Cipla: Health in question

Rising Re, higher operational costs dent profitability

The company's operating profits declined by 1.6 per cent y-o-y to Rs 224 crore in Q2 FY 08, while its net sales grew 23 per cent to Rs 1098.39 crore.

The operating profit margins in the quarter went down by 510 basis points y-o-y to 20.4 per cent. Exports accounted for 51.8 per cent of total sales during the period.

The other expenditure as a percentage of net sales rose 130 basis points y-o-y to 24.9 per cent. Cipla's performance in the September 2007 quarter was adversely affected by a rising rupee and higher operational costs.

Meanwhile, Cipla's total exports in the September 2007 quarter improved 24.5 per cent y-o-y to Rs 547.6 crore. Its higher margin formulations exports grew 45 per cent y-o-y in Q2 FY08 due to better demand conditions in segments such as anti-asthmatics and anti-malaria.

However, an appreciating rupee curbed its margins, according to analysts. In the domestic market, Cipla's sales improved 14.6 per cent on a yearly basis.

The stock ended 1.7 per cent higher at Rs 196.60 on Wednesday, but the quarterly results were declared after the close of trade.

Going forward, a rising rupee would continue to put pressure on Cipla's operating margins. The stock is trading at nearly 27 times estimated FY08 earnings, making it an expensive buy.

Ashok Leyland: En route to high growth

A key highlight of Ashok Leyland's performance in the September 2007 quarter was an aggressive ramp-up in sales of its higher margin passenger buses on a y-o-y basis at a time when its market share in the sluggish commercial vehicle (CV) market saw a decline.

A tight check on key raw material costs also helped the company to offset higher employee costs in the last quarter.

Ashok Leyland's operating profits grew 24.8 per cent y-o-y to Rs 168.48 crore in the last quarter, while its net sales rose 4.2 per cent to Rs 1745.8 crore. Its operating profit margin also improved 165 basis points y-o-y to 9.65 per cent in the September 2007 quarter.

The company's adjusted raw material costs as a percentage of net sales declined 280 basis points y-o-y to 72.8 per cent in Q2 FY 08, helping it to offset a 210 basis points y-o-y rise in employee costs.

Meanwhile, in the passenger bus segment, the company sold 6,684 units in Q2 FY 08, a growth of 77.2 per cent y-o-y. Though its market share in this segment was 50 per cent at the end of Q2 FY 08, this was still lower on a sequential basis.

However, the company's sales of medium and heavy commercial vehicles in the last quarter declined 24.2 per cent y-o-y to 12208 units, largely due to sluggish demand in the tractor-trailors segment.

Its market share in the CV segment was 29.1 per cent at the end of the September 2007 quarter, compared with 30 per cent at the end of Q1 FY 08.

The company's net profit from ordinary activities after tax however, declined 14.9 per cent y-o-y in the September 2007 quarter, due to higher depreciation and financial expenses.

The quarterly results were declared after the close of trading on Tuesday and the stock declined 1.7 per cent to Rs 37.1 on Wednesday. The stock trades at 11 times estimated FY 08 earnings and should be a market performer.