Drug maker Cipla’s post-listing results cause jitters on Uganda stockmarket

Monday December 31 2018

Cipla Quality Chemical Industries Ltd launched its initial public offering in September, and has traded shares worth less than Ush150 million ($40,317) since then. PHOTO | COURTESY


Regional drug maker Cipla’s stock fell to a record low of Ush200 ($0.05) on the Uganda Securities Exchange on Christmas Eve, on the back of concerns by retail investors about the firm’s trading patterns, weak half-year results and uncertainty over its short-term business outlook.

Cipla Quality Chemical Industries Ltd’s share price has dropped below its initial public offering price of Ush256.5 ($0.069), from a high of Ush262 ($0.07) in September.

Trading volumes have been fairly low and retail investors fear there will be further declines in coming weeks.

Last month, the firm’s share price fell to Ush242 ($0.065) and to a further Ush230 ($0.062) in mid-December, according to the USE trading reports.

Many of the retail investors who participated in the IPO were reportedly new players in the market, and expected big gains in a short time.

Stockbrokers say the price decline has led to panic selling on the counter, with some retail investors eager to cut their losses while others wanted to raise cash for spending during the festive season.


“This counter has traded shares worth less than Ush150 million ($40,317) since the company was listed in September. Its IPO raised just Ush14 billion ($3.8 million) from local investors and attracted only 2,300 individuals most of whom are new to the stockmarket,” said a financial analyst at Crested Capital Ltd, the largest stockbroker in Uganda, by market share.

Around three per cent of retail investors serviced by Crested Capital Ltd participated in the Cipla IPO.

Poor marketing

Industry sources said that the majority stayed away mainly because of poor marketing strategies adopted by the pharmaceutical company and its transaction partners.

Cipla’s maiden half-year results have partly diminished investor appetite for the company’s shares.

Total sales revenues increased to Ush84.2 billion ($22.6 million) as at the close of September 2018, from Ush71.4 billion ($19.2 million) in September 2017, financial statements show. Total sales rose to Ush51.7 billion ($13.9 million), from Ush42.3 billion ($11.3 million).

The company’s gross profit grew to Ush32.6 billion ($8.8 million) from Ush29 billion ($7.8 million) during the period under review.

Profit before tax rose to Ush3.3 billion ($886,964) from Ush1.9 billion ($510,676). The firm’s total assets increased to Ush243.6 billion ($65.5 million) from Ush209.2 billion ($56.2 million).

In contrast, the company’s total revenues rose to $60.7 million in 2017, from $48.6 million in 2016, according to the investment analysis report issued prior to the IPO launch in September.

The firm’s profit after tax stood at $12.8 million in 2016, but dropped slightly to $12.1 million in 2017. The firm’s total revenue was projected to hit $70.2 million by the end of March 2019.

“The modest profits recorded in the first half of 2018/19 may have been driven by fluctuations in the government’s budget cycle,” said the analyst at Crested Capital Ltd.

“The company’s first half performance covers the period from July-September, which is characterised by low government spending. Subsequent quarters tend to experience higher government spending and this could boost the company’s revenue by the end of March 2019.”

Comments from company officials were not available by press time. However, notes accompanying the drug maker’s latest financial statement offer clues to the business performance.

“Company revenue showed double digit growth of 18.1 per cent, largely attributable to the new regional offtake agreement with Zambia, which contributed to Ush27.4 billion of H1 revenue.

This incremental business offset the impact of the significant reduction in sales funded by the Global Fund due to an overall reduction in donor funded malaria treatment purchases, this declining trend is likely to continue and will not reach the heights experienced in H2 2017/18…” reads the financial statement.

Business outlook

According to the statement, the low trading volume of Ush150 million ($40,311) is largely driven by the presence of a few, active retail investors on the counter while most of the institutional players are quietly holding onto their shares.

“Retail investors need some reassurance that they will not lose everything if they do not sell now,,” said the general manager at UAP-Old Mutual Financial Services Uganda Ltd, Simon Mwebaze.

The drug maker’s business outlook appears uncertain, with fund managers struggling to obtain growth forecasts for the company while there are few details on growth strategies offered by its executives.

George Mulindwa, general manager at GenAfrica Asset Managers Uganda, said that the limited information on the company’s performance makes it difficult to offer a credible outlook for the business.

Anti-malaria drugs contributed 60 per cent to the company’s total sales during the 2017/18 financial year, while antiretroviral drugs contributed 39.1 per cent to overall sales turnover.

Hepatitis B drugs contributed just 0.9 per cent to total product sales during the period under review, according to company data.