Cipla Ltd. share price target

Cipla's performance was impacted by several one-offs during the quarter. Revenue and net profit were almost, while EBITDA and margins grew by 24% and 417bps YoY.US and Europe were the only regions that reported a growth of 67% and 50% YoY. The domestic performance was impacted by the disruption in trade generics business while Emerging markets...

US business 61% growth year on year(in US $ terms) for the quarter; base business grows year on year Quality Focus: Received EIR for Kurkumbh plant for the inspection by the...

Revenues grew 1.3% YoY to | 3989 crore (I-direct estimate: | 4330 crore) mainly due to 67% YoY growth in the US to | 1119 crore (I-direct estimate: | 984.7 crore). Domestic revenues de-grew 12.2% YoY to | 1355 crore (Idirect estimate: | 1729.3 crore) mainly due to realignment of distributors in the trade generics and deferral of dispatches in branded formulations. EBITDA margins improved 424 bps YoY to 22.7% (I-direct estimate: 21.0%) due to strong gross margins performance (70.0% vs. 63.9% in Q1FY19). EBITDA grew 24.5% YoY to | 904.6 crore (I-direct estimate: | 909.3 crore). Net profit grew 8.2% YoY to | 476.2 crore (I-direct estimate: | 484.1 crore),...

The frequent one-time' adjustments in various business segments over the last several quarters have been puzzling (switch in Rx and B2B in the US, capacity issues in injectables plant, and now distributor change in India). Higher the frequency of such events, lower would be the predictability in existing numbers. We have cut our domestic growth assumption sharply for FY20/21E after a dismal show in the India biz in 1Q (which is usually a strong quarter). The US performance looks unappealing, adjusted for gSensipar sales. With India recovery likely in 3QFY20, coupled with lower gSensipar sales from 2QFY20 onwards, EBITDA margins are expected to come down in the subsequent quarters. Earnings to remain flat YoY in FY20E. Early gProventil launch remains the only risk to our FY20E estimates. We downgrade CIPLA to NEUTRAL following a mixed 1QFY20 result. Our TP is revised at Rs 565 (22x FY21E EPS). We cut our estimates by 8/9% owing to the slump in domestic business revenue in 1QFY20.

Q1FY2020 saw Cipla report strong operational numbers. Sales growth remained tepid at 1.3% y-o-y to Rs. 3,989 crore (below our estimates). Operating profit grew by a strong 24.5% y-o-y to Rs. 904.6 crore. OPM improved by 424 bps y-o-y to 22.7% (vs. our expectation of 21.5%). Adjusted profit for the quarter reported a strong growth of 21% y-o-y to Rs 470 .7 crore. During the quarter, US business witnessed a whopping 67% y-o-y jump on account of limited competition product gSensipar (which shall normalise from Q2FY2020 due to increased competition)....

Q1 was subdued and had multiple moving parts: (1) reduction in India GRx business by Rs 2bn, (2) Rs 1.6bn sales deferral in India Rx + EM market, (3) gSensipar sales worth US$40mn, and (4) weak ROW commentary.

Cipla reported a strong set of numbers with revenue/EBITDA/PAT growth of 19%/75%/54% (adjusted for an exceptional item in Q4FY18). Revenue growth during the quarter was driven by India (11%), North America (53%), and Europe (73%) business. For FY19, revenue grew by 9% aided by India (7%) and North America (29%) markets while African tendering arm remained under pressure. EBITDA grew by 75% YoY to `972 Cr during the quarter. EBITDA margins for the quarter stood at 22%, expansion of ~700bps YoY. Net profit was reported at `358 Cr for the quarter....

Cipla reported stronger results in Q4 and beat our Revenue/EBIDTA and PAT estimates by 7%/22%/40%, thanks to launch of gSensipar during March'19 and ramp up in other products. gSensipar has been launched at risk' and it contributed $40mn of revenue, which came as a positive surprise. The management has guided for double digit growth in most of geographies and re-iterated to launch at least one limited competition product in US during each quarter. The supply constraints it faced during past few quarters are resolved now and therefore the growth momentum is likely to be stable. We expect a revenue/PAT CAGR of 12%/16% over FY19-21E. We have revised our price...

The worries related to supply constraints, Iran/Yemen geopolitical uncertainty, and raw material prices are either priced in or resolved, in our view. Moreover, Cipla has surpassed its US business guidance of US$ 125mn run rate in 4QFY19. We believe it was crucial for Cipla to cross the US$ 120mn revenue mark to breakeven in the segment. Going into FY20/21E, we expect the US momentum will continue to drive profitability, while launches like gProventil could provide a further boost. Overall, we model 12/16/24% CAGR in revenue/EBITDA/PAT over FY19-21E. At CMP the stock is trading at 26/20x FY20/21E P/E, which is a premium to generic peers. The premium is justified due to a richer mix. We maintain BUY on CIPLA following a modest beat to our estimates. Our TP is revised at Rs 625/sh (22x FY21E EPS). We believe most of the concerns are allayed.