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Decent results; Outlook promising

Cipla is a leading global pharmaceutical company with 1,500 plus products across various therapeutic categories. It has presence in over 80 countries.

* Q4FY21 revenue rose 5.3% YoY, led by growth in India (+4.5% YoY; ~39% of total revenue), US (+17.1% YoY), SAGA (+2.8% YoY).

* R&D expenditure stood at Rs. 277cr vs. 223cr in Q3FY21.

* EBITDA margin expanded 281bps YoY 17.3% (-653 bps QoQ), on account of lower costs. Resultantly, PAT grew 68.1% YoY.

* Robust COVID portfolio along with a strong chronic portfolio are the key catalysts for Cipla. Continued growth in the US market, healthy margins on reduced costs and an attractive pipeline should support the company’s outlook in the upcoming quarters. We reiterate our BUY rating on the stock with a rolled forward target price of Rs. 1,050 based on 25x FY23E P/E.

Growth momentum continues

In Q4FY21, consolidated revenue rose 5.3% YoY to Rs. 4,606cr, largely led by positive growth across verticals. India business improved 4.5% YoY to Rs. 1,807cr, however declined -19% QoQ on lower than expected revenue contribution from COVID drug portfolio during the quarter. US business rose 17.1% YoY to Rs. 1,002cr, amid continued market share expansion in Albuterol and growth in institutional business.

SAGA revenue grew 2.4% YoY to Rs. 848cr, aided by solid business momentum in private and tender businesses, with market share gains in ARV and Oncology segments. Europe and Emerging markets also performed well, growing 7.3% and 4.1% YoY to Rs. 249cr and Rs. 432cr, respectively on healthy demand. On the other hand, APIs business declined 9.3% YoY to Rs. 224cr due to higher base last year.

Margin expansion on lower cost

Gross margin dropped 97bps YoY to 60.4%, impacted by certain writes-offs and onetime adjustment sale of Albuterol. However, EBITDA grew 25.7% YoY to Rs. 796cr with EBITDA margin improving 281bps to 17.3%, aided by decline in other operating expenses as a percentage of sales, partially offset by higher employee costs and R&D expenses. Resultantly, PAT surged 68.1% YoY to Rs. 413cr.

Key concall highlights

* Company continued to focus on expanding its portfolio with current pipeline comprising of 165 approved ANDAs, 19 tentatively approved and 64 awaiting US FDA approval taking cumulative total to 248 ANDAs with USFDA as of Mar 2021.

* Management is actively engaging with the USFDA to receive clearance for its generic version of Advair and other products.

* Company expanded partnership with four biosimilars in the Australian market in the fields of immunology, osteoporosis, oncology and ophthalmology.

* On 31st March, Cipla made a strategic investment of Rs. 40cr in ABCD Technologies LLP, a rapidly growing health-tech firm, aimed at boosting its digital footprint.

Valuation

New product launches and strong traction in the US market along with the ramping up of COVID portfolio within the domestic business should drive future growth for the company. Cipla has a healthy pipeline at its disposal supported by higher R&D, strong cash flow generation and cost optimization measures in place. With a promising outlook, we reiterate our BUY rating on the stock with a rolled forward TP of Rs. 1,050 based on 25x FY23E EPS.

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