Maintain BUY on Cipla - Solid quarter, outlook reaffirmed - HDFC Securities

Ms. Bansi Desai, Institutional Research Analyst, HDFC Securities.

Cipla's Q1 results were strong (EBITDA/PAT beat of ~85%) driven by good growth across regions and higher than expected cost savings. With strong traction in US (ramp up in Albuterol, niche launches), good growth in India (Rx business outperformed IPM growth for past four quarters, benefits of One-India strategy, Covid portfolio) and reduction in costs (good part of cost savings are likely to sustain owing to digital initiatives) margins are set to structurally improve. We forecast ~400bps of margin expansion over FY20-22e and increase our FY21/22e EPS estimates by 22%/13% to factor lower costs and strong revenue momentum. We increase our TP to Rs805 based on 23x FY22 EPS and Rs30/share for gAdvair opportunity. Maintain Buy.

All round beat: Revenues at Rs43.4bn came ahead of expectations driven by strong growth across all regions. Gross margin improvement (down 658bps YoY, +202bps QoQ, gSensipar exclusivity in the base) coupled with sharp decline in lower other expenses (down 684bps YoY, down 794bps QoQ, lower SG&A and promotion spends) led to EBIDTA margin of 24.1% (+ 145bps YoY, +965bps QoQ). Adjusted PAT stood at Rs5.8bn (85% beat).

India business on strong footing: India growth (+16% YoY, low base) was driven by strong performance across three verticals - prescription business (+9% YoY, chronic led), trade generics (+46% YoY, adjusted for transfers to CHL) and consumer health (Rs1bn, portfolio expansion). Implementation of One-India strategy will drive further synergies. Cipla is at the forefront with Covid care portfolio (Remdesvir, Favipiravir, Toclizumab, hand sanitizer), the contribution of which is likely to reflect from Q2 onwards.

Strong growth momentum in the US driven by complex launches: US business grew by 14% QoQ to USD135mn led by ramp up in gProventil (6% TRx share in Albuterol), new launches and strong traction in base business. We factor market share ramp up in gProventil (upto 15% by FY22), recent niche launches (DHE nasal spray with CGT exclusivity, Icatibant inj) and new approvals to drive 18% CAGR (adjusted for gSensipar) over FY20-22e.

Key call takeaways: a) Albuterol - stable pricing, down ~25% from Jan levels, Cipla has adequate capacity for fair share, clocked 65% share in Proventil brand; b) Other expenses to be lower by Rs4-5bn in FY21, a part of this is likely to sustain owing to digital initiatives; guides for 20% EBITDA in FY21; c) Remdesvir in India - demand outpaces supply, additional players likely to enter which should address the shortages; d) gAdvair - approval timelines of 18-20 months from filing; e) Goa plant - working with FDA; f) Net debt - Zero, Gross debt - USD317mn.

Shares of CIPLA LTD. was last trading in BSE at Rs.778.7 as compared to the previous close of Rs. 795.65. The total number of shares traded during the day was 587770 in over 13029 trades.

The stock hit an intraday high of Rs. 802.6 and intraday low of 768.9. The net turnover during the day was Rs. 459275399.

Source : Equity Bulls

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