Indore SEZ likely to add 10% to turnover

Cipla has turned in a strong set of numbers for the fourth quarter ended March 31 2011.

For one, revenues have grown at a better-than-expected 21 per cent to Rs 1,669 crore over the corresponding quarter last year.

Though reported profits show a 22 per cent decline to Rs 214 crore, owing to last year's profits being propped up by exceptional income.

Excluding exceptional income of about Rs 95 crore last year, profits have registered a growth of 19 per cent.

Increased factory overheads and depreciation due to the commissioning of its manufacturing facility at Indore SEZ, however, pressured margins, with operating profit margins dropping by about 6 percentage points to 18 per cent.

During the quarter, Cipla reported a 52 per cent increase in technology knowhow income to Rs 20.7 crore.

The technology income, which tends to be lumpy and therefore can sway the earnings performance of the company wildly, had in the last couple of quarters impacted its profitability significantly.

With the management expecting this income to taper, margins can be expected to be less volatile to that extent.

For the full-year, Cipla reported 12 per cent growth in revenues while profits fell by about 11 per cent.

Operating profit margins at 21 per cent contracted by 2.8 percentage points, while tech fee at Rs 64 crore came in 59 per cent lower than what was seen last year.

Segment sales

Domestic sales for the quarter grew by about 14.7 per cent. The company now plans to increase focus on the domestic market and has added field force (currently 6,000 agents) and new therapies to its offerings (oncology and neuro psychiatry).

Exports registered a 28 per cent growth. In that, while export formulations saw a 21 per cent growth, Active Pharmaceutical Ingredients (APIs) registered a 58 per cent growth.

The management expects the export API growth momentum to continue in the coming quarters too.

The setting up of an SEZ facility at Indore has only added to Cipla's costs, with staff costs and depreciation eating into its margins in the just-ended quarter too.

This, however, is expected to change in the coming quarters, as the facility has received approvals from the UK's MHRA, the WHO and the South African and Australian regulatory bodies.

The management expects the facility to contribute about 10 per cent to turnover by next year.

USFDA approval for the facility is awaited.

Cipla has commenced supplies of Seroflo inhalers in South Africa and Russia. While the first month sales in Russia have been encouraging, numbers in South Africa are yet to pick up significantly. How the sales stack-up in these regions would bear a close watch in the coming quarters.

In the coming year, the management expects to generate top line growth of 10-12 per cent. With the Indore facility expected to contribute, it expects operating margins to sustain at 18-20 per cent.

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