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Misses estimates; focus remains intact…

Q4 revenues grew 5.3% YoY to | 4606 crore. Domestic sales grew 4.5% YoY to | 1807 crore. US grew 17.1% YoY to | 1002 crore on the back of continued Albuterol ramp-up. RoW markets business de-grew 4.8% YoY to | 674 crore. South Africa business grew 13.9% YoY to | 606 crore tracking strong private business momentum. EBITDA margins expanded 281 bps YoY (down 653 bps QoQ) to 17.3% mainly due to significantly lower other expenditure partially offset by lower gross margins. Subsequently, EBITDA grew 25.7% YoY to | 796 crore. PAT was up 68% YoY to | 413 crore.

Product launches, front-end shift key for formulation exports

Formulation exports comprise ~54% of FY21 revenues. The company is focusing on front-end model, especially for the US, along with a gradual shift from loss making HIV and other tenders to more lucrative respiratory and other opportunities in the US and EU. We expect export formulation sales to grow at 8.1% CAGR to | 12155 crore in FY21-23E. Key drivers will be a launch of inhalers (drug-device) and other products in developed markets.

Indian formulations growth backed by new launches

With ~5% market share, Cipla is the third largest player in the domestic formulations market. The acute, chronic, sub-chronic revenues for the company are at 43%, 45%, 12%, respectively. Domestic formulations comprise ~40% of FY21 revenues. It commands ~24% market share by value in the respiratory segment. We expect domestic formulations to grow at 11.5% CAGR in FY21-23E to | 9624 crore driven by improved productivity of the newly inducted field force and product launches besides realignment of the portfolio in sync with its ‘One-India’ portfolio rationalisation exercise.

Valuation & Outlook

Q4 results were below I-direct estimates on all fronts amid lower-thanexpected formulations sales across geographies (ex-South Africa) and operational performance. We continue to focus on the management’s longdrawn strategy of targeting four verticals viz. One-India, South Africa & EMs, US generics & specialty and lung leadership. Timely launch of Albuterol sulphate (Proventil HFA) launch in the US amid rise in demand for Albuterol products in the pandemic vindicates its’ lung leadership quest. While US focus will be on specialty including hospitals, value accretive generics, India focus will be on branded (Rx), trade generics (TGx).

On the Africa front, Cipla continues to rebase its business model towards private business in the backdrop of shrinking tender opportunities. Another key aspect to watch would be R&D recalibration. Across the board transformation from tenderised model to private model in exports market and more focus towards consumerisation of important TGx, Rx products in Indian branded formulations bode well for the company. We maintain BUY with a TP of | 1040 (earlier | 975) including base business value of | 1000 (25x FY23E EPS | 40.0) + | 41 NPV for gRevlimid.

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