Maintain BUY on Cipla - Weak quarter, outlook promising - HDFC Securities

Mr. Bansi Desai, CFA, HDFC Securities and Mr. Karan Vora, Institutional Research Analyst, HDFC Securities

Cipla reported a weak Q4 due to muted growth across markets and impact of one-off expenses (~200bps impact on gross margin). Adjusting for one-offs, EBITDA margin comes to 19.3%, still below our expectation (vs. 22% margin for FY21). We expect margin to bounce back to 22%+ level, going forward, driven by better pricing and product mix, new launches in the US, ramp-up in COVID portfolio in India (Remdesivir, Roche's antibody cocktail, Tocilizumab), and recovery in India business (ex-COVID). The outlook for the US business remains good as respiratory pipeline (gAbraxane, gAdvair, gDulera) adds medium-term growth visibility. We factor in 16% earnings CAGR over FY21-23e and trim our estimates by 6%/3% in FY22/23 to factor in lower US sales assumption. Our revised TP stands at INR990/sh. Maintain BUY.

Weak quarter: Revenue at INR46bn (+5% YoY, -11% QoQ) was impacted by subdued performance in India (+4% YoY, -19% QoQ, seasonality), US (-2% QoQ, weak season, lack of new launches), CGA (-17% YoY) and APIs (-9% YoY). EBITDA margin declined substantially to 17.3% (+281bps YoY, - 653bps QoQ) due to impact of one-off expenses (~200bps), unfavorable product mix (weak respiratory sales), and negative operating leverage (lower topline).

US pipeline holds promise, timely launches key to drive growth: We forecast 7% sales CAGR over FY21-23e, driven by ramp-up in Albuterol (headroom to gain market share exists) and new launches such as gFosrenol and gAbraxane (FY22). Cipla expects FY23 to be a significant year in terms of launches (gAdvair, gRevlimid).

Key call takeaways: (a) gAdvair - responding to query (non clinic related), expect 24-30 month timeline for approval post filing (May 20); gFosrenol and gAbraxane - launch expected in FY22; gAlbuterol - 16.5% Gx share and 13.2% share (including brands); tie-up for five peptides products - one expected in FY22; (b) inhalation pipeline - partnered asset (completed clinical trials), other two assets - likely to enter clinic in FY22; (c) India - COVID portfolio contributed ~4-5% of sales (<3% in Q4), Trade Gx - less than 20% of India revenues; (d) EBITDA margin guidance - 22%+ for FY22.

Maintain BUY: We trim our estimates by 6%/3% for FY22/23e and revise TP to INR990/sh. Our TP is based on 23x FY23e EPS, NPV of INR30/sh for gAdvair and INR40/sh for gRevlimid. Risks: lower-than-expected growth in India, slower market share gains in Albuterol, delay in resolution of Goa warning letter, and higher price erosion in the US.

Shares of CIPLA LTD. was last trading in BSE at Rs.881.05 as compared to the previous close of Rs. 904.1. The total number of shares traded during the day was 708090 in over 25201 trades.

The stock hit an intraday high of Rs. 905 and intraday low of 870. The net turnover during the day was Rs. 624266840.

Source : Equity Bulls

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