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Cipla: 2QFY03 PAT up 22% - Views on News from Equitymaster
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  • Oct 22, 2002

    Cipla: 2QFY03 PAT up 22%

    Cipla has reported 22% growth in net profits and 16% rise in topline for 2QFY03. The growth has been primarily on the back of healthy rise in export sales. Operating margins have registered a 270 basis points rise. However, compared to first quarter, YoY sales growth has declined.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Sales 3,411 3,943 15.6% 6,402 7,973 24.5%
    Other Income 79 41 -48.4% 128 89 -30.4%
    Expenditure 2,653 2,962 11.6% 5,059 6,169 21.9%
    Operating Profit (EBDIT) 757 981 29.6% 1,343 1,804 34.3%
    Operating Profit Margin (%) 22.2% 24.9%   21.0% 22.6%  
    Interest 5 2 -63.8% 7 4 -44.4%
    Depreciation 48 68 42.1% 95 138 44.7%
    Profit before Tax 784 953 21.5% 1,368 1,751 28.0%
    Tax 180 217 20.3% 320 408 27.6%
    Profit after Tax/(Loss) 604 737 21.9% 1,048 1,343  
    Net profit margin (%) 17.7% 18.7%   16.4% 16.8%  
    No. of Shares (Nos. m) 60.0 60.0   60.0 60.0  
    Diluted Earnings per share 40.3 49.1   35.0 44.8  
    P/E Ratio           20.0

    Two important developments took place in the last quarter. First, the company received permission to export CFC free budesonide inhaler to Germany. It is expected to deliver the first shipment soon. On entry of 2nd player for the product in Europe, all current CFC based budesonide players will have to exit this US $ 450 m market. This would represent a huge opportunity for Cipla.

    Cipla proposes to expand the Goa unit soon. The plant has a capacity to manufacture 3m CFC free inhalers per month. It could expand capacity by another 3m per month. Further, Cipla has capacity of 1.5 m CFC based inhalers per month at Kurkumbh. The management has earlier also informed that if demand for CFC free inhalers picks up it can easily convert the entire Goa unit for this purpose at a small cost and gestation of around 1 year. The quick set-up of the huge and complex manufacturing site at Goa, as also getting UK MCA approvals indicates quick implementation capabilities of the company.

    The Goa plant of the company is exempt from income tax for a period of 5 years and 30% of income is exempt for an additional 5 years. The plant is also exempt from sales tax. The Goa plant being flexible in nature, the company might shift a larger percentage of manufacturing to the unit.

    Another important development during the quarter was with regard to Omeprazole bulk export opportunity. Omeprazole (an anti-ulcerant product) is the largest selling pharma product in the world with US sales in excess of US$ 4 bn. Andrx, the US partner of Cipla, lost the patent infringement case against the original patent holder, AstraZeneca. Since Cipla was expected to supply a major part of Andrx’s raw material requirement for Omeprazole, market participants were expecting major revenues from bulk exports. Earlier, Andrx gained from withdrawal of tentative approval for Dr. Reddy’s by the US FDA. Cipla has a tie-up with Andrx to supply bulk Omeprazole. However, Andrx could not launch the product immediately as the issue was caught in legal tangle. Cipla had already started supplying sample quantities on account of stocking exercise carried out by Andrx and other huge consignments where expected to follow. Given the situation, it would be prudent to assume no more supply of Omeprazole to Andrx. However, the impact of quantities already supplied cannot be judged currently.

    Though exports momentum of the company is expected to continue on the back of CFC exports, the timing of launch is dependent on neccessary regulatory approvals. Disappointment along the course cannot be ruled out currently. At the current market price of Rs 896, the stock trades at 20x 1HFY03 annualised earnings.



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