Strides Arcolab received major setback during the second quarter ended June 2006 and its consolidated net profit declined sharply by 59.5 per cent to Rs 5.87 crore from Rs 15.86 crore in the corresponding period of last year, despite 34.5 per cent jump in consolidated net sales. Lower other income and higher cost of raw material as well as higher staff cost put pressure on bottom line.

The company's consolidated net sales touched to Rs 167.29 crore as against Rs 124.35 crore. With sharp fall in profits, its EPS worked out to Rs 1.33 as compared to Rs 3.98 in the last period. The other income declined to Rs 0.87 crore from Rs 6.80 crore and its cost of raw material increased to Rs 82.96 crore from Rs 50.99 crore. Further, its staff cost during the quarter ended June 2006 increased to Rs 26.28 crore from Rs 19.22 crore.

The company's consolidated net sales and net profit for the first half ended June 2006 reached at Rs 300 crore and Rs 14.46 crore respectively.

The standalone net sales for the first six months of the year 2006 increased by 40.3 per cent to Rs 208 crore. However, its standalone net profit declined by 11.6 per cent to Rs 14.28 crore from s Rs 16.16 crore in the corresponding period of last year mainly due to severe capacity constraints in its Oral Dosage Form facility, upgradation of Sterile plant to meet upcoming regulatory compliances and higher R&D expenditure.

The up-swing of business in its low margin TB and AIDS division which were contractual in nature and capacity constraints resulted in supply chain issues in delivering more profitable orders during the quarter. The capacity issues also led to sales being affected to its subsidiaries due to supply constraints from India. Mexico continues to face challenges and reports a loss of Rs.35 million. Strides Inc although reporting stronger growth, is a few quarters away from breakeven, Arun Kumar, Vice Chairman and Group CEO, Strides Arcolab. The financial performance for Q2 '06 which generated significant revenue growth, but has thrown up a few challenges, he added.

The company expects more challenges because of capacity issues in Oral Dosage Form facility in India will only be fixed by end of Q4 to meet its increasing demand especially in its AIDS, TB and Malaria businesses. New product approvals expected by H107 in Mexico will enable the operations to bring profits by 2007."