July-September Earnings: Sun Pharma has edge, but Cipla holds promise

The July-September quarter performances of drug majors Sun Pharma and Cipla are a study in contrast. Sun Pharma’s 58% increase in consolidated revenues, compared with the year-ago period, is four times that of Cipla. Its EBITDA (earnings before interest, tax, depreciation and amortisation) margin of 44% is double that of Cipla.

Sun Pharma’s exceptional performance was facilitated by strong showing in the US as well as the domestic market. The company’s US business, which grew 74% and contributed more than 60% to its total revenues, got a boost due to exclusivity sales of generic Prandin and rupee depreciation. In the domestic market, where the company commands market leadership in six therapies, grew 17% — much higher than the low single digit growth posted by the industry during the quarter. The best performer in the domestic market during the quarter, the company shrugged off the slowdown caused by trade-related challenges thrown up by the new drug pricing policy.

In contrast, Cipla has posted a modest growth of 13%, aided by 11% growth in its domestic business and 15% increase in its international business. The company is in a transition phase as it is investing in building its research and development pipeline in the developed markets of the US and Europe. It is also steadily moving away from a partnership-based model of supplying drugs to building its own marketing front-ends in these markets. To achieve this, the company is ready to sacrifice a few percentage points of current growth to achieve strategic growth in the future.