Despite a flat 4 per cent operating profit growth and a marginal decline in net profit, the stock of Cipla was trading 2 per cent higher on Friday. This was on two counts.

Robust performance

One, despite challenges facing the industry, the company has managed to sustain robust performance in the home turf. Increase in field force productivity, higher realisation on drugs under price control and higher contribution from new launches helped Cipla clock ahead-of-the-market growth in the domestic market.

The share of new launches rose from 1.5 per cent in June quarter last year to 3.5 per cent in March quarter this year. Cipla is also forging licensing deals with innovators to expand its product basket in the Indian formulations segment.

Second, the company’s investments made over the last few quarters are expected to pay off over the next few quarters.

Research spend

Cipla has increased its research spend to build a strong pipeline in the US and other global markets to sustain growth over the next 2-3 years. It is also augmenting its manufacturing capacities.

The company has also made changes at the top with the recent top management hires. All these have led to a fall in the operating margins from 23-24 per cent levels last year to about 16 per cent now. But the revenue flow from these investments is expected to commence by the second half of the fiscal.

Cipla targets launch of combination inhalers (market potential of over €1 billion) in parts of Europe by the second half of 2014-15.

Product pipeline

The company has expanded pipeline in the US from 35 to over 50 products; this includes complex generics such as oncology injectables and respiratory drugs. It had filed over 16 products in 2013-14. Also, the company expects to start direct selling in the US market by the end of the current year.

All these should help Cipla improve margins over the next few quarters. The company expects revenue growth to be in mid teens in 2014-15 and hopes to sustain margin at 2013-14 levels.

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