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Cipla: AGM Notes

Sep 5, 2002

Cipla declared a 30% growth in revenues for the first five months ended August’01 at its AGM held on 4th September'02. Considering 1QFY03 figures, where revenues grew by 35%, the first five months numbers reflect continued better performance in two months viz July & August’02. However, the management gave a conservative revenue guidance of only 20% growth for the year. Exports contribution to shoot
Backed by strong growth in exports, Cipla’s management expects export contribution to rise to 40% in the current year as against 35% for FY02. The new manufacturing facility at Goa has now become operational and the facility is expected to be dedicated for exports. The manufacturing facility has recently secured the WHO (World Health Organisation) and the UK drugs regulator approval to export CFC free asthma inhalers to the international markets.

Anti-asthma exports to Europe to finally begin
The company is set to launch the world’s only budesonide (an asthma drug) formulation in CFC-free, metered-dose inhalers in Germany and throughout Europe. The approval for sale in Germany is expected soon and exports are expected to start by end of the current year. Investors were eyeing this opportunity for a long time, as the market for this product in the west is huge. With CFC (Chlorofluorocarbons) inhalers to be compulsorily phased out by 2010, the eco-friendly non-CFC based inhalers are expected to see a quantum jump in demand going forward. The European market, which is the biggest market for inhaler drugs, is estimated to be around US$ 3.8 bn currently.

Generic strategy
The generic strategy of the company is to enter bulk drug supply arrangements with companies well entranced in the generic markets. These arrangements are typically to supply hard to manufacture specialty bulk drugs. The management also clarified that the company has started selling bulk Omeprazole to the US partner, Andrx (though Andrx selling the drug is still contingent on the ongoing litigation). The company informed that Cipla was looking to market 50-60 products in Europe in the next few years. It has 10 registrations in the US and a further 21 registrations are under discussion. It hopes to file 20-25 APIs (active pharmaceutical ingredient) in the coming year.

New product launches
In the domestic market, Cipla will also be marketing 50-60 new drug formulations in 2002-03 to keep its product portfolio broad-based. The company will shortly launch a new Once a day AIDS dose kit. Currently, the company commands 75% market share for AIDS medication in the Indian market.

Foray in Biotech
The company informed that it is interested in venturing into biotech and Genetic engineering with a suitable foreign partner. Cipla is evaluating options for such possible tie-ups.

No immediate plans for buyback
The shareholders have given an in principal approval for allowing buyback of shares at a later stage. However, the management has denied any immediate intention of a buyback of its shares in the current year.

We maintain our estimates of 23% growth in topline and around 19% growth in bottom line for FY03. At the current market price of Rs 963, the stock trades at around 19x, FY03 E earnings.


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