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Cipla in high gear, ups R&D budget - Views on News from Equitymaster
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  • Sep 4, 1999

    Cipla in high gear, ups R&D budget

    According to newspaper reports, pharmaceutical major Cipla has earmarked Rs 600 m capital expenditure in FY2000. About 50% of this amount will be directed to research and development while the rest will be used to upgrade existing facilities for exports.

    Cipla (FY99 turnover 6.2 bn) is the second largest company in the domestic formulations market. Its wide product range covers over 10 therapeutic segments including antibiotics, anti-asthamatics, cardiovasculars and anti-cancer segments. Its brands Novamox, Norflox and Ciplox are amongst the 25 top-selling brands and 11 of its products feature in the top 250 products in India.

    The company has upped its research and development budget expenditure by 25% from Rs 240 m in FY99. This means that the company's R&D expenditure as a percentage of sales has also gone up from 3.9% in FY99 to 4.3% in the current year's estimations.

    According to chairman and managing director, Y. K. Hamied, the company expects its sales to top Rs 7 bn in FY2000 (up 13% over FY99), of which over Rs 1.5 bn will come through exports of pharmaceutical products. Net profit in the same year has been estimated to be around Rs 1.3 bn. Cipla appears well on its way to achieve its sales target of Rs 7 bn, as it has already achieved Rs 3.4 bn in the first five months of the current financial year.

    The chairman also announced a 2:1 bonus issue at the extraordinary general meeting (EGM) of shareholders yesterday. The management has raised the company's authorised capital to Rs 650 m from Rs 250 m.

    The company has signed a supply-cum-marketing agreement with Zenith Goldmine of the US for flutamide formulate branded as Cytomid. The formulation is indicated for the management of advanced prostratic cancer in previously untreated patients. The company has already obtained the requisite licences and approvals required to market the products in the US.

    Market view:
    Analysts in view of its strong domestic presence and consistent performance have rated the stock as a 'BUY'. The stock price has nearly doubled in the recent rally, helped largely by market anticipation of a bonus issue (which turned out to be true). With the management considering a stock split, the stock is likely to strengthen further in the coming weeks. Currently it is trading at Rs 2,700 plus levels.



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