MOSL: CIPLA (Neutral)-India business shines-Margins improve strongly

(cipla IN, Mkt Cap USD7.1b, CMP INR569, TP INR600, 5% Upside, Neutral)

• 3QFY18 revenue grew 7% YoY to INR39.1b (est. of INR39.1b). Gross margin improved to 64.1% from 63.3% in 3QFY17 and 61.1% in 2QFY18. EBITDA came in at INR8.2b, with the margin at 20.9% v/s our estimate of 20%. Depreciation included one-time impairment charge of INR1.7b (net of tax; this was regarding certain product-related intangible assets of US business arising out of increased competitive headwinds and adverse regulatory developments). Also, there was a one-time positive impact of INR1.1b on deferred tax due to a change in the US tax system. Reported PAT of INR4.0b came in lower than our estimate of INR4.8b. However adjusted for one-time impairment and deferred tax, PAT stood at ~INR4.65b.
• Strong growth in domestic business; US story on track: Domestic business grew ~14% YoY (on a like-to-like basis, GST adj. growth was at 22% YoY) due to strong inherent growth and channel refilling post GST rollout. US sales grew 2% YoY and 5% QoQ. Sequential increase in sales was driven by the launch of gPulmicort and gDecitabine. We expect US business growth to be driven by ramp-up of recent launches and key upcoming approvals, including Nano-paclitaxel and Albuterol MDI.