian companies increased by 22.1 per cent to Rs 16,894 crore from Rs 13,836 crore in the previous year. Of this, inventories increased by 17.1 per cent to Rs 4,761 crore, sundry debtors rose by 32 per cent to Rs 5,156 crore, cash& bank balance grew by 22.5 per cent to Rs 3,886 crore and loans and advances jumped up by 14.9 per cent to Rs 3,091 crore. The current assets of MNCs increased by 13.1 per cent to Rs 3,679 crore from Rs 3,253 crore. These companies' sundry debtors figure declined by 1.1 per cent to Rs 575 crore, while inventories and loans and advances increased by 11.8 per cent and 14.1 per cent, respectively. MNCs cash and bank balance improved by 21.3 per cent to Rs 1,273 crore.

The equity capital of 10 leading Indian companies increased by 34.2 per cent to Rs 854 crore from Rs 636 crore, basically due to bonus shares and conversion of FCCBs into equity shares. Dr Reddy's Laboratories, Cipla, Lupin and Cadila Healthcare issued bonus shares during 2006-07. The equity capital of MNCs remained same at Rs 248 crore. The reserves and surplus of Indian companies went up sharply by 38.9 per cent to Rs 16,287 crore from Rs 11,723 crore. However, the MNCs' reserves increased by 20.1 per cent to Rs 4,480 crore from Rs 3,729 crore in the last year. The net worth, i.e. equity capital and reserves, of Indian companies amounted to Rs 17,141 crore during 2006-07, as compared to Rs 12,360 crore in the prior year, representing a strong growth of 38.7 per cent. The net worth of MNCs' increased only by 18.9 per cent to Rs 4,728 crore.

Indian companies are expanding their capacities and setting up new plants with fresh investments. On account of this, their borrowings increased by 16.1 per cent to Rs 8,987 crore from Rs 7,742 crore in the previous year. The borrowings of MNCs were insignificant, as compared to Indian companies, and it was only Rs 246 crore as against Rs 172 crore in the last year. The debt-equity ratio of Indian companies worked out to 0.52 points during 2006-07 as against 0.63 points in the previous year. But, the debt-equity ratio of MNCs worked out to 0.05, as compared to 0.04 points in the prior year. The higher borrowings with rising interest rates may put additional burden on Indian companies in the current year.

The Indian company's current liabilities increased by 20.4 per cent to Rs 5,383 crore, while liabilities of MNCs moved up only by 7.4 per cent to Rs 1,853 crore during 2006-07.

On the profitability front, 10 leading Indian companies achieved better performance than 10 MNCs in India. The net profit of Indian companies increased by 66.9 per cent to Rs 3,992 crore from Rs 2,392 crore. However, the net profit of MNCs increased only by 7.1 per cent to Rs 1,296 crore from Rs 1,210 crore in 2005-06. The Indian companies paid equity dividend of Rs 861 crore, while MNCs paid only Rs 539 crore.

The return on investments (ROI), i.e. net profit as per cent of total assets, of MNCs declined to 18.8 per cent from 20.4 per cent in 2005-06. However, the 10 leading Indian companies managed to improve their ROI to 12.3 per cent from 9.4 per cent in the previous year. Similarly, the growth in net profit margin of Indian companies was far better than MNCs at 19.2 per cent during 2006-07 from 14.4 per cent in the last year. The MNCs recorded little growth in net profit margins, which worked out to 23.9 per cent in 2006-07 as compared to 23.6 per cent in the last year.

The important factors like mergers and acquisitions, higher export earnings from lucrative markets, gains from CRAMS activities and R&D investments pushed the net earning of Indian companies. The MNCs failed to cash in on these factors and DPCO is also putting pressure on them. The leading 10 Indian companies are using assets in more profitable manner than MNCs in India.