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MOSL: CIPLA (Neutral)-At-risk launches prove advantageous-on track to build a niche pipeline

Cipla: At-risk launches prove advantageous; on track to build a niche pipeline

(CIPLA IN, Mkt Cap USD6.4b, CMP INR554, TP INR525, 5% Downside, Neutral)

 

• Revenues driven by US/Europe/API: Sales increased 19% YoY to INR44b (our estimate: INR41b), primarily driven by robust growth in the US business (+41% YoY CC to USD163m; 26% of sales) owing to new launches and ramp up in differentiated products (incl. at-risk launch of Sensipar). Europe business grew by 73% YoY to INR2b, led by the resolution of supply issues. API segment, too, delivered growth of 29% YoY to INR2b, driven by sales ramp-up in a few molecules and favorable FX. Domestic business outperformed industry in the key therapeutic areas, with growth of 11% YoY to INR15b (34% of sales). South African Global Access (SAGA) business, however, was flat YoY at INR8b.
• Limited-competition products drive profitability: Gross margin (GM) improved ~330bp YoY to 65.2%. EBITDA margin expanded at an even higher pace of ~680bp YoY to 21.8% due to a superior product mix and lower opex. Absolute EBITDA increased ~73% YoY to INR9.7b (our estimate: INR7.2b). R&D spend was at 7% of sales for the quarter. Depreciation included the impact of impairment of certain products related to intangible assets of the US generics business to the tune of INR2b. Adjusting for the same, PAT was up ~54% YoY to INR5b (our estimate: INR3.4b). For FY19, sales/EBITDA increased 8%/10% to INR164b/ INR31b, while PAT was down 3% to INR15b.