AstraZeneca Pharma - A Stimulant For Your Portfolio

AstraZeneca Pharma - A Stimulant For Your Portfolio

INTRODUCTION

AstraZeneca Pharma India Limited is a biopharmaceutical company. It is engaged in discovery, development and commercialization of medicines for core areas of healthcare, including cardiovascular and metabolic disease, cancer and respiratory, inflammatory and autoimmune disease.



The pharma company primarily operates through two segments: Healthcare and Clinical Trial. The healthcare segment is engaged in manufacture and sale of pharmaceutical products whereas the clinical trial segment renders clinical trial services on pharmaceutical products to its group companies. Cumulatively, the company has been able to maintain its presence in over seven areas of healthcare which includes diabetes, oncology, infection, local anesthesia and maternal healthcare. The pharma company has been continuously delivering profitably positive financial margins, thus building investor and consumer confidence with increasing global recognition.

INDUSTRY OVERVIEW

India is considered as one of the fastest growing economies in the world. Amidst the present dull business environment, increase in private consumption and gross fixed investments will drive growth in the economy. The healthcare sector consists of healthcare delivery, pharmaceuticals, medical devices, clinical trials, and health insurance segments. The industry is expected to grow at 22 per cent annually by 2022. Increasing healthcare expenditure which is a result of rising incomes, growing elderly population, increased disease awareness and diagnosis rates, also increase in Non- Communicable Diseases (NCDs), diagnostic requirements and hospitalisation due to NCDs, expansion of healthcare services to Tier II and Tier III cities, rise in luxury offerings and services by hospitals, etc. drives the demand for the pharmaceutical sector. Compared to global standards, healthcare expenditure in India is low. Budget allocation towards healthcare sector in the current fiscal year has increased by 16 per cent from Rs. 54,667 crore in FY18-19 to Rs. 63,538 crore in FY19-20. The Indian pharmaceutical industry experienced a growth of 10.5 per cent to Rs. 134780 crore in FY19 compared to FY18. Domestic companies make up to 80 per cent of the domestic pharmaceutical market registering a growth of 10.8 per cent in FY19 whereas MNCs grew at 9.4 per cent in FY19. For FY19, Indian companies registered a volume growth of 3.4 per cent compared to 3.7 per cent in FY18. Stringent FDA regulatory approvals and sluggish economic environment resulted in reduced volume growth.

FINANCIALS

AstraZeneca Pharma India has maintained a sustainable financial performance over the years by continuously focusing on new growth and expansion opportunities. Net sales of the company for the first quarter of FY20 stood at Rs. 204.56 crore which is an increase of 14.84 per cent YoY compared to Rs. 161.44 crore for the first quarter of FY19. After making expenses relating to purchases of stock-in-trade, employee benefit schemes, depreciation, etc., in the first quarter of the current fiscal year, the company was able to maintain a PBDT of Rs. 38.26 crore, a substantial increase from Rs. 12.70 crore in Q1FY19. The pharma company's net profit jumped to Rs. 21.52 crore in Q1FY20 from Rs. 6.39 crore in Q1FY19.

In Q2FY20, product sales in emerging markets grew by 34 per cent and by 20 per cent in China compared to Q2FY19. The company reported a 77 per cent growth in new medicines in H12019 compared to H12018. For H12019, AstraZenca Pharma reported 17 per cent growth in product sales driven by new medicines and legacy medicine in emerging markets. Investing in sustainable growth, the company reported an increase in product sales for H12019.

On the annual front, the company's revenue from operations for FY19 was Rs. 728.29 crore which is an increase by 27.33 per cent when compared to Rs. 571.99 crore for FY18. For FY19, the PBDT showed an increase of 49.62 per cent to Rs. 87.59 crore compared to Rs. 58.54 crore in FY18. This resulted in the company generating a net profit of Rs. 54.44 crore in FY19 as against a net profit of Rs. 25.92 crore gained in FY18.

GROWTH DRIVERS

Most NCD deaths are caused by cardiovascular such as diseases, cancer, diabetes, chronic respiratory disease and mental health and neurological disordeRs. Currently after China, India is said to have the largest diabetic population. According to International Diabetes Foundation (IDF), 151 million people are expected to be afflicted by diabetes by 2045, out of which, only 50 per cent are diagnosed cases at present. Initiatives such as the National Programme for the Prevention and Control of Cancer, Diabetes, Cardiovascular Disease and Stroke (NPCDCS) and India Hypertension Management Initiative have helped in the early screening, diagnosis, and management of NCDs which provides a boost for the company to work towards discovery of drugs which support the treatments. The government has increased budget allocation towards its flagship healthcare scheme, Ayushman Bharath, in the fiscal year ending March 2020, over last year's budget. Maximum demand growth for pharmaceutical companies is driven by implementation of various government healthcare initiatives. A positive outlook of the regulatory environment and associated new drug launches boosts confidence of drug manufactureRs. The new drugs and clinical rules 2019, has provisions which facilitate the waiver of clinical trials in India for new drugs. Clinical trial can be waived if approved and marketed in any of the preferred countries specified by the Drugs Controller General and in some cases where Indian patients are already included in the global study subject to approval. Currently, growth in medical tourism and expansion of healthcare facilities is much needed. The organized chains in pharma sector have an advantage with their entry into e-pharmacy. E-pharmacies have the estimated potential to capture 5-15 per cent of total market sales which will further increase the demand of pharma products.



RISKS

The National Pharmaceutical Pricing Authority (NPPA) has fixed the ceiling prices of scheduled medicines. Changes to the National List of Essential Medicines (NLEM) system made in July 2018 will cause more frequent revisions and additions to the NLEM which would directly impact in lowering of the drug prices. As the uncertainty around changes to the pricing system used for determining the annual price increase, there is a possibility of introduction of international reference pricing system for patented products, which will impact prices negatively. Even though there will be no price controls for patented products for a period of 5 years since January 2019, risks of trade margin continue to remain. The major threat that looms over the majority of pharmaceutical companies is advanced manufacturing facilities and regulatory approvals or flags raised after USFDA inspections. Recalling drugs or a ban directly impacts consumer confidence of customers in companies and demand growth. Recently, many Fixed Dose Combinations (FDCs) were banned at the advice of Drugs Technical Advisory Board (DTAB); thus prospects of further bans cannot be ruled out. The increased scrutiny by USFDA on pharmaceutical companies exporting to the US will effect in higher costs in quality enhancement for the drug maker.



CONCLUSION

The Indian pharmaceutical market is expected to grow at a CAGR of 10.2 per cent between 2018-2023 and touch around Rs. 2,25,550 crore by 2023. During FY20, AstraZenca intends to continue prioritizing investments in its focus areas in-line with its global platforms. It also focuses on maintaining timelines of key regulatory approvals for its global pipeline to accelerate new product growth. With emphasis on cost optimization and controls and also on patient needs and safety, AstraZenca Pharma is expected to grow its market share. Thus, we recommend a BUY.

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