GlaxoSmithKline Pharmaceuticals Ltd (GSK), the Rs 1200-crore plus cash-rich MNC, has restructured its operations during last couple of years to improve efficiency as well as financial health. It is consolidating its operations by selling uneconomic assets and investing large amounts in safer and fixed return financial instruments. The merger of Burroughs Wellcome (India) Ltd (BWIL) and strong support from parent company will enhance its marketing efforts to fight stiff competition. The strong financial position may leverage management to reward its investors handsomely in near future.

The merger of BWIL will improve GSK's position to fourth place in Indian pharmaceutical sector with sales of over Rs 1400 crore. However, Ranbaxy Laboratories Cipla and Dr Reddy's Laboratories are much ahead with net sales of Rs 3398 crore, Rs 2060 crore and Rs 1667 crore respectively during the year 2003-04.

Merger of BWIL will strengthen product portfolio Selling of Worli plant will push bottmline Higher investment in securities will generate extra other income Reserves & surplus stood at Rs 593.01 crore as at the end of December 2003 Impressive performance during first quarter of 2004

GSK managed its resources well during the year ended December 2003 and improved its profit margins. The net sales increased by 4.4 per cent to Rs 1093.17 crore from Rs 1047.27 crore. Besides, bulk drugs and formulations, it is also manufacturing veterinary formulations, feed supplements, fine chemicals, diagnostics and lab equipments. The pharmaceutical sales of the company increased by 5.5 per cent during the year ended December 2003. The company is enjoying its leadership position in the dermatological, corticosteroids and thyroid preparation segments. GSK has successfully in-licenced three products viz. CCM (calcium citrate maleate), Zimig (Terbenafine) and Vozet (Levocetirizine).

Sales of tablets and capsules contributed to around 40 per cent of sales and sales of these products increased by 2.2 per cent to Rs 471.06 crore. Similarly, sales of liquids moved up by 4.2 per cent to Rs 227.24 crore. The company's antibiotic vials sales increased by 14.5 per cent to Rs 97.50 crore and that of vaccines increased by 20.2 per cent to Rs 59.78 crore. Its top band 'Augmentin' has recorded a growth of 28 per cent.

The company's exports declined to Rs 33.98 crore from Rs 58.01 crore mainly due to lower requirements of Ranitidine Base from parent holding company. GSK is exporting products to several advances countries like Germany, France, Denmark, UK, Japan and New Zealand from Indian units. Further, it is also exporting its products to South Africa, Iran, Russia, Philippines, Pakistan, Sri Lanka, China, Mexico Myanmar, Cyprus and Vietnam.

GSK's net profit after tax, but before exceptional items, went up sharply by 41.6 per cent to Rs 181.86 crore from Rs 128.47 crore in the previous year mainly because of reduction in raw material cost, staff cost and interest. The company is almost a debt free company. The net profit before exceptional items as per cent of net sales improved smartly to 16.6 per cent from 12.3 per cent in the previous year. With significant improvement in profitability, the earning per share worked out to 24.42 per cent from Rs 17.25 in the previous year. The book value reached at Rs 89.63 from Rs 77.78.

Financial Highlights
(Rs. Crores)	Quarter Ended		Year Ended
	Mar 2004	Mar 2003	Dec 2003	Dec 2002
Net Sales	332.31	282.86	1191.69	1148.22
Other Income	13.64	9.71	54.37	42.71
Raw Material	148.18	125.30	494.34	503.14
Staff Cost	32.26	30.39	130.05	131.29
Depreciation	4.00	4.37	17.93	19.47
PBT	87.78	55.09	284.56	196.33
Net Profit (Before exceptional items)	56.08	35.09	181.86	128.47
Equity	74.48	74.48	74.48	74.48
Reserves	-	-	593.01	504.80
EPS (Rs.)	7.50	4.70	24.42	17.25
Dividend (%)	-	-	100	70

The company issued bonus shares during the year 1995 in the ratio of 1:1 and it is high time for fresh bonus issue. The financial position is also strong enough to meet the requirement of funds for bonus announcement. As against the equity capital of Rs 74.48 crore its reserves and surplus amounted to Rs 593.01 crore. The return on net worth, i.e. net profit before exceptional items as per cent of net worth, improved to 27.2 per cent as against Rs 22.2 per cent basically due to negligible burden of borrowings, which stood at Rs 2.87 crore and very little spending on R&D. It is getting necessary support from its holding company for its requirement of research & development activities. GSK has spent very meager amount of Rs 3.54 crore on R&D (only 0.3 per cent of its turnover). Its R&D Center is doing supportive work for the discovery chemistry/technology groups UK and USA. The parent company is planning to set an R&D center in China.

GSK is planning to conduct four clinical trials in India in the current year e.i. 2004. The compounds include two vaccines and two new chemical entities. It is planning to increase the number of clinical trials that it will conduct in India.

The company's gross fixed assets declined by 5 per cent to Rs 256.68 crore from Rs 270.09 crore in the previous year as it soled assets worth Rs 29 crore during the year ended December 2003. Recently the company concluded the agreement for selling of its Worli plant for over Rs 100 crore. Currently, its plants are located at Thane, Nashik and Mysore. The company has ceased the manufacturing operations at Bangalore from November 2003.



Though the company is reducing its manufacturing cost by reducing its assets and workforce, its investments in government securities, bonds and mutual fund units is increasing every year. During the year ended December 2003, its investments went up sharply by 152.5 per cent to Rs 409.12 crore from Rs 162 crore. The book value of aggregate unquoted investments amounted to Rs 98.33 crore and that of quoted investments went up to Rs 310.79 crore from Rs 54.67 crore in the previous year. The market value of investments worked out to Rs 374.41 crore. It seems that the company management is moving cautiously and waiting for the exact impact of patent regime after January 2005. These investments will give assured income in the current year and the company may take investment decision after January 2005.

The company has one wholly owned subsidiary company viz., Biddle Sawyer Ltd, which earned a net profit of s 7.14 crore during the year ended December 2003 on a turnover of Rs 37.93 crore.



GSK has decided to merge BWIL and the swap ratio is fixed at 14 GSK shares for every 10 held by BWIL. The merger in India comes nine years after GSK's global takeover of Burroughs in 1995. The shareholding of GSK, UK in the combined entity would be 49.2 per cent. The company is planning to sell out BWIL's Mulund facility after finalisation of sell off of Worli plant.

GSK's net profit for the first quarter ended March 2004 improved by 43 per cent to Rs 50 crore as compared to Rs 35 crore in the corresponding period of last year. Net sales grew by 17.5 per cent to Rs 332.30 crore from Rs 282.90 crore mainly due to good show by its power brands. But same trend is not sustainable in the next period. BWIL also reported higher sales and profit in the first quarter. Its net profit increased to Rs 13.8 crore from Rs 8 crore and its sales moved up to Rs 57 crore from Rs 43.8 crore.)

What will be the effect of the merger on overall operations of GSK? BWIL has achieved better growth in sales and profitability during the year ended December 2003 and in the first quarter of current year. BWIL has the No.1 prescribed brand in the country and its five brands namely; Neosporin, Actified, Calpol, Zyloric and Septran are among the top 300 brands in India. Thus, the merger of BWIL will give automatic market and several brands for GSK. BWIL's equity capital stood at Rs 9.18 crore and its reserves stand at Rs 151 crore with nil borrowings.

Though its fixed assets are very small at Rs 8.16 crore, its investments reached at Rs 107 crore. Thus, GSK will get more brands and ready market setup without any major worker liability. After the merger the equity capital of GSK will increase to Rs 87.33 crore and the reserves and surplus of merge entity will reach at Rs 745 crore. Currently GSK is hovering around Rs 595 on BSE and BWIL is around Rs775 with market capitalisation of Rs 4428 crore and Rs 710 crore respectively. Both the scrips reached at there 52 weeks peak level at Rs 703 and Rs 773 respectively. The merger entity will also enjoy the healthy investors support.