MOSL: CIPLA (Neutral)-Muted 4Q-New launches to drive US business

CIPLA: Muted 4Q; New launches to drive US business

(CIPLA IN, Mkt Cap USD6.5b, CMP INR524, TP INR540, 3% Upside, Neutral)

• Cipla’s 4QFY18 revenue grew ~3% YoY to INR36.98b (vs our est of INR39b). Gross margins declined to 61.9% (-30bp YoY and 210bp QoQ) primarily due to product recall in the US market and change in product mix. EBITDA came in at INR5.7b (v/s our est. of INR7.8b) with margins of 15.1% (+90bp YoY and -590bp QoQ). The decline in margin is related to seasonality in India market and certain onetime cost related to sales and distribution (~INR450-500m). Reported PAT at INR1.8b was lower v/s our expectation of INR4.3b due to provision towards DPCO overcharging liabilities of INR775m, adjusted for which PAT stood at INR3.3b. For FY18 sales, EBITDA and PAT stood at INR152 (+~4%), INR28.3b (+~16%) and INR16b (+29%) respectively.
• Healthy growth in US Business: During the quarter US business grew by ~5% YoY (+4% QoQ) on back of new product launches like gDacogena dn gPulmicort, although sales would have been higher by USD5-7m (impacted by supply constrains). CIPLA expects healthy growth in the US market in the coming fiscal on back of ramp-up in sales of gDacogen, gPulmicort and gAloxi and limited competition products. In domestic market, CIPLA expects ~15% growth in FY19 on back of in-licensing deals, increase in field force productivity and other initiatives. It also expects double digit growth in South Africa business.