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Sun Pharma In The News

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Drug firms find their shares lagging sales

Too many pharma stocks have a communication issue

Chandigarh-based Surya Pharmaceutical is regarded as a star performer in the Indian drug industry, which is growing at close to 20 per cent every year. Surya's own sales have grown from near Rs240 crore four years earlier to Rs 1,130 crore in 2009-10, a consistent 30-40 per cent growth every year. Net profit also grew to Rs74 crore during the period, from just over Rs20 crore four years earlier. Despite this performance, investors are not impressed and its market capitalisation remains low, at about Rs370 crore.
So, too, with another star performer, Ankur Drugs, which grew from a Rs136 crore sales turnover four years earlier to a little over Rs1,000 crore last year. Net profit was about Rs90 crore in 2009-10, growth of 141 per cent over the previous year. Its market capitalisation ' Rs170 crore.
The theory says pharma'ceutical stocks are among the most sought scrips, as they give steady returns. Safe bets, since drugs have demand irrespective of a bull or bear run, recession or crash, goes the belief.
Mostly out of sight
Not true, if one look at the market capitalisation of about 165 pharmaceutical companies list'ed on the Bombay Stock Exchange (BSE). That of 70 of these are less than Rs50 crore each. Only 34 companies have a market cap of over Rs 1,000 crore. In many cases, turnover is much higher than the mar'ket capitalisation. Only seven ' Sun Pharma, Dr Reddy's Laboratories, Cipla, Ranbaxy, Lupin, GlaxoSmithKline Phar'maceutical and Zydus Cadila have a market capitalisation of above Rs 10,000 crore.
"Size of business matters and, normally,, leading fund houses and foreign institutional investors are interested in in'vesting only in large companies. Still, I think Lupin's market capitalisation should be higher to justify our consistent growth and performance in the past few years," says Ramesh Swaminathan, president, fi'nance and planning, of Lupin.
Investors look at companies on a case to case basis and investment decisions are made on various parametres like sales and growth prospects, net prof'it and margins, debts and lia-balities. The promoter's share-, holding in most Indian drug firms is high and, thereby, free-floating shares are less, another reason for less crowd at their counters, note analysts.
"Many pharmaceutical companies are not benefited from listing, since they don't catch the eye of the decisive investors. It is a fragmented industry and only those with an exciting growth story to tell will catch the attention of investors," says Murlid-haran Nair, partner-business advisory services, Ernst & Young. Not quite, as we have seen.
"Most small-cap and mid-cap firms are suffering from is'sues like availability of work'ing capital, heavy debts and loans at higher interest rates, narrow profit growths and receivable cycles, despite their decent sales growth," says Ran-jit Kapadia, vice president of institutional research at HDFC Securities.
"The radars of both sector analysts and investors are normally confined only to the top 50 companies," he concedes.
"There are some companies that are very investor-friendly and we are also confident of reaching that level. I agree that we need to interact more with investors on a regular basis to convey our performance to them," says Alok Saxena, whole time director, Elder Pharma, a Rs700-crore company with a market capitalisation of Rs774 crore. El'der's turnover was only Rs354 crore four years earlier.
How to attract                   
"Drug stocks in demand are of companies having a proven record, with heavy investments in technology, manufacturing and other systems on a global scale. Companies having a robust pipeline of products and technology that will create val'ue in future have always attracted the attention of long-term investors," says R B Smarta, managing director of Inter'link, an exclusive drug marketing consultancy.
Me-too drug makers and those producing common formulations would get less demand, while technology-driv-.. en speciality and niche drug makers would always elicit the interest of investors, he adds.
"Pharmaceuticals is a highly complex, technology-driven, industry. The public relations' skills of many pharmaceutical firms are very low and this is another reason for their failure to convey excellent performance to the common man and retail investors," said Smarta.
It is not true in the case of Sun Pharmaceutical Industries, the largest Indian drug company in terms of market capitalisation, with Rs46,238 crore. It does not even have an external public relations agency to handle its public affairs and the management always prefers to keep a low profile.
"I think the reason for the investor confidence in us is our consistent performance and confidence of of investors in future performances," says Uday Baldota, head of investor and media relations with Sun Pharma.