Cipla Quality Chemical profits plunge in first full-year results

The drugmaker said it will not pay a dividend for 2018 in order to invest in the business and to finance a potential "small acquisition"

Cipla Quality Chemical Industries Limited, the drugmaker controlled by the Indian pharmaceutical giant Cipla Limited, reported a 14.2% fall in revenue for its first full-year results announcement since listing.

Revenue from contracts with customers fell to Shs195.1bn in the year to the end of March, compared to Shs227.3bn in the previous year, the drugmaker said on Wednesday. However, the cost of goods sold was Shs125.5bn, down from Shs130.9bn last year. Gross profit fell 27.8% to Shs69.5bn.

The fall in revenue was driven by a decline in Cipla Quality Chemical’s Global Fund business “mainly due to the re-direction of funds from cure (medicines) to prevention,” the company said.

The Global Fund, a Geneva-based international financing institution that provides support to low- and middle-income countries to address HIV, tuberculosis and malaria, is a major customer of the drugmaker and accounted for 44% of its sales in the financial year that ended March 31, 2018.

“In addition, and across the funded markets, the increased competitiveness led to price drops in both ARVs and anti-malarials. The base has been reset and companies are forced to find efficiencies to offset this impact. This, coupled with supply and pricing challenges out of China due to changing environmental legislation, put margins under pressure in FY19,” the company added.

Operating expenses increased by 16.7% to Shs54.9bn, driving down operating profit to Shs13.4bn from Shs50.6bn in 2018. Cipla Quality Chemicals attributed the rise in expenses to “additional expenditure related mainly to the increased marketing and sales costs, the once-off IPO related (Shs2.5 billion) cost and adjustments based on IFRS 9.”

Pre-tax profit declined by 83.8% to Shs7.1bn due to a rise in finance costs. The company also paid Shs342.2m as tax on its profits, unlike the previous year when it had a tax credit of Shs633.7m, leading to after-tax profits of Shs6.7bn, down from Shs44.6bn last year.

Cipla Quality Chemicals said it will not pay an annual dividend for 2018 “in order to invest in the business for growth, capex, working capital and a potential acquisition.

“The board is investigating a small acquisition opportunity that will further support growth initiatives and diversification of our revenue sources. Further announcements will be made as appropriate,” it added.

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Company profile: Cipla Quality Chemicals Industries Ltd