Novartis India

Analysis

Analysis of the Pharmaceutical Sector and the Business

Analysis of Novartis India

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 India Page 2

Introduction
The name Novartis is derived from the Latin "Novae Artes" which means new skills.

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.

It is a 51% subsidiary of Swiss based Novartis AG. Novartis International AG is a

multinational pharmaceutical company based in Basel, Switzerland Novartis owns Sandoz, a
large manufacturer of generic drugs.

History

Board Members
• Dr Erwin Chillinger ,Chairman
• Ranjit Shahani ,Vice-Chairman & Managing Director
• Asha Mirchandani ,Executive Finance Director
• Dr Rajen Mehrotra ,Director

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• Sudhakar D. Kulkarni ,Director
• Dr Jesus Acebillo ,Director

Subsidiaries

• Hexal Pharma Private Limited

• Novartis (Bangladesh) Limited, Bangladesh
• Novartis (Singapore) Pte. Limited, Singapore
• Novartis (Thailand) Limited, Thailand
• Novartis Animal Health GmbH, Austria
• Novartis Animal Health Services AG, Basel, Switzerland
• Novartis Animal Health Australasia Pty. Limited, Australia
• Novartis Consumer Health S.A., Basel, Switzerland
• Novartis Healthcare Philippines, Inc., Philippines
• Novartis Healthcare Private Limited
• Novartis International AG, Basel, Switzerland
• Novartis Pharma AG, Basel, Switzerland
• Novartis Pharma Services Inc., Basel, Switzerland
• Novartis Pharmaceuticals (HK) Limited, Hong Kong
• Novartis Pharmaceuticals Corporation, USA
• Novartis Farmaceutica S.A., Spain
• Novartis South Africa (Pty.) Limited, South Africa
• Novartis Vaccines and Diagnostics Inc., USA
• Sandoz Private Limited
• Shanghai Novartis Animal Health Co., Limited, China

Novartis India Page 4

Business Model

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.

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 (iv) The OTC segment is mainly in the VMS (vitamins, minerals and nutritional
supplements) and CoCoA (cough, cold and allergy) market segments.

Pharmaceutical

The Domestic pharmaceutical market is going through a transformation, led by strong

underlying growth drivers and has witnessed robust growth over the last couple of years. While
this growth was driven mainly by an increasing spend on healthcare, on account of rising
disposable income, increasing penetration of Health insurance and changing disease profile,
regulatory reforms also provided a significant boost.

Growth Drivers

• Strong economic growth

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.

• Improving healthcare infrastructure

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.

• Increasing penetration of health insurance

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.

• Changing therapeutic mix

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.

• Growth across regions

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

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areas. In Budget 2007-08, the budgetary allocation to health was increased by 22 percent to INR
1, 52,910 million.

• Launch of patented drugs

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

• Uncertainty about price control regime looms Large

• Changes in regulatory environment e.g. VAT,MRP based Excise, Service Tax etc.

• Evolution and enforcement of IPR

• Continuing problem of counterfeit/spurious drugs

Planned Actions

• Market Access Initiatives

• Life cycle management initiatives

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 • In-licensing opportunities

• Likely consolidation in the highly fragmented industry

2007 2006

Segment Revenue 3,834,495 3,642,732

Segment Result 819,767 913,981

Segment Assets 1,047,613 939,521

Segment Liabilities 585,280 479,739

Capital Expenditure 20,132 27,953

Depreciation/Amortisation 15,341 5,748

• 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™.

• An initiative branded ‘Project Orchid’ launched to build on Diversity and Inclusion

received Novartis Group recognition

New products and line extensions introduced during the period under review were:

– Pain & Inflammation , Voveran Plus

– Epilepsy ,Epitril MD

– Ophthalmology ,Vitalux Plus

The business continues to hold leadership position in major therapeutic areas such as:

– Gynaecology, Methergin and Syntocinon

– Transplantation & Immunology, Sandimmun Neoral

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Generics

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

• Increasing use of generics

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.

• India’s competitive position

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.

• Enhanced focus of niche specialities

• 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

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 the generics market will expand. It is a growing market and opportunities still exist. The
severe pricing pressure will continue and eventually it will become a volume game. The key
factors that will become very important to succeed in the generics business will be the
ability to differentiate oneself in terms of technological development and cost optimization.

• 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

• Anti-TB business continues to move towards tender

• Government imposed price reduction of Anti-TB products

Planned Actions

• Restructured Field Force to improve Productivity

• Promotional plan to keep loyal customers

• Use initiatives like ‘JEET’ to differentiate

• Special promotional thrust for REGESTRONE

2007 2006

Segment Revenue 432,834 551,629

Segment Result 117,646 176,488

Segment Assets 148,995 162,341

Segment Liabilities 72,612 98,328

Capital Expenditure 0 13

Depreciation/Amortisation 3,188 -1,848

The business continues to operate in a challenging environment.

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 • The business recorded sales of Rs 433 million decline of 22% over the previous
comparable period.

• The business decided not to participate in the tender business due to

– very low margins.

– lower volumes in certain products due to competitive pressures

– de-stocking in certain States due to impending VAT regime

• The TB segment witnessed a marginal growth of 4% as compared to the previous year.

Top Products

• Foristal

• PZA CibaÒ

• Regestrone

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OTC

Challenges

• Announcement of a Government policy for the OTC segment continues to be delayed

• Sustained investment in brand building

Planned Actions

• New global brands to be introduced in India

• Continue to grow business faster than market

• New variants in Calcium range

2007 2006

Segment Revenue 795,750 720,649

Segment Result 111,052 93,871

Segment Assets 177,337 146,656

Segment Liabilities 116,091 105,082

Capital Expenditure 1,874 816

Depreciation/Amortisation 3,570 2,974

• 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

– Calcium Sandoz® Softchews

– Calcium Sandoz® Woman

• Otrivin®, which enjoys a leadership position in the Nasal Decongestant category

maintained its market share under intense competitive pressure.

• The T-minic™ range of products in the CoCoA (Cough, Cold and Allergy) category
posted good growth albeit on a small base.

• Segment profits were up primarily because of

– higher sales

– Adoption of effective cost control initiatives.

New products and line extensions introduced during the period under review were:

• Gastrointestinal

– Gascidity® powder, liquid and tablets

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Animal Health
Challenges

• Volatility of poultry industry

– Bird flu

– Price sensitivity

• Unorganised Dairy business with heavy dependence on Monsoon

• Cheaper imports & generics dominated market

Planned Actions

• Tiamutin Leadership Marketing

• Shift of focus to Cattle segment

• Sales Force Optimisation project

• Customer and Consumer Excellence initiatives to continue

2007 2006

Segment Revenue 359,291 344,206

Segment Result 30,771 46,393

Segment Assets 180,774 157,258

Segment Liabilities 63,383 45,164

Capital Expenditure 1,576 1,553

Depreciation/Amortisation 2,102 188

• 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.

• This growth was mainly in a product Natuzyme, an enzyme used in feed.

• Tiamutin® was also another contributor to growth through

– successful implementation of the Tiamutin Leadership marketing initiative

– upgradation of technical skills of the field force

– provision of technical services to farmers.

• The growth in the cattle segment was primarily due to higher sales of the Calcium range
of products.

New product introduced during the year was:

– Antibiotic to treat bacterial infections in cattle , Petromox™

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Research And Development

1. Specific areas in which R&D is carried out by the Company:

The scope of activities covers process development in Drugs and Pharmaceutical formulations.

2. Benefits derived from R&D:

• Productivity and quality improvements

• Improved process performance and better cost management
• Enhancement of safety and better environmental protection
3. Future plan of action:
Relevant R&D activity in the areas of business operations of the Company will continue with a
view to adapt products and processes to improve performance and better meet the end user’s
needs.

4. Expenditure on R&D:

1. Efforts in brief made towards technology absorption, adaptation and innovation:

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.

2. Benefits derived as a result of the above efforts:

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.

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Novartis India Page 15
Financial Analysis

Income Statement

Income Mar Mar Mar Mar Mar Mar’0

'03 '04 '05 '06 '07 8

Sales Turnover 478.85 511.58 478.35 529.16 548.38 563.85

Excise Duty 6.8 5.79 5.86 2.9 7.32 7.53

Net Sales 472.05 505.79 472.49 526.26 541.06 556.32

Other Income 37.44 38.12 33.52 54.32 47.17 60.61

Stock Adjustments 17.49 -23.17 14.62 2.33 5.24 5

Total Income 526.98 520.74 520.63 582.91 593.47 65.61

Expenditure Mar Mar Mar Mar Mar Mar

'03 '04 '05 '06 '07 ‘08

Raw Materials 266.59 240.32 243.2 260.85 249.25 250

Power & Fuel Cost 12.08 11.01 11.85 1.89 1.87 1.88

Employee Cost 43.62 43.77 44.51 50.15 55.18 57

Other 2.39 2.22 2.83 8.01 9.1 9.3

Manufacturing
Expenses

Selling and Admin 75.27 80.35 83.79 85.53 100.47 100

Expenses

Miscellaneous 30.3 32.72 32.43 34.68 47.88 45

Expenses

Preoperative Exp -3.72 -4 -4.62 -1.02 -6.47 -4

Capitalised

Total Expenses 426.53 406.39 413.99 440.09 457.28 459.18

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

Novartis India Page 16

less constant. The sharp decrease in power and fuel expense is due to sale
of assets in 2006.

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Quarterly Results

Dec Mar Jun Sep Dec Mar

'06 '07 '07 '07 '07 ’08

Sales Turnover 148.7 123.8 138.8 147.8 136.1 140.96

2 6 3 8 8

Other Income 9.79 20.78 12.11 16.09 16.41 16.00

Total Income 158.5 144.6 150.9 163.9 152.5 156.96

1 4 4 7 9

Total Expenses 124.8 109.0 114.8 114.2 116.1 115.08

5 2 6 3 5

Operating Profit 23.87 14.84 23.97 33.65 20.03 25.88

Gross Profit 33.66 35.62 36.08 49.74 36.44 41.88

Interest 0.15 0.2 0.14 0.14 0.24 0.24

PBDT 33.51 35.42 35.94 49.6 36.2 41.64

Depreciation 0.65 0.66 0.68 0.71 0.73 0.71

PBT 32.86 34.76 35.26 48.89 35.47 40.93

Tax 11.79 10.89 12.42 18.5 13 15.16

Net Profit 21.07 23.87 22.84 30.39 22.47 25.77

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.

Novartis India Page 18

Balance Sheet

Mar Mar Mar Mar Mar Mar

'03 '04 '05 '06 '07 ’08
Sources Of Funds

Total Share Capital 15.98 15.98 15.98 15.98 15.98 15.98

Reserves 227.6 239.8 268.39 321.62 372.6 461.19

Net worth 243.58 255.78 284.37 337.6 388.5 509.13

8
Secured Loans 5.51 2.01 2.99 2.41 4.5 4.5

Unsecured Loans 3.22 4.06 3.91 3.9 4.7 4.7

Total Debt 8.73 6.07 6.9 6.31 9.2 9.2

Total Liabilities 252.31 261.85 291.27 343.91 397.7 527.57

8
Application Of Funds

Gross Block 155.49 155.55 152.76 22.41 23.17 23.17

Less: Accum. 53.46 129.79 131.17 12.55 13.53 13.53

Depreciation
Net Block 102.03 25.76 21.59 9.86 9.64 9.64

Capital Work in 0.45 0.57 0.39 0.21 0.03 0

Progress
Investments 36.88 106.4 47.53 7.08 3.77 16.52

Inventories 71.98 50.79 65.86 61.32 67.4 70

Sundry Debtors 47.59 68.67 41.59 39.61 42.42 52

Cash and Bank 32.19 8.58 6.16 4.4 2.9 3

Balance
Total Current Assets 151.76 128.04 113.61 105.33 112.7 125
2
Loans and Advances 76.43 109.63 167.47 232.88 359.4 460
3
Fixed Deposits 12.7 0.09 58.59 121.46 2.41 2.41

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

Provisions 32.67 42.53 43.24 63.64 22.01 22

Total CL & Provisions 127.95 108.64 117.91 132.92 90.21 90

Net Current Assets 112.94 129.12 221.76 326.75 384.3 501.41

5
Total Assets 252.3 261.85 291.27 343.9 397.7 527.57
9

Novartis India Page 19

Ratio Analysis

Liquidity

Dr Reddy`s Glenmark Matrix Sun

Laboratorie Pharmaceu Laboratorie Novartis Pharmaceu
s tical s India tical
‘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
Curre
nt 4. 3. 3. 4. 5. 5. 1. 1. 1. 5. 3. 3. 6. 6.
Ratio 6 5 7 0 3 1 6 7 9 3 5 3 5 0 7.7

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

The debt/equity ratio is low because of comparatively low debt of these

companies. most of their debt is long term secured loans. the ratio for
Novartis tends towards 0 due to a very low debt. But there has been an
upward trend in the last 3 years.

Company Industry Sector S&P 500

Quick Ratio (MRQ) 1.32 1.47 2.16 1.18

Current Ratio (MRQ) 1.65 2.06 2.88 1.7

LT Debt to Equity (MRQ) 0.01 0.24 0.33 0.47

Total Debt to Equity 0.12 0.34 0.41 0.57

(MRQ)

Novartis India Page 20

By comparing the financial strength of Novartis with others we realise that,
as the ratios are low there is potential to increase current assets and also to
raise debt.

Novartis India Page 21

 Profitability

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.

Company Industry Sector S&P 500

Gross Margin (TTM) 71.67 71.28 67.32 44.14

EBITD Margin (TTM) 22.18 28.24 24.15 23.2

Operating Margin (TTM) 17.41 21.95 19.37 19.48

Pre-Tax Margin (TTM) 19.22 21.92 19.04 17.89

Net Profit Margin (TTM) 16.79 16.95 13.93 13.18

High non operating income and low depreciation are the peculiarities seen
in Novartis India.

Activity

Dr Reddy`s Glenmark Matrix Sun

Novartis
Laboratorie Pharmaceut Laboratorie Pharmaceutica
India
s ical s l
‘0 ‘0 ‘0
Days ‘07 ‘06 ‘05 ‘07 ‘06 ‘05 ‘07 ‘06 05 ‘07 ‘06 ‘05
7 6 5
15 23 21 25 21 14 19 15 17 1 16 -158 -234
RM Inv 7 6
4 8 6 0 6 9 6 4 3 4 0 0 1

5 4 5
FG Inv 10 18 19 38 35 50 5 10 13 19 17 19
0 7 0

Novartis India Page 22

 10 18 17 13 10 10 2 2 3
Recv. 99 94 75 50 55 71
1 9 4 1 0 7 8 7 2

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.

Company Industry Sector S&P 500

Revenue/Employee 396,609 444,977 588,984 922,822

(TTM)

Net Income/Employee 66,599 75,343 96,608 115,491

(TTM)

Receivable Turnover 6.08 6.09 7.06 10.3

(TTM)

Inventory Turnover 2.22 2.87 4.05 12.15

(TTM)

Asset Turnover (TTM) 0.54 0.64 0.78 0.96

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 259 289 267 36 23 20 63 56 41 121 105 89 125 77 58

Value

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.

Novartis India Page 23

 Company Industry Sector S&P 500

P/E Ratio (TTM) 18.21 22.74 25.17 19.72

Beta 0.49 0.61 0.77 1

This reflects the security of investing in the firm and the potential for P/E to
increase.

Novartis India Page 24

The way ahead

Considering that Novartis was unsuccessful in getting patent for Glivec , it

was a setback for them. They are now reconsidering their decision about
setting up research infrastructure in India. They may now concentrate on
China instead. The 500 Cr Hyderabad campus shows the importance
Novartis is giving India as an emerging country.

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.

Consolidation of Indian firms and high number of unregulated players in this

sector is a threat to Novartis in the future. Also CRAMS is going to be a
threat to subsidiaries like Novartis India. But the fact remains that Novartis
has one of the best pipelines, which shows their commitment towards
research. This also implies their future potential in releasing new drugs.

Novartis India Page 25