With a net margin of 41%, that distinction goes to Serum Institute of India, the country’s leading maker of covid-19 vaccines. It is in good shape to earn profits from the sale of covid-19 vaccines. But with its robust financial position, has it done enough on the investing and pricing side to earn the respect and goodwill of a pandemic-stricken nation?
In 2019-20, 418 Indian companies posted revenues of above ₹5,000 crore, according to corporate database Capitaline. For every rupee of revenue, the company that earned the maximum net profit was Serum Institute of India—the vaccine manufacturer that has become pivotal to India’s recovery from this pandemic. On net sales of ₹5,446 crore, Serum earned a net profit of ₹2,251 crore. Or, a net margin of 41.3%.
Companies a notch below on this metric were either in the business of finance (like Citibank and Muthoot Finance) or were monopoly operations (such as Hindustan Zinc and Nuclear Power Corporation). There were 18 pharma companies in this ₹5,000 crore set. The next best was Macleods Pharmaceuticals, with a net margin of 28%.
Serum’s high margins becomes relevant since the company was in prime position to service India’s covid-19 vaccine needs when the pandemic struck. It was the world’s-largest vaccine manufacturer by doses. As early as April 2020, it was a partner in the promising Oxford AstraZeneca covid-19 vaccine candidate, which became Covishield. It had significant financial reserves to expand capacity.
But subsequent choices by the Indian government and Serum squandered that position. Unlike many countries, the Indian government didn’t show urgency to structure and lock up vaccine supplies. Serum waited for the Indian government to commit funds, rather than risk more of its own. Those choices have contributed to a public health debacle. For Serum, it’s still likely to end up as good business, though not as exceptional, or as respectable, as it could have been.
The Poonawalla Group, which owns Serum, also has interests in horse breeding, real estate, finance and aviation. Between 2008-09 and 2015-16, Serum’s revenues grew at a compounded annual rate of 23% to ₹4,630 crore and net profit at 28% to ₹2,191 crore. But between 2015-16 and 2019-20, revenue growth fell to 4% and net profit stayed flat, even though profit margins still remained high. The coronavirus pandemic should boost growth significantly.
According to press statements by Adar Poonawalla, CEO of Serum, the company expanded its annual manufacturing capacity from 1.5 billion doses to 2.5 billion, and will increase it to 3 billion by October. In India, the question is how much, and how soon, can it supply to states. So far, in about four months, it has supplied a total of 150 million doses. A May 3 press statement from Serum said it will supply 110 million doses each to the Centre and states in “the next few months".
That’s inadequate to meet India’s demand quickly. Vaccinating 850 million above the age of 18 years will require 1.7 billion doses. So far, India has given about 170 million. Serum is also servicing multilateral requirements. Could Serum have built more capacity in advance? In a 7 April interview to NDTV, Adar Poonawalla said the company needed ₹3,000 crore, either from the Centre or banks, to reach monthly production of 100 million covid-19 vaccine doses.
As of March 2020, Serum had ₹5,675 invested in the group’s other business ventures. But it also had a treasury portfolio of about ₹4,000 crore. How much of this it used to expand capacity will be known only later this year when Serum makes its 2020-21 filings. What is known is that in late-April the Centre gave it a net advance of ₹1,732 crore. Serum has also received $150 million (or about ₹1,100 crore) from the Bill and Melinda Gates Foundation, as part of the Gavi COVAX arrangement.
In that same interview, Poonawalla said Serum was profitable at the ₹150 per dose (about $2) it was supplying to the Centre. However, it had “sacrificed super profits, which we would need to further build capacity, innovate and compete with the western companies".
From 1 May, the Centre passed on procurement to states and private hospitals. Serum said it would charge states ₹400 per dose and private hospitals ₹600 per dose. Amid charges of profiteering and vaccine inequity, Serum cut the price for states “as a philanthropic gesture" to ₹300 per dose. At that price, 500 million doses translates into revenues of ₹15,000 crore—about thrice of what Serum currently does in a year.
The latest quarterly results of Pfizer, which sold vaccines at about $20 per dose, indicate the windfall that awaits covid-19 vaccine makers.
Five of Pfizer’s business lines grew between 9% and 29%. The sixth, vaccines, grew 203%. In 2019-20, Serum’s material cost was 14% of its revenues. It is in good shape to earn profits.
But will it earn the respect and goodwill of a pandemic-stricken nation?