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Olanzapine uptick impending
Continued weakness in sales growth was a negative while higher gross
margin was a positive surprise in Cipla’s 1QFY12 results. In light of weak
domestic growth for most pharma companies, Cipla’s 10% YoY growth
look encouraging though comes on a low base. The company guided for a
full year sales growth of 10% and a pick up in export formulations growth
from current quarter’s 5.3% number. We expect near term uptick in sales
growth and margins based on Cipla’s olanzapine supplies to Teva.
Revenue growth to pick up
q Cipla’s 1QFY12 net sales grew 22.6% YoY with weak performance in both
domestic formulations (10.1% YoY) and export formulations (5.3% YoY).
q Considering a weak quarter in general for domestic formulations, domestic growth
was still acceptable. The company expects to maintain trend in domestic growth
in FY12 and achieve a market average growth.
q Export growth should pick up further filings from Indore SEZ facility. Cipla expects
to launch salmeterol inhaler in coming quarter in UK and a couple of EU markets.
Interesting launches like Seroflo (combination inhalers) in a couple of markets like
South Africa and Russia/CIS and traction in recent launches like salbutamol in UK
should aid in growth.
q API growth should sustain over coming quarters as it is linked to pick up in a
specific product.
Margins to benefit from Olanzapine supplies
q Ebitda margins for the quarter declined 55bps YoY to 21.2%. Gross margin
expansion helped absorb cost pressures from sharp increase in staff costs and
overheads. This trend could continue in to coming quarters as Cipla engages in
high margin supplies for Teva’s preparation of olanzapine generic launch in US.
q Technology license income at Rs98m was down 38% on a YoY basis. We build flat
tech income at Rs700m for FY12/13.
q Meditabs consolidation for the full year provides 4-5% uptick to the earnings
(Quarterly numbers are standalone numbers).
In-line valuations, growth improvement in the near term
q Cipla trades at par with other major Indian pharma names on core earnings. Near
term earnings could benefit from potential olanzapine supplies to Teva.
q Export incentives have risen sharply in FY11 (10%+ of PBT) and withdrawal of
DEPB could hurt though this is likely to be partly offset by other schemes.
q While quantum related to NPPA dispute increased marginally, contingent income
tax liability has nearly doubled to Rs2.1bn in FY11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Olanzapine uptick impending
Continued weakness in sales growth was a negative while higher gross
margin was a positive surprise in Cipla’s 1QFY12 results. In light of weak
domestic growth for most pharma companies, Cipla’s 10% YoY growth
look encouraging though comes on a low base. The company guided for a
full year sales growth of 10% and a pick up in export formulations growth
from current quarter’s 5.3% number. We expect near term uptick in sales
growth and margins based on Cipla’s olanzapine supplies to Teva.
Revenue growth to pick up
q Cipla’s 1QFY12 net sales grew 22.6% YoY with weak performance in both
domestic formulations (10.1% YoY) and export formulations (5.3% YoY).
q Considering a weak quarter in general for domestic formulations, domestic growth
was still acceptable. The company expects to maintain trend in domestic growth
in FY12 and achieve a market average growth.
q Export growth should pick up further filings from Indore SEZ facility. Cipla expects
to launch salmeterol inhaler in coming quarter in UK and a couple of EU markets.
Interesting launches like Seroflo (combination inhalers) in a couple of markets like
South Africa and Russia/CIS and traction in recent launches like salbutamol in UK
should aid in growth.
q API growth should sustain over coming quarters as it is linked to pick up in a
specific product.
Margins to benefit from Olanzapine supplies
q Ebitda margins for the quarter declined 55bps YoY to 21.2%. Gross margin
expansion helped absorb cost pressures from sharp increase in staff costs and
overheads. This trend could continue in to coming quarters as Cipla engages in
high margin supplies for Teva’s preparation of olanzapine generic launch in US.
q Technology license income at Rs98m was down 38% on a YoY basis. We build flat
tech income at Rs700m for FY12/13.
q Meditabs consolidation for the full year provides 4-5% uptick to the earnings
(Quarterly numbers are standalone numbers).
In-line valuations, growth improvement in the near term
q Cipla trades at par with other major Indian pharma names on core earnings. Near
term earnings could benefit from potential olanzapine supplies to Teva.
q Export incentives have risen sharply in FY11 (10%+ of PBT) and withdrawal of
DEPB could hurt though this is likely to be partly offset by other schemes.
q While quantum related to NPPA dispute increased marginally, contingent income
tax liability has nearly doubled to Rs2.1bn in FY11.
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