Cipla’s stock lost over 4.7 per cent on Thursday after the company’s March quarter performance failed to meet market expectations. Despite an improvement in gross margins (gross profit, measured by excess sales over raw material cost, as a percentage of sales), higher personnel costs and other expenses led to a 0.6 percentage point decline in Cipla’s standalone operating profit margin for the quarter.
Topping this off, higher tax outgo and interest expenses led to an 8.3 per cent decline in net profit for the quarter. Tax incidence rose from 20.1 per cent last year to 28.1 per cent during the quarter.
The company saw an eight-fold increase in interest outgo, probably as short-term borrowings rose to Rs 965 crore at the end of March 2013, compared to Rs 10 crore previous year.
Growth for the India business slowed to 5.2 per cent from healthy double digit growth for the last ten quarters.
Even as Cipla’s formulation exports grew 11.5 per cent during the quarter, active ingredient exports declined 24 per cent due to cessation of royalty payments from Teva for supplies of generic anti-depressant drug Lexapro. The company has commenced supplies of nasal spray — Dymista to Meda Pharma in the emerging markets. Europe launch is expected to happen in the current fiscal. The management expects sales to ramp up in a gradual manner.
Cipla’s proposal to acquire South Africa-based Cipla Medpro for nearly $488 million has been approved by the latter’s shareholders recently. On its completion, the share of revenues from South Africa is expected to increase from the current 18 per cent to 24 per cent.
Cipla is planning to invest Rs 550 crore over the next one year for expansion at its Patalganga facility. With ongoing investments, the operating leverage improvement may begin to play out over the next two years.