Cipla has declared a growth of 14% in net profit and a 23% growth in sales for 1QFY01. While sales growth is more or less in line with our expectations, the net profit growth is below expectations. Sales growth appears on the back of healthy increase in export sales. However, margins in the export business seem to have dropped, particularly because of low margin anti-AIDS exports. Operating margins have dipped by 100 basis points.
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The uncertainty prevailing over the export of Omeprazole by Cipla to Andrx has further intensified. Omeprazole export is considered to be a key earning opportunity for the company. Cipla has an arrangement to supply Omeprazole (bulk drug) to Andrx. Andrx in turn claims to have a six month marketing exclusivity for the drug. However, the issue is caught in a long legal tangle. Recently, the US FDA granted two more patents to AAI Pharma which could further intensify the ongoing legal battle and consequently, further delay the launch of the generic drug. The markets would be closing watching developments on the Omeprazole front in the coming months.
The company recently launched CFC-free anti-asthma inhalers, which is expected to find a huge export market, particularly in Europe. It has also ramped its research activities in its key anti-asthma therapeutic segment. Besides, with several exclusive tie-ups for generic supply and commencement of Omeprazole plant, the company is all set to tap the vast US generic market.
Further, 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. Lot of other companies (including Glaxo, original patent holder) have also offered to supply the drug at concessional rates to African markets.
We maintain a net profit growth of 44% for FY02. However, we have not factored in earnings growth for Omeprazole exports due to prevailing uncertainty. At the current market price of Rs 1074, the stock trades at 25x our expected earnings for FY02. The developments on the Omeprazole front and the exports of CFC-free inhalers are expected to drive valuations of the company in near future.
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