Cipla ltd
.


    The tension gathering in the Iraq –USA relations is bringing back the memories of the previous Gulf war which had a profound adverse effect on the Indian Stock Markets. The oil prices around the world are already firming up. This could have an adverse impact on all petrochemical industries as well as down stream industries in the short term. In case the situation deteriorates and another war breaks out the consequences could be unpleasant for the markets. Under these uncertain times one industry which may remain unaffected and probably strengthen is the pharmaceuticals industry. Pharmaceutical shares have long been market favourites and normally command a higher than average market discounting. For ordinary investors it may appear that the shares are high priced but no price is too high for value investors as long as there is a prospect for further appreciation. It is under such consideration that we can look at Cipla presently quoted at Rs 894 at a P/E ratio of around 18.

    One of the notable aspects of this share is that the equity capital of Rs 19.99 crore is backed by reserves of Rs 333 crores providing a book value of Rs 176.6. What makes this even better is that 99 % of the present equity is made up of bonus shares issued. Many investors would wish that all companies are so generous. This investor friendly attitude makes the share attractive for passive investors who would like to invest and forget.

    Cipla is essentially a domestic player with a wide range of bulk drugs and sformulations. In 1997-98, out of the total turnover of Rs 514.43 crores, the domestic sales amounted to Rs 441.62 crores. The financial performance of the company has been very consistent and steadily growing. During the last four years the sales have grown from Rs 303 crores to Rs 541 crores. During the same time the net profit increased four times from Rs 24.8 crores to Rs 102 crores. The dividend distribution also grew more than five times from Rs 1.9 crores to Rs 11 crores. With a comfortable profit position the company virtually paid off all its debts reducing the borrowings from Rs 102 crores to Rs 18.6 crores .

    One of the reasons for the company’s success has been its investments in R& D supported by a continuous addition to the gross block of the company over the years as the accompanying chart shows. The R &D expenditure level of around 4 % of the sales, of the company is well above the industry average. The company has reaped good benefits out of the in house research particularly in the treatment of Asthma.











    The ongoing investments and the R & D strengths of the company provide a good base for the company to continue its creditable performance of the past.

    Performance for the First Half Year of 1998-99

    (Amount in Rs ,crores)


    Particulars
    Current Half Year (30.9.98)
    Corresponding period in the previous year (30.9.97)
    Full Year ending 31.3.98
    Sales
    322.75
    26805
    514.43
    Gross Profit
    80.10
    58.25
    143.66
    Depreciation
    5.10
    4.00
    8.69
    Provision for Tax
    19.00
    14.00
    33.00
    Net Profit
    56.00
    40.25
    101.97
    During the first half of the current year(period ending 30.9.98), the company has achieved a turnover of 322 crores as against a turnover of Rs 268 crores in the corresponding period in the previous year. The net profit has increased to Rs 56 crores against Rs 40 crores in the first half of the previous year. The gross profit margin has increased from 21.73% to 24.81%. The indications are therefore clear that the company may maintain a growth of over 30 % in its profit in the current year. The EPS which is currently around 51 can also be expected to move to around 65. At this expected level of EPS the market price may hover around Rs 1200 providing a reasonable scope for capital appreciation.



     
Na.Vijayashankar

(naavi@iname.com)
14.11.98
.