Pharma major Cipla has said its proportion of low-margin tender business through government bids to the export sales may increase from less than 10% at present, but expects it will not have any adverse impact on its margins.
Rajesh Garg, global chief financial officer, Cipla, said during the earnings call, "I think the good news is in some of the tenders we feel that the mix is sweeter than what it was in the other competitive product areas... so I think while the proportion may increase, hopefully it should not have a dent on our margins from the increase in the mix."
At present, Cipla's tender business is less than 10% of its export sales. However, the company has not guided on the quantum of growth it is expecting from the tender business of overseas supplies.
Tender business is where the government invites bids for supply of drugs.
The company had earlier announced in June this year that its South African subsidiary Cipla Medpro was awarded a contract worth 345 million rand share of South African government's national respiratory tender. However, the company has more recently won tenders in the CNS, cardiovascular, and women's health categories, said Garg.
"In South Africa, we have won tenders and the most recent one was actually not in areas where we traditionally win, the traditional areas being anti-retroviral (ARVs), respiratory, malaria. This time we have actually won a large tender from South Africa in the central nervous system (CNS), cardiovascular, and women's health categories," he said, adding that this is the third tender the company has won in a very quick succession clearly in areas where Cipla has traditionally not won any tenders in South Africa.
Garg also pointed out that the total value of the tender is likely to be 300 million rand over the next two years. "So that actually ended up being out of the total pool of 850 million rand that was announced, but in terms of those molecules that we wanted to bid for, we got pretty much the lion's share of that. We are constantly looking to improve our margins and compete in categories where we can do that and this one is the clear example of that," he added.
The company has also guided launches of 50 products in US (majority of these products fall in therapies such as anti-infectives, oncology injections and respiratory products) over next 2-3 years and combination inhalers in EU in the second half of 2014-15, said a report by HDFC Securities.
However, pharma analyst Ranjit Kapadia of Centrum Broking, expects the recent award of 300 million rand tender in South Africa will contribute to company's margin improvement.
Cipla has also made two acquisitions in Yemen and Sri Lanka recently. Garg said, "In Yemen, we actually have not only the front end, but also a factory which should be into production in the coming quarter; and in Sri Lanka, we have market leading position with 8% share."
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