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Cipla hopes to benefit from govt push for generics

Dhuraivel Gunasekaran BL Research Bureau | Updated on January 12, 2018 Published on May 26, 2017

The stock of drug maker Cipla fell about 3 per cent today after the company reported a consolidated net loss of Rs 61.79 crore in the March 2017 quarter. However, the company has pared its loss by 25 per cent compared with the consolidated net loss of Rs 92.83 crore in the March quarter last year.

The net loss during the recent quarter was due to a one-off non-cash impairment charge of Rs 214.4 crore on litigation and regulatory developments for certain products in the US. A provision of Rs 56 crore on certain assets of its biotech subsidiary also contributed to the loss. If the non-cash charges are adjusted, the consolidated net profit would be around Rs 200 crore. The company had recorded consolidated net loss during the March quarter last year due to one-off costs related to its business in Europe and some emerging markets.

The consolidated net sales in the recent March quarter was Rs 3,487.04 crore, 7 per cent higher y-o-y, supported by higher sales from North America and South Africa.

Sales from India, which contributes about 40 per cent to Cipla’s revenue, contracted about 4 per cent y-o-y due to de-stocking at the channel level. This impacted March quarter revenues. Despite being hit hard by price control in the domestic region, the management believes that the government’s policy on pushing generic drugs will benefit the company going forward.

Sales from North America, which accounts for 15 per cent of the overall sales, grew 33 per cent y-o-y thanks to a pick-up in sales in the InvaGen portfolio. However, sequential growth was slower due to increasing pricing pressure and delays in approval of key products. Ramping up the US business by building its own front-end presence and more launches through acquisitions are expected to provide support to revenue going forward. Sales from South Africa registered strong growth of 50 per cent y-o-y during the March quarter on the back of strong growth across both the private market and tender business. The launch of Sereflo aided the UK business, which registered revenue growth of 8 per cent Y-o-Y.

For the full year 2016-17, consolidated revenue at Rs 14,630 crore was 6 per cent higher than in 2015-16. The operating margin at 17 per cent was supported by a strong performance in key markets. In 2016-17, the company had filed 32 abbreviated new drug applications (ANDA). The management expects 20-25 products to be filed in 2017-18.

At the current price, the Cipla stock trades at about 39 times the trailing 12-month earnings — a 7 per cent premium to its three-year average and about 10 per cent premium to large cap pharma peers.

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