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  • CMP : 1,498.9 Chg : 2.0 (0.13%)
  • Target : 1,090.0 (16.58%)
  • Target Period : 12-18 Month
Result Update

13 May 2023

US drives growth, outlook for key geographies upbeat

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 major therapies include respiratory, anti-infectives, gastro-intestinal among others

• Cipla derives 26% of its export revenues from the US followed by 10% from South Africa, 17% from RoW markets and 2% from APIs

Q4FY23

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

• Revenue grew 9.1% YoY to ₹ 5,739 crore

• EBITDA margins increased 620 bps YoY to 20.5%

• Adjusted PAT increased 59.3% YoY to ~₹ 654 crore

What should Investors do?

Cipla’s share price has grown at 17.26% CAGR in the past three years.

•We maintain BUY rating due to 1) continued focus on its core strength of respiratory franchise along with other niche launches in the US (significant momentum expected from H2FY24), 2) calibrated focus on core therapies in India, 3) shift to private markets from tenderised models in other export markets

Target Price and Valuation

Valued at 1090 i.e. 22x P/E on FY25E EPS of ₹ 48.2 + ₹ 30 NPV for gRevlimid.

Key Triggers for future price performance

US: Significant momentum 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. Pithampur USFDA status outcome

• 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 especially from tier II-VI cities

• 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

Particulars

Particulars (₹ crore) Amount
Market Capitalization 121,076.0
Debt (FY23) 520.0
Cash (FY23) 628.0
EV 75,347.0
52 week H/L (₹) 1,673.0/1,335.0
Equity Capital 161.5
Face Value (₹) 2.0

Price Chart

Recent Events & Key Risks

Acquisition of Endura Mass in domestic consumer business

• Key Risk: (i) Regulatory hurdles (ii) Increased competition

Research Analyst

Kushal Shah

Siddhant Khandekar
siddhant.khandekar@icicisecurities.com

Utkarsh Jain

Result Update
ICICI Securities – Retail Equity Research

Key Financial Summary

Particulars FY20 FY21 FY22 3 year CAGR_(FY19-22) FY23 FY24E FY25E 2 year CAGR_(FY23-25E)
Revenues 17,132.0 19,159.6 21,763.3 8.3 22,753.0 25,229.3 27,846.0 10.6
EBITDA 3,206.0 4,252.4 4,552.8 13.0 5,026.9 5,549.8 6,278.6 11.8
EBITDA margins (%) 18.7 22.2 20.9 - 22.1 22.0 22.5 -
Adjusted PAT 1,546.5 2,404.9 2,650.2 21.4 2,929.9 3,438.1 3,883.5 15.1
Adj. EPS (|) 19.2 29.9 32.9 - 36.4 42.7 48.2 -
PE (x) 48.7 31.3 29.9 - 26.9 21.9 19.4 -
EV to EBITDA (x) 23.7 17.2 15.8 - 14.3 12.7 10.7 -
RoNW (%) 9.8 13.1 12.7 - 12.5 13.2 13.4 -
RoCE (%) 12.0 16.3 16.7 - 17.4 17.8 18.2 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY23 Results: Mixed set of numbers; revenues in line but EBITDA margins miss

• Revenues grew 9.1% YoY (ex-Covid 14% YoY) to | 5,739 crore driven mainly by US business, which grew ~39% YoY to | 1675 crore. Such growth was backed by expansion in share of differentiated and complex products. India business saw YoY growth of just 3.5% to | 2259 crore. However, after adjusting for Covid base, growth was at 16% driven by sustained momentum across gastro intestinal, respiratory, cardiac and antidiabetic in core portfolio. South Africa de-grew 6.8% YoY at | 619 crore. APIs saw YoY de-growth of 2.2% to | 134 crore. Gross margins increased 486 bps over the previous year to 64%. EBITDA margins increased 620 bps YoY to 20.5%. Adjusted PAT was up 59.3% YoY to | ~654 crore

Adjusted for Covid base (we did not consider this in our assumption), India business continued its strong performance on the back of strong growth across all therapies. The US business performed well driven by solid execution on differentiated portfolio in the US including strong market share ramp-up with Lanreotide. Strong demand continues with overall South Africa private business growing faster than the market. We remain positive on the growth story specially relying on the new complex launches in US and continuing momentum in domestic branded formulations

 

Q4FY23 Earnings Conference Call highlights:

India:

• One-India franchise grew 16% YoY on an ex-Covid basis • Focus remains on the chronic category, which expanded 300 bps and accounts for 59% of the business • Its growth in gastro intestinal (+15.6% YoY), respiratory (+11.2% YoY), cardiac (+9.7%) and anti-diabetic (+9% YoY) therapies outperformed the marke

 

US:

• Lanreotide demonstrated strong market share ramp-up in FY23. Its present market share is at +17% • For gAdvair, the management expects status disclosure by the USFDA by May end. The company has already made alternate arrangement outside India in case of adverse outcome. This may push the launch by 12 months • Its three differentiated products are undergoing clinical trials. The filings are targeted in FY24 • Filings on complex generics, including peptide injectables, remain on track

 

SAGA:

• South Africa private business is growing faster than the market, which dictates strong demand from the region • The company has achieved higher market share in South Africa during the period. Its key therapy area remains asthma, anti-biotics, cough & cold and probiotics. Launched 32 brands across South Africa • European markets are picking up according to the management

 

Other highlights:

• The company invested €15 million in Ethris GmbH for the development of mRNA6-based therapies • It intends to add field force of 1000+ between FY23 and FY24. Current MR strength remains at 7000 • The management has guided for its focus on Tier 2-6, which should help it penetrate deeper and increase retail presence • It plans to expand into new category of weight supplement in the near future • R&D expense to remain at 6.5% of overall sales • Remediation efforts are going on for its Goa facility • Albuterol market is constantly growing as per the management 

Q4FY23 Results: Mixed set of numbers; revenues in line but EBITDA margins miss • Revenues grew 9.1% YoY (ex-Covid 14% YoY) to | 5,739 crore driven mainly by US business, which grew ~39% YoY to | 1675 crore. Such growth was backed by expansion in share of differentiated and complex products. India business saw YoY growth of just 3.5% to | 2259 crore. However, after adjusting for Covid base, growth was at 16% driven by sustained momentum across gastro intestinal, respiratory, cardiac and antidiabetic in core portfolio. South Africa de-grew 6.8% YoY at | 619 crore. APIs saw YoY de-growth of 2.2% to | 134 crore. Gross margins increased 486 bps over the previous year to 64%. EBITDA margins increased 620 bps YoY to 20.5%. Adjusted PAT was up 59.3% YoY to | ~654 crore. • Adjusted for Covid base (we did not consider this in our assumption), India business continued its strong performance on the back of strong growth across all therapies. The US business performed well driven by solid execution on differentiated portfolio in the US including strong market share ramp-up with Lanreotide. Strong demand continues with overall South Africa private business growing faster than the market. We remain positive on the growth story specially relying on the new complex launches in US and continuing momentum in domestic branded formulations. Q4FY23 Earnings Conference Call highlights: India: • One-India franchise grew 16% YoY on an ex-Covid basis • Focus remains on the chronic category, which expanded 300 bps and accounts for 59% of the business • Its growth in gastro intestinal (+15.6% YoY), respiratory (+11.2% YoY), cardiac (+9.7%) and anti-diabetic (+9% YoY) therapies outperformed the market US: • Lanreotide demonstrated strong market share ramp-up in FY23. Its present market share is at +17% • For gAdvair, the management expects status disclosure by the USFDA by May end. The company has already made alternate arrangement outside India in case of adverse outcome. This may push the launch by 12 months • Its three differentiated products are undergoing clinical trials. The filings are targeted in FY24 • Filings on complex generics, including peptide injectables, remain on track SAGA: • South Africa private business is growing faster than the market, which dictates strong demand from the region • The company has achieved higher market share in South Africa during the period. Its key therapy area remains asthma, anti-biotics, cough & cold and probiotics. Launched 32 brands across South Africa • European markets are picking up according to the management Other highlights: • The company invested €15 million in Ethris GmbH for the development of mRNA6-based therapies • It intends to add field force of 1000+ between FY23 and FY24. Current MR strength remains at 7000 • The management has guided for its focus on Tier 2-6, which should help it penetrate deeper and increase retail presence • It plans to expand into new category of weight supplement in the near future • R&D expense to remain at 6.5% of overall sales • Remediation efforts are going on for its Goa facility • Albuterol market is constantly growing as per the managemen

Disclaimer

RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15% 

Pankaj Pandey

Head – Research

pankaj.pandey@icicisecurities.com

 

 

ICICI Direct Research Desk,

ICICI Securities Limited,

Third Floor, Brillanto House,

Road No 13, MIDC,

Andheri (East)

Mumbai – 400 093

 

 

research@icicidirect.com

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