Abbott India - 3rd OCt - DNA Insight

Abbott India, which has presence in the urology, gastroenterology, palliative care, benign prostatic hyperplasia and specialised anaesthesia segments, is a subsidiary of Abbott Laboratories Inc, US.   The parent company is a leading player globally and is focused on the pharmaceutical and nutritional segment. Besides, the parent also offers diagnostic instruments and tests apart from medical and surgical devices.    Abbott India sells under popular brand names like Brufen, Digene, Obimet, Leptos, Thyronorm, Cremaffin, Hytrin and Norvir, among others. On October 1, the company reported sales of Rs 158 crore, a growth of 15% y-o-y for the third quarter ended August 2007 (Q3; year ends in November). The operating profit, at Rs 31 crore, grew faster by 26%. Margins, at 20%, were marginally higher y-o-y and have been stable over the last few quarters. Abbott India's manufacturing presence in India is nil and product manufacturing is outsourced to other domestic contract manufacturers.   The faster growth in profits can be attributed to lower growth in material costs (including goods purchased). Lastly, net profit at Rs 20 crore was up 22%, thanks to a 36% rise in tax outgo.   Growth rates would have been better, had the company launched new products, which has not been the case.   Like most MNC pharmaceutical companies, even this company's parent appears to be waiting for further clarity on the product patent regime in India, which is a norm in most developed nations. Once this regime is in place, it should act as a major trigger for the pharma MNC pack as a whole as they may launch their new products in India in view of better safeguards on patent rights.   Abbott had made a buyback offer last year, which got postponed and was completed in March 2007. A little over a month later, its board of directors approved another buyback offer aggregating to Rs 52 crore, at a price not exceeding Rs 650 per share, subject to approval of the members.     If successful, the offer would be accompanied by a rise in promoter's contribution, which since the earlier offer has risen to 65% from 61.70% in December 2006. Clearly, it appears to be moving towards delisting coupled with the healthy cash and cash equivalents (about Rs 140 per share) on its balance sheet.   At Rs 579.60, the stock is trading at a PE of 15. Like most MNC companies, it has potential and investors may continue holding it as they may get an opportunity to exit with good returns in the event of a delisting