Laggard In New Introductions

Updated: Dec 22 2002, 05:30am hrs
The Novartis scrip jumped by more than 10 per cent during last week from Rs 225 to Rs 249 fired by expectations of buyback of shares by the company. The trading volumes also jumped up from a daily average of 4,881 shares during the week ended December 6, 2002 to 36,673 shares every day during the week ended on December 13, 2002. There are strong expectations that the company will buy back shares at a price of Rs 310 per share.

Earlier, the Indian shareholders had protested against the companys buyback move. They fear low floating stock and eventual delisting of the share. The share price has slid steadily from Rs 291 in April 2002 to Rs 247 currently. The companys below industry average performance in sales also led to a fall in price.

Novartis net sales income during the second quarter to September 2002 grew 7.7 per cent at Rs 130.6 crore. The pharmaceutical segment grew 18.7 per cent and contributed 62 per cent to the turnover. It has low investment and higher profitability than other businesses. It accounts for 83 per cent of total profit before tax but only 11.5 per cent of total capital employed, thanks mainly to a large share of trading in turnover and aggressive marketing strategy.

Operating profit increased by a hefty 25.5 per cent at Rs 46.3 crore and margins shot up from 30.4 per cent to 35.5 per cent. However, the current growth momentum is difficult to sustain in the future because of exchange rate movements as well as the Drug Price Control Order. Net profit surged by 48 per cent to Rs 32 crore.

Novartis faces the prospect of its major brand, Voveran (diclofenac), the third largest selling brand in the country, may come under price control. It brings in over Rs 72 crore of sales accounting for 15 per cent of total revenue. Price control will have an adverse impact on the sales and profitability of the company. This may have made investors wary.

The company is not aggressive in floating new introductions in a wide range of therapies. It has launched type - two diabetes drugs. The company also intends to introduce new drugs in anti-hypertension products and cholestrol reducing agent. Diabetes is one of the fastest growing therapeutic segments in India, with growth rates estimated at 30 per cent. Further, unlike many other diseases, diabetes cannot be cured but controlled. This provides a regular market for the companys products. To this end, the company has created a dedicated field force for promoting anti-diabetes range, to improve its sales and profitability.

The biochemie segment has proved a laggard as it saw an eight per cent decline in sales. It contributed 22 per cent of turnover during the quarter. The biochemie division consists of branded generics and unbranded generics. The company will focus on branded generics to enhance growth of the segment in terms of both turnover and profitability.

The consumer health division that contributed seven per cent to turnover had to face 11 per cent decline in sales in the quarter. The companys main products in this segment are Calcium Sandoz, Sandocal and Otrivin. This division has low profitability on account of heavy advertisement and promotional expenses. Animal Health division contributed eight per cent to turnover. Margins in this segment continue to be under pressure on account of hectic competition from generics.

The company expects to maintain a steady growth of its new products. There is stiff competition from generics, particularly in poultry and fly control market. Unsteady demand affects the performance of the segment. The company plans acquisition of brands, and will also forge co-marketing agreement with other domestic players as its future growth strategy. Further, the company plans to explore in-licensing and alliance opportunities. Most pharma companies are very active in this direction to enhance their presence and market share as well as to benefit mutually.