Cipla Ltd. share price target

Cipla reported weak numbers for Q4FY2020 impacted by the ongoing COVID-19 pandemic, which led to operational disruptions. Revenues were flat at Rs. 4,376 crore. The India and the API business grew in double digits while the North America business reported a decline in revenue. Operating profits, at Rs 633 crore, dropped by 34% y-o-y while OPM contracted by 730 bps y-o-y to 14.5%. OPM reflected an impact of 200 bps on account of the COVID-19 related issues. Adjusted PAT at Rs. 246 crore dropped by 53% y-o-y. The management expects the impact of COVID-19 to be short-lived and has guided for a recovery in the near term. Cipla's domestic...

On the business front, despite the nationwide lockdown, domestic growth is expected to remain more or less stable. Exports growth, barring for one or two months due to congestion in all major ports globally, is also expected to remain strong due to 1) currency benefit, 2) slowdown in competition due to delay in new approvals that will be beneficial for existing players and 3) expected demand continuum across the world despite Covid-19. Some windfall is also expected in some critical productsa case in point is Hydroxychloroquine, a malaria drug that is likely to be repurposed as a prophylaxis for Covid-19 treatment in some cases....

Key risks - delay in resolution of Goa WL, lower-than-expected growth in India and South Africa, trade margin cap in India, higher price erosion in the US and delay in key US approvals. Cipla received approval for gProventil HFA (Albuterol Sulfate), its first MDI (metered dose inhaler) approval in the US. This is the first generic approved by the US FDA for Proventil HFA. The approval comes ahead of time (was expected in 2HFY21) as FDA recognizes the rising demand for albuterol products during coronavirus pandemic.

We believe with the enhanced focus on domestic business (implementation of one India strategy), specialty initiatives in the US, margin improvement (better mix, cost optimization), the ROCE should improve to 13.5% over the next two years. The stock is trading at reasonable valuation of 20x/17x FY21/22 EPS (~15% discount to its 5 year historical average). gAdvair Ph III data read out in March 20, will be the key catalyst in the near term. Maintain Buy. TP of Rs495/sh. Cipla received warning letter at Goa plant from the US FDA. The plant was classified as OAI (Official action Indicated) in Jan 20, and as such we did not factor any product approvals in our estimates. As per the company, no limited launches are impacted and the guidance of one niche launch per quarter remains on track. Goa plant accounts for 2.5% of FY19 revenues (single sourced products) and ~6% of revenues (including products with alternate source). The resolution timeline remains uncertain and will be based on Ciplas response to US FDA (mid March), completion of remediation activities and a successful re-inspection.

We believe over a longer term the Indian API industry would stand to benefit as regulators encourage investments and incentivise the API industry to reduce dependence on China. Also, the cost arbitrage has narrowed between Indian and Chinese manufacturers given stricter environmental and compliance regulations in addition to increased labour cost in China. Q3 results reaffirms stable base business outlook for the US (for last 6 quarters) and strong trends for domestic formulations business (double digit growth at 11% for covered companies vs 9.5% for IPM). R&D; spends remain calibrated at 7.8% of sales (vs 9%+ in FY17/18) and EBIDTA margins improved 30bps QoQ. We forecast revenue/EPS CAGR of 9%/15% over FY20-22e for our covered universe. Torrent and Cipla are preferred Buys.

February MPC Minutes: Policy space to open in Q3FY21. ARBP: USFDA error on Unit IV to erase recent stock gains. HMCL: Visit to HMCL's R&D; centre key takeaways. MTLM: Demand slows but margins resilient

We estimate PAT to grow at 13.3% FY20-22E CAGR, however recent supply challenges and slowdown in international sales remains a concern in the near-term. We maintain our HOLD rating on the stock with a revised target price of Rs. 480 based on ~18.0x FY22E EPS. Growth momentum continues in key segments Cipla reported total revenue of Rs. 4,371cr in Q3FY20 (+9.1% YoY) led by domestic sales (up ~15% YoY). India's business (Rx + Gx) revenue grew 12.7% YoY, driven by strong performance from chronic and acute therapies and trade generic business....

Cipla Ltd focuses on the development of new formulations and has a wide range of pharmaceutical products. They offer prescription drugs, bulk drugs, animal products, pesticides, a wide range of food and beverages, baked foods, oral hygiene products, detergents, room fresheners and personal care products. The company offers drugs used for the treatment of cancer, Alzheimer's, arthritis, Parkinson's, cardiovascular diesases, drugs that prevents transmission of AIDS from mother to child, provide consulting services on preparation of...

Revenues grew 9.1% YoY to | 4371 crore (I-direct estimate: | 4310 crore) mainly due to 12.1% YoY growth in the domestic market to | 1777 crore (Idirect estimate: | 1564.3 crore). US revenues grew 11.4% YoY to | 946 crore (I-direct estimate: | 996 crore). EBITDA margins declined 31 bps, 334 bps YoY, QoQ, respectively, to 17.3% (I-direct estimate: 20.5%) due to drop in gross margin (62.4% vs. 63.5% in Q3FY19). EBITDA grew 7.2% YoY to | 758.3 crore (I-direct estimate: | 883.5 crore). PAT grew 5.7% YoY to | 351...

We ascribe a target multiple of 20x (in line with peers) given high exposure to branded formulations market. We resume coverage on Cipla with a Buy rating and TP of Rs510 based on 20x FY22 EPS. The stock has underperformed the sector by 13% in last one year led by sluggish performance in India and SAGA region (one offs led). Recovery in these markets (56% of revenues, healthy underlying trends) will drive earnings CAGR of 10 % over FY20-22e. At 21x/18x FY21/22 EPS, the stock trades at reasonable valuations.