Cipla Ltd’s focus on profitability has led to higher operating profit margins but has cost it growth, as revenue increased by only 7% in the December quarter. The pharmaceutical company decided against participating in tenders to supply antiretroviral (ARV) drugs as the realizations had declined significantly. Formulation exports—over half of total sales—were down by 2.5% to Rs576 crore, due to the ARV segment that contributes around 10%. Also, Cipla faced difficulties in gas supplies required for its inhaler business, for some part of this quarter. Both factors were present in the September quarter, too. A strong rupee is also a concern as it lowers export realizations.
Domestic sales and bulk drug exports made up for the drop in formulation exports, with sales rising by 14% and 10%, respectively. Operating profit margins improved smartly, by nearly 3 percentage points, to 28%. Apart from a better product mix the company said that it managed to lower its procurement costs and also cut selling expenditure. While operating profit rose by 19%, its net profit rose by almost 30%, due to lower interest costs and forex-related losses.
Graphics by Yogesh Kumar/Mint
Cipla’s nine-month sales are up by around 8% and it has lowered its sales guidance for fiscal 2010 to around 8-10% from 10-12%. It is thus factoring in some improvement in the revenue next quarter. The ARV business will start showing growth once the base effect of lower margin turnover ends. It is targeting the European market for inhalers and is in the process of launching salbutamol in the UK and has approval for another drug to be sold in Germany. It has tied up with foreign partners who have a marketing network in these countries. The salbutamol launch will contribute to revenue growth in the December quarter.
It is maintaining a revenue guidance of around 8-10% in fiscal 2011, too, which could change if domestic markets sustain current growth rates and its European roll-outs pan out as expected. A key risk is rupee appreciation. Cipla’s share price rose by 1.4%; the results were announced after the close of trading.
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