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Complex gx to drive growth ahead  

Cipla reported Q2FY23 result with overall sales grew by 6% YoY and 8.3% QoQ to Rs 58.3bn, led by India sales grew 6% YoY and 3% QoQ on high base (ex?Covid grew 15%  YoY). US sales grew healthy 25.6% YoY and 15.5% QoQ to US$179mn led by traction in  gLanreotide,  gRevlimid  launch  and  respiratory  products  (Albuterol,  gBrovana  and gMigranal). Gross margin was steady YoY at 62.5% on better sales mix. EBITDA grew  by 6% YoY and 13.9% QoQ to Rs13bn with margin at 22.3% (adj. for inventory write? off EBITDA came at ~24%). Adj. PAT for the quarter stood at Rs8.5bn up by 19.7% YoY and  24% QoQ. We  see  stable market  share  for  gAlbuterol  at  ~10%,  and  gRevlimed traction, and gAdvair launches would keep the US sales healthy beyond H2FY23E. We  believe  the  inhaler  story  continues,  and  future  peptide  launches  in  US  looks  interesting. We  continue  to  remain  positive  on  the  stock and maintain ADD with a  revised TP of Rs1,230 (25x Sep’24 average EPS of Rs49 on FY24/25E).

India segment grew 6%YoY on higher base 

India business grew 6% YoY (ex?covid growth is 15% YoY), led by sustained momentum across  therapies  in  core  portfolio  driven  by  pricing  and  new  launches.  Management remains optimistic on outperforming  the IPM in mid?term. Consumer health business and trade generics segment are doing well.

US business outlook remains strong beyond H2FY23

US  generics  business  revenue  grew  25.6%  YoY  and  15.5%  QoQ  to  USD179mn.  Management guided to scale?up in US base business to USD 170?180 mn per quarter led  by  steady  traction in gRevlimid/ Lanreotide  (increasing market share) and hopeful on approval for gAdvair in H2FY23. The Market share stood at ~10% for Albuterol and and  Lanreotide. On gAbraxane the company depend on Goa plant clearance, and hopeful on  plant clearance in FY24.

Making sustainable business by FY25 

The  management  has  set  forward  targets  for  FY25.This  include  1)  expanding  the  US complex  generic  basket  with  scale  up  of  existing  drug  and  launch  of  new  drugs  in  respiratory  and  peptides.  2)Maintaining  leadership  in  SA  and  Indian  markets.  3) Expanding share of consumer business  to 10% 3) Sustainable growth  through organic and inorganic opportunities 4) Sustaining RoIC at 18?20% by reinvesting in business.

Valuation and view 

With India business continue to post stable growth ahead, US business is expected to post  faster ramp?up starting 2HFY23, with new launches like, gAdvair and gRevlimid traction.  Considering increased R&D (5.5% to 6% of sales), given key assets in the future pipeline,  along  with  consistent  cost  optimization,  we expect  better earnings  trajectory. We  look forward to (1) opportunities from inhaler – gAdvair filed in May 2020; (2) biosimilar product  filings; (3) China market entry, focused on respiratory segment. We maintain ADD on the  stock and value it at 25x Sep’24E average EPS of Rs49 on FY24/25E. At CMP of Rs1,146 the  stock trades at 31x FY23E EPS of Rs36.7 and 24x FY24E EPS of Rs47.
 

Valuations

We maintain ADD on the stock and value it at 25x Sep’24E average  EPS of Rs49 on FY24/25E. At CMP of Rs1,146 the stock trades at 31x  FY23E EPS of Rs36.7 and 24x FY24E EPS of Rs47. 

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