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of its cost of capital and it has one of strongest balance sheets of any Indian or global generics player. With a strong pickup in the firm’s growth prospects, we believe it is likely to provide even better returns going forward. This project aims to provide an in depth analysis on why should one choose or not choose Cipla in its investment portfolio.
• Chawre Kadambari – 09 • Fernandes Dawson – 14 • Pacheco Conrad – 37 • Rao Bharat – 48 • Savai Qusai – 49 • Yadav Pramod - 57
MET Institute of Management Semester II, MMM First Year
Khwaja Abdul Hamied as The Chemical. specially known across the world as Big Indian Generic giant. This has been possible due to time and again achieving distinction of coming out MET Institute of Management Semester II. There are approximately more than 5000 registered companies in the Industry and having an indefinite extended list of local or propaganda companies operating basically in the Tier II or Interior Markets. Overview of Cipla Cipla is known to be a true Indian company.Overview of Pharma Industry in India Indian Pharmaceutical Industry is estimated to be among the 3 rd largest market in terms of overall volume and 4th largest in terms of value across the world. Mahatma Gandhi who commented during his visit as “I am delighted to visit this Indian Enterprise”. they are still an Individual Player with no mergers and acquisitions compared to all top Indian companies who have undergone some acquisitions to come to the top. Indian companies is eyeing for the exports market on a large scale. Estimated Turnover of the Indian Pharma Industry is about US $ 21. Due to good acceptance of Indian generics across the world.e. Also Indian Pharma is now featuring among the top 10 global pharmaceuticals due to its booming sales. It was founded by Nationalist & Indian Scientist Mr. This estimation has really brought Pharma Industry among the top industry in business world & it is estimated to be big career option for young generation and big investment opportunities for Business giants/houses. On the other hand Exports in Indian Pharma is booming having turnover of US $ 8.7 billion growing @ 21. MMM First Year . Cipla has been known for his muscle power due to its behavior and approach i.25 % outpacing the domestic growth. Also it is estimated from the internal sources that Indian Pharma will cross turnover of US $ 50 billion by 2020 due to worldwide acceptance and fast growth. Industrial & Pharmaceutical Laboratories in the year 1935 in Mumbai Central & got the privilege of getting inaugurated by Father of Nation Mr. Currently.04 billion & Domestic market is having a turnover of about US $ 12. which is not included in the revenues generated by overall Indian Pharma Turnover.26 billion growing @ 14-15%.
MET Institute of Management Semester II. outside its home country Cipla is known for manufacturing the low cost Anti-Aids drugs for HIV Patients in Developing and under-developed countries. Also. MMM First Year . Today Cipla is leading the Industry due to its Anti Infective.with pioneering and Life saving drugs which has helped to heal many unaffordable patients. Anti Virals & Anti Asthmatic Formulations. It is estimated that particularly in Africa 1 out of 10 HIV infected patients are taking Cipla Antiviral.
Cipla Launches Medicinal Aerosols for Asthma Treatment USFDA facilities Approves Bulk Manufacturing Units 1968 1976 1985 1994 Launches Rotahaler (Patented) Inhaler Device Palliative Care Centre at Warje.Cipla Milestones: There are numerable milestones which Cipla has achieved in last many years which has helped to achieve the top position in the Indian Pharma Industry. Pune to provide free services to cancer Patients. MMM First Year . 1998 2000 Launches Anti retroviral Drugs First Company Outside USA & Europe. 2001 MET Institute of Management Semester II. But few milestones which has changed the face of Cipla in the market are mentioned below: 1960 Started Operations in Vikhroli with special focus on natural Products Cipla Manufactures Ampicillin for first time in country. to Launch CFC free Inhalers Announces to launch Triple Drug ARV (Triomune) @ US $ 350/year.
Baddi and Indore in consecutive Years. Sets up State of Art Manufacturing Facilities in Sikkim. 2005/2007/2010 MET Institute of Management Semester II.2002 Set up 4 State of Art Manufacturing facilities in Goa in a record time of less than 12 months. MMM First Year .
All these facilities have even made world leaders like Bill Clinton to visit Cipla Goa Plant for procuring HIV Drugs for his foundations. currently having headquarters in Mumbai & has expanded himself across the country with about 42 state of the art manufacturing units. Units are located in different locations like Bangalore. Baddi and recently added is Indore unit.Cipla’s Manufacturing Locations: Cipla. Patalganga. Kurkumbh. MMM First Year . Sikkim. MET Institute of Management Semester II. latest equipments. Cipla Manufacturing Units are among the world class & features among the top 10 manufacturing units in the world due to its manufacturing facilities. quality and own safety benchmarks.
Cipla have almost all the approvals from the regulatory bodies which enables it to export its products abroad and get forex. TGA in Australia etc. MHRA in England. Since the approvals are the basis of business hence they are considered as intangible assets in pharmaceutical industry. Cipla’s Therapeutic Presence: Cipla has its presence in all the therapies in the list of medical and medicinal science it started as asthmatic drug manufacturing company which was in the inhalers steadily entered and captured whole of the market. The company can earn more profit by exporting their products to the European or American countries but for that they must get approvals from them.20%. ophthalmic etc . Any industry which desires to sell or market their products must get approved by the regulatory bodies like Indian Food Drug Administration in India. It manufactures the HIV drugs at very cheap rates and on high profit basis. Cardiology. market share of 0. Top Brands of Cipla and Co Branding: Cipla has its strong presence in top 300 brands that are most popular in the market. rheumatology. Recent example is Ranbaxy Laboratories Ltd Pontasahib which lost the business of Rs. Its brand asthalin ranks 17th in the world with value of Rs.132Cr. The lost of approval leads to loss of authority or permission to sell and market the goods.1138Cr market share of 2. MET Institute of Management Semester II.25% and growth rate of 4.450Cr since their approvals were cancelled by USFDA.14% growth rate of 11. United States Federal Drug Authority popularly known USFDA. MMM First Year .30% which is remarkable.International Approvals to Cipla In pharmaceutical industry the business in the country and overseas depends on the approvals that the industry has got from various regulatory bodies of the respective nation. Cipla has these approvals from past may years for all of its manufacturing facilities in domestic and abroad as well. It manufactures and markets the drugs for HIV/Aids. Total value of Cipla’s top 300 brands constitute Rs.
The preferred approach There are three methods that an Indian company can adopt to exploit generic opportunities in global markets. with operations beginning with a critical mass. high fixed costs and gestation. the revenue is sticky. Preferred Approach: Symbiosis . This creates barriers to new entrants and allows branded players to capture higher profits. both for its core business as well as for potential earnings boosters. Develop partnerships with local players. similar to that of the Indian market. Instead of investing in and establishing its own sales force in export markets. but involves front-end investments. Cipla has MET Institute of Management Semester II. We can take the case of Wokhardt Labs who entered in the pharma market by setting up their own distribution channels which lead to incur of high fixed cost and resulted in to low working capital Acquire existing marketing and distribution channels. Cipla enjoys the benefits of co branding and earns wider margins than an unbranded supplier of these products. Downsides of this approach include integration issues and the risk of a longer-than-expected payback period as investments are front-ended. This method enables the company to rapidly scale up without taking on front-end risks. Cipla has evolved a low-risk business model relative to other Indian domestic majors. Since a large number of these markets are branded generic. Each country has its own idiosyncrasies as well as established local players who understand the market. and dominance is easier to maintain once a brand becomes established. Set up its own marketing and distribution models. Acquisitions shorten the learning curve in each country.Cipla has effectively used co-branding as a strategy to establish itself and maintain its foothold in each market it partners into. MMM First Year . This can help Indian pharmas capture the full value chain.
chosen to develop relationships with generic companies and successfully leverage them to establish its presence in those markets. The relationship is mutually beneficial as both partners operate in different stages of the value chain. These partnerships have enabled Cipla to deliver steady returns over the last10 years. MMM First Year . MET Institute of Management Semester II. localised marketing skills and. While it contributes its skills in world-class manufacturing and product development. in the US. litigation skills. its partners bring to the table their knowledge of the market.
MET Institute of Management Semester II.11 Cipla’s performance in the international markets has shown a steady improvement. This shows that Cipla has a strong foothold in the rural areas as compared to urban. It has been observed that nearly 75% of Cipla’s domestic revenue has been generated from Tier1 & Tier2 cities [Non – Metro Cities] The remaining 25% comes from Metro towns.Cipla’s Revenue Split – Domestic v/s International CIPLA Revenue Split Between the period 2006-11 Cipla’s international business has been on a steady increase & it gradually outperformed the domestic business. Domestic Market Share – Urban & Rural The Domestic share for Cipla were attributed to two areas Rural & Urban.08 Cipla’s domestic business had the upper hand over the international business but for the period 2009 . Between the period 2006 . MMM First Year .
International . as in case of Dr. The Compounded annual Growth rate has increased to 14. thereby reducing the risk from sudden changes in individual markets. It has focused on its core competence of product development and manufacturing and avoided risking capital in establishing or acquiring large distribution networks. We have clearly seen the risks involved in acquisitions. Asia/Australia [12%] & Middle East [9%] are beginning to show signs of expansion/improvement. Reddy’s and its Betapharm acquisition. MMM First Year . It is primarily owing to geographic diversification since it reduces risk. A huge chunk of Cipla’s revenue comes from the African market [42%] followed by Americas [23%] & Europe [14%].81%. The wholesale change in Germany’s regulatory environment created uncertainty that is still far from resolution even after two years and has resulted in an uncertain and poor payback from the acquisition.91% from 200910 it has shown a 13. This has enabled the company to establish a presence in more than 180 countries.23% From the above chart we can see that the share of Cipla’s domestic and International revenue is more or less the same. Cipla’s partnership model allows it to penetrate markets rapidly without investing much capital. By comparison. regulatory expertise.57% growth & between 2010-11 Cipla’s sales revenue has grown 10. low costs and experience in operating profitably in the Indian market. Indian pharmaceutical companies have established a worldwide presence through the establishment of distribution networks or acquisitions.Region wise split Cipla has established its presence across the globe. With a large product basket. We believe that developing partnerships with local players (symbiosis) is the most scalable way to address the large export opportunity and diversify the revenue base. Cipla has rolled out its products effectively in other emerging markets. Sales & Other Incomes (Stand Alone) Cipla has shown an aggressive rise in the income generated through sales & other incomes on YoY basis from Mar 2008-09 it has increased by 18. with the partnership model it is much easier to withdraw from a MET Institute of Management Semester II.
Cipla has benefitted from incremental sourcing from its German partners. MMM First Year .market or alter ones strategy. Indeed. MET Institute of Management Semester II.
Domestic Market Share – Urban & Rural Definitions: Metro – 6 cities Tier 1 markets: 42 cities including state capitals Tier 2 markets: Remaining and rural markets 75% of our revenues come from non-metro towns International . MMM First Year .Region wise Revenue split MET Institute of Management Semester II.
COGS. Debt & Profit MET Institute of Management Semester II.Overview of Cipla’s Sales and Other incomes Total Income. MMM First Year .
MMM First Year .Key Ratios Interest Cover Ratio MET Institute of Management Semester II.
of Shares Comparative Analysis of Cipla and its Peers MET Institute of Management Semester II. MMM First Year .Earning Per Share – EPS Profit Earning vis-a-vis No.
MMM First Year .On the basis of Market share in FY2011 On the basis of Debt-Equity Ratio MET Institute of Management Semester II.
EPS in FY2011 Return on Equity. MMM First Year .ROE MET Institute of Management Semester II.
Bull view. annually Exposure to multiple markets derisks slowdown Product approvals to happen eventually SEZ ramp up to contribute optimally by FY13 15% of turnover by Q4FY13 Domestic Formulations Indore SEZ ramp up 15% of Total Sales annually Regulatory approval in pipeline MET Institute of Management Semester II. MMM First Year . Bear view & The Neutral view Scenarios Bull View Field Force Focus on Chronic Therapy Products 15% growth Export Business Benefit from growing Generic Market Channel Partners Bear View Limited growth of key brands Meaningful contribution of field force Impact of economic slowdown Regulatory delays affecting business in US/EU Delays in regulatory approvals Hindered visibility due to slow ramp up Neutral Approach 12.5% CAGR Product extensions and price increase.
USFDA nod by end FY12 Currency Fluctuation Hedging at lower rates and rising imported costs Hedging limited to 40% of exposure Stable input cost Rupee depreciation to be favorable over medium term Factored US$:INR at Rs. MET Institute of Management Semester II. MMM First Year . we would like our investors to take care of the above mentioned positive aspects and not so positive aspects before investing in Cipla shares.49 for next two years As potential prospects.
Lumpy technology licensing income Volatility in technology licensing income may also affect future profit outlook. While some part of the exposure is naturally hedged in the form of cost of imports (25% of costs). on the basis of legal opinion. Cipla has adequate manufacturing capacity at its Goa plant for US market as Indore continues to scale-up EU/RoW market supplies through site transfers. delays in the same could affect revenue ramp up. MET Institute of Management Semester II. as has been witnessed in the past. However. Sensitivity to forex fluctuations With more than 50% of revenues led by exports. We expect a 1% change in INR to result in 0. Cipla’s earnings are affected by currency fluctuations. We have forecast stable outlook for technological income.75% impact to FY13E EPS.Keys risks that would make a potential investor defer his investments with Cipla DPCO litigation overhang Cipla is one of the key companies affected by the ongoing litigation with National Pharmaceutical Pricing Authority (NPPA) regarding drug pricing. asserts that NPPA’s claims are untenable.8bn (on amount overcharged till July 2003). going forward. This litigation has been an ongoing for the past 8 years and the company. If the liability needs to be paid. margins are impacted by rupee fluctuation. However. MMM First Year . it would result in cash outflow equivalent to ~95% FY12E PBT.8bn. The original penalty under NPPA’s Drug Price Control Order amounted to Rs1. NPPA has added further penalties for non-payment and interest charges which have led to the current notice for ~Rs13. Regulatory delays affecting ramp up While Cipla’s key manufacturing facility at Indore is awaiting USFDA approval (expected by FY12 end).
MMM First Year . might as well hang on for some time to ensure that the risks are receded. we recommend that investors should continue to hold on to Cipla shares for now if it’s part of their current investments … and for those who intend to make an investment around this time.Conclusion Hence. given the present scenario of Cipla. based on the aforementioned detailed analysis. Thank you… MET Institute of Management Semester II.
MMM First Year .Bibliography Moneycontrol.com Cipla Corporate Website BSE website MET Institute of Management Semester II.
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