GSK Pharma: Healthy state

Improved sales in core pharma division drive up the profits

The operating profit of GlaxoSmithKline Pharmaceuticals grew by 8.5 per cent y-o-y to Rs 156.7 crore in the September 2007 quarter, as core pharma sales improved by 5.2 per cent on a yearly basis.

The higher demand for products focussed on the dermatological and anti-infective segments contributed to the improved sales figures. The company also leveraged sales from Arixtra, an anti-coagulant launched in the June 2007 quarter.

The company's total operational income (including other income for clinical research done for its parent) rose by 6.2 per cent to Rs 440.9 crore. Other income amounted to Rs 20.1 crore in Q3 CY07, a y-o-y growth of 24.8 per cent.

The results of the September 2007 quarter are not strictly comparable with a year earlier, following sale of the animal health business to Virbac in July 2006 for Rs 207 crore.

Nevertheless, the operating profit margin (without including the Virbac income) grew 70 basis points y-o-y to 35.5 per cent in the last quarter.

MNC pharma player Pfizer reported a 3.5 per cent decline in its core pharmaceuticals division revenues for the quarter ended August 31, 2007. However, a tight check on operational costs helped the operating profit margins to expand 60 basis points y-o-y to 26.3 per cent.

Meanwhile, Glaxo sold its fine chemicals business, a part of the other business segment, for a total consideration of Rs 240 crore with effect from September 30. Analysts highlight that the fine chemical business had sales to the tune of Rs 97 crore in the first half of CY07 and margins of 22 per cent.

Glaxo launched Carzec, a medication for congestive cardiac failure, in the September 2007 quarter. This would facilitate the company's entry into the growing cardiovascular market and complement its diabetes portfolio.

Glaxo is expected to realize revenues from this product over the next few quarters. The stock trades at 21 times estimated CY07 earnings and about 18 times CY08 earnings.

Opto Circuits: Making waves

Medical equipment player Opto Circuits has reported a solid performance in the September 2007 quarter. The inorganic growth strategy has worked well for the equipment maker, helping its consolidated net sales to grow 121 per cent to Rs 124 crore.

Opto Circuits entered the coronary stent segment by acquiring Eurocor in 2006. It also bought a balloon catheter maker during the year.

In Q2 FY07, Opto bought two companies manufacturing catheters, stone graspers and dilator sets used in urology, gastroenterology and gynaecology.

Opto has seen good demand for existing products such as sensors and pulse oximeters, as also acquired products such as stents and catheters.

However, the operating profit, growing at an annual 103 per cent, did not keep pace with the rise in revenues. The operating profit margin declined 250 basis points to 28.9 per cent, mainly due to the rupee appreciation.

Going forward, Eurocor's stents are likely to gain acceptance in more markets. For example, a study on the paclitaxel-eluting stent Taxcor was published in an Italian journal, and the management announced that more studies will be published.

In its core business of medical equipment, the company has entered into a technology transfer agreement with an Italian company to make ECG machines.

The management is looking for more acquisitions in invasive as well as non-invasive segments. It has also applied for a US FDA approval for Dior, its balloon dilation catheter.

The stock has been a major outperformer on the bourses, nearly doubling in the past six months. It trades at about 20 times FY09 estimated earnings and is likely to be an outperformer.