KARACHI, May 25: The recently released accounts for the quarter ended March 31, 2002, shows that the company holds Rs2.6 billion in total assets, which is close to its market capitalization of around Rs2.4 billion on 33.6 million shares at the ruling price of Rs70 per share.
Glaxo Wellcome Pakistan Limited had stood out as Pakistan’s biggest pharmaceutical company even before the global merger of its parent — the Glaxo Wellcome with SmithKline Beecham got through in the United Kingdom on December 27, 2000. That happened nearly four years after Glaxo first married Wellcome.
The latter merger went to create GlaxoSmithKlline plc. The development should eventually have led to the merger of the respective subsidiaries of the two companies in Pakistan. But just as the unlisted Beecham Pakistan and the publicly quoted Smith Kline & French (SK&F) have continued to operate separately under “cost sharing arrangements”, so seems to be doing Glaxo Wellcome and SmithKline Beecham. The two are separate stock exchange quoted companies. On the occasion of the merger of the parents, Salman Burney, the head of GlaxoSmithKline Pakistan had indicated that the company would “set up at arms length cost sharing arrangements” with its associated companies in Pakistan.
In a country where amalgamations of businesses have been few and far between, the GlaxoWellcome merger with SmithKline Beecham has stood out as the largest corporate merger so far.
It is due to illiquidity that stock analysts at brokerage houses do not follow the foreign pharmaceutical firms. That does not prevent volatility in the share prices, all the same; the Glaxo Wellcome stock traded widely between the low and high of Rs59 and Rs115, during the year 2001.
The report of the directors for the quarter ended March 31, 2002 is brief. It is observed that during the quarter, the government had imposed 15 per cent sales tax on the maximum retail price of many pharmaceutical products. “The resulting uncertainty affected sales for March 2002,” CEO/MD says. Regarding the personnel matters, the report sates that the industrial relations climate remained cordial and employees performed with commitment for the achievement of company’s objectives.
After tax profit for the quarter ended March 31, 2002, amounted to Rs120.7 million, which represented 27 per cent increase over the taxed profit at Rs94.9 million in the corresponding quarter of 2001. Earning per share worked out at Rs3.60, which produced the price to earnings (p/e) ratio of 5.3 on the annualized earnings.
Pre-tax profit improved 34.06 per cent to Rs186.0 million for the quarter under review, from Rs138.4 million in the previous comparable quarter.
Net sales showed growth of 18.5 per cent to Rs882.7 million, from Rs745.2 million. Local sales were up 17.7 per cent to Rs870.1 million, from Rs739.0 million while exports doubled to Rs12.6 million, from Rs6.3 million. Cost of sales increased by 10 per cent to Rs524.7 million, from Rs477.2 million and the gross profit grew by 33.6 per cent to Rs358.0 million, from Rs268.0 million. It looks that in spite of sharp rise in exports, the gross profit margin on export sales declined to 37 per cent, from 52 per cent. Operating profit increased a good 52 per cent to Rs188.0 million for the quarter under review, from Rs124.0 million in the similar period of last year, with the operating margin showing a nice improvement to 21 per cent, from 16.6 per cent. Paid-up capital of the company amounted to Rs335.5 million, but due to robust reserves, shareholders’ equity stood at Rs2.49 billion and the break-up value of the 10-rupee share worked out at Rs74.
The significant feature of the Glaxo Wellcome Pakistan balance sheet at March 31, 2002 was the huge sum of Rs1.03bn that the company held in cash and bank balances. The current ratio worked out at 3.2:1. As the company was sitting atop cash mountain, there was no need for costly short term borrowings. Directors ought to have mentioned in their report why the company was keeping so much of ready cash? Was it to finance some kind of immediate expansion plans or just as contingency to perhaps build up raw material stocks?