In earlier quarters, the smaller companies tended to do better due to faster product introductions and aggressive expansion of sales activities. But the big boys seemed to have caught up. The continuing tough conditions in the market also imply that working capital requirements are not easing and thus, cash position has not improved. One big reason could be that for most companies, especially Indian companies, march quarter is the final quarter for the financial year, thus, increasing the tax rate- Cipla being a good case in point. The other factor is the decreasing tax shelter for most companies as capital expenditure reduces to normal levels.
Domestic market continues to be tough with single digit growth rate.
Companies need to either look at exports or at newer faster growing categories to achieve higher growth. The larger companies are focussing on topline growth, even at the expense of lower margins. While some companies like Cipla have adopted the generic generic route, others like Glaxo are revamping their sales and marketing strategies. Cost cutting is more evident in the smaller companies as they increasingly adopt the outsourcing option. We believe the merger of Glaxo and Smithkline will bring together large size and a fast growing portfolio and thus, offers the best exposure to the sector.