Indian Pharmaceutical companies are all set to register bumper growth in sales and profits in the current year. A Pharmabiz study of top 50 pharmaceutical companies during first six months of 2006-07 shows that their net profit moved up by 40 per cent and sales by 25 per cent.

The aggressive entry into the regulated markets, new product launches, investments in expansion and R&D, acquisition in foreign countries and rising contract manufacturing activities are the factors that helped to achieve such a performance. These factors will continue to boost the overall working of pharma segment in the next half.

The net profit of 50 pharma companies, selected by Pharmabiz, improved by 39.7 per cent to Rs 2,424 crore in the first half of 2006-07 from Rs 1,735 crore in the same period of last year. The profit before interest, depreciation, taxation and extra-ordinary items went up by 38.8 per cent to Rs 3,793 crore from Rs 2,734 crore, despite major rise in cost of raw materials, staff and selling and administration. The profit before tax moved up by 42.4 per cent to Rs 2,928 crore from Rs 2,056 crore. With expansion programmes going ahead, the interest cost of Pharmabiz sample of 50 companies increased by 32.5 per cent to Rs 301 crore from Rs 227 crore. Similarly, commissioning of new plants mainly at Baddi, Himachal Pradesh and other parts by several companies pushed the depreciation provision by 25.4 per cent to Rs 564.89 crore during the first half of 2006-07 from Rs 450.56 crore in the last period.

The sample of 50 companies did not include major companies like Ranbaxy Laboratories, Wockhardt Ltd, Sterling Biotech, Stride Arcolabs, Indoco Remedies, Granules India and also host of multinational companies like Pfizer, GlaxoSmithKline Pharma, Aventis Pharma, Abbot India, AstraZeneca Pharma, Merck Ltd, Fulford (India) and Solvay Pharma as their year ending is not March.

Among the list of 50 companies, leading ten companies namely, Cipla, Dr Reddy's Laboratories, Sun Pharmaceuticals Industries, Lupin Ltd, Aurobindo Pharma, Nicholas Piramal India, Cadila Healthcare, Ipca Laboratories, Orchid Chemicals and Torrent Pharma achieved net sales growth of 29.3 per cent at Rs 9154.40 crore during the first half of 2006-07 from Rs 7078.57 crore reported in the same period of last year. The net sales of 10 leading companies worked out to 60 per cent of total sales generated by 50 companies.

The top ten companies in the study posted a net profit growth of 52.1 per cent to Rs 1,712 crore as against 1,125 crore in the corresponding period of last year. Dr Reddy's Labs (DRL) net profit has taken a quantum jump of 136.7 per cent to Rs 404.47 crore from Rs 170.88 crore basically due to acquisition of Betapharm, a leading generics pharmaceuticals company in Germany. DRL's net sales also increased by 49.2 per cent to Rs 1,537 crore from Rs 1,030 crore.

Similarly, Aurobindo Pharma's net profit went up sharply to Rs 90.85 crore from Rs 5.65 crore in the last period and its net sales touched to Rs 918.56 crore from Rs 600.14 crore, a growth of 53.1 per cent. Cipla continued its strong performance and notched up a net profit growth of 49.9 per cent to Rs 351 crore and net sales growth of 31.8 per cent to Rs 1,760 crore.

However, the net profit growth of Nicholas Piramal India (NPIL) and Torrent Pharma was restricted to single digit to 8.3 per cent and 2.0 per cent respectively during first half. Torrent Pharma's net profit restricted mainly due to losses from acquisition of Heumann Pharma GmbH & Co Generika KG, Germany during July 2005 and commissioning of its plant at Baddi. Its standalone exports also remained static in latest half. NPIL's net moved only by 8.3 per cent mainly due to higher non operating other income in the last period as compared to latest period. We have not included Jubilant Organosys in the top companies as its sales of pharmaceutical segment were only 42 per cent, (Rs 357.60 crore) of its gross sales of Rs 830.80 crore.

The investment in subsidiaries, joint ventures and mergers and acquisitions of Indian pharma companies has increased during the first half. DRL acquired Betapharm Group for a consideration o Rs 2,606 crore. Cipla set up a wholly owned subsidiary 'Cipla FZE' at Jebel Ali Free Zone, Dubai, United Arab Emirates to aid logistics and to explore new export opportunities. Cadila Healthcare increased its investment in Zydus International Pvt Ltd to Rs 21.37 crore and also in Zydus Myne Oncology Pvt Ltd, a joint venture, to the tune of Rs 4 crore. Further it has subscribed Rs 5.59 crore to the capital of Zydus Healthcare, a partnership firm. NPIL acquired balance 51 per cent stake in its 49:51 joint venture company Boots Piramal Healthcare Pvt Ltd. Further, NPIL acquired balance 40 per cent equity stake in its 60:40 joint venture company NPIL-Dr Phadke Pathology Laboratory & Infertility Centre Pvt Ltd.

Torrent Pharma has set up a wholly owned subsidiary Torrent Australasia Pty Ltd in Australia and contributed Rs 30 lakh to equity capital. Further it has made an additional investment of 18.45 crore in equity shares of Zao Torrent Pharma, Russia. Aurobindo has acquired a US FDA compliant GMP facility in Dayton, New Jersey, which has fully integrated state of the art R&D, formulation manufacturing and distribution facilities with potential for future expansion. Orchid Chemicals acquired balance shares in Bexel Pharmaceuticals Inc, USA to make it a wholly owned subsidiary.

The raw material cost of 50 companies increased by 24 per cent to Rs 7,017 crore in the first half of 2006-07 from Rs 5,661 crore in the corresponding period of last year. Similarly, the staff cost also went up sharply by 31.1 per cent to Rs 1,278.92 crore from Rs 976 crore. The competition is intensifying day-by-day, the companies have to spend more on marketing .The 50 companies' other expenses, which includes selling and distribution expenses, increased by 25.3 per cent to Rs 3,760 crore from Rs 3001 crore in the previous period. Despite significant rise in these expenses, the working results are strong during the first half of 2006-07.

If the operations of companies move in similar lines, the pharma segment will be able to produce healthy growth in operations in the whole of 2006-07 with higher return to investors. However, the interest cost is likely to go up as the Banks are stepping up interest rates on borrowings. Further, faster integration of acquired companies and early positive outcome of R&D efforts will be crucial factors for growth.
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