H1 inline; Cipla Medpro fully integrated: Cipla MD

Cipla MD & Global CEO Subhanu Saxena is fairly satisfied with its second quarter numbers. He says the numbers are absolutely in line with the roadmap agreed with the company board. "We completed successfully our acquisition of Cipla Medpro, have fully integrated that into the business inspite of significant headwinds," he says.

He expects the company to be debt free sometime middle of next calendar year. Also Read: Cipla Q2 net falls 28.4% to Rs 358 cr, margin slips 850 bps Below is the verbatim transcript of Subhanu Saxena's interview on CNBC-TV18 Q: While your margins are fairly inline, your expenses seem to have gone up quite a bit. Could you highlight why would that be?
A: It is a very solid set of results for our first six months absolutely inline with the roadmap we agreed with our board of directors earlier in the year. I had signaled back then that the first 12-18 months in our roadmap was investing in the business for the future particularly on people and also the pipeline to get us in a position where we have sustainable platform for growth for the decade and beyond.
The result you see is reflecting the fact that we have executed exactly inline with our plan. We completed successfully our acquisition of Cipla Medpro, have fully integrated that into the business inspite of significant headwinds.
So, a year ago we had significant one time impact of Escitalopram sales which have now not been in the numbers.
Plus a very difficult operating environment in India in the second quarter with all the difficulties with Drug Pricing Control Order (DPCO) implementation etc, the market there grew just around 7 percent, our business grew 11 percent. So, what we have been able to do is to keep the focus on the key deliverables within the business and really look at managing our assets and our resources and costs effectively. So you see a very solid performance. This will continue to be a build year where I will invest in people and capabilities to give us a robust growth platform for the future. Q: Could you just explain about the finance cost, it is almost up 10 times on a year on year basis and even sequentially it is up, if you could explain that?
A: We took a decision early in the year to capitalise on attractive financing rates to help finance some of our working capital requirements and you may remember that Fitch has give us a AAA rating, which confirms the discipline and the financial rigor, how we are running the business.
We expect to be debt free again sometime middle of next calendar year. So, we took an advantage in the window in the market place and we continue to use that to fund growth in the operations. Q: Most of your margins and profit numbers are inline with what the company had been talking about or the street was expecting. Would you explain what sort of things we have got from Medpro acquisition because the acquisition was completed in the last quarter itself? Could we start seeing a ramp up in exports as well as additions to the margins straightaway from this quarter onwards?
A: While it is nice to know where the expectations are of analysts, we just continue to focus to execute our plan inline with our mission.
Very much part of the mission was to expand our footprint overseas and where it made sense is to front integrate and Cipla Medpro acquisition was the first step in doing that. It gives us a robust platform in the southern part of Africa.
If you look at what the acquisition will be and we have said it since the beginning it will be margin accretive in the second year after acquisition. We are very much inline to do that. We have hired an experienced CEO for our business down in South Africa and it happens that October was their highest sales month ever. So, we are very pleased with the progress. We can now fully exploit our R&D pipeline in South Africa.
You will see, going forward, continued focus on expanding our international operations. Currently our international business outside of India is just under 50 percent of our total sales that will rise to two thirds to 70 percent of our total over the next 3-5 years. Q: A comment on your exports and the API business, how has that performed? Going forward for the next half of the year what is your guidance on the export and APIs?
A: It is very much inline with our expectations and our performance. I said at the start of the year you would expect healthy double digit growth for Cipla this year and you will certainly see that.
Plus we will invest up to 1-2 points of our margin in people and pipeline build and you will continue to see that being implemented. Q: A lot of turmoil in the Indian market especially because of the NLEM implementation as well as lot of issues with traders on margins. Has that been resolved? Do you see that still impacting business in the Indian market in the second half of this year? Also a guidance on where do you see the profit margins and revenue growth for this fiscal?
A: For us this issue is behind us now. You may be aware that we put patient access paramount above everything else and so we took the decision that we did in terms of keeping our margins at 10 and 20 percent. That issue is behind us. We are seeing revenue acceleration coming into the start of the third quarter and so certainly our business is normalising. I wouldn't comment on what's happening with other companies but it continues to be a difficult operating environment.
Cipla has a number of advantages. We have an excellent field force, 10,000 strong that can reach every patient in India and will continue to build a robust pipeline and drive growth for our Indian business.
Our overall outlook for the year - we stick to what I said at the start of the year. You will see healthy double digit growth and we will reinvest a couple of points of margin into people and capability building.