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Expanding portfolio by adding Pepitides/Injectable/Inhalers

* During FY13-FY23, CIPLA’s US sales clocked a 21.6% CAGR to reach USD733m in FY23 (26% of sales). This was the highest growth rate among our coverage companies. Despite higher price erosion in FY23 at industry level, CIPLA recorded a sales growth of 8% YoY backed by g-Revlimid launch and market share gains in lanreotide, Albuterol and Arformoterol.

* While CIPLA is focusing on its efforts towards resolving regulatory issues at Goa/Pithampur plants, it is simultaneously filing critical products such as gAbraxane, g-Advair from alternate site and de-risking the opportunity.

* Further, it is expanding its offerings in peptides, inhalation, and injectable categories, which are complex in nature.

* With better outlook in base business, niche launches over medium term, and de-risking of products, we expect a 15% sales CAGR to reach USD1b over FY23-25. 

DF – superior execution to sustain the growth momentum

* During FY13-23, CIPLA’s DF business reported 10.4% CAGR led by superior execution in key therapies, strong brand recall and increase in volumes. Even in FY23, DF sales rose 13% YoY (ex-Covid) to INR99b (43% of sales).

* In FY23, CIPLA’s overall DF sales stood flat due to high base effect of Covid. Excluding Covid, DF sales grew 13% YoY.

* CIPLA is continuously launching new products in the trade generics market and increasing the penetration in tier-2 and below markets.

* Additionally, in the Consumer Healthcare (CH) business, management expects to improve revenue and profitability through strong brand recall.

* We expect CIPLA to deliver 9.5% sales CAGR in DF to reach INR118b over FY23–25. 

SAGA: Focus on private/OTC market to drive growth

* CIPLA has outperformed the private market in SAGA region with 8.9% three-year CAGR vs. industry growth of 4.4% over the same period.

* However, the global supply chain disruption and increased pricing pressure in the tender market segment dragged CIPLA’s performance in FY23 (down 20% YoY to USD394m; 14% of sales).

* With strong pace of launches in the private market across therapies and increased efforts towards OTC portfolio, we expect CIPLA to offset the impact of reduced tender business and deliver stable sales of INR32b over FY23–25.

Robust ANDA pipeline with complex productsto drive growth; Upgrade to BUY

* Over FY17-23, CIPLA delivered 20% earnings CAGR led by superior product mix that drove 570bp margin expansion. The return ratio improved to 13% in FY23 from 10% in FY17. Going forward, we expect 16% PAT CAGR over FY23-25 factoring in: a) new launches in the US and higher off-take in base business, b) superior execution across prescription, trade generics and consumer healthcare segments in India, and c) its focus on private/ OTC market in SAGA.

* CIPLA’s robust ANDA pipeline with complex products (inhalers, peptides, injectables, etc.) should drive consistent growth in the US generics segment. This along with a steady outperformance in branded generics market (of India/SA) would enable 16% earnings CAGR over FY23-25. Accordingly, we raise our P/E multiple to 25x (from 22x earlier; in line with its three-year/fiveyear average) on 12M forward earnings and add g-Revlimid’s NPV (INR30) to arrive at our TP of INR1,420. Upgrade to BUY. 

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