Drug major Cipla is likely to miss its target of 12-15 per cent year-on-year profit after tax (PAT) growth in 2008-09, mainly due to foreign exchange losses, margin pressure in the first half, and dwindling revenues from technology fees and partnerships, predict analysts.
Due to dismal performance in the first half with just 6 per cent net profit growth, and concerns regarding company’s unique partnership model to sell its products in global markets, Cipla may miss the guidance for 2008-09, said an analysis with I-SEC Equity Research.
Cipla had a total income of Rs 4,352 crore (18.62 per cent growth) for the year ended March 31, 2008, with a PAT of Rs 700.4 crore (4.58 per cent higher).
“We remain concerned on account of increasing risk to Cipla’s partnership model, given the global consolidation, increased competition, declining margin and reclusive management, implying lack of visibility on strategy and medium-term growth outlook,” said the analysis.
“Mark to market losses will impact the profitability of Cipla during the current year,” said Ranjit Kapadia, head, Research, PCG, Prabhudas Lilladher.
The company is likely to post 24 per cent growth in revenues, with a 9.3 per cent growth in net profit for 2008-09, estimated Prabhudas Lilladher.
“Cipla had indicated its margins would be under pressure during the financial year. We estimate an overall 10.4 per cent growth in PAT for Cipla for the year,” said Sarabjit Kaur Nagra, vice-president, research with Angel Broking.
She predicts Cipla’s PAT will be at Rs 774.6 crore for the whole year, with an exceptional performance in the second half with 55.8 per cent growth in PAT at Rs 483 crore.
Amar Lulla, joint managing director of Cipla, was not available for comments.
I-Sec noted that the performance in the first half was disappointing, since net profit declined 6 per cent YoY to Rs 290 crore despite a strong 28 per cent surge in revenues. This was primarily due to heavy forex loss of Rs180 crore, which is not an extraordinary item.
The firm also says that Cipla’s partnership model was fruitful earlier, but the wave of mergers and acquisitions in the global generics market and the entry of many mid-size Indian pharma companies have created additional competition, resulting in declining margin for Cipla since 2005-06. One of the partners of Cipla, IVAX Labs was acquired by Teva in 2005. Of late, Cipla has initiated marketing plans in the US market, but so far got only six generic approvals in the past 15 months.
“Cipla’s risk-free model has its own advantages and we cannot say the model is not sustainable or is inferior to normal generic company’s growth. Cipla’s marketing applications are mainly patent challenges on select key molecules and this will benefit the company and its partners in future,” said Sarabjit Kaur Nagra.
“We believe that Cipla would be at a disadvantage vis-a-vis top-tier companies such as Sun Pharma, Ranbaxy, Dr Reddy’s and Glenmark that never followed partnership model,” noted Rajesh Vora, analyst with I-Sec.
Cipla posted a net profit of Rs 151.4 crore for the quarter ended September 30, 2008, 20.6 per cent lower as compared to Rs 190.6 crore for the quarter ended September 30, 2007, mainly due to revaluation of forward contracts and rupee depreciation.
