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GST Will Take One Quarter Of Growth Out Of India: Cipla

Cipla says GST may hurt for a quarter.

General views of drugs (Photographer: JB Reed/Bloomberg News)
General views of drugs (Photographer: JB Reed/Bloomberg News)

Drugmaker Cipla Ltd. said there has been a fair amount of destocking in distribution channels and it could continue till the Goods and Services Tax is rolled out.

The company refrained from giving any guidance for the ongoing financial year due to volatility in external environment, including challenges related to the implementation of GST, currency movement and uncertain regulatory environment. The company, however, is aiming at double-digit revenue growth on the back of new launches in the U.S. and India.

“GST will pretty much take one quarter of growth out of India. We need to give it up to a month or a month and a half more until normalcy returns,” Umang Vohra, managing director and global chief executive officer, Cipla, said in a conference call with analysts.

Cipla’s consolidated net loss narrowed to Rs 62 crore in the quarter ended March compared to a loss of Rs 93 crore in the year-ago period, missing estimates by a wide margin largely due to one-off expenses. The Bloomberg consensus estimate had forecast a profit of Rs 338 crore.

The company took a Rs 214-crore one-time impairment charge on intangibles from its U.S. acquisition and a provision worth Rs 56 crore for a loss on certain assets of its subsidiary Cipla BioTech Pvt. Ltd.

Adjusted for one-offs, the net profit for the quarter stood at Rs 209 crore, while earnings before interest, tax, depreciation and amortisation margin was within its forecast of 16-18 percent.

The company will continue its focus on cost consciousness. “The margin expansion story will continue. We will definitely see EBITDA growth higher than revenue growth,” said Kedar Upadhye, global chief financial officer, Cipla.

Domestic Revenue Falls

Revenue from India business declined 4 percent year-on-year to Rs 1,197 crore, largely due to de-stocking at the distribution channel. Adjusting for the impact of demonetisation and supply-cycle disruptions, Cipla said it grew at a faster pace than the Indian pharmaceutical market. However, the outlook for the domestic business in the near term seems to be uncertain.

Optimistic On U.S. Business

The company has been able to avert price cuts in new product portfolio in the U.S. Its peers such as Glenmark Pharmaceuticals Ltd., Lupin Ltd. and Sun Pharmaceuticals Ltd.’s subsidiary Taro Pharma has seen pricing pressure in the U.S.

“Cipla from a value and volume perspective plays very differently in the U.S. In terms of volumes, Cipla is the ninth largest so we are very relevant to any customer’s portfolio in the U.S. Therefore, though consolidation is there, that doesn’t materially change how we operate because,” said Vohra.

The company expects to make 20-25 drug filings in 2017-18 with a focus on building a specialty drug pipeline.

We look forward to some exciting launches in the coming quarters starting Q2 of FY18. We have a few limited competition launches planned Q2 onwards, and have a visibility of one such launch every quarter.
Umang Vohra, MD And Global CFO, Cipla

Cipla has noticed early signs of disruptions in production of biosimilars and is considering “in-licensing to de-risk our future investment in this segment without fully relying on our in-house development”, said Upadhye. Capital allocation will be re-positioned to provide greater impetus to specialty and respiratory development efforts, he said.

Cipla paid back debt of about Rs 1,000 crore during the fourth quarter and has forecast research and development expenses of 8-9 percent of sales in the ongoing financial year.