The financial performances of leading Indian pharmaceutical companies continue to be dismal while medium scale companies are showing better results during the nine months period of the current year.

A Pharmabiz study of 50 large, medium and smaller pharma companies reveals that during the nine months period ended December 2004, net profit recorded only a 4.2 per cent rise as compared to the same period of the previous year. The combined net profits of these 50 companies stand at Rs 1,987 crore during the nine months period as against Rs 1,908 crore achieved in the corresponding period of last year. The net profit margins remained static at 13.9 per cent for both the periods.

Heavy investment in R&D, significant spending on new product launches and approvals abroad are putting additional burden on large companies. Stiff competition in generics and adverse fluctuations in exchange rates restricted the top line growth. Out of 50 companies, the net profit of 20 companies declined during the period under review.

The net sales of these 50 companies increased only by 10.7 per cent during the first nine months of fiscal 2004-'05 to Rs 15,181 crore from Rs 13,712 crore. Based on the nine months working, the Pharmaceutical sector is likely to achieve a topline growth of just 11 to 12 per cent during the whole of 2004-'05 and even much lower growth of 4-5 per cent in bottomline.

This growth in net profits was mainly due to selling of fixed assets with high premium by MNCs, higher non-recurring adjustments and higher other income. However, the pharmaceutical industry has known for offering higher returns in the form of bonus issue or dividends to its investors, which will likely to continue in the current fiscal also due to better reserves and surplus position.

In PHARMABIZ study, only 50 companies, which have completed nine months during December 2004, have been taken. Some of the important Indian players like Ranbaxy, Wockhardt and Sterling Biotec, and multinationals like GSK, Pfizer, Aventis, Abbott, AstraZeneca, Solvey Pharma, Merck, Wyeth and Fulford are not included in the study as their accounting year ends in December. However, while projecting figures for 2004-05, working of few companies, which have announced results for the year 2004, have been included.

Among the sample of 50 companies, 9 companies recorded net sales of above Rs 500 crore during the nine months period ended December 2004. These nine companies viz Cipla, Dr Reddy's Lab, Nicholas Piramal, Aurobindo Pharma, Lupin, Cadila Healthcare, Sun Pharmaceuticals, Ipca Laboratories and Orchid Pharma, achieved net sales growth of 7.1 per cent, but their net profit after tax and exceptional items declined by 4.6 per cent. The net sales of these nine companies grew to Rs 8406 crore from Rs 7848 crore in the corresponding period of last year whereas the net profit declined to Rs 1078 crore mainly due to fall in profit of Dr Reddys Lab, Aurobindo Pharma, Lupin and Orchid Pharma.

Highlights of 50 Pharma Companies (9 months period ended Dec 2004 & 2003)
Company size	No.of co	Net sales		% Change	Net profit		% Change
		Dec-04	Dec-03		Dec-04	Dec-03
Sales Above Rs 500 cr	9	8406.06	7847.62	7.1	1078.25	1129.66	-4.6
Sales between Rs 200 cr to Rs 500 cr	14	4541.65	3906.47	16.3	763.85	656.06	16.4
Sales between Rs 100 cr to Rs 200 cr	8	1168.63	935.91	24.9	99.85	58.25	71.4
Sales below Rs 100 cr	19	1065.14	1021.74	4.2	45.37	63.94	-29.0
Total	50	15181.48	13711.74	10.7	1987.32	1907.91	4.2

The 14 companies, having sales between Rs 200 crore and Rs 500 crore, performed well during the first nine months of 2004-'05 as compared to top nine companies. Especially, Biocon, Glenmark Pharma, Panacea Biotec and Elder achieved all-round improvements. The net sales of these 14 companies group increased by 16.3 per cent to Rs 4542 crore and their net profit after tax and exceptional items went up by 16 per cent to Rs 764 crore from Rs 656 crore. Out of 14 companies, the net profit of four companies i.e. Novartis India, Torrent Pharmaceuticals, FDC Ltd and Divi's Laboratories declined in the range of 8 per cent to 31 per cent. Alembic notched up net profit growth of 108.3 per cent despite fall in net sales by 2.6 per cent. Biocon Ltd and Glenmark Pharma recorded a rise of 60.7 per cent and 75.1 per cent in net profit.

The third group of 8 companies with net sales above Rs 100 crore reported excellent growth in terms of net profit as well as modest growth in net sales. The net profit of these eight companies for the nine months ended December 2004 shot up by 71.4 per cent to Rs 99.85 crore from Rs 58.25 crore. The net sales of these companies moved up by 24.9 per cent to Rs 1169 crore from Rs 936 crore. Except Surya Pharmaceutical, all other companies such as Aarti Drugs, Dabur Pharma, Ind-Swift Ltd, Ind-Swift Laboratories, Arch Pharmalabs, Ajanta Pharma and TASC Pharmaceuticals achieved strong growth. The net profit after tax and exceptional items of Ind-Swift Ltd, Ind-Swift Laboratories and TASC Pharma went up by more than 150 per cent.

Relatively small companies with net sales below Rs 100 crore failed to generate better results during the first nine months of 2004-'05 and likely to put burden on overall working of pharmaceutical sector. In the PHARMABIZ sample of 50 companies, there are 19 companies with net sales of below Rs 100 crore. The net sales of these 19 companies increased only by 4.2 per cent to Rs 1,065 crore from Rs 1,022 crore in the corresponding period of last year. The net profit of these 19 companies declined sharply by 29 per cent to Rs 45.37 crore from Rs 63.94 crore as the profit of 11 companies declined during the period under review. Among this group of net sales below Rs 100 crore, few companies like Indoco Remedies, Themis Medicare, Ankur Drugs, Vimta Labs, Wanbury, Ahlcon Parenteals, Venkat Pharma and Venus Remedies reported higher net sales and net profit. However, the net profit of companies like RPG Life Sciences, Zandu Pharmaceutical, Krebs Biochemicals, Suven Life Sciences, Anuh Pharma, Makers Laboratories and Alpha Drug declined. The net loss of KDL Biotech and Kopran increased to Rs 10.82 crore and Rs 21 crore respectively.

Indian companies are fighting to grab new opportunities by investing in research, entering into technical and marketing collaborations with world giants, undertaking mergers and acquisitions in regulated markets and exploring new markets by launching cost effective products. Further, some kind of uncertainty about the implementation of patent regime and impact of changes is creating insecurity for the future working. Financially strong companies will be able to overcome present challenging conditions successfully, but it will be difficult for the small players (with net sales below Rs 100 crore) to adjust with the changing business conditions in the long run. There will be more and more mergers and acquisitions and big players may consolidate their positions. Implementing new business strategy and changing accordingly will take some time to generate higher earnings.

Click to view table showing Financial Performance for nine months ended Dec 2004 & 2003