Cipla posts nearly 17% fall in Q3 profit; shares fall

Cipla posts nearly 17% fall in Q3 profit; shares fallStock in Cipla Ltd plunged more than 5 per cent in morning trade on Thursday after the drug giant announced that it suffered a decline of 16.5 per cent profit in the three months ended December 31, 2013.

Cipla announced that its net profit slipped to Rs 284.31 crore in thee October-December quarter of current financial year, from Rs 340.31 crore in the corresponding quarter of the previous financial year.

The profit reported by the company for the quarter under review is also sharply lower than analysts' estimates. Analysts had been expecting the pharma giant to report a net profit of Rs 372 crore for the December quarter.

The decline in profit was despite a considerable rise in consolidated net sales. The company's consolidates net sales increased from Rs 2,070.53 crore in the December quarter of 2012 to Rs 2,552.63 crore in the same quarter of 2013.

Cipla's margins were severely hit by higher staff cost on account of senior management hiring along with other expenses as well as higher contribution from low margin ARV tender business.

Commenting on the results, SBICap Securities said, "Cipla's 3QF14 results were weaker than expected with a big miss on the EBITDA margin, which came at 18.1 per cent despite healthy sales improvement. This was impacted by multiple factors: increased R&D spends, full-quarter low-margin Medpro consolidation, higher ARV sales mix and increase in staff cost."

At 10:40 a. m. on Thursday, Cipla shares were trading nearly 6 per cent lower at Rs 388 piece.

Global brokerage firms like CLSA and HSBC reacted by downgrading Cipla's stock and reducing their respective twelve-month target prices. While CLSA downgraded Cipla stock from 'outperform' to 'underperform' to a target price of Rs 410 from Rs 470; HSBC downgraded it from 'overweight' to 'neutral' and slashed its target price for the stock from Rs 477 to Rs 440 apiece.

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