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Cipla - Q1FY15 Result Update - "ACCUMULATE"




Kisan Ratilal Choksey Shares and Securities Private Limited


18 Aug 2014





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Cipla - Q1FY15 Result Update CMP: Rs 448 Target Price: Rs 475 Recommendation: ACCUMULATE “Operating performance in line” Result highlights Cipla’s Q1FY15 revenues & operating performance were in line but earnings were below our estimates. Total income grew by 8.3% YoY to Rs2720crs mainly due to strong growth in domestic business. However, exports posted moderate growth. EBITDA stood at Rs.542crs down by 21% YoY which was in line with our estimates. EBITDA margin stood at 19.9% contracted by 760bps YoY as last corresponding quarter included milestone payment for Dymista which was included in operating income. However, EBITDA margins improved sequentially due to focus on cost management in manufacturing and procurement expenses & favourable product mix. Reported PAT stood at Rs. 295crs down by 39% due to lower other income, higher depreciation cost & increased share of associate loss. EPS for the quarter stood at Rs3.7. Domestic business showed robust performance Domestic formulation business, which contributed 49% to the overall sales, grew by 17% YoY in Q1FY15 above industry growth of 10% on account of strong growth in branded generics with improvement in market share of 5.2% from 4.7%. Branded business posted strong growth on account of sales pick up in respiratory, anti-infectives & cardiology segments. Company has 7000-8000 MRs & is focused on improving productivity. Company has also identified certain therapy segments (oncology, CNS) wherein they would be penetrating further. Company is also focusing on inlicensing opportunities in Indian market. Company has completed Darbopoetin & Raltegravir licensing deals & sublicencing agreements from Medicine Patent pool (MPP) to make generic versions of HIV medicine Dolutegravir. We expect domestic business to show 14% CAGR over FY14-16E. Exports showed moderate growth Exports grew by 10% YoY during the quarter led by 13% growth in export formulations. Cipla won 30% share of global fund Artemisinin-combination therapies (ACT) tender. Company won tender of 300mn Rand out of pool of 850mn Rand to supply over next two years in different therapies of Respiratory, Mental Health, CVS & Women’s healthcare categories. Company has launched Mometasaone nasal in Netherlands & Ipratropium MDI in UK. Market size for each product is around USD15-20mn and has many players. Company is also expecting to launch Mometasone in other EU regions. Cipla has 10 inhalers in pipeline out of which 5 are approved, 2 are in various regulatory pathways & 3 are under various development stages. However, major boost will be provided by launch of big ticket combination inhalers in Europe. Company is eyeing combination inhaler launches during H2FY15. However, we have not taken any upside from inhaler launches into our estimates. Company has filed 7 ANDAs (partner+owned) and received 2 approvals during the quarter. Company has started building team to launch its own products from Q4FY15. We believe export sales to remain strong and expect 16%CAGR over FY14-16E. Valuation: Cipla is focusing on restructuring its business model with 2-3 yrs strategy and is looking to shift from partnership model to front end model. Building front end model may pressurize margins in near term but will reap the benefits in future. Any launch of combination inhaler will offset the pressure on margins. We expect overall revenues to grow by 13.5% & 15.7%in FY15E & FY16E respectively & earnings to grow at 9% & 22% in FY15E & FY16E respecti...

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