Cipla's Q2FY20 results (Upgrade to Outperformer) - Strong quarter; broadbased revenue growth
Q2FY20 result highlights
- Revs for the quarter stood at Rs44bn vs est of Rs41.4bn; Q1 was Rs 39.9bn. Beat primarily driven by the US business - Revs of $135m vs est of $130mn – Mgt indicated that gSensipar sales have substantially normalized during the qtr in value terms
- India business grew 6% yoy to Rs 17.5bn vs est of Rs16.7bn. Turnaround in trade generics occurred faster than expected; Branded generics segment grew 13% yoy – partially aided by a strong anti-infective season; SAGA sales also beat est with rev of Rs7.4bn vs est of Rs6.8bn; 12% CC growth yoy
- EBITDA was Rs9bn (flat qoq) vs est of Rs7.8bn; EBITDAM (incl. OOI)- 20.7% (22.7% in Q1) vs 18.8% est. GMs came higher at 65.7% (69.3% in Q1) vs est of 65%, led by a favourable business mix. Overheads came at Rs20.2bn (7% qoq) vs est of Rs19.5bn. R&D spends were higher at Rs2.9bn vs Rs2.6bn in Q1. Reported PAT stood higher at Rs4.5bn (25% qoq) vs est Rs5.1bn.
- Key points: gSensipar has ceased to be meaningful from this qtr. Guidance of limited competition launches from Q4FY20. Respiratory filings on track. Domestic trade Gx expected to normalize from Q3.
Impact on financials: We have maintained our earnings estimates
Valuations & view
Cipla’s broad based recovery, especially in core domestic formulations business, and management’s optimistic growth outlook mitigates the concerns that had cropped up post a lacklustre Q1. While gSensipar contribution will reduce from Q3 onwards, we expect US run-rate to steadily improve going forward given guidance of limited competition launches from Q4 onwards. Likely initiation of gAlbuterol MDI supplies will add to the US sales momentum in FY21. The expected pickup in high margin US sales will help to effectively fund the desired R&D investments across generics and speciality and also improve the overall profitability of the business. This will complement the steady growth in the domestic franchise. Likely bottoming of the EM and South African business will further aid profitability going forward. Valuations are now reasonable post the correction in recent months. Upgrade to Outperformer with TP of 554 (20x FY21E EPS). Any potential escalation in the key Goa unit post the recent FDA inspection remains a key risk to our call.
Cipla is a global pharmaceutical company based in India. Co. manufactures over 1,000 pharmaceutical products for therapeutic areas such as cardiovascular, children's health, dermatology and cosmetology, diabetes, human immunodeficiency virus/acquired immuno deficiency syndrome (HIV/AIDS), infectious diseases and others. Co.'s operations are organized along four business units: Active Pharmaceutical Ingredients (API - 200 generic and complex APIs); Respiratory (inhalation therapy); Cipla Global Access (HIV/AIDS, malaria, multi drug-resistant tuberculosis, and reproductive health); and Veterinary. Co.'s products are sold in India, Africa, Middle East, Europe, Americas, Asia and Australia.
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