Cipla : Caring for life

2010

Ujwal Sharma PGPM/0911/024

2009-2011

International

Academy

of

Management

&

Entrepreneurship

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Cipla : Caring for life

Cipla–A Global Leader in Generics

•Leading pharmaceutical company in India in terms of retail sales and one of the largest exporters of pharmaceutical products from India. •Legacy of innovation and an entrepreneurial spirit ingrained by the founder, Dr. K.A Hamied, and propounded by the present Chairman and Managing Director, Dr. Y.K. Hamied. •Wide range of products across all major therapeutic categories and in most dosage forms. •Business model based on international strategic alliances and focus on pursuing organic growth while reducing capital commitment and regulatory/litigation risks. •Result driven R&D ensuring efficient utilization of resources and generating substantial technical know-how fee income. Company turnover is $1billion.

Significant Milestones in the History of Cipla

1935- Founded by Dr. Khwaja Abdul Hamied as The Chemical, Industrial and Pharmaceutical Laboratories Limited –subsequently changed to Cipla Limited on July 20, 1984.

1936- Commenced manufacturing operations at the first plant at Bombay Central, Mumbai.

1952-Established the first research and development division for development of pharmaceutical products.

1960-Commenced operations at the second plant at Vikhroli, Mumbai.

1974-Commenced manufacturing medicinal aerosols.

1977-Commenced manufacturing operations at the third plant at Bengaluru.

1983-Commenced manufacturing operations at the fourth plant at Patalganga.

1985-Received approval from the U.S. FDA for the bulk drug facilities.

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1994-Commenced manufacturing operations at the fifth plant at Kurkumbh.

2002-Set up four technologically advanced manufacturing facilities in Goa.

2003-Second phase of the manufacturing facilities at Goa, involving five more independent manufacturing units, commenced commercial production

2005-New formulation plant at Baddi, Himachal Pradesh commenced commercial production.

2008-Commenced commercial production for formulations at the Sikkim facility.

Business Model

Cipla has a business model based on STRATEGIC PARTNERSHIP.

API and formulations exported to approximately 175 countries through strategic alliances, including partnerships and agency arrangements.

Export sales contributed 51.5% and 49.5% to FY09 and Q1 FY10 revenues, respectively.

Total of approximately 7,000 product registrations in place across various export markets.

International partnerships with governments and social service organizations to supply products and/or technology, which helps strengthen relationships abroad.

Partnership model helps in: -Leveraging in-depth local expertise of partners. –Limiting the need to set up own facilities or sales and distribution networks. –Lowering fixed costs and capital commitment –Reducing potential risks from litigation, regulatory or employee related matters.

Strategic partnership model structured as per: -Developed markets which are highly regulated and exposed to litigation risks. -Emerging markets which offer higher growth opportunities, due to lower entry barriers, limited competition and higher profitability.

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Financial Analysis

Financial performance

(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change

Net sales 11,221 13,667 21.8% 42,185 52,705 24.9%

Expenditure 9,190 10,076 9.6% 33,571 39,873 18.8%

Operating Profit (EBITDA)

2,031 3,592 76.9% 8,614 12,832 49.0%

Operating Profit Margin (%)

18.1% 26.3%

20.4% 24.3%

Other income 153 155 1.0% 527 678 28.8%

Interest 46 133 191.0% 117 335 186.9%

Depreciation 367 557 51.8% 1,307 1,757 34.4%

Profit before tax 1,771 3,057 72.6% 7,717 11,419 48.0%

Forex loss/(gain) (250) 100

(667) 2,318

Tax 227 428 88.5% 1,369 1,423 3.9%

Profit after tax/(loss) 1,795 2,529 40.9% 7,014 7,678 9.5%

Net profit margin (%) 16.0% 18.5%

16.6% 14.6%

No. of shares (m)

777 777

Diluted earnings per share (Rs.)

6.9

P/E ratio (x)

27.3

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PEER COMPARISON

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VALUE CHAIN

Experienced Management Team •Led by a qualified and experienced management team that has the expertise and vision to manage and grow the business. •Dr. Y.K. Hamied, Chairman and Managing Director, has been awarded the PadmaBhushan, one of the highest civilian awards in India in 2005, for his distinguished service and contributions to the pharmaceutical industry. •Senior management team is highly experienced in the Indian pharmaceutical industry, with an average of around 25 years experience with Cipla. •Stable and experienced mid-level management team with an average experience of approximately 17 years experience with Cipla. •Healthcare domain knowledge and experience of the senior and middle-management provide a significant competitive advantage.

INITIATIVE

-Cipla launches anti-malaria global initiative.

-The company has entered into a development and supply agreement with Drugs for Neglected Diseases Initiative (DNDi), a global non-profit organisation, for a new anti-malarial combination drug. The drug, a new fixed dose combination of artesunate and mefloquine, will be manufactured by Cipla using the technology developed by DNDi. -The agreement is for development and commercialisation of a new fixed dose combination of artesunate and mefloquine (AS+MQ) indicated for the treatment of uncomplicated Falciparum malaria. -The product technology is coming from DNDi. Cipla will manufacture and make the product available in southeast Asia and other parts of the world at affordable pre-agreed prices,” Amar Lulla, joint managing director, Cipla, said.

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MARKETING ANALYSIS

•With approximately 150 APIs and more than 1,600 formulation products in its portfolio, Cipla offers a wide range of products across several major therapeutic categories. •Not dependent on any particular product with no single product accounting for more than 2% of the total income in FY09. •Therapeutic categories served include anti-asthma, anti-inflammatory, cardiac, anti-retroviral, anti-cancer, eye/ear preparations, dermatology, anti-ulcerant, anti-malaria and critical care. •Product range covers most dosage forms including solids, liquids, injectables, ophthalmic preparations, topical preparations, nasal preparations, inhalers and devices, rectal preparations and buccal preparations.

Leader in the Respiratory Care Category

•One of the leading players globally in respiratory care, with over three decades of experience in developing complex technologies in inhalation therapy. •One of the largest producers of inhalers in the world –respiratory care products sold in approximately 90 countries. •Leader in the Indian respiratory care category with market share of 52.0% in anti-asthmatic products in FY09.

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•Wide range of drugs, delivery systems and add-on devices for patients, supported by an aerosol research and development team and manufacturing facilities. •Wide range of respiratory care products, including preventer and reliever drugs and their combinations. •Developed several proprietary and patented delivery systems and devices. Autohaler Multihaler ForacortForte.

Leading Domestic presence

•Largest market share of 5.3% (FY09) in terms of retail pharmaceutical sales in India. •20 product brands ranked within Top 300 pharmaceutical brands in India (as on June 30, 2009). •Market leader in certain categories, including respiratory care (52.0%), anti-viral (50.1%) and urological (18.2%) in FY09. •Extensive distribution network consisting of 42 exclusive and dedicated sales depots that service doctors, as well as 2,300 stockists and 160,000 chemist’s pan-India. •Field force of over 4,300 personnel in 14 divisions, actively promoting Cipla’s specialty products. •Long-standing relationships with hospitals and institutions, continues to be an important channel of distribution.

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SWOT ANALYSIS

STRENGTHS - Ranks #2 in the retail prescription market in India; - 18 brands that feature among the top-300 brands; - Large basket of 1,500 formulations; and - Partnered 8 leading generics companies in the US for nearly 125

projects. -

WEAKNESSES - Impact of IPR regime.

OPPORTUNITIES

- Biotherapeutics – A new and promising area; - Agreement with Avesthagen; and - Venturing towards areas of cardiology and anti-cancer.

THREATS

- Partnership related; and - Potential de-rating.

FUTURE OUTLOOK

-Cipla reported better-than-expected earnings for the quarter ended December 2009 on account of a drop in other expenses and marginally lower input costs -At 29%, the year-on-year growth in net profit was higher than the market estimates of 22%. -The company’s domestic business, which contributes half of the revenue, grew by 14%, higher than the industry growth of 12%. -Reducing its over-dependence on the domestic business by generating strong consistent growth in export markets is a critical factor that would aid Cipla’s future growth.