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Cipla Ltd>
  • CMP : 956.3 Chg : 4.90 (0.52%)
  • Target : 1,290.0 (24.04%)
  • Target Period : 12-18 Month

27 Jan 2023

US launches drive growth; India ex-Covid growth solid

About The Stock

Cipla is a global pharma company with over 1,500+ products in 65 therapeutic categories, with over 50 dosage forms.

  • Indian branded formulations business accounts for ~45% of revenues and enjoys leadership in therapies like respiratory, anti-infective, cardiac, gynaecology & gastro-intestinal
  • Cipla derives 20% of its export revenues from the US followed by 12% from South Africa, 18% from RoW markets and 3% from APIs

Cipla reported a mixed set of numbers set of numbers wherein US sales and EBITDA margins were above I-direct estimates but missed on India front due to Covid base adjustment.

  • Revenues grew 6% YoY to ₹ 5810 crore (ex-Covid 11%)
  • EBITDA margins increased 176 bps YoY to 24.2%
  • Adjusted PAT increased 10% YoY to ₹ 801 crore
What should Investors do?

Cipla’s share price has grown at a CAGR of 30.6% over the past three years.

  • We maintain BUY due to 1) continued focus on its core strength of respiratory franchise along with other niche launches in the US (significant momentum expected from H2FY23), 2) calibrated focus on core therapies in India and 3) shift to private markets from tenderised models in other export markets
Target Price and Valuation

Valued at 1290 i.e. 24x P/E on FY25E EPS of ₹ 52.5 + ₹ 30 NPV for gRevlimid.

Key Triggers for future price performance
  • US: Significant momentum from H2FY23 onwards in the US on the back of possible approvals/launches of gAdvair, gAbraxane and other complex generics launches including peptides, traction from existing respiratory portfolio and Lanreotide
  • One-India: Branded prescription portfolio therapy mix reflects strong fundamentals across chronic and acute segments. Better execution, distribution synergies to drive prescription, trade generics, consumer health
  • Exports: Across the board transformation from tenderised model to private model in exports market and more focus towards DTM and new frontier markets for organic growth in Europe and Emerging markets
Alternate Stock Idea

Apart from Cipla, in healthcare coverage we like Sun Pharma.

  • Higher contribution from specialty and strong domestic franchise is likely to change the product mix towards more remunerative business
  • BUY with a target price of ₹ 1225

Key Financial Summary

Particulars FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E FY25E 2 Year CAGR (FY23E-FY25E)
Revenues 17,132.0 19,159.6 21,763.3 8.3 22,903.4 25,459.2 28,096.4 10.8
EBITDA 3,206.0 4,252.4 4,552.8 13.0 5,177.7 5,852.6 6,669.1 13.5
EBITDA margins (%) 18.7 22.2 20.9 - 22.6 23.0 23.7 -
Adjusted PAT 1,546.5 2,404.9 2,650.2 21.4 3,081.5 3,664.5 4,229.6 17.2
Adj. EPS (|) 19.2 29.9 32.9 - 38.3 45.5 52.5 -
PE (x) 54.1 34.8 33.3 - 27.2 22.8 19.8 -
EV to EBITDA (x) 26.3 19.2 17.6 - 15.2 13.0 10.9 -
RoNW (%) 9.8 13.1 12.7 - 13.3 14.1 14.5 -
RoCE (%) 12.0 16.3 16.7 - 18.4 19.1 19.8 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q3FY23 Results: Miss on topline but upbeat on margins front

  • Revenues grew 6% YoY to | 5810 crore driven mainly by the US. The business grew ~42% YoY to | 1600 crore. Growth was driven by the launch of gRevlimid and continued market share expansion in Lanreotide 505(b)2. India business witnessed YoY growth of just 1.8% to | 2563 crore. However, after adjusting Covid base, growth was at 11% driven by sustained momentum across respiratory, cardiac, anti-diabetic in core portfolio. South Africa de-grew 11.7% YoY at |550 crore. RoW markets witnessed de-growth of 11.5% YoY at | 892 crore. APIs witnessed YoY de-growth of 2% to | 147 crore. Gross margins driven by contribution from new launches and overall mix change. Our EBITDA margins increased 176 bps YoY to 24.2%. The margins subsume the impact of lower than anticipated SAGA performance, a higher inflationary market and a higher R&D outlay. Adjusted PAT increased 9.9% YoY to | 801 crore. There was one-time charge of reversal of deferred tax asset
  • Cipla numbers missed our expectations on the revenue front but were upbeat on margin front. India business continued its strong performance on the back of strong growth across all therapies but missed our expectations. US business performed well driven by solid execution on differentiated portfolio in the US including the launch of gRevlimid. South Africa private market recovery is on track and has grown in double digits. We remain positive on the growth story specially relying on the new complex launches in the US and continuing momentum in domestic branded formulations


Q3FY23 Earnings Conference Call highlights:

Continued performance across core businesses:

  • Q3FY23 witnessed expansion in the profitability despite increase in R&D investments
  • The quarterly performance reflected sustained momentum in its branded markets and contribution from its differentiated launches in the US


Geographical mix:


  • One-India franchise grew in healthy double digits on an ex-Covid basis. It grew 14% YoY in rupee terms over the last year, after adjusting for the acquisition made in Q2FY23
  • Focus remains on the chronic category
  • Its growth in respiratory, cardiac and anti-diabetic therapies outperformed the market and the overall chronic share has expanded by 240 basis points YoY and accounts for 60% of mix for the quarter



  • US core formulation sales were supported by demonstrating an increasing share in our respiratory, peptides and differentiated launches like Lenalidomide
  • It is working closely with the USFDA on the approval for Advair files
  • Its peptide franchise continues to be on track with Lanreotide steadily gaining market share to 14.1% as of November 2022 end
  • It has also launched Leuprolide Depot during the quarter, which would further expand its peptide franchise


  • The South African private business is recovering from a reconfiguration of supply and an evolving business mix between private and tender
  • Global consumer franchise including South Africa was at close to 9% of overall Cipla’s revenue for the quarter

Operational metrics:

  • The procurement cost remained escalated during the quarter, which was offset by freight cost, which had improved sequentially, responding to lower rates and improving logistics mix
  • The management has guided that coming quarter margins would be moderate due to seasonality
  • It incurred ~| 363 crore of R&D during the quarter, which we expect to inch up gradually, going ahead
  • Its R&D investments were driven by ongoing clinical trials on a respiratory asset as well as other developmental efforts including contribution to biosimilar JV. Such expenses were also followed-up with judicious promotional and growth-linked investments

Growth Drivers:

  • Cipla has high strong launch momentum in the coming years. This includes continued investments in developing a robust pipeline across the categories of respiratory, peptide, complex generics and biosimilars
  • Its growth levers in the subsequent quarter from India will be across all three categories of prescription, trade generics and consumer health

Other highlights:

  • The company invested in a critical partnership this quarter to support development in various therapies
  • It also partnered with Ethris GmbH for the development of mRNA based therapies. This would fast track the company’s participation in cutting-edge healthcare solutions to patients



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