Cipla declared its 2QFY02 results today. Sales grew by 25%, more or less in our expectation. However, a 220 basis points fall in operating margins has come as a big disappointment. Markets were infact expecting a spurt in operating margins on the back of significant growth in export revenues.The drop in operating margins seems to be due to higher marketing spend and low margin export business like anti-AIDS drugs to South African markets.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (eoy) (m)
Diluted Earnings per share
P/E (at current price)
While exports grew by 77%, driven mainly by US geography, domestic sales grew by around 10%. It . Though insignificant on the net level, interest expenses have also shown a rise adding up to Rs 5 m against Rs 3 m in 1QFY01. Tax provision also showed a spurt inspite of a rise in exports due to new accounting policy on deffered taxation. Finally, net margins dropped 130 basis points reflecting operating margins slide.
The uncertainty prevailing over the export of generic Omeprazole, which is considered to be key earning opportunity for cipla has further intensified. Just to recall, 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 had granted two more patents to AAI Pharma which has intensified the ongoing legal battle.
In a recent development, the company has offered to supply Anthrax drug Ciprofloxacin to the US markets. Ciprofloxacin is currently under patent and hence only the patent holder viz, Bayer AG is allowed to sell the drug. However, the US administration announment to include other anti-biotics for anti-anthrax drive could open an opportunity for Cipla and other Indian companies. Cipla has the US FDA clearance for selling amoxyciline, (a substitute for ciprofloxacin) in the US markets.
Cipla has also indicated to venture in to biotech opportunities with a strategic foriegn partner. At Rs 1,155 FY02E earnings, the stock trades at 28x our expected earnings for FY02. Due to prevailing uncertainity we have not factored in any earnings from generic Omeprazole and CFC free inhalers.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407