The recent spate of acquisitions and investments in subsidiaries by India's leading pharmaceutical companies have failed to pay any major gains during 2005-06 as the interest costs have eaten into the growth of the bottomlines. The consolidated net profit of 18 major Indian pharmaceutical companies, with operations in international markets, remained under pressure during the year 2005-06 as compared with their standalone working as per a study did by Pharmabiz.

The study shows that despite a significant rise in other income and lower provision for taxation, the consolidated net profit growth of these companies was very negligible at 1.6 per cent as compared to 12.5 per cent in their standalone profitability.

The sharp rise in interest cost due to acquisitions and setting up of subsidiaries in regulated markets restricted the growth in bottom line during 2005-06. Further, stiff competition in generics in international markets, higher selling as well as employees cost put additional pressure on consolidated performance than standalone working. Out of 18 companies, the growth of consolidated net profit of 11 companies was lower as compared to growth in their standalone net profit.

The consolidated net profit of 18 companies increased only by 1.6 per cent to Rs 2456 crore from Rs 2417 crore in the previous year. Whereas, the standalone net profit of these companies moved up by 12.5 per cent to Rs 2399 crore from Rs 2133 crore.

During the year DRL acquired betapharm, Germany, Biocon acquired Nobex Inc, USA, Sun Phama acquired Universal Enterprises (P) Ltd in Sikkim and Nicholas invested Rs 91.46 crore in Avecia Ltd UK. Sun Pharma has set up new subsidiaries in UK, South Africa and Peru. Stride Arcolab has invested Rs 6.56 crore in Akorn Strides LLC, a 50:50 joint ventures in USA and acquired 90 per cent holding in Medgene Pharmaceuticals Pvt Ltd. Further the company has stepped up its investment to 67 per cent in Strides Latina S.A. Cipla Ltd, the second largest pharma company in India, has not invested any amount in subsidiaries or acquisitions.

The consolidated profit after interest and depreciation but before tax and extra-ordinary (PBT) items declined by 2.6 per cent to Rs 2745 crore from Rs 2819 crore. However, standalone PBT improved by 13.7 per cent to Rs 2688 crore. This shows that the consolidated results which includes results of recently acquired companies or foreign subsidiaries have failed to generate profits during 2005-06.

The consolidated net profit of Ranbaxy Laboratories declined by 63.5 per cent to Rs 255.53 crore from Rs 699.69 crore. However, its standalone net profit declined by 56.2 per cent to Rs 231.42 crore from Rs 528.47 crore. Nicholas Piramal managed to improve its standalone net profit by 0.5 per cent to Rs 170.35 crore but its consolidated net profit declined sharply by 22.8 per cent to Rs 127.44 crore from Rs 165.17 crore. Glenmark Pharm pushed its standalone net profit by 6 per cent to Rs 67.30 crore, but its consolidated net profit declined sharply by 15.3 per cent to Rs 90.74 crore.

Biocon, IPCA Laboratories and Dabur Pharma suffered setback in consolidated as well as standalone profitability during 2005-06. The consolidated net profit of Biocon declined by 12 per cent to Rs 173.95 crore. However, its standalone net profit declined more steeply by 23.5 per cent to Rs 133.48 crore. IPCA's consolidated and standalone net profit declined by 17 per cent and 20.7 per cent respectively.

The consolidated interest cost of 18 companies went up by 38.4 per cent as compared to rise in standalone interest cost of 13.4 per cent only during 2005-06. The consolidated interest cost of Dr Reddy's Lab (DRL) and Ranbaxy Laboratories went up by 496 per cent and 100 per cent to Rs 64.42 crore and Rs 67.12 crore respectively. DRL obtained a long-term loan amounting to Rs 2160 crore from Citibank N.A., Hong Kong to fund the acquisition of beta Holding GmbH. This pushed its interest cost to Rs 64.42 crore during 2005-06 from Rs 10.81 crore in the last year. Biocon, Dishman, Jubilant, Glenmark and Nicholas managed to reduce their consolidated interest cost. Sun Pharma maintained its Zero Interest status in 2005-06 also.

Despite sharp rise in interest cost, Dr Reddy's Laboratories achieved significant growth in its consolidated as well as standalone performance during the year 2005-06 and benefited through its acquisition. Its consolidated net profit went up by 346 per cent to Rs 146.73 crore and the standalone net profit by 222 per cent to Rs 211.13 crore. Though Lupin registered excellent growth of 88 per cent in consolidated net profit, its standalone profit increased more sharply by 116.6 per cent. J B Chemical, Panacea Biotec and Wockhardt recorded higher growth in consolidated net profit as compared to growth in standalone net profit 2005-06.

The growth in net sales for 18 companies in respect of consolidated as well as standalone remained at almost same level at 17 per cent during 2005-06. Consolidated net sales touched to Rs 22,389 crore from Rs 19,113 crore in the previous year, a growth of 17.1 per cent. The standalone net sales increased by 17 2 per cent to at Rs 18,232 crore from Rs 15,553 crore. Ranbaxy's consolidated as well as standalone net sales declined by 3.1 per cent and 2.6 per cent respectively. Sun Pharmaceuticals, Stride Arcolab, Glenmark, Dishman Pharma, Nicholas Piramal and Biocon improved the growth rate in consolidated sales than the growth in standalone net sales.

The consolidated other income of 18 companies went up sharply by 50.8 per cent to Rs 587 crore and their standalone other income increased by 33.7 per net. The consolidated other income, including License fees and Services income, of DRL went up sharply to Rs 136.64 crore from Rs 71.92 crore in the previous year. The consolidated other income of Sun Pharmaceuticals and Lupin went up by 259 per cent and 216 per cent to Rs 160.82 crore and Rs 74.10 crore respectively.

The consolidated staff cost increased by 20.4 per cent as compared to 13 per cent rise in standalone cost. There was significant rise in consolidated staff cost of Dishman Pharmaceuticals (up by 60.3 per cent), Glenmark Pharma (57.2 per cent), Jubilant Organosys (68.4 per cent), Nicholas (24.5 per cent) and Sun Pharmaceutical (54.8 per cent).

Few companies issued Foreign Currency Convertible Bonds (FCCBs) to reduce the interest burden and part finance their expansion plans. Lupin and Panacea Biotec issued FCCBs of US$ 100 million and Glenmark issued FCCBs of $ 30 million.

The Rs.650 crore Matrix Laboratories is not included in this study as the company furnished consolidated figures for the first time. Matrix consolidated the figures of Docpharma NV, Mchem Group, China, Concord Biotech, India and joint ventures - Astrix Laboratories, Inida and Fine Chemical Corporation of South Africa. Matrix's consolidated net sales for the year ended March 2005 reached at Rs 1158 crore and it earned a net profit of Rs 199 crore.
View Table Standalone v/s Consolidated performance Standalone v/s Consolidated performance of 18 Cos
View Table Standalone v/s Consolidated performance of 18 Cos