Neutral Cipla Ltd For Target Rs.1,450 - Motilal Oswal Financial Services
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NA/DF drives improved profitability
EBITDA margin guidance further raised to 23-24% for FY24
* CIPLA beat our earnings estimates in 2QFY24, led by a superior performance in the branded generics segment of domestic formulation (DF) and SAGA. The company sustained robust sales growth in North America (NA), led by market share gain and healthy demand for its base portfolio.
* We raise our earnings estimates by 7%/4.4% for FY24/FY25, factoring in better growth prospects in DF, increased visibility for niche launches in NA, and controlled opex. We value CIPLA on SOTP basis (25x 12M forward earnings and add NPV of INR30 for g-Revlimid) to arrive at a TP of INR1,450.
* We remain positive on CIPLA given its market-beating growth in prescription market, efforts to enhance NA product pipeline with differentiated products, and improving profitability in the consumer health business. Reiterate BUY.
Product mix/better operating leverage lead to superior margins
* 2QFY24 revenue increased by 14.6% YoY to INR67b (est. INR64.5b). DF sales (42% of sales) grew 9.8% YoY to INR28b. US sales (28% of sales) rose 31.8% YoY to INR18.9b (USD229m, up 27.9% in CC terms) as the market share expanded across key differentiated assets. SAGA sales (15% of sales) grew 14.5% YoY to INR9.9b. EM sales (11% of sales) declined 4% YoY to INR7.3b. API sales (2% of sales) declined 3.5% YoY at INR1.5b.
* Gross margin expanded 90bp YoY to 65.4% (est. 65%), led by a higher share of niche products.
* EBITDA margins expanded 210bp YoY to 26% (est. 24.2%), due to a better gross profit and lower other expenses (down 100bp YoY as % of sales). ? EBITDA increased by 25% YoY to INR17.3bn (est. INR15.6bn).
* Assuming g-Revlimid sales of USD30m in 2QFY24, sales/EBITDA would be INR64b/INR14.6b (up 13%/18.4% YoY) and EBITDA margin would be 22.9% for the quarter on Ex-Revlimid basis.
* After adjusting for impairment charges of INR431m, PAT grew 38% to INR11.7b (est. INR10b) due to higher other income.
* 1HFY24 revenue/EBITDA/PAT grew by 16%/27%/41% to INR130b/INR32b/ INR21b.
Highlights from the management commentary
* CIPLA has raised its EBITDA margin guidance to 23-24% (vs. 22-23% earlier) for FY24.
* It expects to sustain the US sales run rate at USD220-225b in 3QFY24.
* CIPLA has one peptide launch lined up in FY24. The product has a market size of USD300m and already has some competition in US generics market.
* The company expects 5-year sustainable growth of 12% for India business.
* CIPLA has completed clinical trials for g-Symbicort and the filing is expected in 3QFY24
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