In Good Health - Cipla

We had recommended Cipla in our Issue No 05 dated March 01, 2009 in the Choice Scrip column at Rs 192.25. This was on account of the company’s dynamic business model, growth plans, market entry strategies that have distinguished it from the other generic players in the industry as well as a decent financial performance for 9MFY09. Post recommendation, the counter went up to Rs 226.50 providing an upward return of 17.82 per cent. It is currently trading at Rs 225.10, 17.08 per cent above the recommended price.

In such times when there has been a slowdown in prescription sales in the US that is the largest market for pharmaceutical products, the company’s export increased at a decent growth rate. For 9MFY09, exports contributed 54 per cent of sales (total sales of Rs 2,030 crore), an increase of 39 per cent compared to last year’s same quarter primarily due to a favourable exchange rate and better product mix. Cipla’s business model is somewhat different from other generic players as it has tied up with local players in the international market instead of a direct presence in the market, making it less vulnerable to generic competition. Cipla also gets a margin boost from its anti-asthma product that has an established presence.

The company has entered into two new partnerships in the HFC inhaler category in the US and Canada. Cipla has developed eight anti-asthma inhalers using non-CFC propellants for the EU. It is currently in the process of developing multi-dose dry powder inhalers too for European markets. The company has added capacity to its manufacturing facility at Sikkim and Indore to cater to its burgeoning sales. The counter, from January 2008 till March 2009, has appreciated by 2.21 per cent, while the BSE Sensex recorded a fall of 52.24 per cent. Thus we would suggest investors to book partial profits on the counter during the rally.