Profitability of 20 leading pharma companies during the quarter ended September 2008 has been significantly impacted due to foreign exchange losses, mark to market provisions and steep rise in interest costs. However, their operating profit (before interest, depreciation, taxation, other income and exceptional items regarding exchange losses) showed a better growth on account of higher net sales. The net profit after exceptional items and taxation of 20 companies, however, declined by 10.7 per cent during the quarter ended September 2008 to Rs 1415 crore from Rs 1585 crore in the corresponding period of last year.

The Institute of Chartered Accountants of India (ICAI) has made it mandatory for all Indian companies regarding 'Accounting for Derivatives'. Several companies providing for mark-to-market (MTM) losses on derivatives trading have incurred significant fall in bottom line during the quarter ended September 2008. The move came from ICAI following a number of Indian companies revealing that they could take a financial hit on their positions in currencies and commodities.

Several pharmaceutical companies showed exchange fluctuation loss or gain on account of restatement of Foreign Currency Convertible Bonds, External Commercial Borrowings and Mark to Market loss on derivative and option contracts.

The 20 companies showed a better top line growth of 27.8 per cent during the quarter and their consolidated net sales took a quantum jump of 27.8 per cent to Rs 14,052 crore from Rs 10,998 crore in the same period of last year. Despite significant rise in input costs and employees cost, the operating profit increased by 25.4 per cent to Rs 2,749 crore from Rs 2,192 crore in the last period.

The provision for foreign exchange loss of these 20 companies reached at Rs 945 crore as compared to foreign gain of Rs 193 crore in the same period of last year. Further, the interest cost went up sharply by 49.9 per cent for the quarter ended September 2008 and it reached at Rs 368 crore from Rs 246 crore. The provision for foreign exchange loss or gain is contingent in nature. The unrealised foreign exchange gain/loss will be considered appropriately at the year end.

Almost all companies have suffered due to the provision for foreign exchange loss. Ranbaxy Labs has provided Rs 309.93 crore on standalone basis for foreign exchange loss as against a gain of Rs 47.61 crore in the previous period. Due to this, it incurred a consolidated net loss of Rs 4.90 crore as compared to net profit of Rs 161.90 crore. Ranbaxy's operating profit was at Rs 144 crore as compared to Rs 283.10 crore. The company has not announced full consolidated details for the quarter ended September 2008.

Similarly, Aurobindo Pharma provided Rs 105.10 crore for foreign exchange loss and incurred a net loss of Rs 38.42 crore as against a net profit of Rs 62.06 in the previous period. Its operating profit amounted to Rs 124.91 crore as compared to Rs 95.19 crore. Orchid Chemicals and Drugs' net loss went up to Rs 40.66 crore due to exchange loss of Rs 81.58 crore as compared to gain of Rs 19.76 crore. Orchid's interest cost also moved up sharply by 82 per cent to Rs 31.23 crore from Rs 17.15 crore. Cipla provided Rs 104 crore for foreign exchange loss as against gain of Rs 20 crore in the last period and its net profit moved down to Rs 151.43 crore from Rs 190.62 crore.

Few companies like Lupin, Matrix Laboratories, Nectar Lifesciences, Sun Pharmaceutical and Torrent Pharma have not shown any foreign exchange gain or loss for the quarter ended September 2008. All these companies, with no provision for foreign exchange gain or loss, were able to push their net profit during the period under review. For instance, Lupin's net profit went up by 52.9 per cent to Rs 115.62 crore, Matrix reported net profit of Rs 8.89 crore as compared to a net loss of Rs 9.92 crore, Sun Pharma's net up by 135 per cent to Rs 512.77 crore from Rs 218.55 crore and that of Torrent Pharmaceuticals net moved up by 84.3 per cent to Rs 48.28 crore.

Major companies like Cadila Healthcare, Glenmark Pharma and Stride Arcolab achieved better profit levels despite provision for foreign exchange loss during the quarter ended September 2008. Glenmark provided Rs 22.19 crore (standalone) for foreign exchange loss as against a gain of Rs 3.39 crore. However, its net profit increased sharply to Rs 117.36 crore from Rs 75.12 crore, a growth of 56.2 per cent. Similarly, Strides Arcolab turned its loss of Rs 9 crore into a profit of Rs 105 crore, despite provision of Rs 70 crore for foreign exchange loss during the September quarter. The company reported other income of Rs 170.60 crore as against nil in the last period.
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