Cipla Slumps To Five-Month Low As Analysts See Strain On Profitability   

Shares of Cipla Ltd. slumped to a five-month low as analysts downgraded the stock and cut target price after the company hinted at multiple headwinds for the ongoing financial year and the quarterly profit missed estimates.

Earnings per share estimates for the financial year ending March 2019 were lowered in the range of 10-25 percent, according to brokerage reports.

India's second-largest drugmaker by market value, in its investor presentation, highlighted four challenges that it might face in the next couple of quarters.

• Sanctions to impact performance of certain businesses.
• Capacity balancing will have a short-term impact.
• Higher commodity and crude prices and escalation in China sourced supplies will continue
• Pressure on tender businesses across markets.

As a result, sales will be lower by Rs 100 crore per quarter, the management said in a post-earnings conference call. The capacity issue, it said, is being addressed and is likely to be resolved by the end of the financial year. The tender business, about 18 percent of total sales, is facing funding pressure and competition in markets for HIV and malaria products. Profitability in the near term will be similar to that of the second quarter, Cipla said.

The U.S. business, too, failed to meet the street's estimates but the management is confident of growth on the back of limited launch of products. Cipla aims to launch one limited competition product every quarter and one respiratory product a year starting financial year 2019-20. The pharma company also provided a revenue guidance of $125 million from the U.S. market by March 2019 compared with $108 million in the quarter ended September.

Cipla's second-quarter financials missed the Bloomberg consensus estimates on all fronts. While revenue fell 2 percent, profit lowered 11 percent, according to its exchange filing. The operating margin fell because of a weakness in the tender business in Africa, lower U.S. sales and late-onset infections in India.

Key Highlights From Conference Call

• Cipla retains India sales guidance at Rs 6,400-6,500 crore in the ongoing financial year.
• Weak India growth on restocking after the implementation of goods and services tax last year and late flu season.
• Rebalancing of acute portfolio will be a priority.
• Guides for delay of four months in Provetil HFA (delay of 3-4 months already).
• Ten abbreviated new drug application filed in the first half of the financial year; aims to maintain the trend of 20 filings in FY19.

The stock fell as much as 5.3 percent in early trade to Rs 533.20 apiece.

Watch Cipla Global CFO Kedar Upadhye's interview here