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● Cipla’s 2011 Annual report proposes a resolution for appointment
of one more family member into the management team. This year
its for the niece of CMD following induction of his nephew last
year. These changes are important as Cipla’s multiple does carry
a premium related to take out possibility.
● Export growth was strong in FY11 at 16% but ex-Africa growth
was only 2%. Total proportion of sales from Africa increased to
23% vs. 18% in FY10 and this impacts margins as sales in Africa
have a lower margin.
● Receivable days reduced sharply by 18 days to three months but
export business still has five months of receivables. Further
reduction is possible given lower metric for several peers. Overall
WC is high at five months of sales due to higher inventory days.
● Cipla has not generated meaningful FCF in the last decade (Fig
3). As cash from operations increased, so did capex and resultant
FCF and dividend payout remained low. On capacity, inhalers and
injectables capacity increased by 50% in the year.
16% exports growth y/y reduces to 2% ex-Africa
The export growth was strong in FY11 at 16% but most of it came
through Africa (ex-Africa growth was only 2%). Total proportion of
sales from Africa has increased to 23% vs. 18% in FY10. We note that
Cipla started selling Seretide inhalers in South Africa in 2HFY11 but
the quantum is not disclosed. Sales in Africa have a lower margin and
this also contributed to the sequential decline in margins.
One more family member inducted into the management
After induction of Kamil Hamied (son of Mr M.K. Hamied) last year into
the management team, this year, a resolution proposes appointment
of Mrs Samina Vaziralli (daughter of Mr M.K. Hamied and niece of Dr
Y.K. Hamied, CMD) as a member of the management team. These
changes are important as Cipla’s multiple does carry a premium
related to the take out possibility.
Receivable days improved though more is possible
Receivable days reduced sharply by 18 days of sales to three months
but export business still has five months of receivables and a further
reduction is possible given lower metrics for several peers. Overall
WC is high at five months of sales due to higher inventory days.
Continued high capex => low FCF and low dividend
Its interesting to note that in the last decade, Cipla has not generated
meaningful FCF. As cash from operations increased, so did capex
(Fig 3) and the resultant FCF and the dividend payout remained low.
Based on current capex schedule, FCF should increase meaningfully
in both FY12 and FY13 though further capex increase due to
acquisitions could not be ruled out (Cipla acquired several
manufacturing facilities in FY11).
High processing charges drove decline in EBITDA margin
EBITDA margins declined by 250 bp in FY11 and other expenditure
split shows that processing expenses as percentage of sales
increased by 200 bp while personnel cost increased by another 200
bp. As utilisation at Indore SEZ increases, personnel cost as a
percentage of sales should decline but processing expenses may
remain high.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Cipla’s 2011 Annual report proposes a resolution for appointment
of one more family member into the management team. This year
its for the niece of CMD following induction of his nephew last
year. These changes are important as Cipla’s multiple does carry
a premium related to take out possibility.
● Export growth was strong in FY11 at 16% but ex-Africa growth
was only 2%. Total proportion of sales from Africa increased to
23% vs. 18% in FY10 and this impacts margins as sales in Africa
have a lower margin.
● Receivable days reduced sharply by 18 days to three months but
export business still has five months of receivables. Further
reduction is possible given lower metric for several peers. Overall
WC is high at five months of sales due to higher inventory days.
● Cipla has not generated meaningful FCF in the last decade (Fig
3). As cash from operations increased, so did capex and resultant
FCF and dividend payout remained low. On capacity, inhalers and
injectables capacity increased by 50% in the year.
16% exports growth y/y reduces to 2% ex-Africa
The export growth was strong in FY11 at 16% but most of it came
through Africa (ex-Africa growth was only 2%). Total proportion of
sales from Africa has increased to 23% vs. 18% in FY10. We note that
Cipla started selling Seretide inhalers in South Africa in 2HFY11 but
the quantum is not disclosed. Sales in Africa have a lower margin and
this also contributed to the sequential decline in margins.
One more family member inducted into the management
After induction of Kamil Hamied (son of Mr M.K. Hamied) last year into
the management team, this year, a resolution proposes appointment
of Mrs Samina Vaziralli (daughter of Mr M.K. Hamied and niece of Dr
Y.K. Hamied, CMD) as a member of the management team. These
changes are important as Cipla’s multiple does carry a premium
related to the take out possibility.
Receivable days improved though more is possible
Receivable days reduced sharply by 18 days of sales to three months
but export business still has five months of receivables and a further
reduction is possible given lower metrics for several peers. Overall
WC is high at five months of sales due to higher inventory days.
Continued high capex => low FCF and low dividend
Its interesting to note that in the last decade, Cipla has not generated
meaningful FCF. As cash from operations increased, so did capex
(Fig 3) and the resultant FCF and the dividend payout remained low.
Based on current capex schedule, FCF should increase meaningfully
in both FY12 and FY13 though further capex increase due to
acquisitions could not be ruled out (Cipla acquired several
manufacturing facilities in FY11).
High processing charges drove decline in EBITDA margin
EBITDA margins declined by 250 bp in FY11 and other expenditure
split shows that processing expenses as percentage of sales
increased by 200 bp while personnel cost increased by another 200
bp. As utilisation at Indore SEZ increases, personnel cost as a
percentage of sales should decline but processing expenses may
remain high.
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