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Business News/ Money / Piramal’s domestic pharmaceutical biz comes to its rescue
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Piramal’s domestic pharmaceutical biz comes to its rescue

Piramal’s domestic pharmaceutical biz comes to its rescue

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Pharmaceutical companies in the custom manufacturing business suffered in fiscal 2010. Multinationals responded to the economic downturn by keeping low levels of inventory, which resulted in very low activity for their contractors. In fiscal 2009, Piramal Healthcare Ltd (PHL) had got nearly one-third of its sales from its custom manufacturing division. In 2010, this figure dropped to a fourth, as sales declined by 17% during the year and by 29% during the March quarter.

In the March quarter, PHL’s custom manufacturing division’s performance improved somewhat, but not as expected. Sales fell by 29% compared with the year-ago quarter, but grew by 3% sequentially. Overseas revenue grew by 42%, as orders picked up, but the Indian operations reported a 29% drop. Domestic revenue was expected to be flat on a sequential basis.

As a result, the custom manufacturing business missed its annual guidance by 7%. While this business can fluctuate across quarters, over the longer term, the company expects 2011 to be better. Pfizer Inc. has extended its contract and the non-Pfizer business of Piramal’s Morpeth facility in the UK is growing, lowering risk. Profitability has improved as it shut one of its UK facilities. PHL’s critical care business and diagnostics business both did well, performing as expected.

The change in PHL’s product mix helped it to do more than just grow sales. More sales from the higher-margin healthcare solutions division meant that material costs grew by just 8.5%, while sales grew by 10.7% in the March quarter, compared with the year-ago quarter. Lower research expenses and other expenditure too pitched in, and operating margins improved by 2 percentage points to 23%. Other advantages are lower inventory levels and debtor (outstanding) days, which lowers its working capital requirement.

Consensus estimates for fiscal 2011 indicate that PHL’s sales will rise by 14% to Rs4,220 crore and its net profit will grow by 17%. The domestic pharmaceutical market is expected to grow by around 13-14% in calendar 2010, which should see companies such as PHL continue to grow ahead of the market. Its acquisition of emergency contraceptive drug i-pill will also be reflected in the current fiscal. While the domestic market powers growth, its ability to surprise investors depends on its ability to expand the custom manufacturing business in 2011.

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Published: 09 May 2010, 09:10 PM IST
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