Cipla’s Q3 dented by one-off charge

Country’s fifth largest drug giant Cipla posted its Q3FY16 numbers on Wednesday February 10 after market hours. Q3 was impacted due to a one-off charge related to changes in its domestic distribution policy.

Consolidated revenue for the quarter ending December stands at Rs 3106.55 crore as against Rs 2765.46 crore attained in the corresponding quarter of the previous fiscal, representing a growth of 12.33 per cent on a yearly basis. Revenues for the quarter were also impacted due to the changes made in the drug distribution policy for the domestic markets.

EBITDA in Q3FY16 declined by 18.08 per cent to Rs 453.71 crore as compared to Rs 553.83 crore during the same period in the last fiscal. Operationally expenses were on a higher side, thereby bringing down the EBITDA. Consumption of raw material as a percentage of total revenue declined by 260 basis points to 32.01 per cent, however, that was offset by an increase in purchase of traded goods and increase in other expenses which mostly consist of promotion and marketing schemes. Profits for the third quarter increased marginally by 4.68 per cent to Rs 343.2 crore as against Rs 327.85 crore in the same period of the last fiscal. The results of the current period include gain on sale of investment in an associate to the tune of Rs 74.20 and MAT (minimum alternate tax) credit of Rs 55.16 crore.

Cipla generated 61 per cent of its total sales revenue from foreign markets, whereas the rest 39 per cent was contributed by the domestic India operations. Out of the total business, mix formulation business accounted for 95 per cent and rest 5 per cent came from API (active pharmaceutical ingredients) business.

Domestic sales reduced by 0.4 per cent to Rs 1194 crore during Q3 FY1516 from Rs 1199 crore during Q3FY15. Impact was primarily due to change in distribution policy. Excluding impact of distribution policy changes, domestic business of the company has grown at 11 per cent. Export business growth of 28 per cent was driven by strong performance in South Africa and emerging markets.

Exports of formulations increased by 28.5 per cent to Rs 1833 crore during Q3FY16, from Rs. 1426 crores during Q3FY15. Exports of APIs decreased by 5.3 per cent to Rs 143 crore during Q3FY16, from Rs 151 crore during Q3 FY15.

R&D project expenses was up by 85 per cent Y-O-Y. R&D as a percentage to total sales revenue was 8 per cent for the quarter as against 6 per cent last year. Company's outlook for the future remains unchanged as they will continue to focus on complexity reduction enhancing base business profitability through portfolio rationalization, pricing improvement and cost optimization.

Stock reacted negatively to the numbers and was trading down by about 3.5 per cent in early trades, before recovering from the lows to trade flat with positive bias.