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Cipla: International business drives growth
Nov 6, 2012

Cipla has announced its 2QFY13 results. The company has reported 24% YoY growth in sales and a 62% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 24% YoY during the quarter led by growth in its international business.
  • Operating margins improve dramatically by 6.6% leading to a 58% YoY growth in operating profits.
  • Bottomline increases by 62% YoY during 2QFY13, inspite of higher tax growth of 90%. PAT margins improve by 5.4%.


Financial performance: A snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 17,696 21,918 23.9% 33,610 41,500 23.5%
Expenditure 13,404 15,149 13.0% 25,623 29,332 14.5%
Operating profit (EBDITA) 4,292 6,770 57.7% 7,987 12,168 52.3%
EBDITA margin (%) 24.3% 30.9%   23.8% 29.3%  
Other income 326 641 96.7% 575 1,172 104.0%
Interest (net) 24 54 125.2% 66 65 -2.7%
Depreciation 656 740 12.7% 1,359 1,468 8.0%
Profit before tax 3,938 6,618 68.1% 7,137 11,808 65.4%
Tax 850 1,618 90.4% 1,515 2,800 84.8%
Profit after tax/(loss) 3,088 5,000 61.9% 5,622 9,008 60.2%
Net profit margin (%) 17.5% 22.8%   16.7% 21.7%  
No. of shares (m)         840.3  
Diluted earnings per share (Rs)         18.0  
Price to earnings ratio (x)*         21.1  
*based on trailing 12 months earnings

What has driven performance in 2QFY13?
  • Cipla's topline grew by 24% YoY during the quarter led by growth in its international business. On back of robust growth, the company revised its full year guidance upwards from 12-15% to 15% plus.

    Consolidated Business Snapshot
    (Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Domestic 8,470 9,617 13.5% 15,907 19,313 21.4%
    Exports            
    Formulations 7,515 10,389 38.2% 14,104 18,490 31.1%
    API 1,595 1,738 9.0% 3,308 3,422 3.5%
    Total Exports 9,110 12,127 33.1% 17,412 21,913 25.9%
    Total Sales 17,580 21,744 23.7% 33,318 41,226 23.7%
    Other Operating Income            
    Technology Know how fees 78 46 -40.3% 176 103 -41.2%
    Others 300 413 37.8% 613 764 24.8%
    Total 378 460 21.7% 789 868 10.0%
    Total Income from Operations 17,958 22,203 23.6% 34,107 42,094 23.4%

  • Cipla's domestic business witnessed growth of 14% YoY. Both the segments notably branded and non-branded grew by the same rate. In the current quarter non branded contributed revenues of ~15% of sales at Rs 1,442 m.

  • International business grew robustly at 33% YoY, driven by higher contribution from Escitalopram generics under 180-days exclusivity to its partner. Though the management has not given the revenue from this product, we believe its contribution to be around US$ 45 m. Indore SEZ contributed Rs 1.5 bn for the quarter and Rs 3 bn for 1HFY13. Cipla has also started the supply of Dymista drug to its partner and ramp up would be dependent on the uptake of the drug at the partner's end. The other operating income witnessed growth of 22%, largely due to forex gain.

  • Operating margins improved dramatically by 6.6% leading to a 58% YoY growth in operating profits. This growth was due to higher intake of high margin supply of Escitalopram, lower contribution from low margin ARVs, forex and higher prices realized in few segments.

  • Bottomline increased by 62% YoY during 2QFY13, inspite of higher tax growth of 90%. PAT margin improved by 5.4%. Tax was high due to higher profits. Cipla's tax guidance for the full year is around 24%.

  • Cipla has incurred capex of Rs 2 bn for 1HFY13, and has guided for Rs 5 bn for the full year.

What to expect?
At the current price of Rs 380, the stock is trading at a price to earnings multiple of 18 times our estimated FY15 earnings. On the domestic front, the company is planning to introduce 25 to 30 products every year in the domestic market and thus leverage its domestic reach. Cipla has started facing competition in some of its products and pricing policy remains the key catalyst for this segment growth in the future. The company is also looking to gain an advantage with the ramp up of exports through the Indore SEZ facility. Going forward, company is looking for inhaler opportunities in the international markets; we view this with cautious optimism. Overall, we maintain a HOLD on the stock at the current price.

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