The Indian pharma segment has notched up better recovery during the first quarter of new financial year 2005-06, after overcoming the teething problems it had to face regarding VAT, MRP based excise duty, patent regime and stiff competition in generics in the regulated markets.
The PHARMABIZ study of 75 pharmaceutical companies revealed that the standalone net sales increased by 18.9 per cent and standalone net profit moved up by 22.5 per cent during the first quarter ended June 2005. The significant growth is mainly on account of improved performance by top companies with net sales above Rs 500 crore during 2004-05.
The recovery in the topline and bottomline built up investors' confidence and the BSE Healthcare index of 23 major pharmaceutical companies started moving towards northward and touched to 3040 on August 12, 2005 as compared to 2,267, an year ago. The market capitalisation also improved with better performance.
Pharma analysts aver that the current trend is likely to continue in the remaining part of the financial year. Though the marketing conditions in the international level are becoming difficult, the Indian companies are filing DMFs and ANDAs aggressively in the regulated markets. This will help largely to push market penetration in a big way. The setback during the last quarter of 2004-05 was temporary and the companies will be able to overcome problems.
Click here to view Table showing Information on Highlights for 75 Cos
The net sales of Pharmabiz sample of 75 companies for the first quarter ended June 2005 (With few companies having second quarter as their year ending is in December) touched to Rs 8976 crore as against Rs 7547 crore in the corresponding period of last year, registering a growth of 18.9 per cent. Out of 75 companies, the net sales of only 8 companies viz. Aurobindo Pharma, Orchid Chemical, Aarti Drugs, KDL Biotech, Morepen Laboratories, Krebs Biochemicals and Makers Laboratories declined during the quarter under review. The major companies like Ranbaxy Lab, Nicholas Piramal, Matrix Laboratories, Pfizer India, Unichem Laboratories, Divi's Laboratories managed to achieve single digit growth in net sales.
Though some companies failed to generate higher sales, companies like Torrent Pharma, Panacea Biotec, Ind-Swift Laboratories recorded a growth of more than 50 per cent in net sales during the quarter ended June 2005. Further, major companies like Cipla, Dr Reddy's Lab, GSK, Lupin, Sun Pharma, Jubilant Organosys, Wockhardt, IPCA Laboratories, Novartis India, Panacea Biotec, Sterling Biotech, Glenmark Pharma, J. B. Chemicals, Elder Pharma, Stride Arcolab, Indoco Remedies, Dabur Pharma, Surya Pharma, TASC Pharma, etc achieved net sales growth of more than 20 per cent.
The other income of 75 companies went up by 23.9 per cent to Rs 374.87 crore from Rs 302.44 crore in the similar period of last year. The other income of Dr Reddy's Lab increased to Rs 23.39 crore from Rs 14.63 crore in the last quarter. Sun Pharma's other income touched to Rs 119.97 crore from Rs 53.49 crore. The other income (including technology licensing income) of Lupin moved up to Rs 12.96 crore from Rs 3.91 crore. The insurance claim of Rs 9.1 crore pushed the other income of Matrix Lab to Rs 17.82 crore from Rs 2.56 crore. Ranbaxy's other income declined sharply to Rs 54.57 crore from Rs 95.63 crore as its other operating income declined to Rs 46.20 crore from Rs 69.79 crore.
The pharmaceutical companies are taking steps to reduce the manufacturing cost. The analyst pointed out that to overcome the competition, reduction in manufacturing cost is essential. The Indian companies are giving tough time to MNCs by implementing cost effective measures. The spending on R&D is going to put pressure for short time but it will give upper hand in long run for Indian companies.
This can be seen from the rise in the cost of raw material, staff expenses and other income. The raw material cost of 75 companies increased only by 12 per cent to Rs 4151 crore from Rs 3706 crore in the corresponding period of last year. The staff cost moved up by 14.9 per cent to Rs 737 crore from Rs 642 crore. Ranbaxy incurred a staff cost of Rs 84.57 crore and Dr Reddy's Rs 51.86 crore. Cipla's staff cost increased to Rs 39.22 crore from Rs 30.17 crore.
The operating profit before interest, depreciation, tax and extra-ordinary items (OPBIDT) of 75 companies increased by 19.8 per cent to Rs 2072.58 crore from Rs 1729.94 crore in the last year quarter ended June 2004. The OPBIDT of Dr Reddy's increased by 102 per cent to Rs 112.67 crore from Rs 55.73 crore. GSK's operating profit moved up by 81.1 per cent to Rs 171.23 crore and that of Sun Pharma's profit saw a growth of more than 60 per cent at Rs 137 crore during the quarter ended June 2005. The OPBIDT of Ranbaxy, Aurobindo, Biocon, Abbott Laboratories, Glenmark, Matrix Lab, etc. declined steeply. Ranbaxy's profit came down to Rs 126.64 crore from Rs 250.71 crore and that of Aurobindo's declined to Rs 26.63 crore from Rs 42.04 crore.
Click here to view Table showing Information on Financial Performance : Quarter ended June 2005 & 2004
The pharmaceutical industry needs to invest large funds on upgradation of technology and research and development. This attracts heavy interest burden. However, the softening of interest rate during last couple of years assisted companies to strengthen their bottomline. The interest burden of 75 Indian pharma companies increased only by 3.7 per cent during the quarter ended June 2005 to Rs 150 crore from Rs 144 crore in the similar period of last year. Only Aurobindo Pharma and Orchid Chemical incurred interest cost above Rs 10 crore in the quarter under review. The depreciation provision increased by 16 per cent to Rs 289.22 crore from Rs 249.37 crore mainly due to investments in new plants and machinery.
The Pharmabiz study of 75 pharma companies includes 8 multinational companies like GlaxoSmithKline Pharma, Aventis Pharma, Pfizer India, Novartis India, Abbott India, Merck Ltd, Wyeth Ltd and Solvay Pharma India. These 8 companies achieved net sales of Rs 1330 crore during the quarter ended June 2005 as compared to Rs 1068 crore, registering a growth of 24.5 per cent. Further, reduction in assets and workforce helped them to push their net profits by 43.9 per cent to Rs 265.80 crore from Rs 184.65 crore. According to an analyst, the MNCs with strong support from holding companies will grab opportunities ushering under new patent laws in the coming years.
Click here to view Table showing Information on MNCs Indian Operations
While commenting on the working of pharma segment, the analyst said that this is too early to project performance for the year 2005-06 as MNC may bring new products into the Indian market. Further, the generic competition in the international market may put pressure on Indian major companies. The adverse fluctuation in foreign currency may impact the working in the remaining part. Early result from R&D investments for the companies is very crucial.