Avoid Abbott India Despite Good Earnings

Pharma MNC Abbott India has come up with decent results for the March 2013 quarter. Its topline grew by 11% to Rs 406 crore while the bottomline grew at an even better rate of 17% to Rs 31.7 crore. The best part is that the company has also announced a dividend of Rs 17 per share, taking the total payout for CY12 to Rs 42.26 per share, giving a dividend yield of Rs 1378 on the CMP to over 3%.

The earnings look good considering the fact that the company sells its products only in the domestic market unlike major Indian companies which generate most of their revenues in export markets.

During the quarter, the company has reported over 300 basis points of expansion in the EBITDA margins. This is contrary to the fact that the company has seen its raw material prices increase by 63% on a YoY basis. Besides, the stock in trade has also increased by 25%. The only breather was the decline in inventories which has helped boost its profitability. This is however an alarming development as the high input prices may dent its margins in the next quarter.

Amongst the other expenses, its depreciation expenses have also decreased by 11%. The tax expenses rose by 27% and effective tax rate remained at 32.6%, which is in line with the last quarter’s tax rate.

Overall, though the results at net level are good, the soared input price is a concern at this time. The stock too has shown a strong under performance as it declined by 6% in the last six months. The growth opportunities currently lie in the generics business and hence MNCs are not an attractive investment opportunity. We advise investors to skip this stock.