Facing Competition

Updated: Dec 25 2002, 05:30am hrs
The legislative body of the New Jersey, a US state, has cleared a bill that bars outsourcing from state enterprises to India. The news led to selling in most of the IT stocks on the bourses. Since the enforcement date of the bill is not known, it is likely to come into force only by July next year. This means that there would be no immediate effect on the IT companies.

Though other US states might pass similar bills, it should not be a major cause of concern if DSP Merrill Lynch, a research firms report on Global IT contracts is anything to go by. The report says that a very few contracts from state government owned enterprises come to Indian IT companies. The research firm has illustrated its point with last 10 months data.

Although government contracts constituted 25 per cent of the total 215 contracts, they have been on the decline. A large number of these contracts from the government domain were in the business process outsourcing (BPO) field that included contracts for administration of medicare benefits. Most of these contracts had gone in favour of large domestic companies such as EDS and CSC in the US, Logica and CMG in the UK and Cap Gemini in continental Europe. The area where Indian IT sector has made inroads is the maintenance and fresh development area that constituted 40 per cent of the total contracts. The sagging US economy has helped the cause of Indian IT companies as lower profits force US firms to go for cost cutting through outsourcing from Indian firms. In fact, this could be the reason behind Wipros recent statement that the pricing pressure is gradually easing.

Besides passage of the bill, investors are also reading too much into rupee appreciation against dollar. Although the Indian IT companies have benefited from weaker rupee in the past, the benefit has been very negligible. The forex gain formed less than two per cent of the bottomline for leading software companies during the last fiscal. Moreover, the Indian IT companies would surely factor in the rupee appreciation as it is a well-known fact that rupee is still undervalued by 2.5 per cent on trade weighted basis. Consequently, they would not like to keep their earnings in dollar terms for a long period as was the case when rupee was depreciating. One should also not forget that even if the outsourcing from India becomes marginally costlier, US does not have many alternatives to India except for a few Latin American companies.

Glenmark Pharma
Glenmark Pharmaceuti cals (Glenmark) turnover has spurted 63 per cent to Rs 92.7 crore during the quarter to September 2002. The spurt may be attributed to higher volumes from introduction of new products in fast growing segments and steady sales of existing brands. The companys products in dermatology, gynaecology and paediatric segments contribute around 68 per cent to the topline. Though the top three products in Candid, Ascoril and Altacef range still account for almost half of operating revenue, new products such as Esoz and Glevo have also aided the growth.

Besides the increase in sales, various cost cutting measures including a reduction in product distribution chain ensured a 28 per cent rise in operating profit to Rs 19 crore. But OPM nosedived to 20.6 per cent (26.2 per cent). Net profit swelled 43 per cent to Rs 11.8 crore.

Glenmarks sales mix is heavily tilted in favour of domestic market with only 15 per cent export sales. In a bid to double the contribution of exports to topline by 2004, the company has shifted its focus from non- regulated countries to regulated countries such as US and Europe.

Recently, Glenmark acquired bulk drug manufacturing facilities at Ankleshwar from GlaxoSmithKline. This should help in reducing the cost of raw materials besides widening of product base in different therapy segments.

The company has also invested Rs 25 crore in R & D on diabetes, obesity and asthma segments that are likely to witness high growth rates in the next few years. Glenmark is currently working on four new molecules in asthma segment under its drug discovery programme. While two of them are in pre-clinical stages currently, GRC 3015 and GRC 1087 are in late pre-clinical stages. The company is planning phase I study of GRC 1087 in Europe during the next financial year. This drug is useful for treatment of Type-two diabetes in which patients pancreas produces inadequate insulin and is also found to reduce triglyceride and act as an anti-obesity agent. The company also has several other lead compounds under development.

Laxmikant Khanvilkar & Dhruv Rathi