Cipla Rating ‘Buy’; A robust performance by company


PAT at Rs 7.5 bn grew 113% y-o-y (+12.4% q-o-q).PAT at Rs 7.5 bn grew 113% y-o-y (+12.4% q-o-q).

Revenues of Rs 51.7 bn (+18.3% y-o-y; +2.6% q-o-q) were primarily driven by strong traction in India formulations, and gProventil sales in the US and other key markets. Ebitda margins (excl. one-off settlement income) at 23.8% (+647bps y-o-y, +46bps q-o-q) were aided by lower operating expenses. PAT at Rs 7.5 bn grew 113% y-o-y (+12.4% q-o-q).

US on a steady growth path: Q3 US sales at $141 m (+6% y-o-y, flat q-o-q) were mainly helped by a pick-up in gProventil (albuterol inhaler). Cipla has garnered ~12% prescription (TRx) share in the US albuterol inhaler market and while it has headroom to gain further share, its larger focus will be to maintain consistency of supplies in a highly complex supply chain.

In our view, it remains on track to add US sales of $300-500 m over the next 3-4 years (FY20 base of $547 m) on: (i) continued scale-up in respiratory sales (24% of US sales in 9MFY21); (ii) consistent new launches; and (iii) improving reach in institutional channels.

Upgrade to Buy (from Hold): We take a more constructive view of Cipla’s impressive execution of respiratory inhalers (mainly in the US), ‘One India’ strategy to realise synergies across the India portfolio, focus on cost efficiencies and prudent capital allocation strategy, and we upgrade our rating to Buy (from Hold). While there could be some consolidation in performance, we believe Cipla should sustain healthy earnings growth on: (i) operating leverage led improving profitability of US sales; (ii) potential upside to cost synergies on digital adoption and process efficiencies; (iii) strong outlook for India sales growth and potential upside from portfolio synergies under ‘One India’ initiative.

Key catalysts: (i) consistent market share gain for gProventil and other key US launches; and (ii) clinical and regulatory milestones for respiratory assets.

Raise target price to Rs 1,030 (from Rs 920): We lift our FY21-23e EPS estimates by 8-12% as we revise our sales assumptions and cost estimates per the current outlook (per Cipla, it is much ahead of its target of cost savings of Rs 4-5 bn for FY21). We value its base business by discounting the one-year forward fair value, which is based on 26x (Gordon growth-derived PE, earlier 25x) our Dec-2022e EPS of Rs 40.71 (earlier Rs 37.56). We add an NPV/share (unchanged) of Rs 25/7/25, respectively for the inhalers pipeline, tramadol IV and gRevlimid to the base business value to arrive at our fair value TP of Rs 1,030.


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