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India’s third largest pharmaceutical company on Thursday reported strong operating numbers for the quarter ended September.
The company's consolidated net profit grew 76 per cent to Rs 690 crore during the quarter, on the back of higher margins, lower taxes and higher sales of its generics. The sharp run-up in profit was also partly due to an extraordinary expenditure (gross impairment charges of Rs 69 crore; Rs 50 crore net of taxes) in the previous corresponding quarter as well as a tax reversal of Rs 68 crore in the September quarter. Adjusted for these items, the net profit for the year-ago period would stand at Rs 457 crore, while for the September quarter it would be Rs 622 crore, representing a growth of 36 per cent year-on-year (y-o-y). Nevertheless, this adjusted profit was higher than the Street estimates of Rs 465-490 crore.
The company’s gross profit margin improved by 560 basis points during the quarter to 58 per cent in the second quarter of FY14. The company’s revenues grew by 16.5 per cent to Rs 3,357crore, y-o-y, during the second quarter. Gross profit margin for global generics stood at 66 per cent and that for pharmaceutical services and active ingredients (PSAI) stood at 25 per cent during the quarter.
The company said the gross margin for the generics business improved primarily on account of higher contribution from new product launches in North America, whereas the pharmaceutical services business saw gross margin decline, primarily owing to lower number of launches and higher overheads.
<b>Drug launches</b>
The company said it was an exceptional quarter, registering the highest-ever revenues and net profit so far in any quarter. This was because it gained a revenue upside from a combination of strong launches, namely decitabine, azacitidine, donepezil 23mg and divalproex ER. The company was the sole generic player in decitabine and donepezil, according to Abhijit Mukherjee, president (global generics).
The company's shares touched 52-week high at Rs 2,540 on the BSE exchange in the morning but ended lower by Rs 66.70 at Rs 2,456 against the previous close on profit booking. Said Satish Kantheti of Zen Securities: “There has been a 50 per cent run-up this year and there was also a rally in anticipation of good second quarter numbers. The profit growth was helped more by things like currency depreciation, lower tax expenses and absence of impairment losses.”
Revenues from its largest business segment, global generics, which accounted for 79 per cent of sales, grew 32 per cent to Rs 2,655 crore for the quarter, aided by revenues in North America rising 43 per cent to touch Rs 1,320 crore in the second quarter compared to the year-ago period. Generics revenues in Russia and other emerging markets, too, grew at 40-plus per cent level.
However, Europe remained flat. Similarly, the company's net profit margin went up to 20.6 per cent, compared to 13.6 per cent in the year-ago period. Revenues from India grew 8.5 per cent to Rs 420 crore in this quarter, despite the channel disruptions in the light of the new drug price regime.
Total expenditure rose 11.23 per cent to Rs 2,621.44 crore from Rs 2,357 crore in the year-ago period. The increase in expenditure was mainly on account of over 20 per cent growth in selling expenses and increased spending on R&D, which grew 70 per cent to Rs 301 crore.
During the quarter under review, the company entered into an asset purchase agreement with Ecologic Chemicals Limited, in which two directors of the company have equity interest. The company has paid for Rs 126.42 crore (excluding taxes and duties) for these assets and current assets, based on valuation from independent valuers. The company said these acquisitions will help augment its manufacturing capacity in meeting the future requirements of PSAI business.
