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Appreciating Re and high wage affect bottomline of pharma cos

Appreciating Re and high wage affect bottomline of pharma cos
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First Published: Tue, Feb 12 2008. 03 52 PM IST
Updated: Tue, Feb 12 2008. 03 52 PM IST
New Delhi: Hit by appreciating rupee and high wage cost in the domestic market along with regulatory changes and significant price cuts in the international market, the bottom line of pharma companies recorded a minimal growth of 5% during the Q3 ending December 2007, according to an AEP study based on the Quarterly Results of 20 drug and pharmaceuticals companies.
Key Findings
* Against an average growth in raw material cost of about 8%, average hike in wage cost was as high as 21%
* Significant pricing pressures across US and European markets coupled with appreciating rupee and high wage cost have eroded margins of the major players
* Companies recording major fall in net profits included market leaders like Dr Reddy’s Laboratories (91.6%), Ranbaxy Laboratories Ltd. (65.2%) and Cadila Healthcare Ltd (21.7%). Other players that suffered a decline in their bottom line were Shashun Chemicals and Drug Ltd (41.5%), Aurobindo Pharma (8.1%) and Dabur Pharma (7.52%)
* Owing to appreciation of rupee to the extent of 12% over last year, sales of pharma sector have seen growth of just about 13.5%; about 40% of drug and pharma sales are made offshore
* Dr. Reddy, India’s leading pharma house reported decline in net sales by 34.4%; Dabur Pharma posted fall in net sales by 15.15% from Rs76.62 crore in Q3 FY07 to Rs65.01 crore in Q3 FY08; Ranbaxy Laboratory Ltd too recorded marginal fall in total sales by nearly 1%
*Sun Pharma Ltd posted an impressive growth of about 49% in their top line; pharma companies like Orchid Chemicals and Pharmaceuticals Ltd (39.36%), Cipla Ltd (25.43%), Cadila Healthcare (21.81%), Ipca Lab Ltd (20.24%) and Nicholas Piramal India Ltd (19.16%) also recorded decent increase in net sales in Q3 2007-08 against Q3 2006-07
* Contraction in margins of companies in the sector further got aggravated by rising wage bills; Orchid Chemicals and Pharmaceuticals reported hike in wage cost by 46.7% from Rs19.24 crore in Q3 2006-07 to Rs28.24 crore in Q3 2007-08; Aurobindo Pharma Ltd, Cipla Ltd, Cadila Health Care Ltd and Ranbaxy Laboratory Ltd recorded major hikes in their personnel costs by 44.39%, 39.35%, 36.99% and 26.35% respectively
* Some drug makers like Shashun Chemicals and Drugs Ltd reported an increase in their raw material cost by 56.8% in Q3 ending December ’07 over the previous year; Cadila Healthcare Ltd also witnessed a rise in raw material cost by 37.8%, from Rs112.7 crore in the Q3 2007-08 to Rs155.4 crore in Q3 2006-07
* Increase in prices of active pharmaceutical ingredients (API) contributed to decline in net profits; due to China’s growing stress on eco-protection norms and imposition of Olympic Games’ cess on few exports, prices of imported raw materials from China including API went up 5-8% in 2006-07
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First Published: Tue, Feb 12 2008. 03 52 PM IST