A six-month delayed share purchase cost Cipla Quality Chemical close to Shs20b, according to a disclosure published together with the company’s financial results. 

Cipla and Africa Capitalworks had planned to complete the share purchase in a Shs94.5b ($25m) deal by May 31, but mandatory approvals from Capital Markets Authority and Comesa delayed for months on, with the last one coming in at the end of October. 

The deal, which will see Cipla dispose of its 51.18 stake in Quality Chemical, was completed on November 14, according to a notice filed through Uganda Securities Exchange. 

However, the delay impacted contract manufacturing, which declined by 80 percent due to “uncertainty regarding the closing of the sale” even as the company registered significant revenue growth in most customer segments. 

“The gains in [other] customer segments were offset by a significant decline in contract manufacturing, which declined by Shs19.9b or 80 percent, owing to softening demand from Cipla Limited and uncertainty regarding the timing of the closing of the sale,” the financial statement, singed by Mr Ajay Kumar Pal, the Cipla chief executive officer and Emmanuel Katongole, the executive chairman, noted. 

Cipla, an India-based drug maker, acquired a majority stake in Quality Chemical in 2015 at a reported $26m (Shs98.3b), which had been revised from a tranche consideration of $30m over a five-year payment schedule.    

The drug maker, which runs different production lines including antiretrovirals and anti-malarials, among others, last week indicated the share holding structure of Quality Chemical would effectively change after disposing of its 51.18 percent stake to Mauritius-base equity fund Africa Capitalworks. 

Africa Capitalworks’ is now Quality Chemical’s largest shareholder ahead of Amistad and SCB Mauritius a/c Capitalworks SSA, which hold a stake of 11.51 percent and 11.15 percent, respectively. 

Other shareholders include, Government Employees Pension Fund (8.54 percent), National Social Security Fund (7.38 percent), Emmanuel Katongole (2.79 percent), Frederick Mutebi Kitaka (2.79 percent), George Willy Baguma (2.79 percent), Joseph Yiga (0.11 percent) and UAP Insurance – Life Fund (0.07 percent)  

In the six months ended September, Cipla reported an increase in revenue by 1 percent to Shs121.2b. 

The increase was largely due to higher drug orders from institutional bodies and sovereign customers, which rose to Shs5.7b and by Shs13.9b, respectively.

Private sector sales rose by Shs1.7b or 52 percent, but slow demand due to uncertainty on the transfer of shares offset the positive financial indicators. 

Africa Capitalworks returns to Quality Chemical having withdrawn from the business prior to September 2018 when the company floated an initial public offering.

During the period ended September, Cipla reported a 74.3 percent drop in profits to Shs3.6b from Shs13.9b due to a shift in the company’s product mix. Cipla also indicated it had fully recovered the debt due to Zambia with the last collection of Shs9.4b coming in in the period under review.  

Cipla had for many years provisioned for the debt, whose recovery had taken longer than planned. 

Africa Capitalworks plans, according to details submitted to the Comesa Competitions Commission, to shore up Quality Chemical’s profit position, which remains unstable. 

In its strategic plan Quality Chemical will in the next five years build a new oncology facility, automate its supply chain, and expand its product line with nine new drugs, including the recently introduced Flozicad, a diabetes drug.  

Completed. Cipla has already indicated that the share sale has been completed. Photo / File