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Cipla: exports compensate for local fatigue

The company squeezes a 38% growth out of its formulation exports business
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First Published: Wed, Feb 06 2013. 08 18 PM IST
Margins have improved from a year ago, indicating an improvement in the profitability of its base business.
Margins have improved from a year ago, indicating an improvement in the profitability of its base business.
Updated: Wed, Feb 06 2013. 10 28 PM IST
Many pharmaceutical companies saw their sales growth in the December quarter get affected by a slowdown in the local market. Cipla Ltd would have felt the impact more than some of its peers, as India contributes to about half its revenue. That it still delivered a good performance is creditable, but it missed out on doing better.
The company’s sales rose by 18.7% over a year ago to Rs.2,030.7 crore, with domestic sales growing by just 10.7% and API exports declining by 16%. API stands for active pharmaceutical ingredient or the key basic input in a formulation. But Cipla squeezed a 38% growth out of its formulation exports business.
The operating profit margin narrowed 7 percentage points over the preceding quarter to 23.8%, but widened 1.5 percentage points over a year ago. This was expected, as the September quarter included revenue from supplies of generic Lexapro in its 180-day exclusivity period, which ended in mid-September. But a good sign is that margins have improved from a year ago, indicating an improvement in the profitability of its base business.
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Cipla attributed this improvement to a better product mix—such as a higher share of anti-asthma and antidepressant products in its export portfolio—and to price increases. The company remains circumspect even about these current margin levels, saying it would be comfortable with a 22% base level margin, while a higher level could depend on changes to its product mix or one-off factors. For example, a jump in the contribution of its HIV portfolio in a quarter can see margins drop.
The company’s net profit rose by 25.5% during the quarter to Rs.339 crore, despite a jump in its effective tax rate, partly due to an increase in other income, which, in turn, was attributable to forex-related gains.
In the short run, Cipla’s domestic market performance would be a key factor to watch. If the exports business does not support growth as it did in the current quarter, it could affect its performance. In the medium to long term, rising contribution from sales of its own generic drugs in the US market (currently it sells through partners), and a further ramp-up at its Indore SEZ (special economic zone) will be other factors to watch for.
Acquisitions appear very much on Cipla’s radar. In November, it had announced a 51% stake buy in a South African distributor Cipla Medpro South Africa Ltd. The company provided an update saying discussions are still on, as the ground situation has changed —changes at the senior management level, an increase in Medpro’s share price and currency fluctuations. News on this and other acquisitions could also be triggers.
Cipla is trading at a price-to-earnings multiple of 19 times its estimated 2013-14 earnings per share. That does not seem expensive if the company can maintain earnings growth at levels seen in the current quarter.
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First Published: Wed, Feb 06 2013. 08 18 PM IST
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