Analysis: Abbott India Ltd

The current section of the “Analysis” series covers Abbott India Ltd, a part of Abbott Group, USA. The company is a leading pharmaceutical company in India with leading brands like Thyronorm, Digene, Cremafin, Brufen, and Duphaston among many others.

To benefit the maximum from this article, an investor should focus on the analysis process instead of looking for good or bad aspects of the company. She should learn the interpretation of different types of data and transactions and pay attention to the parts of annual reports etc. used to get the information. This will help her in improving her stock analysis skills.

Abbott India Ltd: Detailed Fundamental Analysis

Abbott India Ltd does not have any subsidiary or joint venture etc.; therefore, it reports only standalone financials.

We believe that while analyzing any company, an investor should always look at the company as a whole and focus on financials, which represent the business picture of the entire company including its subsidiaries, joint ventures etc. Consolidated financials of a company present such a picture. Therefore, if a company reports both standalone as well as consolidated financials, then in such a case, it is advised that the investor should prefer the analysis of the consolidated financials of the company, whenever they are present.

Further advised reading: Standalone vs Consolidated Financials: A Complete Guide

Until now, Abbott India Ltd has reported only standalone financials; therefore, we have used the standalone financials in the analysis.

Financial and Business Analysis of Abbott India Ltd:

In the last 10 years, Abbott India Ltd has increased its sales at an annual growth rate of 11% from ₹2,289 cr in FY2015 to ₹5,849 cr in FY2024.

Over the last 10 years (FY2015-2024), the operating profit margin (OPM) of Abbott India Ltd has almost consistently increased from 14% in FY2014 to 25% in FY2024. The net profit margin (NPM) of the company has followed the trend of its OPM and has increased from 10% in FY2015 to 21% in FY2024.

The financial picture of the company’s historical performance presents more insights if an investor extends her analysis to the earliest available financial information from 1989 onwards present in its historical annual reports available on the website of BSE Ltd.

In the below table, we have presented the data of sales, net profits and net profit margin (NPM) for the last 36 years (1989-2024) for Abbott India Ltd.

In the 36-year historical performance of Abbott India Ltd, sales of the company declined only once in FY2005. In 1995 and 2001 also, the sales had declined; however, at these times, the company reported financial performance of lesser duration of 9 months and 11 months respectively.

However, over the last 36 years, the net profit margin on the total income (operating + non-operating income) of the company has fluctuated significantly. NPM was 7% in FY1991; it declined to 3% in FY1995; increased to 22% in FY2004; declined to 6% in FY2010. Thereafter, the NPM has almost consistently increased to 21% in FY2024.

To understand the reasons for such fluctuations in the business performance of Abbott India Ltd over the years, an investor needs to read the publicly available documents of the company like annual reports from 1997 onwards, management interactions as well as its corporate announcements.

In addition, an investor should also read the following article in which we have highlighted key factors influencing the business of pharmaceutical companies: How to do Business Analysis of Pharmaceutical Companies

After going through the above-mentioned documents and article, an investor notices the following key factors, which influence the business of Abbott India Ltd. An investor needs to keep these factors in her mind while she makes any predictions about the performance of the company.

1) Intense competition in the formulations business in the Indian pharmaceutical market:

The pharmaceutical market in India is highly fragmented. As per the company, the top 10 companies control only about 43% share of the market. (FY2020 annual report, page 56).

As per one older estimate, India contains about 24,000 pharmaceutical companies and almost 99% of them are in the unorganized sector.

FY2012 annual report, page 52:

The Indian Pharmaceutical industry is highly fragmented. It is estimated to have about 24,000 players, of which only around 330 players are in the organised sector.

Due to the fragmented nature of the industry, almost every drug in the market sees intense competition. As per the company, on average, every drug has about 26 competing brands from multiple companies. Therefore, the consumer has a lot of choices to choose from.

FY2014 annual report, page 68:

An average of 26 brands compete for each molecule and many companies have multiple brands for the same molecule.

For example, in the case of Abbott India Ltd’s key drug, Duphaston, which used to be a market leader in its segment, the situation quickly worsened from a monopoly position to a competition among 41 brands.

Investors’ meet transcript, September 2022, page 8:

Vivek V Kamath: Duphaston is a very unique situation, we have moved from being the only one to one amongst the 41 brands in a span of two years.

On multiple occasions, counterfeits of its well-known drugs have also appeared in the market and hurt its business.

FY2011 annual report, page 53:

Cases of counterfeiting of pharmaceuticals in India continue to be reported and this is a serious concern for industry wellbeing.

The competitive position in the past had reached to such an extent that once it had to sell its manufacturing plant at Jejuri, Maharashtra as it became unviable to run the plant.

FY2002 annual report, page 17:

…introduction of new molecules by the Indian Companies…affected the demands of the mass based products of your Company…affected the capacity utilisation in our factories…and increase in input cost on the other hand are also causes of concern for viability of the plant.

As a result, the company sold off the plant at a loss.

FY2002 annual report, page 6:

To beat the intense competition, the company has come up with innovative solutions like providing anaesthetic equipment free of cost to hospitals so that they may use its drugs in these equipment.

FY2021 annual report, page 132:

anaesthetic equipments, installed at various hospitals free of cost with the intention of procuring business for the Company’s products

Also read: How to do Business Analysis of a Company

2) Pricing controls on major drugs by Govt. of India:

Govt. of India has set up the National Pharmaceutical Pricing Authority (NPPA), which under the Drug Pricing Control Order (DPCO) releases a list of National List of Essential Medicines (NLEM) and puts price caps on essential drugs.

Over the years, many key drugs of Abbott India Ltd have faced price caps, which has affected sales as well as profits of the company. For example, in FY2014, when govt. increased the number of drugs under price control, then the company had an impact of ₹11 cr in sales and profits.

FY2014 annual report, pages 4 and 68:

Drugs Prices Control Order (DPCO) 2013 had a significant impact on some of our major brands like Thyronorm, Obimet, Epilex. These brands faced new price limits which have directly impacted our profitability.

The Company has reduced the prices of the products covered under the new DPCO, which resulted in an adverse impact of ₹11,00.00 Lakhs on Sales and Profits during the period 2013–14.

Price control by govt. has been one of the major adverse factors for the company. Even in previous decades, the govt. kept a strong pricing control on some of its major drugs like Brufen (a well-known painkiller).

FY2004 annual report, page 17:

However, price control on ibuprofen hampered the profitability of our pain management business.

Once, the price cap put by govt. on one of its drugs, Betonin was so sharp that the company found it economically unviable to produce it and therefore, discontinued its sales.

FY1999 annual report, page 6:

Price reduction announced by the Government has also forced the Company to discontinue Betonin capsules.

3) Regulatory risk faced by Abbott India Ltd:

Over the years, other than direct price controls over drugs, other govt. policies have also impacted the company.

For example, changes in indirect taxation policies like excise duty or GST have impacted the company’s business in the past.

In FY2005-FY2006, when the govt. changed the calculation of excise duty from the cost base to the maximum retail price (MRP) base, then a higher outgo of taxes affected its profit margins.

FY2006 annual report, page 20:

Profits continued to be under pressure due to the impact of levy of Excise Duty on Maximum Retail Price (MRP) and rising input cost and freight charges due to higher oil prices.

Also read: How to analyse New Companies in Unknown Industries?

4) Cost reduction strategies adopted by Abbott India Ltd:

Due to intense price-based competition and price control on its key drugs, over the years, the company has taken multiple steps to reduce its costs and become a cost-competitive player to protect its profit margins.

It has attempted to reduce its manpower and wherever possible use technology and automation to reduce its operating expenses.

FY2022 annual report, page 66:

Productivity improvement initiatives like camera detection system and elimination of visual inspection led to utilization of less manpower.

In the past, the company resorted to the reduction of employee strength using a voluntary retirement scheme (VRS).

FY1997 annual report, page 7:

The company is so focused on keeping its employee count under control that in its meeting with analysts, it prided itself that in the last few years, its growth was only out of increased productivity and not from increasing employee count.

Analyst meeting transcript, September 2022, page 6:

Vivek V Kamath: Our entire growth last couple of years has come from productivity increase. It hasn’t come from adding people.

In addition, the company also took steps like developing new vendors to substitute high-cost import of raw materials (FY2015 annual report, page 62), changing the packaging of liquid drugs from glass to PET bottles etc.

FY2014 annual report, page 56:

Cremaffin and Cremaffin Plus primary packs were changed from glass bottle to PET bottles. This has resulted in reduction in waste, savings in transportation

The company also used an e-auction system to purchase materials from vendors to find the lowest cost prices.

FY2011 annual report, page 57:

Synergies from merger and the e-auctions as a tool for competitive price discovery contributed to reduction in material cost.

Abbott India Ltd has outsourced most of its production and currently only about one-third of the drugs that it sells are produced in its own factories.

Analyst call transcript, September 2022, pages 16-17:

Rajiv Sonalker:…it’s33%, that is in-house manufactured out of the total manufacturing.

However, in the past, when due to intense price-based competition, the demand for its products was impacted and capacity utilization at its plants came down. Then, to increase the plant utilization and to keep it economically viable, Abbott India Ltd shifted production of a lot of drugs from third-party manufacturers to in-house.

FY2012 annual report, page 54:

During the year the Company insourced the manufacture of two of its key brands Udiliv and Duphalac at its Goa plant resulting in optimal utilisation of plant capacity.

FY2006 annual report, page 15:

One of the Company’s major products i.e. Digene has been transferred to its own factory at Goa, thereby improving the capacity utilization.

In the past, the company merged its office operations from multiple locations to a single one to bring more synergies and reduce operating costs.

FY2004 annual report, page 7:

In order to save progressive increase in rent and also to save the recurring expenses for maintaining the office at Ballard Estate, the Company’s Registered Office was shifted to its owned office premises at Corporate Park, Chembur…resulted in cost savings

In the last 10 years (FY2015-2024), the tax payout ratio of Abbott India Ltd has largely been in line with the standard corporate tax rate in India i.e. above 35% until FY2019 and above 25% from FY2020 onwards when the new corporate tax regime with lower tax rate was announced by the Govt. of India.

Recommended reading: How to do Financial Analysis of a Company

Operating Efficiency Analysis of Abbott India Ltd:

a) Net fixed asset turnover (NFAT) of Abbott India Ltd:

Over the years, the net fixed asset turnover (NFAT) of Abbott India Ltd has been very high in the range of 16 to 39 times. Such a high asset turnover indicates that the company is mainly acting as a trading/marketing company without a lot of investments in manufacturing plants.

This is in line with the disclosure by the company that it outsources almost two-thirds of its production and only manufactures about 33% of its products in-house.

Going ahead, an investor should keep a close watch on the fixed asset turnover levels of the company to assess whether it should continue with its focus on outsourcing production activities or bring them in-house as such a step will increase the requirement of capital by the company.

Further advised reading: Asset Turnover Ratio: A Complete Guide for Investors

b) Inventory turnover ratio of Abbott India Ltd:

Over the years (FY2015-2024), the inventory turnover ratio (ITR) of the company has increased from 6.9 in FY2016 to 9.2 in FY2024.

An increase in ITR indicates an improvement in the inventory utilization by the company.

Going ahead, an investor should keep a close watch on the inventory position of the company to understand whether it is able to maintain the efficiency of its inventory utilization.

Further advised reading: Inventory Turnover Ratio: A Complete Guide

c) Analysis of receivables days of Abbott India Ltd:

Over the years, the receivables days of Abbott India Ltd have stayed in the range of 19-20 days. Even though, in some of the years, receivables days increased to 26-27 days; however, since the last 3 years, they are back to about 20 days range.

Stable receivables days over the years indicate that Abbott India Ltd has collected its money from its customers on time.

Going ahead, an investor should continue to monitor the receivables position of the company to check if it continues to collect its money on time from its customers.

Further advised reading: Receivable Days: A Complete Guide

When an investor compares the cumulative net profit after tax (cPAT) and cumulative cash flow from operations (cCFO) of Abbott India Ltd for FY2015-2024, then she notices that over the last 10 years (FY2015-FY2024), the company has almost converted its profit into cash flow from operations.

Over FY2015-2024, Abbott India Ltd reported a total net profit after tax (cPAT) of ₹5,845 cr. During the same period, it reported cumulative cash flow from operations (cCFO) of ₹5,829 cr.

It is advised that investors should read the article on CFO calculation, which would help them understand the situations in which companies tend to have the CFO lower than their PAT. In addition, the investors would also understand the situations when the companies would have their CFO higher than the PAT.

Further advised reading: Understanding Cash Flow from Operations (CFO)

Learning from the article on CFO will indicate to an investor that the cCFO of Abbott India Ltd is lower than the cPAT due to other income of ₹1,065 cr, which is included while calculating PAT and is removed while calculating CFO.

The Margin of Safety in the Business of Abbott India Ltd:

a) Self-Sustainable Growth Rate (SSGR):

Read: Self Sustainable Growth Rate: a measure of Inherent Growth Potential of a Company

Upon reading the SSGR article, an investor would appreciate that if a company is growing at a rate equal to or less than the SSGR and it can convert its profits into cash flow from operations, then it would be able to fund its growth from its internal resources without the need of external sources of funds.

Conversely, if any company attempts to grow its sales at a rate higher than its SSGR, then its internal resources would not be sufficient to fund its growth aspirations. As a result, the company would have to rely on additional sources of funds like debt or equity dilution to meet the cash requirements to generate its target growth.

An investor may calculate the SSGR using the following formula:

SSGR = NFAT * NPM * (1-DPR) – Dep

Where,

• SSGR = Self Sustainable Growth Rate in %
• Dep = Depreciation rate as a % of net fixed assets
• NFAT = Net fixed asset turnover (Sales/average net fixed assets over the year)
• NPM = Net profit margin as % of sales
• DPR = Dividend paid as % of net profit after tax

(For systematic algebraic calculation of SSGR formula: Click Here)

Over the years, Abbott India Ltd had a very high SSGR ranging from 29%-248% whereas it has grown its sales at a rate of 11% over the last 10 years (FY2015-2024). Therefore, it has funded its growth from internal sources and did not require funds from additional sources like debt or equity dilution.

On March 31, 2024, it had a debt of only ₹83 cr against its cash & investment balance of ₹2,134 cr. and over the years, it had done multiple buybacks of shares e.g. in FY2003, FY2007 and FY2008.

An investor arrives at the same conclusion when she analyses the free cash flow position of the company.

b) Free Cash Flow (FCF) Analysis of Abbott India Ltd:

While looking at the cash flow performance of Abbott India Ltd for the last 10 years (FY2015-FY2024), an investor notices that it generated cash flow from operations of ₹5,829 cr. During the same period, it did a capital expenditure of about ₹524 cr.

Therefore, during this period (FY2015-FY2024), Abbott India Ltd had a free cash flow (FCF) of ₹5,305 cr (=5,829 – 524).

In addition, during this period, the company had a non-operating income of ₹1,065 cr and an interest expense of ₹85 cr. As a result, the company had a total free cash flow of ₹6,285 cr (= 5,305 + 1,065 – 85). Please note that the capitalized interest is already factored in as a part of the capex deducted earlier.

Abbott India Ltd used its free cash flow for paying dividends of about ₹3,742 cr (excluding dividend distribution tax of about 20%) and has increased its cash & investment balance by about ₹1,491 cr from ₹644 cr in FY2015 to ₹2,134 cr in FY2024.

Going ahead, an investor should keep a close watch on the free cash flow generation by Abbott India Ltd to understand whether the company continues to generate surplus cash from its business and how it utilizes it.

Further recommended reading: Free Cash Flow: A Complete Guide to Understanding FCF

Self-Sustainable Growth Rate (SSGR) and free cash flow (FCF) are the main pillars of assessing the margin of safety in the business model of any company.

Further advised reading: 3 Simple Ways to Assess “Margin of Safety”: The Cornerstone of Stock Investing

Additional aspects of Abbott India Ltd:

On analysing Abbott India Ltd and after reading annual reports, its credit rating reports and other public documents, an investor comes across certain other aspects of the company, which are important for any investor to know while making an investment decision.

1) Allocation of business to Abbott India Ltd by the Abbott Group, USA:

Abbott India Ltd is one of the many subsidiaries that Abbott Group has in India. Almost all of these subsidiaries are in similar business.

In such arrangements, the shareholders of a listed company (Abbott India Ltd) are always at the mercy of the parent MNC group (Abbott Group, USA) for the allocation of business to their company. If the parent MNC company decides, then it can easily stop giving the specific Indian subsidiary more business or ask it to give its existing business to another company of the group.

If any such event takes place, then it has the potential to hurt the interests of public shareholders of the Indian-listed company (Abbott India Ltd).

In the past, there have been multiple instances where MNC parent company decided to restrict the business activities of Indian listed companies and instead gave the business to their other unlisted companies in India, which was detrimental to the interests of public shareholders of Indian listed companies.

Investors may read the case of Linde India Ltd, which unfortunately landed up in such a situation when the MNC Linde Group decided to restrict the activities of the company only to certain parts of India and asked its other unlisted subsidiary to focus on the remaining parts of India. Also, the Indian listed company (Linde India Ltd) was restricted from entering new upcoming businesses like green hydrogen.

Minority shareholders were angry at such decisions by the MNC Linde Group and therefore, they complained to SEBI (Securities and Exchange Board of India), which issued an order against the company’s actions and asked for an assessment of the business forgone by Linde India Ltd by such actions of MNC Linde Group.

Investors may read our detailed analysis of Linde India Ltd in the following article: Analysis: Linde India Ltd

Therefore, investors of Abbott India Ltd should be cautious and closely watch the actions of Abbott Group, USA when it allocates business opportunities, drug brands etc. to the company or its other Indian subsidiaries.

Also read: Why Management Assessment is the Most Critical Factor in Stock Investing?

2) Related party transactions of Abbott India Ltd:

Abbott India Ltd enters into numerous transactions with its fellow subsidiaries and other Abbott Group companies related to sales, purchases of raw materials, stock-in-trade, payment of rent etc. The overall value of such transactions varies in the range of about ₹500-600 cr every year.

Year after year, the company has sought approvals of higher limits on the transactions that it can conduct with its promoter-group companies. Currently, it has limits of ₹800 cr with Abbott Healthcare Private Limited and ₹650 cr with Abbott Products Operations AG., Switzerland.

Still, at times, the company breaches the limits while transacting with different promoter group companies and takes subsequent approval from its audit committee for the same.

For example, in H1-FY2024, it breached limits for transactions with Abbott Healthcare Private Limited, Abbott Diagnostics Medical Private Limited and Abbott India Limited Officers’ Group Gratuity Scheme. While disclosing its related party transactions for H1-FY2024 to stock exchanges on Nov. 9, 2023, it commented that now, the audit committee has approved the excesses.

As Abbott India Ltd is a cash-rich company that keeps a couple of thousand crores of rupees worth of cash & investments with it; therefore, the Abbott Group uses it as a bank to meet the cash requirements of its group companies.

For example, in FY2018, the company gave a loan of ₹200 cr to one of the Abbott Group companies, Alere Medical Private Limited. Also, at the same time, it gave an interest-free security deposit to another Abbott Group company, Abbott Healthcare Private Ltd.

FY2018 annual report, page 137:

In the past, the senior management of the company have also transactions with the company. For example, Abbott India Ltd had taken flats on rent from its key managerial personnel (KMP) and had paid rent to them.

For example, in FY2008, the company paid rent to Mr U D Chiniwala, Director of Risk & Financial Controlling and Mrs V Jain, Wife of Mr S Jain who was Director of Marketing in the company (FY2008 annual report, page 39).

In FY2005, apart from the above-mentioned persons, the company also paid rent to Mr A V Chandorkar, Vice President of Human Resources & Administration (FY2005 annual report, page 40).

An investor may note that such transactions between the company and its related parties have the potential to shift economic value from public shareholders to promoters and KMPs if the sale of goods and services is done at a price lower than the fair market price or the purchases of goods and services are done at a price higher than the fair market price.

Also read: How Promoters benefit from Related Party Transactions

3) Suboptimal use of surplus cash:

As mentioned earlier, Abbott India Ltd is a cash-rich company and has to invest its money in financial instruments. However, over the years, the returns earned by the company on its cash & investments were very low, about 3% per year.

So, stakeholders were not pleased and in one of the analyst meetings, they questioned the company.

Analyst meet transcript, September 2022, page 18:

Amit:…we have Rs 2500 crore of cash. But when we see other income, we see only 80, 90 odd crores, I was like this is only 3.2% as a yield, as a treasury function. I’m just not able to comprehend why such a slower rate

The management tried to defend that they invested in very safe assets as they did not want to put the money at risk. However, after questioning by analysts, the company realized that even within safe instruments, it can invest the money in longer-term fixed deposits and earn a higher return.

Therefore, immediately thereafter, it shifted almost half of its surplus money to longer-term (>12 months) fixed deposits.

FY2023 annual report, page 139:

In the above table, an investor may note that in the previous year column (FY2022, before the said analyst meeting in September 2022), there are no “Term deposits with original maturity of more than twelve months”.

And immediately, the return on its investments jumped up. In FY2023, the company reported interest income on fixed deposits of ₹140 cr, almost double of about ₹75 cr earned in FY2022.

FY2023 annual report, page 152:

In the next year, the full-year impact of this switch to long-term fixed deposits came and the company reported “other income” of about ₹248 cr over the other income of ₹154 cr in FY2023.

Therefore, the management was sitting on cash parked in suboptimal investments whereas without impacting the security of money, it could have earned a better return; however, it required hard questions by an analyst for the company to act on it.

Also read: How to Identify if Management is Misallocating Capital

4) Weakness in internal controls and processes at Abbott India Ltd:

Over the years, there have been certain instances that highlight that internal controls and processes at the company leave a scope for improvement.

For example, the company had breached the limit of foreign investment allowed in the pharmaceutical sector and its name was highlighted for this breach by the Bombay Stock Exchange; however, still, the company felt that it did not have any limit breach.

FY2019 annual report, page 64:

name of the Company appears in the breach list displayed on the website of the Depositories and Bombay Stock Exchange for having foreign investments in excess of sectoral cap. The Company has taken a view that there is no breach and accordingly is taking necessary action.

However, soon thereafter, the company realized that it had broken a serious limit and then it started running from pillar to post to seek approval to condone the limit breach. The company, then applied to the Dept. of Pharmaceuticals and Reserve Bank of India to condone the breach of the Foreign Exchange Management Act, 2000.

FY2021 annual report, page 74:

it has obtained an Order from the Department of Pharmaceuticals for increase in the limits for Foreign Investment upto 80% subject to compounding by the Reserve Bank of India. The Company is in process of compounding of the same.

Recommended reading: How to study Annual Report of a Company

On other occasions, the company delayed filing of forms with the Ministry of Corporate Affairs (FY2022 annual report, pages 63-64) and disclosing on stock exchanges about an order received from GST authorities (BSE announcement, March 1, 2024).

In FY2023, the company took a backup of employee expenses data on servers located outside India whereas it had to keep the data located on servers located within India. (FY2023 annual report, page 176).

Multiple times in the past, the company delayed in payment of undisputed statutory dues like professional tax to govt. authorities and the dues remained outstanding even for more than 6 months from the date when they became due for payment e.g. professional tax payments in FY2010, FY2018, FY2020, provident fund payments in FY2009, FY2023 and payments to Labour Welfare Fund in FY2007.

5) Management Succession of Abbott India Ltd:

Abbott India Ltd is a part of the Abbott group and has access to a large pool of professional managers across its different companies globally. The company has a history of appointing managing directors, people who have been with the company for long like the recent appointment of managing director, Ms Swati Dalal who joined the company in 1995.

Therefore, over the years, there has been a continuity in leadership and Abbott India Ltd does not depend on any promoter family for succession planning.

Further advised reading: How to do Management Analysis of Companies?

The Margin of Safety in the Market Price of Abbott India Ltd:

Currently (June 19, 2024), Abbott India Ltd is available at a price-to-earnings (PE) ratio of about 48 based on consolidated earnings of FY2024.

Moreover, we recommend that an investor read the following articles to assess the PE ratio to be paid for any stock, which takes into account the strength of the business model of the company as well. The strength in the business model of any company is measured by way of its self-sustainable growth rate and the free cash flow generating the ability of the company.

In the absence of any strength in the business model of the company, even a low PE ratio of the company’s stock may be sign of a value trap where instead of being a bargain; the low valuation of the stock price may represent the poor business dynamics of the company.

• 4 Principles to Decide the Ideal P/E Ratio of a Stock for Value Investors
• How to Earn High Returns at Low Risk – Invest in Low P/E Stocks
• Hidden Risk of Investing in High P/E Stocks

Analysis Summary

Overall, Abbott India Ltd has grown its sales at a rate of about 11% over the last 10 years. The company has faced intense price-based competition, govt. mandated price caps on many of its drugs as well as multiple taxation changes. The company has taken multiple steps to cut down costs and increase productivity, which has helped it improve its profit margins over the years.

The company has managed its working capital efficiently and has turned out to be a cash-rich company that has grown its business using internal cash flows and has rewarded its shareholders with dividends and buybacks.

However, at times, the MNC promoter group (Abbott Group, USA) has used its cash and resources for the benefit of its other group companies in India. Such related party transactions and decisions of the parent group while allocating business opportunities to Abbott India Ltd or its other unlisted subsidiaries, remain the biggest risk to the public shareholders of the company.

The company enters into multiple sales, purchase and other transactions with other Abbott Group companies and the size of such transactions is increasing over the years. Such transactions offer the potential of transferring economic benefits from public shareholders of the company to the MNC promoter group. Investors should keep a close watch on such related party transactions and analyse them in depth.

Over the years, the management had invested its surplus cash sub-optimally, which was pointed out by stakeholders. Thereafter, the company started investing its funds judiciously and the return on such investments has improved significantly.

On occasions, decisions of Abbott India Ltd indicate that its internal controls and processes leave a scope for improvement whether it was ignoring the breach of sectoral cap of foreign investment or delaying payment of undisputed statutory dues to govt. authorities.

Going ahead, investors should closely monitor the capital allocation by the company, its profit margins, regulatory developments, and related party transactions closely.

The investor needs to see if Abbott Group, USA favours its private, unlisted entity over Abbott India Ltd for launching new brands/products or treats it as a stable cash flow source to benefit its other entities.

She needs to continuously monitor related party transactions of Abbott India Ltd with other Abbott Group companies.

Further advised reading: How to Monitor Stocks in your Portfolio

These are our views on Abbott India Ltd. However, investors should do their own analysis before making any investment-related decisions about the company.

You may use the following steps to analyse the company: “Selecting Top Stocks to Buy – A Step by Step Process of Finding Multibagger Stocks”

I hope it helps!

Regards,

Dr Vijay Malik

P.S.

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Disclaimer

Registration status with SEBI:

I am registered with SEBI as a research analyst.

Details of financial interest in the Subject Company:

I do not own stocks of the companies mentioned above in my portfolio at the date of writing this article.