Cipla warns of multiple headwinds it may face in H2FY19, stock tanks 7%

Employees and security staff work at the reception area of Cipla at its headquarters in Mumbai, India June 17, 2015. Cipla Ltd, India's fourth-largest drugmaker by sales, is planning to enter Latin America and Eastern Europe to tap into growing demand for generic drugs in emerging markets, Chief Executive Subhanu Saxena said. REUTERS/Danish Siddiqui - RTX1GUXV

A weak second half guidance by Cipla has spooked its investors causing the share to tumble over 7 percent on the BSE on November 5.

The company warned about "multiple headwinds" in the second half of the financial year after its quarterly profit fell short of analysts' estimates.

“As we enter the second half of this fiscal, multiple headwinds are likely to impact our reported performance. Having said that, we are focusing on positioning our businesses for long-term growth,” said Umang Vohra, MD and Global CEO of Cipla.

Cipla reported 11 percent drop in net profit to Rs 377 crore for the second quarter ended September 30, coming well below street estimates due to flat sales in India, South Africa and lower tender offtake especially for antiretroviral drugs. The company had reported a profit of Rs 422.9 during the same period of last year.

A Reuters poll of analysts on average was expecting the net profit at Rs 456 crore. The revenue fell marginally to Rs 4,012 crore from Rs 4,082.41 crore during the corresponding quarter of last year. The Earnings before interest, tax, depreciation, and amortisation (EBITDA) margin stood at 18.8 percent.

Shares of Cipla dropped 7.33 percent to close at Rs 563.90 on BSE, the benchmark Sensex declined 0.17 percent to 34,950.92 points.

Cipla said supply bottlenecks, commodity and crude price inflation, lower tender offtake and US sanctions on Iran, could all put pressure on company’s performance going ahead.

The company said it may face an impact of Rs 100 crore on sales for at least the next few quarters due to supply disruptions on account of an ongoing maintenance shutdown at two of its manufacturing facilities in India.

The company, however, said it will achieve Rs 6,400 crore revenue target for India in FY19.

On the regulatory front, the company announced the inspection at its Goa plant concluded with minor procedural observations in the second quarter. The company said it has responded to USFDA and hopes to resolve it.

Cipla's India sales remained flat YoY at Rs 1,645 in Q2FY19 on YoY basis due to slower onset of flu season and higher base in the same period last year due to GST led inventory re-stocking. On a sequential basis, India sales rose 6 percent.

North American sales rose 23 percent to Rs 758 crore in Q2 led by new launches. The company launched seven new generic products in the second quarter.

The South African business dropped 3 percent, due to slower offtake of tender business.

“We had a modest quarter but maintained a strong performance in our private market segment across geographies. I am pleased to see that our limited competition assets in the US are ramping up to drive quarter on quarter growth,” Vohra said.