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Cipla: Operating Margins Improve - Views on News from Equitymaster
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Cipla: Operating Margins Improve
Mar 8, 2017

Cipla has announced its results for the December quarter (3QFY17) results. The company has reported a growth of 15.6% YoY in sales while profits were up by 43.9% YoY. Here is our analysis of the results.

Performance summary
  • The topline growth was largely driven by the increase in domestic sales up 19% YoY and North America sales up 127%. Adjusting to one off in 3QFY16, domestic sales were still up by 12%. Consolidation of acquired business of Invagen too helped the US growth. Sales in South Africa were up 13% YoY. Cipla has become fourth-largest, post integration of Actavis. On the other hand, sales in emerging markets and Europe declined by of 17%, and 14% respectively. The decline in emerging market revenues was driven by tender normalization, while sales in Europe were impacted due to transition of business model. The API sales were also down by 10% YoY. The sales for the API segment have remained subdued for the year till date. The company has faced partner-specific problems, which have impacted API sales.
  • The EBITDA margins improved by 390 bps for the quarter. This was on the back of better product mix and also helped by lower employee costs and R&D expenses. The company is taking cost rationalization measures.
  • Net profits surged by 43.9%, this was helped by other income realized divestment of its stake in Chase

    Financial performance: A snapshot
    (Rs m) 3QFY16 3QFY17 Change 9MFY16 9MFY17 Change
    Net sales 30,699 35,500 15.6% 102,413 107,780 5.2%
    Other operating income 811 972 19.9% 2,343 2,702 15.4%
    Expenditure 26,879 29,696 10.5% 81,721 90,787 11.1%
    Operating profit (EBDITA) 4,630 6,776 46.4% 23,035 19,696 -14.5%
    EBDITA margin (%) 14.7% 18.6% 22.0% 17.8%
    Other income 675 1,535 127.3% 1,488 2,059 38.4%
    Interest (net) 314 593 88.9% 1,589 1,260 -20.7%
    Depreciation 1,767 2,577 45.9% 4,845 6,907 42.6%
    Minority interest 115 110 -4.9% 240 351 46.4%
    Profit before tax 3,109 5,031 61.8% 17,850 13,237 -25.8%
    Tax 503 1,283 3,322 2,555 -23.1%
    Profit after tax/(loss) 2,606 3,748 43.9% 14,528 10,682 -26.5%
    Net profit margin (%) 8.3% 10.3% 13.9% 9.7%
    No. of shares (m) 803.4
    Diluted earnings per share (Rs) 12.0
    Price to earnings ratio (x)* 49.0

    *based on trailing 12 months earnings

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