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Cipla warns of 'multiple headwinds' after quarterly profit unexpectedly falls

Indian drug maker's second-quarter profit declines about 11%

Cipla is facing challenges from the sanctions which will impact certain parts of its business.   © AP

MUMBAI (NewsRise) -- Cipla reported a surprise decline in second-quarter net profit and warned that the drug maker is likely to face "multiple headwinds" that could hurt its financial performance in the next six months.

Consolidated net income for the three months ended in September fell almost 11% to 3.77 billion rupees ($52 million), compared with 4.23 billion rupees a year earlier, the company said in a statement on Monday. Analysts were expecting a net income of 4.56 billion rupees, according to Refinitiv data.

Revenue fell 1% to 39.48 billion rupees. Sales in India, which accounts for about 42% of Cipla's revenue, remained unchanged, while that in South Africa slumped 25%. North America reported a 12% rise in sales, aided by new launches.

"As we enter the second half of this fiscal, multiple headwinds are likely to impact our reported performance," Umang Vohra, managing director and chief executive of Cipla, said in the statement. "We are focusing on positioning our businesses for long term growth."

The weak performance and warning rattled investors, pushing Cipla shares down by as much as 8.3% in Mumbai trading. The shares later pared their losses to close down 7.3%, while the benchmark BSE Sensex lost 0.2%.

The company is facing challenges from the "sanctions" which will impact certain parts of its business, Cipla said in an investor presentation without elaborating. Most Indian drug makers are grappling with regulatory challenges in the U.S. amid quality issues.

Cipla said it is also engaged in capacity balancing in "certain specific categories" at its plants which will have a short-term impact. It expects commodity cost inflation and escalation in prices of Chinese-sourced active drug ingredients to persist over the next two quarters.

India imports drug ingredients worth 130 billion rupees each year from China, the world's largest supplier. However, in the past few years environmental concerns have forced many Chinese manufacturers to shut shop, boosting prices of key raw materials.

According to analysts, Cipla's limited exposure to the U.S. generic market, compared with its larger rivals Sun Pharmaceutical and Dr. Reddy's Laboratories augurs well for the company as it navigates through a challenging environment in the largest drug market in the world.

Indian drug makers are grappling with cutthroat price competition the U.S., where the Food and Drug Administration has expedited its approval rate for generics, paving the way for increased competition. A rising number of retail pharmacies in the U.S. are joining hands to gain leverage in buying generic drugs in bulk, pushing prices down further.

Last week, Lupin, India's second-largest drug maker, reported a 42% drop in second-quarter profit as sales in North America dropped amid an increase in overall manufacturing costs. Still, the company forecast better performance in the second half of the year on price stability in the U.S. and expansion in certain specialty drugs.

Larger rival Dr. Reddy's reported a better-than-expected quarterly profit last month, aided by increased sales in emerging markets that offset the declining revenue in North America.

Meanwhile, Cipla, which received a string of observations from the U.S. FDA in March regarding the manufacturing practices at its plant in Goa in western India, is inching closer to getting a clean chit.

Inspection at the Goa facility has concluded with "minor procedural" observations, Cipla said. The plant accounts for a quarter of the drug maker's sales in the U.S.

--Dhanya Ann Thoppil

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