Excluding the VRS expenses, the bottomline in the first half of the current year would have been higher by 34.9 per cent at Rs 29.0 crore. The current VRS, being offered to workers at its Worli Formulation unit, is meant to solve several problems.
Because of restrictions in the expansion of production facilities within city limits, Glaxo wants to move the work being done in the Worli unit to its new unit in Nashik.
The VRS is expected to aid the move. Moreover, if all the workers accept the VRS, the company will also be able to rent out the space in Worli and earn some extra income. The first half operations witnessed the launch of several new products including T-bact, Flutivine ointment, Seftun and Glaxmocil.
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This is part of the parent, Glaxo Plcs strategy to utilise the marketing strength of its Indian subsidiary in promoting its research products as well as that of the other MNCs like Smith-klineBeecham and Zeneca.
The above launches helped Glaxo Indias net sales achieve a growth of 16 per cent, rising to Rs 331.77 crore (Rs 286.43 crore).
However the launch caused expenditure to increase by 16 per cent to Rs 294.12 crore (Rs 253.47 crore). The operating profit margin was therefore stagnant at 18.4 per cent and is expected to improve once the benefits the cost control measures starts accruing.
While the interest and depreciation marginally moved up by 16.1 and 6.49 per cent, the tax burden came down substantially by 30.1 per cent.
The lesser tax liability is due to the reduction in the corporate tax rate from 43 per cent to 35 per cent.
However the recent decision by the government to cut down the price of the anti-ulcer bulk drug ranitidine is expected to hurt Glaxo in the long term.
The government has slashed the price of the bulk drug by 30 per cent, from Rs 1,714 per kg to Rs 1,203 per kg.
The downward revision will mean that the price of the formulations based on it will also come down. Glaxos brand Zinetac, which is based on ranitidine and accounts for 11 per cent of the companys turnover, will consequently be affected.
However, since the patent rights of ranitidine have expired from July 25, 1997, the parent might source it from the Indian subsidiary helping it to compete on better terms with new rivals coming into the off-patents market.
On the other hand, the first half results of Burroughs Wellcome, soon to be formally merged with Glaxo, achieved a 65 per cent growth with the aid of lower interest outflow at Rs 0.88 crore (Rs 2.18 crore) and lesser outflow under VRS at Rs 0.83 crore (Rs 3.11 crore).The companys profits went up to Rs 6.04 crore (Rs 3.65 crore).
The merger will, therefore, not only help Glaxo to sustain its leadership with a combined market share of 7.1 per cent but also help it safeguard its margins as most of Burroughs products are outside the purview of drug price control order.
Mahindra & Mahindra
Despite the slowdown in the automobile industry, Mahindra & Mahindra has recorded a 5 per cent growth in sales between April 1 and August 20 in 1997. This is in contrast to the 10 per cent decline in the sales reported by Telco in the first quarter of 1997-98.
This growth is largely because of the buoyant sales in the tractor division. Tractor production went up by 32.4 per cent to 27,115 units (20,467 units), while sales moved up by 25.5 per cent to 25,523 units (20,333 units).
As a consequence M & M consolidated its market share in the tractor segment, improving its share from 27 per cent to 29 per cent. Analysts attribute this growth to the strong brand image and distribution network of the company, coupled with improved agricultural credit facility in the recent budgets.
Overall, production displayed a growth of 7.2 per cent to 28,005 units (26,120 units), while the sales went up by 4.9 per cent to 26,889 units (25,614 units).
Mahindra has drawn its strategy to push up growth through new product launches and improvements in its existing models. The launch of Armada Grand - which targets the urban segment to compete against the Sumo of Telco