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Cipla Limited (CIPL.BO / CIPLA IN) High quality but opaque
■
Emerging market success limited by the partnership model: Cipla does
not believe in owning the front-end for exports and instead forms
partnerships with local firms, focusing on manufacturing and R&D. Thus
profitability of its emerging markets business may remain muted. It is the
supplier to Cipla-Medpro in South Africa and has excelled here, it has
recently tied up with Dr. Reddy’s to supply OTC products.
■
Market leadership in anti-retrovirals (ARVs) hurting: The company is a
pioneer and a global leader in generic ARVs (anti-HIV medicines). This
segment, however, has seen a significant decline in profitability in the past
two years, with competition growing (Aurobindo, Matrix and Hetero) and the
customer base consolidating. The recent South African tender has seen
pricing decline of ~53%.
■
Strong franchise in India: Cipla is the market leader in Indian formulations,
with more than 5% market share, but growth has been slow. The product mix
lends stability to its revenues, with chronic share being a high 43% versus
30% for the market. Cipla is said to be expanding its reach in India by
contracting out the detailing and distribution to partners.
■
Inhalers a meaningful but medium-term opportunity: Cipla is one of the
world’s few generic suppliers of inhalers, with filings in Europe and is
preparing for US filings. One to two non-combination inhalers may be
approved in Europe soon, but it would take 18 months for approvals for
combination inhalers. Inhalers comprise 25% of Indian branded formulation
sales and 17% of overall sales. Cipla says in two years after the launches
they can rise to 25% of sales, suggesting 4% sales growth just from inhalers.
■
Valuation: We like Cipla’s long-term focus and execution track record, but
rate it a NEUTRAL on near-term earnings. Inhaler launches should help
margins, though they will likely remain capped until substantial volumes from
the Indore SEZ begin (one to two years’ away). Our target price is Rs290
(19.2x FY12 EPS).
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Cipla Limited (CIPL.BO / CIPLA IN) High quality but opaque
■
Emerging market success limited by the partnership model: Cipla does
not believe in owning the front-end for exports and instead forms
partnerships with local firms, focusing on manufacturing and R&D. Thus
profitability of its emerging markets business may remain muted. It is the
supplier to Cipla-Medpro in South Africa and has excelled here, it has
recently tied up with Dr. Reddy’s to supply OTC products.
■
Market leadership in anti-retrovirals (ARVs) hurting: The company is a
pioneer and a global leader in generic ARVs (anti-HIV medicines). This
segment, however, has seen a significant decline in profitability in the past
two years, with competition growing (Aurobindo, Matrix and Hetero) and the
customer base consolidating. The recent South African tender has seen
pricing decline of ~53%.
■
Strong franchise in India: Cipla is the market leader in Indian formulations,
with more than 5% market share, but growth has been slow. The product mix
lends stability to its revenues, with chronic share being a high 43% versus
30% for the market. Cipla is said to be expanding its reach in India by
contracting out the detailing and distribution to partners.
■
Inhalers a meaningful but medium-term opportunity: Cipla is one of the
world’s few generic suppliers of inhalers, with filings in Europe and is
preparing for US filings. One to two non-combination inhalers may be
approved in Europe soon, but it would take 18 months for approvals for
combination inhalers. Inhalers comprise 25% of Indian branded formulation
sales and 17% of overall sales. Cipla says in two years after the launches
they can rise to 25% of sales, suggesting 4% sales growth just from inhalers.
■
Valuation: We like Cipla’s long-term focus and execution track record, but
rate it a NEUTRAL on near-term earnings. Inhaler launches should help
margins, though they will likely remain capped until substantial volumes from
the Indore SEZ begin (one to two years’ away). Our target price is Rs290
(19.2x FY12 EPS).
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