GSK Pharma net profit falls 43% on price control

It is being seen as an unprecedented decline in the net profit of GlaxoSmithKline Pharmaceuticals.GSK Pharma‘s net profit has fallen by 42.9 per cent year-on-year for the January to March quarter to Rs 96.54 crore as compared to Rs 169.01 crore in the corresponding quarter of the previous year, showed the company’s results announced on Thursday. According to the company, this was largely on account of the revamped Price Control Order, extending coverage to the National List of Essential Medicines (NLEM). Today, 29 per cent of its products, by value, come under the NLEM and that is shown up in the results.

What is the way out? GSK Pharma seems to be wanting to focus volume growth in the products hit by the NLEM and is looking increasingly towards the  launch of new products that are outside the NLEM. What is also important is that the company during the quarter also posted a decline in total income, which fell to Rs 610 crore during the quarter from Rs 637 crore in corresponding quarter of the previous year. The company follows the calendar year (January-December) as its financial year. Its total expenses were also up this quarter and stood at Rs 212.11 crore against Rs 200.05 crore in the corresponding quarter of the previous year.

Analysts, however, are not surprised. Hemant Bakhru at CLSA for instance says, “Even before the NLEM took effect, it was expected that the company, given its large exposure to NLEM products, would take a hit.” But he does say the fall is more than anticipated.  Bakhru, and also other analysts, expect that this trend to continue in the next quarter as well. They expect recovery to start showing from the second half of the current year since the comparable base of the previous year will not be high as the effects of the NLEM pricing had started taking effect by then. In the meantime, GSK Pharma shares on the Bombay Stock Exchange on Thursday closed at Rs 2497.40, down from its previous close of Rs 2508.10.