Cipla Ltd.

• Indian pharmaceutical company
• Best-known outside its home country for pioneering the manufacture of low-cost anti-AIDS drugs for HIV-positive patients in developing countries
• Founded as the Chemical, Industrial & Pharmaceutical Laboratories in 1935
• Makes drugs to treat cardiova scular disease, arthritis, diabetes, weight control, depression and many other health conditions
• Products are distributed in virtually every country of the world
• Received the Thomson Reuters India Innovation Award in 2012.

International Business

Cipla Ltd. maintains long-standing relationships with non-government organizations and institutions globally. Their international business continues to be a major revenue driver for the company. The overseas sales have consistently grown and represent almost 53% of total income.

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Performance of Cipla Ltd.

Key Financial & Performance Highlights Q2 FY12-13 vis-a-vis Q2 FY11-12:

• Gross revenues grew by 23.6% to Rs. 2220 Cr, up from Rs. 1796 Cr in Q2 FY11-12
• Operating margins grew by 57.7% to Rs. 677 Cr, up from Rs. 429 Cr in Q2 FY11-12
• Profit after tax grew by 61.8% to Rs. 500 Cr during Q2 FY12-13, up from Rs. 309 Cr (Q2 FY11-12).

Profit & Loss Highlights

• Material cost at 36.3% of Total Sales decreased by 4.2%, during Q2 FY12-13 as compared to Q2 FY11-12
• Operating margins increased by 57.7% and is at 30.5% of Income from Operations, during Q2 FY12-13 as compared to 23.9% during Q2 FY11-12
• Profit after tax increased by 61.8% to Rs. 500 Cr during Q2 FY1213, as compared to Rs. 309 Cr during Q2 FY11-12.

Performance Review

Domestic business:

• Domestic revenues grew by 13.5% to Rs.962 Cr during Q2 FY12-13, up from Rs. 847 Cr during Q2 FY11-12
• The growth in domestic revenues was largely on account of growth in anti-asthma, anti-biotic and cardiovascular therapy segments.

International business:

Company generated significant amount of revenue from International market. Following are the key business highlights:

• Exports of formulations grew by 38.2% to Rs. 1039 Cr during Q2 FY12-13, up from Rs. 752 Cr during Q2 FY11-12
• Exports of APIs grew by 9.0% to Rs. 174 Cr during Q2 FY12-13, from Rs. 159 Cr during Q2 FY11-12.

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Cipla Financials

The company’s debt to equity ratio has improved as compared to last year which is good sign. By looking at the industry average of D/E ratio which is currently at 0.30, the company has a very strong position. The long term debt to equity has been reduced to zero and enough cash to meet the current obligations if any. The figures very well suggest a strong position for the company financially.

If we look at the key valuation ratios we see that the company’s stock has not performed as compared to last year. The investors’ willingness to pay for a stock has declined from ~28 to ~22.3 this year, as company’s P/E has declined. Also the P/BV has declined as compared historically. If we compare company’s EBITDA with the Enterprise Value we see a steep fall to 14.11x, which is definitely a negative sign on the company’s valuation.

Company’s sales figures has also improved as compared to last year’s 6,398.73 Crore helping the company grow over 20% in Operating Profit.

Outlook

The Indian Pharmaceuticals is expected to come up with another healthy quarter driven by robust growth in the US business and continued good growth from domestic business.

The growth momentum would sustain as most of Indian players have fairly well spread product pipeline till 2014. The availability of First-to-File (FTF) opportunities and launch of niche, limited competitive products will help the Indian companies to place them at a better position on the World Pharmaceutical market.