Good Results From Glaxo

For the year ended December 1996, performance is quite impressive with a smart jump in profit margins. The companys emphasis on its pharmaceutical products is paying off. The successful VRS run last year has reduced manning levels to more manageable levels. This is reflected in the increase in margins at the operational level, which improved sharply from 7.51 per cent to 11.21 per cent. Analysts say that a closure and the subsequent replacement of some of Glaxos depots by clearing and forwarding agencies should further reduce administrative and distribution costs.

Though latest sales figure stands at Rs 645 crore, a direct comparison with the previous year is not fair because the figures recorded then include the three-month sales of its family products business which was sold in September 1994. If those are excluded from the previous years figures the growth works out to 20 per cent on an annualised basis.

 

Industry observers attribute the rise in revenue to a volume-led growth, achieved largely because of Glaxos extensive product portfolio. A strong marketing network and brand leadership with three productsBetnesol, Zinetac and Phexinamong the top fifteen selling brands in India has also helped. Glaxo controls a 5.3 per cent market share. Higher realisation from Cephalosporin have also made its contribution.

Glaxos income from non-operational business has declined as the company has distributed 50 per cent of the proceeds of the sale of the family business. Other income has fallen from Rs 39.63 crore (annualised) to Rs 31.48 crore.

It has also utilised surplus funds from the extraordinary income which has resulted in reduced borrowings. This, in turn, has lowered interest of Rs 8.73 crore up to December 1996 against Rs 9.57 crore (annualised) in the previous period.

But earnings growth cannot be compared to last year because of a host of reasons. The company has amended its accounting policy regarding the valuation of finished stocks and work-in-process.

The company has also accounted for the leave encashment liability on an actual basis and there are also some non-recurring charges for the VRS scheme, apart from an extraordinary income from the sale of business in the previous year. The earnings per share has declined from Rs 20.24 (annualised) to Rs 8.01. Of course, earnings were bloated in the previous year since sales of family products business stood at 93 per cent of net profits.

With introduction of new products and expansion of existing products, industry analysts expect Glaxo to maintain its sales growth in the current year. Various cost measures should also help to improve profit margins.

But an area of concern for the shareholders of the company could be the exchange ratio for the merger of Glaxo and Burroughs Wellcome which is yet to be decided.