Fluoxetine Factor

Updated: Jan 30 2003, 05:30am hrs
Dr Reddys Laboratories (DRL), has disappointed markets by reporting a 5.1 per cent decline in net sales at Rs 374.5 crore during the third quarter to December, 2002. DRL has begun to face a reversal in formulation business sales. A continuous slide in fluoxetine sales and absence of any research and development licence fees this time around, have compounded the situation for DRL. Its bottomline has sunk by 42.3 per cent to Rs 93.2 crore.

On the operational front too, DRL has faced tough terrain as expenses have gone up. Raw material expenses grew 19.2 per cent at Rs 129.6 crore, while R&D expenses 13.9 per cent to Rs 32.4 crore. Staff cost went up by 8.2 per cent to Rs 26.9 crore. Overall, operating expenses grew by 18 per cent to Rs 272.2 crore. Consequently, operating profit declined by 37.6 per cent to Rs 102.3 crore. Last year OPM improved because of the 180 days marketing exclusivity period for fluoxetine drug. Now the exclusivity has ceased. Other income, up 124.5 per cent to Rs 19.4 crore and lower interest cost, down 39 per cent to Rs 26 lakh, did provide some breather to the bottomline that did not sink further.

DRL had received Rs 10.8 crore towards one time R&D licence fee, while fluoxetine sales contributed close to 25 per cent in turnover last year. However, with the end of marketing exclusivity period, fluoxetine sales dropped by 63 per cent to Rs 36.3 crore during the latest quarter. Its share in total turnover fell to just 9.7 per cent ( 25 per cent ). For the cumulative nine month period to December 2002, fluoxetine sales show a 71 per cent drop to Rs 75.7 crore.

A chunk of DRLs sales continues to come from formulation business that accounted for close to 61 per cent of turnover. However, the segment has witnessed an eight per cent decline in sales. On the other hand, bulk drugs that account for 38.5 of total turnover, have witnessed 14.4 per cent increase in sales. In formulations, branded products sales rose by 10.9 per cent to Rs 164.4 crore, while that of generic formulations declined by 32.7 per cent to Rs 76.5 crore.

Interestingly, DRLs sales exclusive of fluxetine sales and R&D licence fees show an increase of 18.9 per cent to Rs 338.2 crore. This is largely because of strong demand for API (active pharmaceutical ingredients) from generic companies.

Grasim Industries
In Grasims growth during the quarter to December 2002, viscose staple fibre (VSF) business has played a vital role. A 21 per cent rise in VSF sales volume, thanks to higher capacity utilisation at 109 per cent (86 per cent) coupled with three per cent improvement in price realisation, has resulted into 23.4 per cent increase in sales to Rs 413.1 crore. The divisions profitability catapulted by close to 1000 basis points to 36 per cent.

Although the cement divisions volumes also improved by 13 per cent, a drop of six per cent in cement prices restricted the sales growth to 9.4 per cent at Rs 545.5 crore. Profitability of the division stood at 14 per cent (11.2 per cent). These two divisions account for more than 80 per cent of the companys aggregate topline and operating profit. Consequently, total turnover grew by 11.1 per cent to Rs 1,166.6 crore and operating profit soared by 47.4 per cent to Rs 285 crore. Interest fell by 21.2 per cent to Rs 40.5 crore. PBT before exceptional items and tax almost doubled to Rs 195.6 crore despite a fall in other income to Rs 14.2 crore (Rs 21.6 crore). Provision for tax (including deferred tax as per AS-22 of ICAI) nearly trebled to Rs 61.5 crore that restricted growth of PAT after exceptional items to 48 per cent at Rs 133 crore. Apart from VSF and cement, improvement in sponge iron and chemicals businesses is also noteworthy. Sponge iron used in steel manufacturing did well primarily because the user industry has shown a sharp recovery. Consequently, sponge iron prices have moved up by around 17 per cent to Rs 6,320 per MT. Chemical business also grew on the back of 15 per cent volume growth even though prices of caustic soda declined globally.

Grasim has entered into a share purchase agreement with ONGC for sale of 15 crore shares of MRPL at Rs two per share. If the sale is completed before the end of the current fiscal, the loss on sale of investments will knock off Grasims bottomline by close to 40 per cent (based on annualised net profit figure of the first nine months) or Rs 209 crore.

Laxmikant Khanvilkar and Manish Joshi