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.
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