Robust India show boost Cipla's Q2

Company maintains operating-profit margin forecast at 16-18 per cent for FY17

Led by a strong show by in India which contributes 39 per cent of its revenues, Cipla registered a 8.56 per cent growth in consolidated revenues to Rs 3,751 crore for the September quarter. This was better than Bloomberg consensus estimates which pegged it at Rs 3,738 crore. The financial numbers however are not comparable given the higher base as well as the Invagen acquisition last year. The year ago quarter had one off sales of antiacid esomeprazole which had boosted revenues.

Revenues from the domestic market were up 19 per cent to Rs 1,522 crore on the back of double digit growth in key therapy areas such as respiratory and anti-infectives. In addition to this, new product launches in critical care, hepatitis, urology and dermatology added to incremental sales.

The sales outside the country (60 per cent of overall sales) however were muted growing only 2 per cent year on year pegged back by emerging markets where sales fell by 4 per cent to $126 million. This was due to currency volatility and liquidity in these markets which account for 22 per cent of the company's revenues. European sales too were disappointing down 29 per cent due to change in business model from business to consumer to a business to business transition.

The company had a good quarter in the US with sales growing 34 per cent to $99 million both due to new product launches as well sales from the Invagen. The company, which had launched 6 products so far targets another 9 product launches in FY17 which should keep the sales momentum going. The product pipeline too is improving with 12 new drug filings so far with the full year target being 22.

Margins were down 400 basis points from a year ago to 18 per cent. However, on a sequential basis, the company managed to post better numbers with margins up 40 basis points while the absolute number was higher by 11.2 per cent. The company has guided for Ebidta margins for FY17 of 16-18 per cent.While revenue growth was good the same did not translate into higher operating performance given sharp jump in costs. While other expenses jumped 21 per cent to Rs 1,064 crore, employee costs were up 16 per cent to Rs 675 crore. Raw material costs to sales too were up 128 basis points to 35.4 per cent. A large part of the other expenses which included regulatory, manufacturing, quality and Invagen acquisition related expenses was R&D. As a percentage of sales this is up to 8 per cent from 5 per cent a year ago.

The operating show coupled with higher tax expenses meant that net profit came in 35 per cent lower at Rs 354 crore. In addition to how the margins move, the Street will be awaiting the launch of inhalers in the UK market which is expected before the end of the current financial year.