Cipla: Domestic business boosted Q2 earnings

Drug major Cipla has reported a growth of 19 per cent in consolidated net profit for the September quarter to Rs 423 crore from Rs 354 crore in the same quarter last year. The growth in the net profit was mainly attributable to the strong show in the India business aided by post-GST channel re-stocking. The consolidated net sales for the quarter came in at Rs. 4,082 crore, growing by 9 per cent from Rs. 3,751 crore last year.



Strong domestic business



Sales from India, which contribute around 40 per cent of the Cipla’s overall revenues, grew by 12 per cent year-on-year (Y-o-Y) on the back of recovery in business post-GST implementation. Better performance from key therapeutic areas such as cardiac, urology, respiratory inhalation and CNS contributed to the domestic business during the quarter. Also the traction in diabetes brands -Prominad and Vysov and the newly launched Onco-BCG supported the domestic business growth. The management has guided for 14-15 per cent growth in domestic business during the second half of FY 18.



Weak show in US



Sales from North America, which account for 15 per cent of the overall sales, fell 7 per cent Y-o-Y to Rs 618 crore due to pricing pressure in the key products. However, its ANDAs filing momentum continued, with the geography filing 5 ANDAs with USFDA, of which 2 were limited competition products. Ramping up the US business by building its own front-end presence and more launches through acquisitions are expected to provide a leg up to the company’s revenue going forward. The management has guided for filing around 20-25 products in FY18. The approval received for Sevelamer from the Invagen pipeline is expected to boost its profit in the third quarter. The management also indicated that it would launch of one high-value niche product every quarter.



Traction in other geographies



Sales from South Africa registered a growth of 5 per cent Y-o-Y during the quarter on the back of strong growth across both private market and tender business. Improvement in overall profitability was driven by focus on high margin SKUs and Nimble operations supported the Europe business which registered 18 per cent growth Y-o-Y. API (bulk drug) business registered 92 per cent growth Y-o-Y. This was boosted by sales of ARV products to the US and the UK.



Operating profit as a whole for the company stood at Rs 804 crore during the quarter, expanding by 18 per cent Y-o-Y. Operating margin came in at 19.7 per cent during the quarter, 160 bps higher Y-o-Y, aided by cost control and improved sales mix.



Despite better Q2 earnings numbers, the stock of Cipla plummeted around 8 per cent post result announcement on Tuesday due to weak sentiment engulfing overall pharma sector. This was because peer Lupin received a warning letter from the US regulator on Tuesday. The stock has however, bounced back, closing two per cent higher on Wednesday at Rs 621.



At the current price, Cipla trades at 44 times its trailing 12-month earnings — implying around 10 per cent premium to its 3 years average historical earnings.

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