Pharmaceutical Companies Mock At Downturn, Outdo Indices

When most pivotals are losing their glitter in the free market fall, pharma stocks, mainly bulk drugs manufacturers, have been appreciating in the last six months. Even the recent devaluation of rouble by 50 per cent seems to have little impact. Analyst say this is primarily because 80 per cent of India's trade is in rupee account.

Pharma majors Dr Reddy's Laboratories and Ranbaxy gain substantial export sales income from Russia. Dr Reddy's closed at Rs 487 as on August 18 marginally lower than the previous day's close at Rs 489, whereas Ranbaxy expects a temporary slowdown in demand till the new pricing. It fell to Rs 495, down five per cent, from the previous day's close.

 

Glaxo gained 6.9 per cent in last six months. Good half-yearly performance and a 15 per cent sales growth target for the year have been the major boost for the company. It has written off voluntary retirement scheme (VRS) costs to the tune of Rs 22.3 crore last year and is also banking on take-over of Biddle Sawyer to spur sales.

Novartis, whose pharma sales account for 44 per cent of total sales, gained nearly 49 per cent in the last six months. The merger saw the company achieve synergies in costs specially in the pharma division.

Looking at the six months scenario, the Business Standard Pharma Index has outperformed the BSE Sensex by appreciating 15 per cent compared with a 14 per cent fall in the BSE Sensex. Pharma analysts attribute it to growing bulk drugs exports and encouraging first quarter performance. The first quarter results of 35 companies show a 24.8 per cent rise in sales and a hefty 31.9 per cent growth in net profit. In 1997-98 their sales were up 15 per cent and net profit increased by 24 per cent. Jigar Shah, analyst at K R Choksey, opines that the pharma index would continue to outperform the market in the coming three to four months. However, unlike software stocks, the growth in pharma stocks is visible only in big Indian as well as multinational players. Dr Reddy's Laboratories, German Remedies, Pfizer Aurobindo Pharma, Krebs Biochemicals, German Remedies, J B Chemicals and FDC have gained ground.

However, a few pharma stocks are not only quoting below their issue price, but are available below their paid-up price. Of select 49 pharma scrips, 18 companies are quoted below the issue price and 14 other are traded below their paid-up price. Chemox Laboratories is currently available at Rs 2.50 against an issued price of Rs 35, Vimta Labs at Rs 1.30 against an issue price of Rs 15 and Lactose placed at Rs 1.20 against an offer price of Rs 13. Core Healthcare is facing a bad time with its market price dipping to Rs 15 compared with an issue price of Rs 150. Eupharma was quoted at an all-time low of Rs 11 against an issue price of Rs 100, while Recon is available at Rs 22 compared with an issue price of Rs 100.

Aurobindo Pharma, a bulk drug manufacturer, has been the largest gainer. The scrip gained 175 per cent than a year ago and 253 per cent in the last six months. While a 1:1 bonus came in handy, the first quarter performance wheeled the price movement. On a first quarter sales growth of 69 per cent, net grew by 87 per cent. The company, a largest producer of semi-synthetic penicillin products, is making a foray in formulation with an investment of Rs 25 crore. It is also planning to launch a wide range of cephalosporin drugs that are going off patent world-wide in the next four years.

The usual toppers like Dr Reddy's Laboratories gained 64 per cent, while German Remedies and Pfizer around 75 per cent each than a year ago.

Though Dr Reddy's quoted at Rs 487, lower than a 52-week high of Rs 582, it is still considered a good buy by pharma analysts. The ability to tap international market (a rise of 84 per cent of formulation export in the first quarter) has been the major advantage.

Pfizer with the relaunch of Zithromax, now Vicon, second of its kind after Amlogard, has seen the scrip moving up. The cost of Vicon has also being lowered to Rs 39 per tablet against Rs 99 earlier. Satisfying first quarter performance and a likely withhold of bonus issue in the current year have seen German Remedies gain 73 per cent in last year. BS Research Bureau

Sales income was Rs 34 crore and net profit was Rs 2 crore in the first quarter.

Alembic Chemicals, a fermentation expertise company, gained nearly 144 per cent in six months. The commencement of 'Cephalosporin C', a precursor for seven-aminocephalosporanic acid may see the company better prospects. Commencement of a new plant and resolvement of labour problem have been a major boost for Unichem Laboratories.

Wockhardt's strategic global alliance for marketing and acquisition of Merind have done good for the shareholders as it gained 48 per cent in last six months.

However, Ranbaxy Laboratories failed to gain in the current rally. The scrip fell nearly 29 per cent in the last six months owing to the devaluation of rouble and also on the reports of the European Unions' proposal to impose a counter veiling duty of 14 per cent on a broad spectrum of antibiotic import from India. Europe, CIS and Africa together form nearly 21 per cent of the total pharmaceutical sales of the company.

Kopran's demerger of semi-synthetic penicillin division in Kopran Drugs failed to gain substantial momentum as it fell 13 per cent in the last six months. Astra IDL is lower by 24 per cent than six months back with the news of the likely sale of the foreign partner Astra's stake. It gained 11 per cent than a month ago. A turnaround in earning per share to Rs 23 in 1998 from Rs 14 in 1997 has been a boost for the company .