Transcript of "Cipla is a leading pharmaceutical company in india with a strong and profitable businessmodel"
Fundamental Analysis:Cipla is a leading pharmaceutical company in India with a strong and profitable businessmodel.The company has a well-diversified portfolio, without any overdependence on aparticularsegment. The company owns around 30 manufacturing plants. The manufacturingfacilities areapproved by the major international regulatory agencies including the US FDA,MHRA (UK) andWHO.It conducts research for developing innovative drug delivery systems for both new andexisting drugs with major focus on new medical devices in the area of respiratorymedicineincluding an inhaler device for insulin.SHAREHOLDING PATTERN: Shareholding of Promoter and Public Promoter Shareholding(63.17) Group(36.83) Indian(16.05) Institutions(33.30) Non- Foreign(20.79) Institutions(29.86)
INVESTMENT STRATEGY Low Risk global strategy-Ciplas strategy for its generics business is to enter into bulk drug supply arrangements with companies well entrenched in the generic markets.Cipla has entered into partnerships for 125 products with 8 companies in the US and astrategic alliance to develop over 50 generic products for the generics majorTeva/Ivax. The company thus, intends to enter specialty segments with a low- risk return approach ensuring relatively stable earnings flow. Anti-asthma and anti-HIV focus to augur well: Cipla enjoys a near dominant positionin the asthma segment (about 20% of sales). It is one of the few companies globally having the required technology to manufacture CFC-free inhalers. With CFC inhalersto be compulsorily phased out by 2010, this segment is expected to see growth in thefuture Debt to equity and coverage ratios is favorable to minority equity investorsKEY RISKS An unfavourable court ruling in an ongoing litigation between the Government of India and Cipla regarding alleged overcharging of certain drugs could potentially pressurise the Company’s bottom line. If the cost of raw material keep on increasing due to increased pressure on Chinesecompanies to move to higher level drugs, companies margin will be hit drastically.ECONOMIC ACTIVITIESThe company is presents: Prescripti on Drugs Technolol Veterinar services y Drugs Bulk OTC Drugs
The key competitors of the company are: Dr. Reddy’s Labs Lupin Sun Pharma GlaxosmithklineRECENT DEVELOPMENTS On 19th August , 2009 the Delhi High court allowed it to see the generic versionof Bayer’s cancer drug. During April 2009, the USFDA raised 9 deviations in the manufacturing process during inspection of the company’s Bangalore unit. The company has stated that itwould submit it response to the Regulator within the stipulated time period. On theAdcock Ingram- Cipla Medpro issue in South Africa, the company has stated that itwould support its partner (Cipla Medpro) in case of any hostile takeover by Adcock. Cipla Medpro currently contributes around 7% of the company’s Total Exports and there can be risks to this contribution in case of any hostile takeover by Adcock July 2009: Recently ,the Delhi High Court allowed Cipla to manufacture and sellgeneric version of patented lung cancer drug Erlotinid invented by Swiss Pharmacompany Hoffman La Roche Ltd Aug 2009: It also lost Indian government order for Tami flu to Hetero
FINANCIAL Mar Mar 09 Mar 08 Mar 07 Mar 11 10Investment Valuation RatiosFace Value 2.00 2.00 2.00 2.00 2.00Dividend Per Share 2.80 2.00 2.00 2.00 2.00Operating Profit Per Share (Rs) 15.96 17.20 16.02 10.96 10.57Net Operating Profit Per Share (Rs) 78.70 69.82 67.34 54.08 45.83Free Reserves Per Share (Rs) 80.25 71.54 53.86 46.20 39.52Bonus in Equity Capital 94.44 94.44 97.55 97.55 97.55Profitability RatiosOperating Profit Margin(%) 20.27 24.63 23.78 20.27 23.07Profit Before Interest And Tax Margin(%) 16.41 21.32 20.52 16.90 19.80Gross Profit Margin(%) 16.65 21.68 20.88 17.16 24.27Cash Profit Margin(%) 18.25 21.11 21.75 17.85 21.26Adjusted Cash Margin(%) 18.25 21.11 21.75 17.85 20.30Net Profit Margin(%) 14.98 18.97 14.58 16.43 18.41Adjusted Net Profit Margin(%) 14.98 18.97 14.58 16.43 17.45Return On Capital Employed(%) 16.22 22.16 22.39 18.17 23.40Return On Net Worth(%) 14.54 18.31 17.89 18.72 20.70
Adjusted Return on Net Worth(%) 14.25 17.57 23.17 16.85 19.61Return on Assets Excluding Revaluations 82.25 73.55 55.86 48.20 41.52Return on Assets Including Revaluations 82.36 73.66 55.97 48.32 41.64Return on Long Term Funds(%) 17.29 22.16 26.79 18.24 23.45Liquidity And Solvency RatiosCurrent Ratio 1.94 2.17 1.81 2.62 2.65Quick Ratio 1.56 1.57 1.93 1.88 1.76Debt Equity Ratio 0.07 -- 0.22 0.15 0.04Long Term Debt Equity Ratio -- -- 0.02 0.15 0.04Debt Coverage RatiosInterest Cover 222.40 57.08 35.92 67.27 112.84Total Debt to Owners Fund 0.07 0.00 0.22 0.15 0.04Financial Charges Coverage Ratio 126.22 52.13 25.56 50.81 79.53Financial Charges Coverage Ratio Post Tax 110.41 45.05 18.78 47.10 70.12Management Efficiency RatiosInventory Turnover Ratio 3.73 4.18 3.79 3.83 3.71Debtors Turnover Ratio 4.14 3.31 3.24 3.47 3.74Investments Turnover Ratio 3.73 4.18 3.79 3.83 3.74Fixed Assets Turnover Ratio 1.61 1.94 1.94 1.91 2.75Total Assets Turnover Ratio 0.90 0.95 0.99 0.97 1.06Asset Turnover Ratio 1.61 1.94 1.94 1.91 1.98Average Raw Material Holding 110.90 113.47 203.30 181.28 200.76Average Finished Goods Held 43.20 41.38 41.54 37.36 41.94Number of Days In Working Capital 191.58 190.01 196.07 201.02 179.98Profit & Loss Account RatiosMaterial Cost Composition 48.83 47.94 48.01 51.44 49.26Imported Composition of Raw Materials Consumed 40.63 43.85 42.63 44.03 42.17Selling Distribution Cost Composi 6.10 5.82 7.17 6.77 6.34tionExpenses as Composition of Total Sales 54.08 54.54 56.55 53.65 52.36Cash Flow Indicator RatiosDividend Payout Ratio Net Profit 27.23 17.31 23.41 25.92 27.22Dividend Payout Ratio Cash Profit 21.99 15.01 19.58 21.85 23.57Earning Retention Ratio 72.22 81.97 81.93 71.20 71.28Cash Earning Retention Ratio 77.65 84.44 84.30 76.14 75.31AdjustedCash Flow Times 0.38 0.00 0.81 0.76 0.17 Mar Mar 10 Mar 09 Mar 08 Mar 07 11Earnings Per Share 11.96 13.47 9.99 9.02 8.59Book Value 82.25 73.55 55.86 48.20 41.52
The company’s debt to equity & leverage ratios are very favorableCompany has posted phenomenal sales growth over the period of last 3-4 yearsEPS growth has been very low due to equity dilution during the period of 2006-07Commenting on the road ahead the company, they are looking at 10% top lineandbottom-line growth in FY10, and Operating margins are seen at 23-25%The net sales for the quarter ended march 09 grew by 14% to Rs. 1235 cr this wasmainlydriven by strong performance in Domestic market and its Formulationssegment inexports. Others segment (Others include Technology Knowhow/fees andother services)which grew by 225.1%SWOT ANALYSISSTRENGTHS Ranks #2 in the retail prescription market in India; 18 brands that feature among the top-300 brands; Large basket of 1,500 formulations; and Partnered 8 leading generics companies in the US for nearly 125 projects. Cipla has a voluminous productportfolio containing more than 200brands some of which are the leadingbrands in their respective category The company has excellent processR&D skills which are considered to beone of the best in the country The Company has excellent distribution network.WEAKNESSES Impact of IPR regime. It is not present in CRAMS and BioPharmaceutical segment which are thebest projected segment in the industry.OPPORTUNITIES Biotherapeutics – A new and promising area; Agreement with Avesthagen; and Venturing towards areas of cardiology and anti-cancer.THREATS Partnership related; and Potential de-rating.
STRATEGIC TIE-UPS Subsidiary in Dubai: Cipla has set up a wholly owned subsidiary, Cipla FZE situated at Jebel Ai Free Zone in Dubai, United Arab Emirates. This is the part of strategy to explore the growing markets in middle east countries through exports. It has a research alliance with a Bangalore-based biotech company Avesthagen, to develop biotherapeutic products; Cipla entered agreement with Pentech Pharma of USA for marketing a range of generic products for American market; The first phase of the new formulation plant at Baddi, Himachal Pradesh, for the manufacture of tablets and capsules commenced commercial production in April 2005; and Presence in Africa and Europe. Mayank Gupt 11-MBA-29 11-5941 M.B.A. 3rd Sem.