Cipla Ltd. share price target

3QFY20 revenues came in at INR43.7b (in-line), up 9% YoY, led by growth in India/US sales. We expect 15% earnings CAGR, led by superior execution in the US with share of differentiated products in the portfolio increasing and gradual improvement in DF growth over FY19-22E. We continue to value Cipla at 20x 12M forward earnings to arrive at price target of INR490 (from INR500 Indias Rx (branded business) sales grew 14% YoY, while trade generics grew +7% YoY. Cipla delivered 15% CAGR in US revenues to USD488m over FY16-19, led by 46 launches during the same period and increasing share of Direct to market (DTM) business. With resolution of the issue, we expect sales CAGR to improve by 11% We expect 15% earnings CAGR, led by superior execution in the US with increasing share of differentiated products in the portfolio and gradual improvement in DF growth over FY19-22E.

Union Budget 2020-21: Counter cyclical Budget. Infrastructure: FY21 Budget Reduced funding for infrastructure

FY20 GDP: Gradual revival seen in FY21. Pharmaceuticals: Q3 strong for DRRD, LPC, SUN, Alkem & Laurus

By segment, India (Rx + Gx) revenue grew 6.1% YoY, supported by strong recovery in generic business (~61% QoQ) and growth across both chronic and acute therapies under branded business (~13% YoY). North America business rose 25.7% YoY, where Cipla maintained its market share despite the price erosion of its key product Sensipar, due to higher competition. We expect that any further dip in price will be offset by recently launched generic Pregabalin and Daptomycin. SAGA business grew (~12% YoY in local currency), while private market grew more than 3x vs. market to drive ~13% YoY. Emerging market revenue though down 4.4% on YoY basis, surged 61.6%...

CIPLA: All-round beat India drives 6-11% EPS upgrade; retain BUY. MGFL: Healthy growth in gold and microfinance businesses. LPC: Q2 a slight miss; US to improve in H2. TRPC: Growth subdued across segments

Cipla reported a strong set of numbers for Q2FY2020. Topline grew by 10% y-o-y to Rs 4,396 cr, marginally ahead of estimates. Operating margin (OPM) expanded sharply by 320 bps y-o-y to 20.7%, ahead of our estimates. Operating profit grew impressively by 30% y-o-y to 910 cr. Adjusted PAT at Rs 480 cr grew 31% y-o-y, comfortably beating our estimates. The management has pointed that the concerns around realignment of distributors for the domestic business have been resolved. In Q3FY2020, business is expected to normalise as momentum would improve. New launches lined up by the company across geographies in...

Cipla has received 12 observation from the USFDA's inspection of its Goa facility over 16-27 Sep.

12 October 2019 Out of the 12 observations issued in the form 483 by the USFDA, one is related to cleaning/maintenance of equipment, wherein procedures lack provision for routine cleaning of inlet/outlet duct areas. One more observation is related to systems being deficient for maintaining equipment used to control aseptic condition. In fact, all inspections, except at the Goa site, are now classified as VAI (voluntary action indicated) or NAI (no action indicated), implying a minimal regulatory risk at these sites. Note that the Bangalore site was recently inspected in Jun19 and issued a form 483 with seven observations, which was now followed by the Goa site inspection. However, a higher quantum of sales from this site can be shifted to other sites in case the regulatory situation worsens at Goa. Moreover, while the company is implementing remediation measures, there are low single-digit ANDAs pending for approval from this site over the next 12-15 months, implying a minimal impact on future growth as well.

Data Integrity issues and repeat observations. With lower tolerance level of USFDA in dealing with non-compliance in injectable unit, we expect WL in near term though resolvable in 12-14 months. There could be lower offtake of partnership products in US from the plant due to those concerns though not...