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Cipla: Domestic market blues...

Apr 28, 2003

Domestic pharma major, Cipla Ltd, has posted disappointing March numbers. The company has reported a marginal 2% dip in income from operations, but net profits shrunk by over 24% during the quarter. The company's operating margins nearly halved to just over 12% in 4QFY03.

(Rs m)4QFY024QFY03ChangeFY02FY03Change
Net Sales3,9433,882-1.6%14,00515,72412.3%
Other Income21111440.0%284258-9.0%
Operating Profit (EBDIT)888471-47.0%3,0443,1643.9%
Operating Profit Margin (%)22.5%12.1%21.7%20.1%
Interest 5976.0%2116-22.4%
Profit before Tax832506-39.2%3,0943,1220.9%
Profit after Tax/(Loss)617467-24.3%2,3512,4755.3%
Net profit margin (%)15.7%12.0%16.8%15.7%
No. of Shares
Diluted Earnings per share*
P/E Ratio15.4

The company's domestic sales fell by 10% during the quarter (to about Rs 2 bn). The management seems to have attributed this to the slower domestic industry growth (about 2%-3%) during the quarter and also to the VAT worries owing to which stockists put off purchases until further clarity emerged on the issue. However, the dip in domestic sales was compensated by a 9% growth in export sales (to over Rs 1.9 bn). The export sales growth is very encouraging. The operating margin plummeted consequent to the flattish sales growth.

In FY03, the company finished with just over 12% topline growth, with a marginal operating margin decline (can be attributed to the poor March quarter margins). Cipla managed to grow its bottomline by a staid 5% during the year. This growth was possible only because of a 12% dip in tax provisions, which came about owing to the tax benefits of the new Goa plant.

Cost snapshot
(Rs m)4QFY024QFY03ChangeFY02FY03Change
(Increase)/decrease in stock in trade-444-249--851-787-
Raw material cost2,0022,23511.6%6,9087,96815.4%
Staff cost1781917.2%63372915.2%
Other expenses1,3181,234-6.4%4,2724,6518.9%
Total expenditure3,0553,41111.7%10,96112,56114.6%

The stock tanked today and touched new 52-week lows of Rs 565. Currently, at Rs 634 the stock trades at 15.4x FY03 earnings. We believe that the long term prospects of the company are good and are encouraged by the continuing export growth. However, the slowdown in the domestic markets is a cause for concern and may temper sentiment in the short term.

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