Abbott India (AIL)

© AIL, 65.14% subsidiary of Abbott, USA, provides healthcare solutions through its four business units -

1. Primary Care - markets products in the areas of Pain Management and Gastroenterology.
2. Specialty Care – Metabolic & Urology provides solutions in areas of Thyroid, Obesity, Diabetes (around half of company’s sales comes from insulin, which is sourced from Novo Nordisk – non Abbott entity and marketed in India) and Benign Prostatic Hyperplasia.
3. Specialty Care - Neuroscience, with specialty products in the Neurology and Psychiatric segments.
4. Hospital Care - offers products in the field of anaesthesiology and neonatology namely Forane, Sevorane and Survanta.

© AIL’s parent company – Abbott Inc., USA (2007 sales US $ 26 billion) is focused on pharmaceutical & nutritional segment besides offering diagnostic, medical and surgical devices. Abbott has strong product pipeline to support its growth and research base which will help it to launch new products on regular basis. However, AIL’s parent is waiting for further clarity on product patent regime in India and once this is in place, it should act as a major trigger for the Indian arm MNC pharma companies as a whole as they may to launch new products in India.

AIL will be launching new products in segments like CNS, gastro-intorology, pain management, metabolism, areas in which company has expertise and are the strategic growth segments. In CY 2008, it has launched “Aluvia” - anti HIV-Aids drug. It is Abbott Inc.’s product globally marketed as “Kaletra”.

© Going ahead, focus is more on revitalizing existing matured but well known big brands like Digene, Ganaton, etc. Such revitalization reverses declining trend in sales of such products. Such revitalization and deeper penetration of these brands will be driving volume growth for the company. These products are earning much higher margin than insulin, where it earns just distribution margins.

© Another focus area would be Hospital Care business. This is very niche and growing business with sales of ~ Rs. 60 crore (accounting for ~ 10% of sales). Here, company is targeting corporate chains of hospitals and world-class facilities like Fortis Healthcare, Apollo Hospital, etc. Such corporate hospital segment is growing @ CAGR > 20%, driven by increasing demand from high and medium affordability segments of population. These changes present increased opportunities for AIL and to capitalize on the same, it set up independent cross divisional field structure.

© Thus, new product launches from parent’s portfolio and revitalization of existing popular brands (which in turn results in increasing focus on non-insulin products) is expected to drive both topline as well as bottomline growth as.

© Its cash rich company with surplus cash & cash equivalent > Rs. 165 crore, i.e. Rs. 115/- per share. To utilize the cash efficiently, AIL bought back equity shares @ Rs 650/- reducing equity share capital to Rs 14.47 crore (Rs 15.28 crore) in CY 2007 and has proposed to undertake another buy-back at same price reducing its equity capital further to Rs 13.67 crore, if successful. This would enhance shareholder value.

AIL has reported not so encouraging performance for Q2 CY 2008. Net Sales increased by 9.1% to Rs. 168.1 crore. However, OPM% dipped to 11.2% (13.5%) mainly due to sharp increase in staff cost to 6.7% (5.9%) of sales as company is spending a lot on HR development, staff training, etc. Material cost also increased to 70.4% (69.5%) of sales. Consequently, PBT declined by 8.6% to Rs. 24.85 crore Nevertheless, lower tax rate of 26.9% (32.7%) saved the day and PAT remained stagnant at Rs. 18.17 crore.