Professional Documents
Culture Documents
Analysis
Swathi Velisetty
MMS -1
107
Novartis India
Contents
Introduction....................................................................................................3
History....................................................................................... .....................3
Board Members..............................................................................................3
Subsidiaries....................................................................................................4
Business Model.............................................................................. .................5
Business Segments.................................................................................... .....5
Pharmaceutical................................................................................. ...........6
Generics......................................................................................................9
OTC................................................................................................... .........12
Animal Health............................................................................................13
Research And Development..........................................................................14
Financial Analysis....................................................................................... ...16
Income Statement.....................................................................................16
Quarterly Results.......................................................................................18
Ratio Analysis............................................................................................20
The way ahead.............................................................................................25
Novartis in India is a leading provider of innovative solutions to improve health and well-being
through products and services in the areas of pharmaceuticals, over-the-counter products,
nutrition, eye care and animal health.
The Group has a presence through three entities namely, Novartis India Limited, Novartis
Healthcare Private Limited and Sandoz Private Limited and employs more than 2000 people
across the country.
Sandoz Private Limited houses all the four manufacturing facilities which are located at Thane,
Kalwe, Turbhe and Mahad.
History
Board Members
• Dr Erwin Chillinger ,Chairman
• Ranjit Shahani ,Vice-Chairman & Managing Director
• Asha Mirchandani ,Executive Finance Director
• Dr Rajen Mehrotra ,Director
Subsidiaries
Raw material is brought to the manufacturing plant; usually the entire manufacturing occurs in
the small location by Novartis Itself. In some cases, pre- processed materials are bought.
Packaging is very essential in drugs due to stringent laws about information they carry and the
quality packaging is what differentiates a brand from another.All the finished drugs are stored in
the central warehouse. From here they are transported by road to the various locations
.depending upon type of drug, it is accordingly distributed in pharmacy outlets or directly sold
to customers.
Business Segments
The businesses comprise Pharmaceuticals, Generics, OTC and Animal Health. The
operational performance of the business is reviewed by the management based on such
segmentation.
(i) The Pharmaceuticals segment comprises a portfolio of prescription medicines which are
provided to patients through healthcare professionals. These are mainly products of original
research of the Novartis Group.
(ii) The Generics segment comprises Retail Generics products. The business unit primarily
focuses on the therapeutic segments such as Anti-TB, Anti-DUB (Gynaecology), Anti-
histamines, Antibiotics, Anti-ulcerants, Anti-diabetes and Cardiovascular.
(iii) The Animal Health segment has a presence primarily in the cattle, poultry and
aquaculture market segments.
Pharmaceutical
Growth Drivers
The rise in disposable income has a positive impact on healthcare spend. In 2005, 6.2 percent of
disposable income was spent on healthcare as compared to 2.8 percent in 1995.
At present, organized players account for a meagre 2 percent share of the pharma retail market.
It is expected that with the advent of modern retailing in India, increasing investments in this
space will multiply the availability and accessibility of pharma products.
At present, only 4 percent of the healthcare costs are borne by the insurers in India as against 80
percent in developed economies. With increasing health insurance penetration in India, this is set
to change and forward, a larger proportion of expenses will be paid by insurers and consumption
of sophisticated drugs is likely to become more affordable.
The existing therapy mix is tilted towards acute diseases. However, in the medium to long run
the domestic pharmaceutical market will be largely driven by the increasing prevalence of the
chronic segment. Increasing urbanization, changing lifestyles and ageing population will drive
the growth of this segment. In most cases, ailments in the chronic segment are recurring in
nature, which ensures regular consumption of medicines for the lifetime of the patient. Going
forward, therapies for treating cardiovascular diseases and diabetes are expected to have one of
the highest growth rates.
In terms of the geographical distribution of the Pharma market, 23 Metro cities account for
approximately a quarter of the market. Class I towns— comprising 300 towns altogether—
account for about one-third of the market. Rural markets which account for 21 percent of the
total market have been increasingly becoming an important market for big pharma companies.
• Government initiatives
The National Rural Health Mission (NRHM), introduced by the government to provide basic
healthcare amenities in the rural areas, is expected to increase the access to drugs in the rural
After the product patent regime was introduced in India in 2005, the domestic pharma industry
has witnessed the launch of around 11 patented products by multinational companies. This
number is expected to grow, as MNC pharma companies are already planning significant
patented launches over the next few years. Various industry estimates suggest that by 2015,
patented drugs will account for 10-15 percent of the domestic pharma market.
Key considerations
• PPP
70 percent people in this country do not have access to modern medicine. 700 million people in
a population of 1 billion. That is a problem that the government needs to solve. There has to be a
public private partnership to reach medicines to these 700 people
• Spurious drugs
According to the Mashelkar committee report, the industry faces a loss of around INR 40 billion
due to substandard drugs and a WHO report suggests that 35 percent of spurious drugs of the
world are being produced in India. Spurious and counterfeit drugs are a major public health
hazard.
• Price control
Uncertainties regarding the Draft Pharmaceutical Policy 2006, which proposes to bring 354
essential drugs under the purview of Drug Price Control Order (DPCO) continues to be an area
of acute concern for the industry. The pharma industry feels that regulation should try to
simulate the "effects of competition" and price control should not be imposed on drugs where
the "effects of competition" already exist. The proposed policy would significantly increase
DPCO’s span of control from the existing 25 percent to approximately 50-60 percent of all
medicines produced.
• High fragmentation
A report by the Institute for Studies in Industrial Development (ISID), a national level policy
research organization in the public domain, mentions that in 2000-01 there were approximately
2872 pharma units in India and out of these 91 percent were small manufacturing enterprises.
Challenges
• Changes in regulatory environment e.g. VAT,MRP based Excise, Service Tax etc.
Planned Actions
2007 2006
• The Pharmaceuticals business registered a growth of 5% over the previous year with
sales of Rs 3835 million.
• Higher sales of the Voveran® range, the No. 1 Non-Steroidal Anti-Inflammatory drug in
India, due to the epidemics of chikungunya and dengue fever partially offset by a price
reduction in Tegrital™.
New products and line extensions introduced during the period under review were:
– Epilepsy ,Epitril MD
The business continues to hold leadership position in major therapeutic areas such as:
Indian companies are increasingly advancing beyond domestic boundaries and are aggressively
focusing on making their mark in the global generics space. In order to reduce their dependence
on the U.S. market, Indian pharma companies are now entering new and underserved generics
markets across different geographies such as Japan, South Africa, European and Commonwealth
of Independent States(CIS) countries and Latin America. While the global generics industry
continues to remain under severe pricing pressure, the Indian generic drug makers continue to
spread their wings across different international markets.
Growth Drivers
Globally, the generics industry is expected to grow at a Compound Annual Growth Rate
(CAGR) of 11 percent between 2006 and 2010 and touch USD 94 billion by 2010. At
present, India has only 10 percent market share in this industry.
• Regulated markets
U.S. - The world’s largest generics market, European Union (EU) – regulatory reforms to
drive growth and Japan – Low generics penetration and Government legislation to drive
growth
• Emerging markets
Emerging markets such as Russia and the CIS nations, Eastern Europe; Brazil and other
Latin American countries and South Africa are increasingly being viewed as highly
remunerative markets.
In order to remain competitive and maintain their dominance, Indian players have realigned
and restructured their operating paradigms reflected in lean cost structures, vertically
integrated models, geographically diversified presence, vast product baskets and increasing
presence in niche segments.
• Consolidations
Today, the top 10 global generics companies collectively have a market share of over 50
percent of the global generics market. This is likely to have a positive effect and reduce
pricing pressure in the global generics market, to some extent.
Key consideration
• Pricing pressure
• Multiple markets
The success of companies in these markets will depend on factors such as:
• Entry strategy
• Ability to comply with regulatory complexities
• Building product portfolio based on disease profile of each country.
• China competition
China is emerging as a strong competitor on the back of its cost competitiveness, strong
government support (in the form of incentives), implementation of GMP norms, aggressive
focus on exports and the soaring consolidation drive to build large Chinese pharma giants
• Integration problems
Some of the key concerns of the integration process involve people management, managing
cultural differences and aligning the goals and ambitions of the staff members with the
vision of the merged company.
Challenges
Planned Actions
2007 2006
Capital Expenditure 0 13
Top Products
• Foristal
• PZA CibaÒ
• Regestrone
Challenges
Planned Actions
2007 2006
• The OTC business registered sales of Rs 796 million with a growth of 10%.
• The Calcium Sandoz® range of products consolidated its position as the leading OTC
brand in Calcium with significant growth by
• The T-minic™ range of products in the CoCoA (Cough, Cold and Allergy) category
posted good growth albeit on a small base.
– higher sales
New products and line extensions introduced during the period under review were:
• Gastrointestinal
– Bird flu
– Price sensitivity
Planned Actions
2007 2006
• Animal Health business achieved sales of Rs 359 million with a 4% growth over the
comparable previous period despite bird flu which impacted our key poultry brands.
• The growth in the cattle segment was primarily due to higher sales of the Calcium range
of products.
The scope of activities covers process development in Drugs and Pharmaceutical formulations.
4. Expenditure on R&D:
Novartis AG, Switzerland continues to provide basic technology and technical know-how for
introduction of new products and formulation development. These are adapted, wherever
necessary, to local conditions.
New product development, productivity and quality improvements, enhanced safety and
environmental protection measures and conservation of energy are the benefits derived.
3. Technology Imported:
Novartis AG, Switzerland has provided technical know-how and technology relevant to the
areas of business of the Company, as and when required, relating to products, quality, marketing
and so on. This on-going process involves visits by employees of both companies to each other’s
office sites for discussions and training. Novartis is considered to have one of the best pipelines
in Pharma sector.
Income Statement
Power & Fuel Cost 12.08 11.01 11.85 1.89 1.87 1.88
The overall sales figures areon a growing trend and shall grow at a
fasterpace in the coming years. with the reduction in excise duties , income
should improve considerably. But the expenses which have been more or
sales have recovered after march last year and also other income has come
in.the quarter 3 showed lesser sales due to animal health segment being hit.
But considering the renewed focus on cattle, this segment will be able to
catch up and a profit will be observed.
Total CA, Loans & 240.89 237.76 339.67 459.67 474.5 577.41
Advances 6
Current Liabilities 95.28 66.11 74.67 69.28 68.2 68
Liquidity
The current ratio for top pharmaceutical companies is high due to high
current assets in the form of inventories and high loans and advances. The
sudden leap in Novartis India’s current ratio is due to reduction in current
liabilities by approximately 55% in ’07.
Leverage
Dr
Reddy`s Glenmark Matrix Sun
Laboratori Pharmaceu Laborator Novartis Pharmaceut
es tical ies India ical
‘0 ‘0 ‘0 ‘0 ‘0 ‘0 ‘0 ‘0 ‘0 ‘0 ‘0 ‘0 ‘0
Year 7 6 5 7 6 5 7 6 05 7 6 5 7 6 ‘05
0. 0. 0. 2. 2. 1. 0. 0. 0. 0. 0. 0. 0. 1.
Debt/Equ 1 4 1 1 7 8 2 2 1 0 0 0 4 2 1.7
ity
0. 0. 0. 1. 1. 0. 0. 0. 0. 0. 0. 0. 0. 1. 1
0 0 0 1 9 4 0 0 0 0 0 0 4 2 6.4
LTD/NW
Glenmark Sun
Dr Reddy`s Matrix Novartis
Pharmaceuti Pharmaceuti
Laboratories Laboratories India
cal cal
% ‘07 ‘06 ‘05 ‘07 ‘06 ‘05 ‘07 ‘06 05 ‘07 ‘06 ‘05 ‘07 ‘06 ‘05
2 3 2 2 1 2 2 2 3 2 2 3 2
RONW 7.1 9.5 3.2 1.2 3.9 5.6 0.2 1.0 0.9 2.8 2.0 2.9 5.9 2.0 8.3
1 1 2 3 2 3
Tax/PB
T 2.8 8.9 0.0 4.7 9.7 8.4 1.8 7.1 3.8 5.5 8.3 1.5 1.1 1.8 2.1
3 1 1 2 2 2 1 3 2 1 2 1 2 2 2
Gross
Profit 9.9 6.1 1.7 8.0 0.1 5.2 9.5 4.0 9.1 7.9 1.0 6.4 5.8 6.5 9.2
3 1 1 1 1 1 2 2 1 2 1 2 2 2
Net
Profit 1.1 0.5 4.2 7.2 2.5 3.7 3.3 7.3 0.5 6.3 0.5 3.8 8.7 8.1 6.3
Profitability improved in ’06 but slumped in ’07 due to Animal Health division
affected by bird flu and change in employee benefits policy in ’07. the Tax
margin is affecting the bottom line. Lower R&D and depreciated assets have
resulted in higher tax.
High non operating income and low depreciation are the peculiarities seen
in Novartis India.
Activity
5 4 5
FG Inv 10 18 19 38 35 50 5 10 13 19 17 19
0 7 0
11 10 4 4 4
Credito 88 92 80 62 58 97 73 15 23 36
rs 2 7 2 1 7
The very low inventories of raw materials is due to actual production being
done in subsidiaries abroad, which also causes higher Finished goods
inventory considering longer lead times. Low receivables and creditors
reflect the efficiency of the staff.
The turnover ratios are low reflecting the efficiency but the per employee
ratios are reflecting low productivity. It seems that excess employees are
affecting the turnover ratios.
Valuation
Glenmark Sun
Dr Reddy`s Matrix
Pharmaceuti Novartis India Pharmaceutic
Laboratories Laboratories
cal al
% ‘07 ‘06 ‘05 ‘07 ‘06 ‘05 ‘07 ‘06 05 ‘07 ‘06 ‘05 ‘07 ‘06 ‘05
EPS 70 27 8 11 5 5 6 11 8 27 33 20 32 24 16
1 1 1
Div
/share 3.8 5.0 5.0 0.8 0.7 0.8 0.0 1.2 1.2 0.0 5.0 0.0 6.7 5.5 3.8
Book Value and EPS are at considerably good in contrast to others. the
payout ratio is high for Novartis and they had announced 200% dividend in
the past 2 years.
This reflects the security of investing in the firm and the potential for P/E to
increase.
The pharmaceutical companies are expecting an excise duty cut from 16%
to 8%. This will be beneficial to the consumer and organizations. Also the
patent regulations should be sorted in India soon for MNC companies to
develop their products in India.