Cipla catching up with peers on rejig boost

Jun 25 2014, 10:23 IST
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Cipla reported a net profit of Rs 1,417 crore on sales of Rs 9,753 crore for FY14. Reuters Cipla reported a net profit of Rs 1,417 crore on sales of Rs 9,753 crore for FY14. Reuters
SummaryPosted profit of Rs 1,417 cr on sales of Rs 9,753 cr for FY14 as plan to restructure operations yielded results.

Drug manufacturer Cipla seems to be finally catching up with its peers after three years of lagging behind in terms of revenue growth as a turnaround plan to restructure its operations is yielding results.

The company’s sales have grown at an average of 14% from fiscal 2010 to 2013 while that of its peers such as Lupin registered an average increase of 26% and Sun Pharmaceutical Industries rose by 41% in the same period. The 79-year-old company reported a net profit of R1,417 crore on sales of R9,753 crore for FY14.

The company, which got 8% of its revenue from the US markets in FY14, lost ground due to its partnership-based marketing practices, according to analysts. The company’s net income missed analyst estimates in five of the last six quarters, according to Bloomberg estimates.

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“Cipla’s business philosophy was to sell products through partners in regulated markets. This reduced the risk-exposure of the company,” Motilal Oswal Securities analyst Alok Dalal said.

Partner companies would file approvals of generic drugs or decide on the drugs to be pursued under para-IV regulations. The risk of the resultant lawsuits would be borne by the partners leaving Cipla without the weighted risk. While this strategy warded off potential lawsuits, the company had to settle for lower margins. “Partners also decided the prices of the drugs, which also adversely affected margins, to a particular extent,” Dalal added.

The company also did not have a significant front-end presence, unlike its peers, in the lucrative US market which accounts for more than 60% of sales of the top Indian pharmaceutical companies.

The company, which was once considered the bellwether of the pharmaceutical industry, had initiated a two-year investment plan to restructure its practices — FY14 marked the end of year one. However, the company never provided a road map of what their two-year restructuring plan involves, according to analysts, other than a broad target of achieving sales of $5 billion by 2020.

Cipla has ushered in new voices in the top management, ramped up investments in research & development, started building a front-end presence in emerging markets and has seen an upswing in capital expenditure in the last one year. Employee costs have also jumped in 49% in FY14 to R1,543 crore year-on-year. In FY13, it had increased 34% on an annual basis.

Axis Capital analysts, quoting Cipla management, said the company is gearing up to

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