Cipla’s turnover growth was affected by a 3.4% decline in formulation exports due to non-availability of a key raw material in its respiratory product segment. A high base effect was also at work. Formulation exports have risen by 6% over the June quarter.

It stepped up bulk drug exports to compensate, which rose by 37.5%. But domestic sales growth, too, was disappointing at 6.8%. Cipla did not participate in some large anti-retroviral tenders due to lower anticipated price realizations. Sales also declined due to lower anti-infective product sales, owing to a poor monsoon. On the positive side, fee income from technological services rose significantly, providing a buffer from falling sales.

While Cipla’s sales growth may have slowed, its product mix improved during the quarter. That’s one of the reasons why its operating costs grew at just half the level of revenue growth, leading to a 3 percentage point increase in operating margins to 25.9%. Cipla’s depreciation and interest costs rose and its other income declined, which should have normally affected profits. But a gain of Rs7.5 crore due to forex fluctuations in the September quarter, compared with a loss of Rs104.5 crore in the year-ago period, helped. Its net profit rose by 82% to Rs276 crore over a year ago to Rs5 crore and by 14% over the previous quarter.

Cipla told analysts in a conference call that it is maintaining its full-year revenue growth guidance of 10-12%. This implies that its revenue growth will return to normal in the second half of the fiscal. It has spent around Rs300 crore in the first half on its Indore special economic zone plant, upgraded other facilities and expects to spend another Rs200- 300 crore in the second half. The Indore plant will be ready in the first quarter of fiscal 2011.

Its share price at Rs301 discounts its estimated fiscal 2010 earnings by about 21 times, which assumes that the firm is able to deliver superior growth in the second half.

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