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Cipla (CIPLA)
Pharmaceuticals
Yet another disappointing quarter. PAT at Rs2.3 bn was 24% lower than our est.
due to poor margin which slipped 450 bps qoq to 18%, on account of (1) Indore SEZrelated
staff expenses and (2) poor growth in India at 11%. We lower our FY2011-12E
est. by 7-3% to Rs12/16. Cipla trades at 20X FY2012E est. despite offering (1) relatively
inferior growth prospects and (2) India finished dosage (50% of revenues) growing at
below-market rate since FY2010. Maintain REDUCE with a price target of Rs300.
Revenues at Rs15 bn, 3% lower than our estimate
Sales up 12% yoy was 3% lower than our estimate with (1) India finished dosage sales growing
11% vs our estimate of 14% post a strong 20% growth reported in 2QFY11. The branded India
business grew at 15-16% during the quarter and (2) exports at US$175 mn vs our est. of US$180
mn, down qoq from US$180 mn.
PAT at Rs2.3 bn was 24% lower than our est.
While sales were largely in line with our est., gross margin at 54% was flat yoy and qoq, in line
with our estimate. However, EBITDA was 27% lower than our est. due to EBITDA margin at 18%,
down 450 bps qoq on account of higher overheads at the newly commissioned Indore SEZ. The
facility is yet to contribute meaningfully to topline while all running expenses are being incurred
(Rs250-300mn/qtr).
We lower our FY2011-12E est. by 7-3%, factor in recovery in India/export business post muted
growth of 12/14% in 9MFY11
We lower our FY2011-12E est. by 7-3% to Rs12 and Rs16. We factor in recovery in India and
exports with (1) 14% sales growth in India in FY2012E vs 12% in 9MFY11 and (2) 20% growth in
exports in US$ terms vs 17% reported in 9MFY11. We believe (1) optimal utilization of Indore is at
least 18 months away post regulatory approval for regulated markets. However, even post
approval, we are not very clear on Cipla’s strategy on ANDA commercialization in US. While Cipla
has 64 ANDAs approved, we believe ANDAs commercialized is much lower, and (2) boost from
inhaler exports is likely post approval for combination inhalers which is still some time away.
Valuations remain rich, maintain REDUCE with PT at Rs300
Cipla trades at 20X FY2012E est. despite offering (1) relatively inferior growth prospects and (2)
India finished dosage (50% of revenues) growing at below-market rate since FY2010. A pick-up in
the growth trajectory is incumbent on (1) ramping up of the Indore SEZ facility, (2) launch of
combinations inhalers and (3) rapid utilization of its SEZ likely post a potential supply deal with a
big pharma. Given the lack of visibility on these drivers, we reiterate REDUCE with PT of Rs300.
Key takeaways from conference call
As of December 2010, outstanding forward contract amounted to US$190 mn, down
from US$260 mn as of June 2010 and US$200 mn as of March 2010. CIPLA covers all
outstanding debtors and continues to hedge net exports on a month-to-month basis.
Cipla’s Indore SEZ has received approval from MHRA, WHO, TGA in 2QFY11 and
revenues will kick in meaningfully from 4QFY11E. However, full optimization is likely post
approval from regulated markets which Cipla thinks will take a year. Cipla expects
revenues of Rs5 bn in year 1 post commercialization.
Cipla expects technology fees to go down yoy as it expects the existing partnerships to
start contributing operationally to topline. Cipla currently has 22 partners in US and 750
in EU with no new partnerships signed in 9MFY11.
Cipla is open to new partnerships, especially for marketing of niche products such as
inhalers.
While exports of Seroflo to South Africa have contributed to exports in 3QFY11, exports
of the same product to Russia will start in subsequent quarters. Cipla expects to be the
only generic for this inhaler in these markets.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cipla (CIPLA)
Pharmaceuticals
Yet another disappointing quarter. PAT at Rs2.3 bn was 24% lower than our est.
due to poor margin which slipped 450 bps qoq to 18%, on account of (1) Indore SEZrelated
staff expenses and (2) poor growth in India at 11%. We lower our FY2011-12E
est. by 7-3% to Rs12/16. Cipla trades at 20X FY2012E est. despite offering (1) relatively
inferior growth prospects and (2) India finished dosage (50% of revenues) growing at
below-market rate since FY2010. Maintain REDUCE with a price target of Rs300.
Revenues at Rs15 bn, 3% lower than our estimate
Sales up 12% yoy was 3% lower than our estimate with (1) India finished dosage sales growing
11% vs our estimate of 14% post a strong 20% growth reported in 2QFY11. The branded India
business grew at 15-16% during the quarter and (2) exports at US$175 mn vs our est. of US$180
mn, down qoq from US$180 mn.
PAT at Rs2.3 bn was 24% lower than our est.
While sales were largely in line with our est., gross margin at 54% was flat yoy and qoq, in line
with our estimate. However, EBITDA was 27% lower than our est. due to EBITDA margin at 18%,
down 450 bps qoq on account of higher overheads at the newly commissioned Indore SEZ. The
facility is yet to contribute meaningfully to topline while all running expenses are being incurred
(Rs250-300mn/qtr).
We lower our FY2011-12E est. by 7-3%, factor in recovery in India/export business post muted
growth of 12/14% in 9MFY11
We lower our FY2011-12E est. by 7-3% to Rs12 and Rs16. We factor in recovery in India and
exports with (1) 14% sales growth in India in FY2012E vs 12% in 9MFY11 and (2) 20% growth in
exports in US$ terms vs 17% reported in 9MFY11. We believe (1) optimal utilization of Indore is at
least 18 months away post regulatory approval for regulated markets. However, even post
approval, we are not very clear on Cipla’s strategy on ANDA commercialization in US. While Cipla
has 64 ANDAs approved, we believe ANDAs commercialized is much lower, and (2) boost from
inhaler exports is likely post approval for combination inhalers which is still some time away.
Valuations remain rich, maintain REDUCE with PT at Rs300
Cipla trades at 20X FY2012E est. despite offering (1) relatively inferior growth prospects and (2)
India finished dosage (50% of revenues) growing at below-market rate since FY2010. A pick-up in
the growth trajectory is incumbent on (1) ramping up of the Indore SEZ facility, (2) launch of
combinations inhalers and (3) rapid utilization of its SEZ likely post a potential supply deal with a
big pharma. Given the lack of visibility on these drivers, we reiterate REDUCE with PT of Rs300.
Key takeaways from conference call
As of December 2010, outstanding forward contract amounted to US$190 mn, down
from US$260 mn as of June 2010 and US$200 mn as of March 2010. CIPLA covers all
outstanding debtors and continues to hedge net exports on a month-to-month basis.
Cipla’s Indore SEZ has received approval from MHRA, WHO, TGA in 2QFY11 and
revenues will kick in meaningfully from 4QFY11E. However, full optimization is likely post
approval from regulated markets which Cipla thinks will take a year. Cipla expects
revenues of Rs5 bn in year 1 post commercialization.
Cipla expects technology fees to go down yoy as it expects the existing partnerships to
start contributing operationally to topline. Cipla currently has 22 partners in US and 750
in EU with no new partnerships signed in 9MFY11.
Cipla is open to new partnerships, especially for marketing of niche products such as
inhalers.
While exports of Seroflo to South Africa have contributed to exports in 3QFY11, exports
of the same product to Russia will start in subsequent quarters. Cipla expects to be the
only generic for this inhaler in these markets.
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