Cipla’s performance in the June 2007 quarter was adversely impacted by a rising rupee, coupled with an increase in operational cost structure.

As a result, the company’s operating profit declined 30 per cent y-o-y to Rs 160.7 crore in the first quarter of FY08, while its income from operations expanded 4.8 per cent to Rs 901.8 crore. Its operating profit margin also declined 880 basis points y-o-y to 17.8 per cent in the last quarter.

Pressure on Cipla’s margins was partly due to rising costs - for instance, other expenditure as a percentage of income from operations rose 270 basis points y-o-y to 25.2 per cent in the first quarter of FY08.

Higher other expenditure is attributed to rising manufacturing expenses, repairs and maintenance and travel expenditure on a y-o-y basis in the previous quarter.

Meanwhile, the company’s total exports grew merely 2.1 per cent y-o-y to Rs 401.9 crore in the last quarter - which was attributed to the rising rupee, coupled with sluggish growth in high-margin formulation exports.

In the domestic market, the company’s sales grew 6.9 per cent and the company pointed out that it was because of lower stocking of certain older brands in the marketing chain. In contrast, Ranbaxy had expanded its domestic sales by 19 per cent y-o-y in the last quarter.

Going forward, Cipla’s low margin exports of anti-HIV medications coupled with a rising rupee could continue to put pressure on its operating margins. As a result, with the stock trading at nearly 20 times estimated FY08 earnings, it is expensive.