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THE INDEX
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Debt-driven growth
Crisil Q3: Ratings ratchet up business
Sachchidanand Shukla & Dhruv Rathi
Crisil, aided by a smart rebound in overall business during
the quarter to December 2001, has posted a robust 62 per cent
growth in its top line to Rs 16 crore. The factors like tardy
industrial activities, slow investment and credit demand, despite
falling interest rates, adversely impacted the rating major
during the last few years.
However, during the latest quarter, ratings segment grew 53
per cent to Rs 11 crore which has accounted for 70 per cent
of its revenue. Revenue from advisory services doubled to Rs
3.5 crore accounting for 22 per cent.
Despite a pick up in rating services through fiscal 2001, the
company’s inability to check its expenses has further dented
its profitability. In view of the fact that rating is a service
business, staff expenses are high. Yet, cost control has led
to a spurt in Crisil’s operating profit to Rs 8.8 crore. Consequently,
OPM jumped by over 21 percentage points to 53 per cent on top
of an improved performance in the immediately preceding quarter.
However, despite being a debt-free company, high depreciation
and tax charges that rose 55 per cent and 85 per cent respectively
pared down the bottomline growth to 21 per cent at Rs 5.4 crore.
Besides the improved corporate debt activity, enhancement of
rating portfollio to include hospital grading services may help
Crisil. The company’s leveraging of its dot com subsidiary also
augurs well. The dot com subsidiary has launched real time market
coverage service - CRISIL Marketwire (CMW) that boasts of the
second largest subscription base in the country.
Debt rating business today is a far cry from the peaks of 1994-95.
Even if the current pick up in debt appraisal activity is sustained,
a 65 per cent market share in the rating industry will substantially
improve Crisil’s financial performance during the current fiscal.
However, Crisil’s high dependence on the ratings business will
keep its earnings prone to volatility owing to the cyclical
nature of the business.
Parke Davis
Parke Davis is all set to merge with Pfizer Ltd. After major
changes such as the sale of Saki Naka plant and premises and
downsizing, the company is relying more on trading.
Net sales during the quarter to September 2001, declined marginally
to Rs 57 crore (Rs 58 crore). Operating profits also came down
eight per cent to Rs 9.5 crore and margin from 17.9 per cent
to 16.7 per cent. A decline of 43 per cent in other income to
Rs 2.3 crore was a major reason.
After the sale of a substantial part of fixed assets, depreciation
sharply declined by 69 per cent to Rs 0.5 crore. This helped
the company to post net profit at Rs Rs 5.2 crore up 35 per
cent.
The merger of Parke Davis with Pfizer will lead to overlapping
of brands in the same therapeutic segments. In cough syrup segment,
Parke Davis has “Benadryl” and Pfizer has “Corex” brand. Benadryl’s
annual sales is around Rs 25 crore and Corex’s Rs 71 crore.
During the last few years, Benadryl’s growth has been stagnant
but Corex has been growing at 15 per cent a year, fired mainly
by a steady increase in its price.
Other products of Parke Davis do not clash with Pfizer’s. Parke
Davis boasts many household brands like “Gelusil”, “Waterburrys
compound”, “Ferradol”, “Agarol”, “Neko soap” and “Listerine”.
The company’s product basket covers many therapeutic groups
like gynecology, cardiology, neurology, paediatric and anti-infectives.
It has a network of 2000 stockists evenly spread over four major
regions of the country helping the company to move its drugs
all across the country efficiently.
The market share of ‘Benadryl’ and ‘Gelusil’ has been falling
as a result of strong competition from other brands like Corex
(Pfizer) and Digene (Knoll). The company is likely to spend
Rs 25 crore on strengthening of these brands.
After the merger, the company will benefit from the marketing
muscle of Pfizer’s additional 800 market representatives. The
company will also benefit from huge research and development
of their parent company that may spend $ 4.7 billion on research
and development.
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