Institutional investors at Uganda Securities Exchange have adopted a wait-and-see approach towards Cipla Quality Chemicals given a sharp decline in both share price and profit after tax.
Cipla’s share price - which produces anti-retroviral, anti-malaria and Hepatitis B drugs - has dropped by 49 per cent since it started trading in September last year.
It has fallen from the initial public offering (IPO) price of Shs256.5 per share to Shs130 at the end of July, worsened by low trading and limited earnings.
Besides this, the company reported weak full year results in March with profit after tax falling by 84.8 per cent to Shs6.79b for the year ended March 2019.
Total sales declined to Shs195.1b from Shs227.3b as at the end of March 2018 due to a drastic decline in orders by Global Fund.
Total cost of sales dropped to Shs125.5b by close of March from Shs130.9b as at the end of March 2018, while total administration expenses rose to Shs23.6b from Shs17b during the period.
Total assets rose to Shs287.6b in the period from Shs209.2b in March 2018 and the company did not issue dividends, citing high capitalisation needs.
However, amid declining numbers, the company remains optimistic, announcing in its annual report that opening of new markets such Zambia will offer a turnaround.
The company also noted that some investments including a Shs12b pallet storage facility, distribution centre, warehouse and expansion of the production line to 130 million tablets per month from 80 million, which had eaten into its profits are expected to make better returns.
The company previously secured regulatory approvals for drug exports to Kenya, Tanzania, Rwanda, South Sudan, Zimbabwe, Malawi, Mozambique, Botswana, Namibia, Ivory Coast, Sierra Leone, Ghana and Angola, but the annual report does not indicate returns or orders from such markets.
While total drug sales in Zambian have exceeded $10m to date, the company delivered drugs worth $400,000 to Tanzania last month. Regulatory approval was also obtained from the Ethiopia for ARVs supplies this year, according to Mr Nevin Bradford, Cipla’s chief executive officer.
Around 100 million doses meant for HIV/Aids and malaria treatment were delivered to the Sierra Leone in July. But a wide gap seemingly persists between the sharp decline in Global Fund drug orders and the value of new procurement deals.
Cipla data shows the value of Global Fund drug orders fell from 44 per cent in 2017/18 to just 4 per cent in 2018/19.
Questions have similarly emerged over Cipla’s pending acquisition of after it expanded its production capacity last year.
Whereas many retail investors have exited the company’s USE counter since the beginning of the year out of despair, institutional investors have opted a wait-and-see attitude for lack of strong commercial guidance and little experience in handling corporate finance transactions in the pharmaceutical industry.
Institutional investors currently hold 90 per cent of Cipla’s shares, which if they decided to exit, would deal a blow to its share price.
An investment analyst at National Social Security Fund, who requested anonymity, wonders how retail investors hope to benefit from their shares in the short-term.
“I do not understand retail investors in this market. Why get into the market if you are not ready to take up the risk? I suspect most retail investors selling their Cipla shares are acting on misinformation,” the analyst said, adding that at least three years should elapse before making a decision on investment in a stock.
NSSF is the largest institutional investor in Cipla, with a 7.38 per cent shareholding.
Mr Aeko Ongodia, chief executive of Xeno, a fund manager that specialises in unit trust products, said investors must take a cautious approach towards Cipla.
“How much new business is the company getting? Changes in earning cycles take about five years to entrench themselves and if this is the case, then we need to examine the issue before we arrive at any conclusion regarding Cipla,” he said, adding Xeno invested Shs20m in Cipla’s IPO and currently manages assets valued at more than Shs1b.
Mr Andrew Muhimbise, a retail investor said the company is faced with a double edged sword but noted if it secures some big drug supply tenders this year, its share price will certainly go up.
“In case it fails, the share price will drop further. Cipla fair market valuation is closer to Shs100 per share compared with the IPO price of Shs256.5 per share,” he said.