Africa-Press – Uganda. Pharmaceutical company, Cipla Quality Chemicals has recovered from an almost two-year stock slump with share trading going up by 17.8 per cent, to an average of Shs112 per unit in the first three weeks of January, from Shs95 between July and August 2020.
Investment advisors attribute the rise to the drug maker’s remodelling of its business and planned discount of the Zambia debt.
Cipla is negotiating with the Pan-African Trade and Development Bank to buy the $12m Zambia debt.When concluded, the credit-to-cash deal will give Cipla immediate cash flow, and cushion the company’s profits and the shareholder’s net worth from further erosion.
“Negotiations are in early stages,” said Nevin Bradford, the Cipla chief executive officer, but declined to give more details.According to the International Monetary Fund, Zambia is struggling financially. On November 3, the country became the first African country to default on its international debt since the start of Covid-19.
The delay by the Zambian government to settle the outstanding Shs48b had forced Cipla to provision for an impairment of Shs32b on its income statement.However, the Shs112 share price is below its initial public offering price Shs256.5 in September 2018.
This means investors who bought shares shortly after the initial public offering have lost 56.3 per cent value of their capital.In the first six months to June 30, 2020, Cipla fully impaired the Shs42.9b Zambia debt, eating into the shareholders capital.
The company reported an additional impairment allowance of Shsh9.1b in the same period.Cipla is also tapping into new market opportunities within the EAC and the rest of Africa as well as exploring retail options as it seeks to improve of shareholders return on investment.
EAC and the rest of Africa has a combined pharmaceutical market of $4b, with most of it spent on essential medicines, particularly antibiotics, antimalarials, anthelmintics, disinfectants, analgesics and anti-retroviral medicines.
Potential for returns
According to Mr Francis Gajja, a researcher at Equity Brokerage, said pharma stocks have the potential to reap solid long-term returns that outperform the broader market. The returns, he says, are possible because pharmaceuticals develop products that people need – drugs – and continually invest in research and development to launch new drugs.
