RECOMMENDATIONSAlong with impressive growth the pharmaceutical and medical manufacturing industry recently, Traphaco is having some of its most profitable years. From 2012 to 2016, the company enjoyed an average growth rate of 16.3% regarding profitability and outperformed its fairly successful competitors as DHG 8,7%; DMC 14,6%; IMP 6,3%, etc (Traphaco, 2016). The year 2016, in particular, was a prosperous year for Traphaco as it reached the planned VND 2000 billion in revenues.
Moreover, its revenues from exclusively manufactured and distributed drugs increased by 12% compared to 2015, exceeding the planned revenues by 1%. This is Traphaco’s main activities, which bring about over 70% revenues and 90% profits annually. Given the favorable results from distribution system restructuring, specific trading strategy and expansion in production capacity to support revenue growth, TRA is currently the most noteworthy oriental medicine producer in Vietnam pharmaceutical market. With a relatively high current market price of about VND 116,000 per share and the P/E of 21%, higher than the industry average of 16%, there is great potentials for good revenue and profit growth of the company. To furthur its success, it is essential that the company is aware of both its strengths and weakness to make strategies of improvements and change accordingly. Based on Traphaco’s characteristics and performance, we have come up with three recommendations:1. Continuing to expanding OTC market but prepare for shift of focus to prescription drug marketOut of the aforementioned VND 2000 billions in revenues in 2016, VND 1298 billions came from OTC market, growing by 18%. In retrospect, it is safe to say that it’s time for Traphaco to collect the fruit of their successful application of a restruturing plan.
Before 2014, TRA had about 10,000 customers, mostly wholesale ones with many weak points. In 2014, TRA successfully restructured its distribution system to increase its customer base to 18,000, nearly 80% of which is retail customers. Despite some sacrifices in growth in 2014, restructuring its distribution system along the vertical direction of the value chain for trading expansion has helped TRA become second biggest drug distributor at Vietnam market. In its journey ahead, it would be sensible for Traphaco to continue expanding its OTC sales channel. Special attention should be paid to developing this channel in the southern regions of the country as this large, potential market only accounted for 22% in sales compared to 67% of the northern region.
Moreover, it is important for the company to take into account the increasing popularity and possible dominatition of prescription drug in Vietnamese drug market to develop adequate future plans.2. Focusing on its strength of oriental medicine:70% revenues and 93% profits of TRA were derived from exclusively produced drugs, of which 77% was contributed by oriental medicine with three leading products: (1) Boganic, accounting for 22% of the liver supplement market, (2) “Ho?t huy?t d??ng não”, taking up 12% of the nootropic supplement market share, and (3) Totti with 25.6% of the hemorrhoids market share (Traphaco, 2016).
As demand for natural based and organic medicine is on an increasing trend globally, Traphaco should invest more in researching, producing oriental herbs and drugs to boost sales and profits via selling oriental medicines in the foreign market as well as selling extracts for foreign drug producers. In fact, the company has already been aware of such opportunities so they have started long terms investment in planting herbs (Greenland project) like artichoke, polyscias fruticosa, etc that meet WHO’s GACP standard.3. Improving profit margin:During the studied priod of 2013 – 2016, TRA was performing well in most key indices, however, the company was not having desirable result in one of the most inmportant one that is returns on equity.
This index has remained significantly low, both in comparison with the industry average and its competitors. As seen from figure 8 and 9, the company has both low ROE and relatively high level of debt, which indicates that it has not been very effective in generating profits from its capital. This can be a bad signal that hinder investors from investing in the company, therefore, Traphaco should put efforts into boosting its ROE. Our suggestion would be to improve profit margin, which can be done by increasing profits and cut down costs. To do that, the company can consider developing new, exclusive high end products that can justify higher prices. Additionally, investing on new technology to reduce cost of production is also highly recommended.