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A robust ANDA pipeline to overcome price erosion and deliver growth

* After exhibiting a moderate 7% YoY earnings growth in FY23, we expect Cipla to end FY24 on a strong note with a 26% YoY earnings growth. Cipla has executed efforts to improve its growth outlook beyond FY24.

* On the India business front, in particular, Cipla is working to not only enhance its prescription base but also strengthen its trade generics and consumer healthcare businesses.

* Even in the US generics segment, Cipla is developing a pipeline of difficult-tomanufacture products, including respiratory and peptide products, to sustain its growth momentum.

* Hence, we model a 13% earnings CAGR over FY24-26. We value Cipla at 25x 12- month forward earnings and add an NPV of INR30 for g-Revlimid to arrive at our TP of INR1,540.

* Cipla remains our top-pick in the large-cap pharma space, given: a) its threepronged growth levers in India, b) a robust ANDA pipeline to overcome price erosion and deliver growth, and c) a de-risked regulatory factor through filings from the alternate sites. We maintain our BUY rating on the stock.

One India: Multi-prong drivers of growth

* The One India business posted an 11% CAGR over FY18-23, driven by robust traction due to strong execution across portfolios and distribution synergies. ? The branded Rx segment is outperforming IPM consistently backed by market share gains in the base portfolio and new launches.

* In the Trade generics market, Cipla continues to consolidate its leadership position aided by steady performance across realization, volume, and a lower cost of goods. Cipla intends to retain its leadership position via strong retail connectivity, utilization of phygital media, and customer-centric communication.

* The company is looking to strengthen its consumer health segment by transforming it into an INR10b business over the next few years from INR6b in FY23. In addition, margins are expected to improve to the midteens in FY24.

* We expect a 12% sales CAGR in the domestic formulation (DF) business, which would reach INR134b over FY24-26.

US: Enhanced focus on complex products

* The US segment witnessed an 11% sales CAGR over FY18-23 to USD733m. It was driven by robust performance in the base portfolio, complemented by market share gains in niche products, such as g-Revlimid, and lanreotide.

* Cipla has planned differentiated launches, such as g-Advair and gAbraxane, to drive the growth momentum in the US segment.

* We expect the US sales to report 9% CAGR over FY24-26 to reach USD1b.

SAGA: Reduced tender business drags overall show

* Over FY18-23, the SAGA segment underperformed in the tender business leading to a 5% compounded decline in sales (in USD terms).

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