Cipla - Combination inhalers to drive growth :: Centrum

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Rating: Buy; Target Price: Rs730; CMP: Rs613; Upside: 19.1%



Combination inhalers to drive growth



We reiterate Buy rating on Cipla with a revised target price of Rs730
(earlier Rs540) based on 24xSept’16E EPS of Rs30.3. The launch of
combination inhalers in various global markets is a positive step. The
licensing agreement with Gilead, US for its Hepatitis C drug for 91
countries will drive growth. Acquisition of two manufacturing
facilities will yield operational synergies. All these initiatives are
likely to bear fruit. We have revised the earning multiple from 22x to
24x based on these developments. Key risks to our assumptions include
slowdown in global generic business and regulatory risks for its
manufacturing facilities.

$ Combination inhalers to drive growth: Cipla has recently launched
its salmeterol/ fluticasone combination inhaler under the brand name
‘Serroflo’ in Germany and salmeterol/fluticasone Cipla in Sweden. The
inhaler is available in Croatia under the brand name Duohal. The
company has entered into commercial collaboration with S & D pharma
for inhalers under the brand name Fulhale in Czech Republic and
Slovakia. We expect the inhalers to generate revenues of $27mn in
FY15, $45mn in FY16 and $62mn in FY17 from these four countries
namely, Germany, Sweden, Czech Republic and Slovakia. Cipla will have
its own field force in Czech Republic and Slovakia. We expect the
company to benefit immensely from these launches.

$ Agreement with Gilead, US for Hepatitis C drugs: Cipla has entered
into non-exclusive licensing agreement with Gilead, US for the
manufacture and distribution of its Hepatitis C drugs Sofosbuvir and
Ledipasvir in 91 countries under its own brand. The agreement covers
over 100mn patients out of a global population of 130-150mn patients.
India has over 10-20mn Hepatitis C patients, more than HIV/AIDS
patients. Cipla will receive technology transfer and manufacturing
processes from Gilead and will market the drugs at competitive prices
globally. We expect Cipla to generate revenues of $5mn in FY15, $7mn
in FY16 and $10mn in FY17 from the manufacture and marketing of these
drugs.

$ Acquisition of manufacturing facilities to yield synergies: Cipla’s
100% subsidiary Medispray Labs Pvt. Ltd. has acquired two
manufacturing facilities from Osaka Pharma Pvt. Ltd., which were
dedicated to Cipla’s products. These facilities located at Goa and
Sangli were acquired for Rs290mn and Rs719mn respectively. The
acquisition is likely to lead to better control and yield operational
synergies. Cipla has entered into agreement with Salix Pharma, US for
granting exclusive rights for “Rifaximin complexes’ patent
applications. We expect Cipla to receive $5mn upfront payment in FY15
and $2mn and $3mn as royalties on sales in FY16 and FY17 respectively.

$ Recommendation and key risks: We maintain Buy rating for Cipla with
revised target price of Rs730 based on 24x Sept’16E EPS of Rs30.3 with
an upside of 19.1% from CMP. Cipla has launched its combination
inhalers in various global markets. It has tied up with Gilead, US for
the manufacture and marketing of its Hepatitis C drug in 91 countries.
With a strong product pipeline for the global market and good growth
in the domestic market, we expect the company to perform well from
FY16 onwards. We have revised our FY15 and FY16 EPS estimates upwards
by 15% and 17% respectively. Key risks to our assumptions include
slowdown in global generic business and regulatory risks for its
manufacturing facilities catering to global markets.



Thanks & Regards

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