Margins cannot be sustained at around 27.6%: Cipla

Pharma major Cipla's first quarter net profit surged 58% year-on-year to Rs 401 crore. The margin improvement was extremely healthy at around 27.6%.

In an interview to CNBC-TV18, S Radhakrishnan, executive director of Cipla says, the margins cannot be sustained at that level. "Overall, our operating margins are improving with the product mix improving. That will sustain. Whether it's 23% or 24% I cannot put a finger on that, but it will be better than earlier," he adds. Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Q: What led to this strong domestic growth? Is it sustainable? A: The domestic growth is on account of good first quarter performance in the ethical segment. We grew there by about 20-24%. Also, the low base last year on the generic segment helped us to post a very healthy growth there. So, overall, I think we did well in the domestic formulations. I think our focus in the field of productivity is paying dividends. So that has probably led to a good performance in the domestic segment. Q: Did you expect these exports of Active pharmaceutical ingredients (APIs) to continue to be under pressure? It has fallen about 2%, will that be a trend? A: We are not an API company, as a niche segment where our products, we export to niche customers. Therefore, we are not really in the business of selling APIs. So, I don’t think it is an issue of us in terms of pressure. Q: The other thing, which actually stood out amongst analysts, is basically the margin improvement, extremely healthy at around 27.6%. What led to this margin improvement? Can we see that for the entire FY13? Is this what Cipla’s new margin trend would possible be? A: It is not something which is going to be sustained at that level. Obviously, the US business for this quarter helped us to get to that margin. But, overall, I think the focus that we are having and the rationalisation and the product mix that we are trying to really focus on, we will have better operating margins from the past. But this quarter has also been helped by the US business that we had. Q: With regards to US business, how would Lexapro do in this quarter? What was the contribution? What are the key products that we can expect in terms of supplies which Cipla will undertake possibly in the remaining part of FY13? A: I won’t be able to give you the details because we have confidentiality agreement. But it has significantly contributed to our top-line and bottom-line this quarter. This will have a positive impact on Cipla’s performance, going forward, in the next quarter. Similarly, we have other opportunities which are there in the offing which can pan out in this year or probably next year. So, our partnerships with big certain partners is paying off and is helping us to post this kind of performance. Q: Can we extrapolate your run rate from this quarter, a 5% QoQ or 23% YoY in terms of the top-line? You said this kind of margins will be tough, what would be the base case, will it be 24-25%? A: I cannot give you numbers. But what I am saying is that these kinds of one-offs will obviously help us to push the margins to these levels. But overall our operating margins are improving with the product mix improving. That will sustain. Whether it’s 23% or 24% I cannot put a finger on that, but it will be better than earlier.