Monday, February 1, 2010

Stock Idea: Cipla

Q2 for this pharma company was very good. And Q3 also seems to be on a sound footing yet what is causing concern is that the coming months might be a tad too tough for Cipla. The fact that the company itself has revised its estimates downwards means that the company itself see’s itself on a tough road. It has revised downwards its growth guidance from 10 to 12% to 8 to 10% for FY10. This means that management clearly expects Q4 to be hard. The company has explained that the downward revision is on account of the appreciating rupee vis-à-vis the US dollar and the difficulty in procuring CFC gas for its inhalers.
Net sales for the quarter was up YoY by a mere 7% and this was on account of the flat exports. Domestic business which contributes around 50% to the total revenue of the company grew, 14% but exports remained flat , it infact fell 2.5%.
Yet the company managed to keep a tight leash on the costs and this helped improve the bottomlines. Net profit was up 29% on a YoY. The company reduced its interest cost by 60% on a YoY by repaying the short-term working capital loans and deposits.
Exports were down in Q2 also and this is because the company has decided to not participate in too many tenders for the anti-AIDS drug due to lower realisations. And it is this conscious ‘staying away’ from lower realisation drugs, which changed the product mix of the company- turning it more towards high margin drugs. This change in the product mix is also what helped the company bring down the material costs. The export target for FY10 is pegged at Rs.4400 crore as against which till H1FY10, it has done Rs.1440 crore.
The company hopes to come with biotech anti-cancer drugs by 2011, which is being made in a JV with Chinese company. These are not covered under intellectual property and hence the company is free to manufacture and market them. Its Salbutamol inhalers have got approvals in Europe, so in the coming months, maybe by Q4, we can see income accruing from this too. Cipla is also the only company which makes both the flu drugs - Oseltamivir and Virenza and has got the WHO approval for the same. This has seen good sales in the export market but due to the restriction of selling it through chemists in India, sales remain subdued.
Cipla remains one of the most valuable stocks in the pharma basket of the Sensex. Stay invested.
Source: Internet (premiuminvestments.in by S P Tulsian)

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