Cipla Fails To Meet Market Expectations

Pharma Major Cipla, in its third quarter results, has failed to meet the market expectations. The company reported an 18% jump in its revenues to Rs 2103 crore in the December 2012 quarter. Net profit grew by 25.5% to Rs 339 crore. The markets, on the other hand, were expecting a 38% growth in its net profit to Rs 372 crore which it failed to meet. This is the reason why the stock has shown a negative reaction on the bourses.

During the quarter, the contribution of its product Lexapro remained lower. The company was also expected to report milestone payments for Dymista, to the tune of USD 5-10 million (Rs 27-55 crore). During a call, Cipla said that it has not received these payments, which is the reason it has failed to meet the market expectations.

Cipla has seen its domestic revenues growing by 10% in the quarter, which is below the pharma market growth rate of 16%-17%. It however has seen growth in its anti-asthma, anti-malaria and anti-retroviral segments.

In the exports markets, its formulation business grew by 38%. Active Pharma Ingredients (API) however de-grew by 10%. The company has not provided any reason regarding the decline in its API exports.

During the December 2012 quarter, Cipla’s EBITDA margins increased to 23.4% against 22% reported a year earlier. The boost in the margins is due to the lower material costs. Employee cost however increased by 38% due to salary hikes and new hiring.

Taxes during the quarter were quite high at Rs 120 crore, against Rs 72 crore a year earlier .The tax rate was at 26% compared to 21% reported in the similar quarter last year.

During the conference call, the management said that the quarter has seen forex gains of Rs 19 crore. is the company is also looking for acquisition opportunities in emerging markets, including Brazil and Turkey. It has said that the acquisition of Medpro in South Africa is on track but the deal is not yet closed.

On the regulatory front, Cipla has filed five new ANDAs during the quarter. It also said that it has a total of 23 ANDA pending approvals. The company has 76 ANDA approvals, of which 60-70% are monetised at the moment.

Cipla shares fell by about 2% on the BSE and NSE after the result. The stock has been downgraded by the research houses due to the lower earnings and therefore a negative run on the bourses would continue for some time. We would advise investors to avoid any buying in the counter at the moment.