MOSL: CIPLA (Neutral)-Earnings driven by superior product mix
CIPLA: Earnings driven by superior product mix
(CIPLA IN, Mkt Cap USD5.5b, CMP INR482, TP INR500, 4% Upside, Neutral)
- US/domestic branded/EU drive revenue growth: CIPLA’s revenue increased 9.6% YoY to INR44b (in-line) in 2QFY20, led by improved sales in the US (+26% YoY) and EU (+35% YoY). Domestic business grew by ~6% YoY to INR17.5b and branded generics by 13% YoY. However, the SAGA business was muted at INR7.4b due to re-basing of the global access business. Within SAGA, South Africa private market business grew 9% YoY (+12% YoY in LC).
- Niche opportunity in US/better traction in branded generics support profitability: Gross margin (GM) improved ~200bp YoY (-320bp QoQ) to 66.8% due to a superior product mix. EBITDA margin expanded at a higher rate of ~280bp YoY to 20.7% due to the better GM and lower other expenses (-80bp YoY). EBITDA was up ~30% YoY to INR9b (our estimate: INR8b). PAT increased at a higher rate of ~60% YoY to INR4.7b (our estimate: INR4b) due to higher other income and a lower tax rate. For 1H, revenue/EBITDA/PAT grew at 5.5%/27%/44% YoY to INR83.8b/INR18.1b/INR9.5b
- Concall highlights: (1) Guided for the gross margin to sustain at 65-66%. (2) Expects g-albuterol launch in 1QFY21. (3) Maintained guidance of filing g-Advair in early part of CY20. (4) Niche opportunity launches in US generics to resume 4QFY20 onward. (5) Effective tax rate to be 29-30% in FY20 and reduce by ~200bp in FY21.
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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