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Cipla's management showed confidence in the commercialisation of inhalers in EU in next 2
years, which is a key positive. Other key highlights were 1) capacity optimization in Indore SEZ 2)
higher growth expected from domestic sales 3) capex focus on API. Management also refuted
‘sell out’ speculation. Buy.
Key highlights of Cipla’s Annual General Meeting (AGM) are as follows:
Confirms to monetising the inhalers opportunity in EU
Cipla's chairman showed confidence in the commercialisation of inhalers opportunity
(including combinations) addressing market size of $3bn in Europe (EU) in next 2 years. His
confidence was backed by his statement (disclosing for the first time) that the company had
filed for the generic of Advair (combination of Fluticasone and Salmeterol) in 2005 for
European markets, given the approval time is usually 5-6 years (as per the company).
However given the complexity of the combination product 's device, formulations and API and
the fact that Cipla has still not yet tied its marketing partner in EU, Company expects the
launch within 2 years.
We also note that while Cipla states to have made filing in 2005, it might have undergone
various modifications in the filings especially after the CHMP guidelines by EU in 2009 for
approvals. This might have taken more than the usual approval time in EU of 18-24months as
per discussion with our European generics analyst and also seen the from the filing and
approval status of other generic Advair player in EU like Sandoz (filed in 2008, refiled in April
2010 in Finland and now expects approval by end of Dec 2011), Teva (expects approval in
2013) and Elpen (already approved in Sweden in May 2011 and Greece in Nov 2009).
We believe that Cipla's disclosure could be based on its recent discussion with the EU
regulatory authorities which might be now providing more clarity in terms of the approval
timelines.
We believe the approval of generic Advair in EU could boost Cipla's revenues (currently not
built in our estimates) by US$ 200m as peak sales (assuming 60% generic share, 30% price
erosion and 20% generic market share in 12-18months post launch) as the branded product's
revenues in EU are significant (CY10 EU revenues for Advair was ~US$ 2.5bn).
Cipla currently has 11 filings with 4 approved products (with latest approval being salmeterol
in UK) in EU. Also, Cipla has already launched its combination product - Seroflo in Russia via
partners and recorded sales of Rs 90m (US$ 2mn) and have exported 200,000 packs. It has
recently launched Seroflo in S. Africa with partners and has exported 75,000 packs.
Capacity optimization in Indore SEZ to be the near term growth driver
In the analyst meet, management reiterated that capacity optimization in Indore SEZ would be
its key near term driver as it is yet to achieve its optimum capacity. We note that the 1Q
contribution of Indore SEZ was Rs1.48bn (~20% of export formulations and 9% of total
revenues) which management expects to improve. We believe capacity optimization would be
in the region of 12-15% of total revenues.
Likely to see higher growth from domestic formulations
The management highlighted that the company remains focused on the domestic formulation
business (46% of FY11 revenues) with expansion in new therapeutic segments coupled with
expansion of field force to nearly 7000 people thereby expanding distribution network. Cipla
has launched 20 products in the domestic formulations market and expects it to grow at
industry rate (which at present is 14% yoy as per IMS). We note that 1Q domestic revenue
growth was 10% yoy and thus expect higher growth in future.
Focus on profitability to result in rationalization in International biz
In its AGM as well in its FY11 Annual Report, the company stated that it was looking to
consolidate and rationalize its international business and strategies in order to focus on
profitability. In this effort, it was looking to forge partnerships and alliances with large generic
companies for product and market development (in the developed markets). We have also
seen company reducing the contribution of low margin ARV (anti-retro-viral products) to
improve operating margins.
Capex now on API and R&D centers
The management highlighted that with the capital investment in the formulations space largely
over the company is focusing on the expansion in its Active Pharmaceutical Ingredients (API)
business and building R&D centers and expects to spend Rs6bn over 1 - 2 years. The
company expansion plans includes 1) a new API unit at Patalganga; 2) an API unit
specializing in anti-cancer drugs in Bangalore; 3) Upgrade existing plants at Kurkumbh,
Baddi, Sikkim, Patalganga and Goa; and 4) New R&D centre at Patalganga and upgrade
R&D centre at Vikhroli.
Management refutes ‘sell out’ speculation
In the analyst meet, the management stated that they remain committed to the business and
all the news-flow regarding selling the company is baseless. This we believe is supported by
the company's act of recent inductions of promoter's family members in the management
team.
Cipla has appointed Mrs. Samina Vaziralli as a member of the management team with effect
from 1st July 2011, subject to approval of shareholders. She is the daughter of Mr. M.K.
Hamied, Joint Managing Director and niece of Dr. Y.K. Hamied, Chairman and Managing
Director of the Company.
We note that in August last year, Mr Kamil Hamied, son of Mr MK Hamied, joint managing
director, and the nephew of Dr YK Hamied, the company's chairman and managing director
was also inducted into the management team of Cipla.
We re-iterate our Buy rating on Cipla with a TP of Rs365
We note that while Cipla’s 1Q12 revenue growth was muted at 9% yoy, we expect growth
momentum to accelerate for the remainder of the year on the back of: 1) contribution from
Indore SEZ ramping up (revenues of Rs1.48bn in 1QFY12 vs. Rs1.1bn in FY11); 2) 60% of
the Cipla’s domestic product portfolio is focused in the relatively faster growing chronic
segment; and 3) olanzapine API supplies to drive API business growth.
We expect the margin improvement witnessed in 1Q12 (580bp qoq increase in core EBITDA
to 21.2%) to continue led by better product mix; improved utilization at the Indore SEZ facility
and increased contribution from API business
-We re-iterate our Buy rating with TP of Rs365 based on 21.4x FY13F PE (i.e. at 10%
premium to peers)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cipla's management showed confidence in the commercialisation of inhalers in EU in next 2
years, which is a key positive. Other key highlights were 1) capacity optimization in Indore SEZ 2)
higher growth expected from domestic sales 3) capex focus on API. Management also refuted
‘sell out’ speculation. Buy.
Key highlights of Cipla’s Annual General Meeting (AGM) are as follows:
Confirms to monetising the inhalers opportunity in EU
Cipla's chairman showed confidence in the commercialisation of inhalers opportunity
(including combinations) addressing market size of $3bn in Europe (EU) in next 2 years. His
confidence was backed by his statement (disclosing for the first time) that the company had
filed for the generic of Advair (combination of Fluticasone and Salmeterol) in 2005 for
European markets, given the approval time is usually 5-6 years (as per the company).
However given the complexity of the combination product 's device, formulations and API and
the fact that Cipla has still not yet tied its marketing partner in EU, Company expects the
launch within 2 years.
We also note that while Cipla states to have made filing in 2005, it might have undergone
various modifications in the filings especially after the CHMP guidelines by EU in 2009 for
approvals. This might have taken more than the usual approval time in EU of 18-24months as
per discussion with our European generics analyst and also seen the from the filing and
approval status of other generic Advair player in EU like Sandoz (filed in 2008, refiled in April
2010 in Finland and now expects approval by end of Dec 2011), Teva (expects approval in
2013) and Elpen (already approved in Sweden in May 2011 and Greece in Nov 2009).
We believe that Cipla's disclosure could be based on its recent discussion with the EU
regulatory authorities which might be now providing more clarity in terms of the approval
timelines.
We believe the approval of generic Advair in EU could boost Cipla's revenues (currently not
built in our estimates) by US$ 200m as peak sales (assuming 60% generic share, 30% price
erosion and 20% generic market share in 12-18months post launch) as the branded product's
revenues in EU are significant (CY10 EU revenues for Advair was ~US$ 2.5bn).
Cipla currently has 11 filings with 4 approved products (with latest approval being salmeterol
in UK) in EU. Also, Cipla has already launched its combination product - Seroflo in Russia via
partners and recorded sales of Rs 90m (US$ 2mn) and have exported 200,000 packs. It has
recently launched Seroflo in S. Africa with partners and has exported 75,000 packs.
Capacity optimization in Indore SEZ to be the near term growth driver
In the analyst meet, management reiterated that capacity optimization in Indore SEZ would be
its key near term driver as it is yet to achieve its optimum capacity. We note that the 1Q
contribution of Indore SEZ was Rs1.48bn (~20% of export formulations and 9% of total
revenues) which management expects to improve. We believe capacity optimization would be
in the region of 12-15% of total revenues.
Likely to see higher growth from domestic formulations
The management highlighted that the company remains focused on the domestic formulation
business (46% of FY11 revenues) with expansion in new therapeutic segments coupled with
expansion of field force to nearly 7000 people thereby expanding distribution network. Cipla
has launched 20 products in the domestic formulations market and expects it to grow at
industry rate (which at present is 14% yoy as per IMS). We note that 1Q domestic revenue
growth was 10% yoy and thus expect higher growth in future.
Focus on profitability to result in rationalization in International biz
In its AGM as well in its FY11 Annual Report, the company stated that it was looking to
consolidate and rationalize its international business and strategies in order to focus on
profitability. In this effort, it was looking to forge partnerships and alliances with large generic
companies for product and market development (in the developed markets). We have also
seen company reducing the contribution of low margin ARV (anti-retro-viral products) to
improve operating margins.
Capex now on API and R&D centers
The management highlighted that with the capital investment in the formulations space largely
over the company is focusing on the expansion in its Active Pharmaceutical Ingredients (API)
business and building R&D centers and expects to spend Rs6bn over 1 - 2 years. The
company expansion plans includes 1) a new API unit at Patalganga; 2) an API unit
specializing in anti-cancer drugs in Bangalore; 3) Upgrade existing plants at Kurkumbh,
Baddi, Sikkim, Patalganga and Goa; and 4) New R&D centre at Patalganga and upgrade
R&D centre at Vikhroli.
Management refutes ‘sell out’ speculation
In the analyst meet, the management stated that they remain committed to the business and
all the news-flow regarding selling the company is baseless. This we believe is supported by
the company's act of recent inductions of promoter's family members in the management
team.
Cipla has appointed Mrs. Samina Vaziralli as a member of the management team with effect
from 1st July 2011, subject to approval of shareholders. She is the daughter of Mr. M.K.
Hamied, Joint Managing Director and niece of Dr. Y.K. Hamied, Chairman and Managing
Director of the Company.
We note that in August last year, Mr Kamil Hamied, son of Mr MK Hamied, joint managing
director, and the nephew of Dr YK Hamied, the company's chairman and managing director
was also inducted into the management team of Cipla.
We re-iterate our Buy rating on Cipla with a TP of Rs365
We note that while Cipla’s 1Q12 revenue growth was muted at 9% yoy, we expect growth
momentum to accelerate for the remainder of the year on the back of: 1) contribution from
Indore SEZ ramping up (revenues of Rs1.48bn in 1QFY12 vs. Rs1.1bn in FY11); 2) 60% of
the Cipla’s domestic product portfolio is focused in the relatively faster growing chronic
segment; and 3) olanzapine API supplies to drive API business growth.
We expect the margin improvement witnessed in 1Q12 (580bp qoq increase in core EBITDA
to 21.2%) to continue led by better product mix; improved utilization at the Indore SEZ facility
and increased contribution from API business
-We re-iterate our Buy rating with TP of Rs365 based on 21.4x FY13F PE (i.e. at 10%
premium to peers)
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