Cipla has reported an encouraging 35% growth in net profits and a corresponding rise in sales for 1QFY03. The growth has been primarily on the back of healthy rise in export sales. Operating margins have registered a 100 basis points rise.

(Rs m)	1QFY02	1QFY03	Change
Sales	2,979	4,030	35.3%
Other Income	61	48	-21.9%
Expenditure	2,406	3,207	33.3%
Operating Profit (EBDIT)	573	823	43.6%
Operating Profit Margin (%)	19.2%	20.4%
Interest	3	2	-8.0%
Depreciation	48	70	47.4%
Profit before Tax	584	798	36.6%
Tax	140	192	37.1%
Profit after Tax/(Loss)	444	606	36.5%
Net profit margin (%)	14.9%	15.0%
No. of Shares (eoy) (m)	60.0	60.0
Diluted Earnings per share	29.6	40.4
P/E (at current price)		23

Turnover was fuelled by a 62% rise in exports from Rs 855 m to 1.39 bn. This rise in mainly on account of bulk exports to USA and Europe. Exports contribution to the total sales was 35% as compared to 29% in the corresponding period last year. Encouragingly, domestic sales grew by 24%, outpacing the domestic industry growth rates. The growth was fuelled by commissioning of the company's Goa unit.

The timing of launch for CFC-free inhalers to European markets continues to be uncertain. We expect the company to launch the same in Dec' 02. Further, Cipla has tied up with several US generic companies for supply of bulk drugs, which have 'first-to-file status' ('first-to-file status' ensures marketing exclusivity for generic companies). Some of these products are Omeprazole, Flutamide and Olanzipine which are leading molecules in their respective therapeutic segments. Further, the company is exploring options for possible tie-ups for venturing into biotech and genetic engineering with a suitable foreign partner.

Though the opening up of the African market for anti-AIDS market has provided a big export opportunity for Cipla, the profitability from same is unascertainable at this point of time. Several other companies (including Glaxo, original patent holder) have also offered to supply the drug at concessional rates to African markets. We expect only marginal growth and revenues from this segment.

One can expect the export momentum of the company to continue and there could be positive surprises on the way. At the current market price of Rs 933, the stock trades at 23x its 1QFY03E earnings.