According to the company, the reasons are numerous. Firstly, the current fiscal's result does not includes the profit from Sun Pharmaceuticals Exports (SPEL), which is now its 100 per cent subsidiary. For the first half of the current fiscal the company has taken into its books, profit upto May 11, 1998 of Rs 1.16 crore on account of SPEL as against Rs 4.50 crore for the first half of 1997-98. For the entire first half of 1998-99 SEPL has a profit of Rs 7.21 crore, higher by 60 per cent from the previous year.

Secondly, previous year's sales in the domestic market included sales of India Development Bonds (held by Tamil Nadu DadhaPharmaceuticals Ltd) to the tune of Rs 5.15 crore, which was nil in the current fiscal.

Thirdly, sales worth Rs 13 crore (for the full year and Rs 7 crore for the first half of 1997-98) to institutional clients from TDPL has been discontinued.

Finally, exports to Russia in 1997-98 were to the tune of Rs 8 crore, which for the current year is negligible. Taking these figures into account, Sun Pharma's turnover would have shown a growth of 23 per cent, while bottomline growth would have been higher by over 25 per cent.

Interest income has declined from Rs 7.58 crore in the first half of 1997-98 to Rs 5.21 crore in 1998-99.

For the first half of 1998-99, the turnover from domestic bulk division was Rs 100.41 crore (Rs 99.86 crore previous year), and domestic bulk sales were at Rs 27.02 crore (Rs 13.73 crore). Export formulations were at Rs 4.69 crore (Rs 5.83 crore) while exports of bulk drugs at Rs 20.71 crore (Rs 12.10 crore).

As for SPEL, its export from sales of formulations was Rs 7.74 crore (Rs4.33 crore) and of Bulk drugs were Rs 3.93 crore (Rs 0.21 crore), while other sales (includes sales of advance licenses) recorded a turnover of Rs 12.82 crore (Rs 7.01 crore).

The turnover from bulk drugs was better than that of formulations. Share of bulk drugs to turnover has increased from 18.90 per cent to 31.23 per cent. This factor could affect the company's discounting in the share market as companies with a high portion of formulations in sales get higher discounting. However, this increasing reliance on bulk drug is not reflected immediately on the company's financials as operating margins of the company has barely changed.

Further, the poor performance of the formulations division is also reflected in the slip in ORG ranking from 18th position held in March 1998 to 19th in August 1998. Another factor that can hurt the sentiment of the stock in the short run is that the company has an enabling resolution for increasing its authorised capital from Rs 25 crore to Rs 85 crore. The company isplanning a preferential issue of shares to meet its business requirement.

However, if the past performance of the company is considered, any brand or company acquisition can not be ruled out. Sun Pharma has recently made SPARC its 100 per cent subsidiary by purchasing 5.05 lakh shares at Rs 10 per share. SPARC has a book value of Rs 200 per share and comes with an employee strength of 16 scientists.

The improvement in bulk drugs was mainly due to several new products. As for formulations, one of the five divisions' performance has been very poor. The doctors' group of this segment with its new products has failed to pick up as per management expectations, which is being revamped.

As for the performance of the other divisions, TDPL (gynaecology, anti-infectives and paediatric) and Synergy (antiepleptic) were the star performers. These are high realisation segments, which to some extent explains stable operating margins, in spite of lower contribution from the formulations sector. Further, the company haslaunched 16 new products in the first half as compared to 17 for the whole of 1997-98.

These include Octride (gastric carcinoma), Lupride (fertility), Cardivas (anti-hypertensive) and Phosphorid (kidney failure) among others. All the new products are in high realisation segments and returns from them can only be expected from the second half of the current fiscal. For Sun Pharma, products launched in the last four years contribute 28 per cent of the domestic formulations business.

Sun Pharma also has recently acquired brands from the Hyderabad-based Natco Pharma, which had a retail sales of Rs 52.99 crore. Though the company was not willing to divulge the cost of acquisition of these brand, however, by looking at the financial performance of Natco Pharma it seems that Sun has got a good deal.

For the second quarter of the current fiscal Natco Pharma has reported a loss of Rs 12 crore as against a profit of Rs 2.48 crore for the corresponding period in the previous year.

The poor performance of thecompany is attributed to liquidity crunch, rising overheads, reduced margins and low exports. In other words Natco had little choice but to sell its brands, and was in a poor position to dictate terms.

The brands acquired by Sun Pharma include some of the leaders in their respective segments, like Suminat (anti-migraine, market share 6.6 per cent, growth 18.4 per cent), Splanz (lansoprazole, MS - 1.1 per cent, growth 67.2 per cent), Coldact (cough and cold, MS - 3.6 per cent, growth 10.5 per cent), Natamox (anti-infectives, MS - 1.4 per cent, growth 8.7 per cent) among others.

Sun had also acquired some cardiological products, Cardicap TR and Betacap TR along with the anti-emetic leader Zofer. The acquisition includes minor overlap of products, however, it offers new markets with a high growth potential in the high realisation segment. With these brands acquisitions the company will move its ORG ranking from 19th to the 12th position.

Further, the acquisition will also result in the number of productsin top 250 products increasing from two to three.

The poor performance of the formulations division is a cause for concern, but the restructuring planned to bring back lost market share and the new product launches and acquisition of brands by Sun Pharma ensures that the company will have a good medium to long term growth.