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CIPLA_ratio Analysis 1

CIPLA_ratio Analysis 1

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Published by Ruchi Modi

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Published by: Ruchi Modi on Jul 02, 2012
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05/21/2013

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India
Ratios- Cipla Ltd.-Pharmaceuticals.
19 June 2011
Ratio Analysis
 
Income Statement
Gross Profit:-Gross profits have consistently increased over years. It has almost increased100% and doubled itself from the base year 2006 when it was Rs. 13,202millions to Rs. 26,755 millions at the end of 2010. The growing demand, withdomestic growth consistent at around 10% y-o-y and exports growingconsistently at around 12% y-o-y is the main driver for this increase in grossprofits.
EBITDA:-EBITDA figures too have shown an increase over the years with increasedgross profits. However the sharp increase in 2010 on y-o-y basis can beattributed to the decreased other expenses due to a decreased loss in foreignexchange owing to comparatively lower fluctuations in the value of Rs vs.USD vis-à-vis 2009. Also a reduced expense on Research and Developmentvis-à-vis last year contributed to the increased EBITDA. 
Operating Profit (EBIT):-A sharp increase of 35% y-o-y in the EBIT is partially attributed to theincrease in EBITDA and partially to the sluggish growth of depreciation whichreduced to 10% y-o-y in 2010 from 30% y-o-y in 2009. This reduction wasas a result of capital subsidy or government grants on specific depreciableassets.
PBT:-Profit before tax showed a whopping 48% growth to Rs.13261 millions in2010 as opposed to Rs. 8955 million due to the sale of intellectual propertyrights and technical know-how of “i-pill”, an emergency contraceptive pill toPiramal Healthcare Limited, for the territory of India, for the aggregateconsideration of Rs.950 million.
Net Income:-
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Gross profits havealmost doubled over thelast five yearsProfit before tax showeda 48% growth based onthe sale of intellectualproperty rights
 
IndiaSector Review09 May 2011
Net Income too showed a 40% growth on a y-o-y basis due to the increasedPBT due to sale of certain rights related to one of its product. The NetIncome for Cipla Ltd. Stands at Rs. 10,826 million as of March 2010, therebycrossing the coveted Rs.1 billion mark for the first time in it’s history.
EPS:-Significant decrease in EPS in the year 2007 was because of the increasednumber of shares due to a scrip issue of 3:2 declared in April 2006. The EPS,since then, has increased consistently. The sharp increase in 2010 was dueto the increased profit attributable to a one-time revenue for the sale of intellectual property rights..
Horizontal Analysis
Net sales have increased consistently over the years. However, the growthrate has decreased on a y-o-y basis. This decrease in growth rate isattributed to the high base figure which is ever increasing. The driver for netsales is the domestic demand growth which is steady at 10% and the exportgrowth lingering between 12% to 14% y-o-y. The sharp decrease in growthrate in 2010 over 2009 is chiefly due to the non-availability of important raw-materials, lower tender business in anti-retrovirals and unfavourablemovements in foreign exchange rates.
Other Income largely consists of technical know-how fees and exportincentives along with other investments and miscellaneous income. OtherIncome dipped slightly to -0.3% on a y-o-y basis. This was basically due tothe high base figure in 2009, wherein the company received a one-timetechnical know-how fee. However, the export incentive increased by around70% to Rs. 924.1 million which relatively off-sets the effect of the decreasein the fee received.
Material Costs have consistently been decreasing which is a good sign.However the sharp decreased in 2010 was an exception as it was due to theunavailability of important raw materials. However, the advantage due todecreased material cost is negated by the increase in manufacturing costs, asa result of which, the cost of goods sold remains unchanged.
Growth in the ‘Research and Development expense’ decreased by over 60%to show a 6.5% y-o-y growth vis-à-vis 15.5% in 2009. A major reason is theincrease in the revenue expenditure eligible for weighted deduction under theIncome tax act.
Other expenses dipped by 10% majorly due to a decreased loss in foreignexchange owing to comparatively lower fluctuations in the value of Rs vs.USD vis-à-vis 2009.
Profit before tax showed a whopping 48% growth to Rs.13261 millions in2010 as opposed to Rs. 8955 million due to the sale of intellectual propertyrights and technical know-how of “i-pill”, an emergency contraceptive pill toPiramal Healthcare Limited, for the territory of India, for the aggregateconsideration of Rs.950 million.
Vertical Analysis
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The positives of decreasing materialcosts are nullified dueto increase in mfg.expensesMain driver forexpenses, materialcosts, contributearound 62% of totalexpensesEBITDA and operatingprofits, as a fraction of Net Sales, have taken amajor hit over the pastfive years, except 2010.
 
IndiaSector Review09 May 2011
Material cost is the main driver for expenses contributing around 49% of thenet sales and around 62% of the total expenses. Material costs as a percentof Net sales have traditionally been very high for Cipla Ltd. due to its nicheproducts. This is also very high as compared to its competitors, for whomthese costs are typically around 30%. Cipla is banking on its product mixand technology to reduce these costs.
Manufacturing costs have shown a decreasing trend which indicates theimprovement of operational efficiency at Cipla Ltd.
EBITDA and operating profit, as a percent of sales have taken a hit over theyears, except for 2010, due to lower foreign exchange fluctuations, lowerexpenditure on research and development and capital subsidy andgovernment grants. However, this is not a sustainable phenomenon andhence the decreasing margins are a concern.
The decreasing EBITDA and operating margins have shown its effect on thebottom line as net income or profit after tax as a fraction of net sales alsohave been decreasing. The exception in the financial year 2010 is partiallydue to higher EBITDA and EBIT and partially due to the sale of intellectualproperty rights and technical know-how for a aggregate consideration of Rs.950 million.
Difference between the operating profit margin and net income margin issignificantly less indicating that financing costs of the company are low. 
Effective Tax Rate: The effective tax rate for Cipla Ltd. has been changingthrough years from an effective rate of 14% in 2006 to 18.3% in 2010. Oneof the main reasons for the fluctuating tax rates are the benefits given to amanufacturing company like Cipla Ltd. These benefits range from the exportincentives provided for promoting exports, the revenue expenditureexempted due to spending in domestic research and development as well asthe incentives provided for manufacturing in SEZ’s. Such fluctuatingeffective tax rates are an integral part of any manufacturing industry ingeneral and pharmaceutical industry in particular.
Dividend Payout Ratio: Cipla has consistently declared a 100% dividend onits face value of Rs.2/- for the past five years and can be expected to do soin the future as well. The dividend payout ratio is seen to be decreasing overyears which mean company is investing greater percentage of its incomeback to the business.
Dividend Tax Rate: Dividend tax rate is seen to be consistent around 16%with no major fluctuations observed post 2006.
Balance Sheet
Horizontal Analysis
Inventories have shown an increasing trend, which validates the growth storyCipla has been projecting. The decrease in inventory, the only such instance
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The dividend payoutratio is observed to bedecreasing on a y-o-ybasisCipla Ltd. is facing asevere cash crunch,partially due to high debtrepayment in the pastfew years.

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