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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) 4QFY02 4QFY03 Change FY02 FY03 Change
Net Sales 3,943 3,882 -1.6% 14,005 15,724 12.3%
Other Income 21 111 440.0% 284 258 -9.0%
Expenditure 3,055 3,411 11.7% 10,961 12,561 14.6%
Operating Profit (EBDIT) 888 471 -47.0% 3,044 3,164 3.9%
Operating Profit Margin (%) 22.5% 12.1%   21.7% 20.1%  
Interest 5 9 76.0% 21 16 -22.4%
Depreciation 72 67 -6.7% 213 283 33.1%
Profit before Tax 832 506 -39.2% 3,094 3,122 0.9%
Tax 215 38 -82.1% 743 648 -12.8%
Profit after Tax/(Loss) 617 467 -24.3% 2,351 2,475 5.3%
Net profit margin (%) 15.7% 12.0%   16.8% 15.7%  
No. of Shares 60.0 60.0   60.0 60.0  
Diluted Earnings per share* 41.2 31.2   39.2 41.3  
P/E Ratio         15.4  

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) 4QFY02 4QFY03 Change FY02 FY03 Change
(Increase)/decrease in stock in trade -444 -249 - -851 -787 -
Raw material cost 2,002 2,235 11.6% 6,908 7,968 15.4%
Staff cost 178 191 7.2% 633 729 15.2%
Other expenses 1,318 1,234 -6.4% 4,272 4,651 8.9%
Total expenditure 3,055 3,411 11.7% 10,961 12,561 14.6%

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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