The stock of pharma major Cipla declined over 2 per cent on Friday, following the company’s weak performance in the September quarter.
The company’s consolidated revenue grew by a modest 9.3 per cent to ₹ 2,767 crore, lower than the 14 per cent growth witnessed in the June quarter. This was on account of weakness in the company’s formulations and active pharma ingredient (API) exports. Even as export formulation sales remained flat, API exports declined by over 33 per cent.
While higher captive use of API for its own formulations led to a sharp decline in API sales, a change in the company’s export strategy and product rationalisation was responsible for the muted growth in formulation exports.
Cipla, last year, made public its decision to build/acquire marketing network in key geographies such as the US, Europe and other emerging markets.
Accordingly, the company announced the acquisition of marketing companies in markets such as South Africa, Yemen and Sri Lanka. The company is currently consolidating its marketing partners in key export markets. This has led to a moderation in formulation exports.
Optimising profitability
Also, Cipla is in the process of optimising its profitability by improving the product mix. As the first step, the company is now rationalising its institutional business by focussing on better-margin therapies such as cardiovascular and neuropsychiatry and reducing exposure to less profitable HIV drugs.
Cipla’s decision to forego such low margin tenders was yet another reason for the sedate growth in exports. Though this may impact growth in the short term, it should help the company’s profitability in the medium term.
Strong growth (20 per cent) in the domestic market is yet another positive. Given the company’s leadership in high-margin chronic therapies such as respiratory, healthy growth in the home market can help Cipla improve its profitability in the near term.
Cipla has launched its Salmeterol-Fluticasone combination inhaler in Germany, Croatia, Sweden and Slovakia last quarter. Launches in other European markets are expected to happen over the next few quarters. This should provide a leg-up to the company’s medium term growth.