Shasun Chem sees margins falling

Ibuprofen and ranitidine contribute 60-65% to revenues

MUMBAI: Shasun Chemicals and Drugs, a Chennai-based pharmaceutical company, expects margins on two of its key active pharmaceutical ingredients (APIs) to be hit this fiscal due to a rise in input prices on the back of global economic developments.
Shasun sees its margins dipping in ibuprofen and ranitidine, which bring in more than 60-65% of revenues.

Ibuprofen is used to treat fever and pain or inflammation caused by headache, arthritis, toothaches, etc. Shasun is the world’s largest producer of ibuprofen, producing about 5,000 tonnes annually.

Likewise, the company is the leading global producer of ranitidine, which is used to treat ulcers in the stomach and intestines. Somnath Iyer, chief financial officer, said ibuprofen margins would fall by 30-40% due to an increase in input costs.

From 25%, margins are expected to go down to maybe 15-17% this fiscal. “High crude prices and speculation in commodity prices have affected the output of ibuprofen,” said Somnath.

Adding to the company’s woes is the bad power situation in Tamil Nadu, where Shasun has its plants. “In the last few months, power cuts have been acute and this has impacted the output of ibuprofen,” he said. Ibuprofen accounts for 50-55% of Shasun’s turnover of Rs 500 crore.

Ranitidine, its other key product, contributed 10-12% to Shasun’s turnover in FY08. This is expected to be halved this year.

Though the company hasn’t seen any scaling down or erosion in orders, it does expect payments to be delayed, Somnath said. However, Shasun expects the situation to improve by 2010. “By then, we should get back to our earlier robust margins,” he said.
Analysts felt that a reduction in margins on two of its main products could hurt the company’s overall profits. Ranjit Kapadia, an analyst with brokerage firm Prabhudas Lilladher, said, “There could be a major impact on the company’s profits due to the reduction in margins from these products.”

Shasun, however, sees its API business growing 8-10% this year. Somnath said the company has other products such as olanzapine (for schizophrenia), gabapentine (for epilepsy) and isradipine (for high blood pressure) that would take the company ahead.
g_priyanka@dnaindia.net