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While the domestic sales increased by a robust 17 per cent year-on-year and provided some cushion, it is the slower-than-expected exports growth that led to the miss.
Exports at Rs 1,358 crore contributing almost half to overall revenues grew 10.5 per cent. Analysts believe the formulations sales increased in the quarter under review, but sales of active pharmaceutical ingredients (API) declined.
On account of the lower-than-expected revenue growth, Cipla’s earnings before interest, tax, depreciation and amortisation (Ebitda), too, disappointed. While consensus estimates for the same according to Bloomberg stood at Rs 567 crore, Cipla posted Ebitda of Rs 542 crore, down 21 per cent over the year-ago period.
The company attributed the decline to one-off gains last year. In the year-ago quarter, the firm had seen higher margins thanks to Dymista sales. Dymista is an allergy treatment drug, for which Cipla has a supply agreement with European drug major Meda AB.
The only respite is that Ebitda marked a growth of 32 per cent over the March 2014 quarter. One reason for the sequential gain is the low base. The company had disappointed the Street in the previous quarter with sharp decline in Ebitda and margins owing to increase in costs. The pharma company is setting its own front-end (marketing) operations in South Africa for which it had acquired South Africa-based Medipro.
Although this bodes well and holds promise in the long-term, the sharp increase in costs associated with expansion thereby led to a decline in profitability of the company and hence, margins had plummeted in the March 2014 quarter impacting investor sentiments. Thus, the Ebitda margins at 19.9 per cent came better than March 2014 quarter’s 16.14 per cent. However, those are still far lower than 27.5 per cent in the year-ago quarter.
The sequential improvement in profitability may be positive, but lower than expected performance may negatively impact investor sentiments again in the near-term, say analysts. The results came post trading hours on Thursday, thus expect some reaction on Monday when markets open.
The net profit at Rs 295 crore during the quarter also represents a 39% year-on-year decline (up 13% sequentially), and could not meet the Bloomberg consensus estimate of Rs 338 crore. A sharp decline in other income, which came in at Rs 40.4 crore versus Rs 68.7 crore last year, added to the woes.
It is Cipla's 17% domestic sales growth, which like some of its peers such as Sun Pharma outpaced industry growth of 10%. This remains the only positive take away from Cipla's June'14 quarter results apart from sequential improvement in margins, feel analysts.
Going ahead, investors will be keenly watching the progress in South African operations. The company has won South Africa's tenders in Respiratory, Mental Health, Cardiovascular and Women's Health categories during the quarter, which will accrue benefits in the coming days.
Besides, the company's results release said that the Europe Respiratory launch plans as those of Ipratropium Metered Dose Inhaler in the UK and Mometasone nasal in the Netherlands are on track. The respiratory segment holds lot of promises albeit in the longer term.
Analysts expect a few combination inhaler generic launches in certain key markets of Europe by the end of FY15. If these opportunities start flowing, earnings can see a significant upside. Combination inhalers as Seretide or Symbicort (branded respiratory drugs) had recorded sales of $2.5 billion and $1.5 billion, respectively, in previous calendar year 2013.
