Cipla Ltd. - Moneycontrol

Cipla Ltd.

RESULT UPDATE

8th February, 2018 22nd May 2017

India Equity Institutional Research II

Result Update – Q3FY18

II 8th February, 2018

Cipla Ltd

Page 2

Improved operational efficiencies driving margin expansion

CMP

Target

INR 600

INR 714

Potential Upside 19.1%

Market Cap (INR Mn)

Recommendation

Sector

458,163

BUY

Pharma

Result highlights • Cipla reported net sales of INR 39,138 Mn which was up by 8.01% y-o-y and down 3.85% q-o-q. The decline in revenues was due to muted sales from the domestic business. The company has registered healthy growth of 13% Q-o-Q in European market. The US business has performed well in the quarter due to strong uptake in gPulmicort and gDacogen with sales at INR 65 bn registering growth of 5.18 % Q-o-Q. • EBIDTA stood at INR 8,186 Mn which grew by 20.81% y-o-y and 1.78% q-o-q. Reduction in COGS led to improved EBITDA margins for the quarter. The EBITDA margins were at 20.92% which has increased by 121 bps Q-o-Q and 234 bps y-o-y. The company is going under certain cost reduction measure which has helped to improved the EBITDA margins. • The company has reported net profit of INR 4,034 Mn against profit of INR 4,349 Mn in Q2FY18.PAT Margin for the quarter stood at 10.31% down by 35 bps q-o-q and marginally increased by 3 bps y-o-y. The increase in depreciation with lower other income led to margins decline in margins MARKET DATA

KEY FINANCIALS

Shares outs (Mn)

Particulars (INR Mn) Revenues EBITDA APAT AEPS (Rs) P/E (x) EV/EBITDA(x) ROAE (%)

804

EquityCap (INR Mn)

1610

Mkt Cap (INR Mn)

458163

52 Wk H/L (INR)

663/479

Volume Avg (3m K)

1589

Face Value (INR)

2

Bloomberg Code

CIPLA IN

150

120

90

MARKET INFO SENSEX

34083

NIFTY

10477

Feb-18

Aug-17

Feb-17

Aug-16

Feb-16

Aug-15

Feb-15

60

Sensex

FY16 136,783 25,011 15,059 18.7 36.1 23.4 13.5

FY17 146,302 24,758 10,064 12.5 42.0 18.5 8.4

FY18E

FY19E

1,56,079 30,282 15,607 19.4 30.9 16.5 11.8

1,76,087 34,682 19,169 23.8 25.2 14.3 13.0

Source: Company, KRChoksey Research

SHARE PRICE PERFORMANCE

Cipla Ltd

FY15 113,454 21,618 11,808 14.7 46.0 25.6 11.3

Strong growth momentum with operating leverage benefits: •Cipla has delivered robust results with a growth of 8% Y-o-Y due to improved business in the tender markets of Europe which grew 13.2% Q-o-Q along with the US business which has registered growth of 5.18% Q-o-Q . The growth in European markets was aided on the back of healthy market share by approval of Beclomethasone in UK which is a first generic in the market. North America’s business witnessed growth: The North America’s business has witnessed growth with sales at INR 6500 Mn in Q3FY18 growth of 5.18% Q-o-Q and degrowth of 1.18% Y-o-Y on the back of healthy market share by Budesonide (gPulmicort) and Decitabine (gDacogen) . The company believes that that these drugs will further gain their market share which will help to boost the US sales. In the quarter Cipla has filed 2 ANDA’s and its plans to file more 10 products in Q4FY18. The company also plans to launch some virology drugs such as Truvada, Viread etc which are high margins that could help to boost the US sales in coming quarters. Business in Europe boosted the sales: The company recorded sales of INR 1710 mn which grew 13.25% Q-o-Q and 35.7% Y-o-Y. The company has expanded its respiratory franchise with approval of Beclomethasone in UK which happens to be a first generic in the market. Domestic business saw muted sales: The domestic business saw muted sales mainly due to some seasonal variation in the product mix. However the company has registered growth of 13.7% Y-o-Y Domestic sales stood at INR 16,010. The company has launched 6 inlicensed drugs in the Indian markets and is continuously leveraging its commercial strength to further strengthen its partnership.

SHARE HOLDING PATTERN (%) Particulars

Dec 17

Sep 17

Jun 17

Promoters

36.71

36.72

36.73

FIIs

23.36

22.33

21.81

DIIs

13.95

14.62

14.76

Others

25.99

26.33

26.7

100

100

100

Total

ANALYST Vaibhav Chowdhry, [email protected], +91-22-6696 5571 Dhara Patwa, [email protected], +91-22-6696 5585

9.7%

38%

Revenue CAGR between FY 17 and FY 19E KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

PAT CAGR between FY 17 and FY 19E

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com




Page 3

Cipla Ltd. Strong growth going forward , operational efficiency to continue…. We believe that company will grow strongly FY19 on the back of approvals and launch of one limited competition product every quarter in the market. The company has a basket of total 244 US ANDA out of which 67 are under approval . The company has launched Sereflo (fluticasone and salmeterol) in UK which is used for the treatment of asthma will start contributing to the sales in full fledge from second half of FY19. Cipla has an exhaustive pipeline of inhalers and complex generics which has a huge market size. These opportunities will give an escalated growth trend to the company’s revenues and will give a boost to the topline in long run. Cipla has 16 Para IV filings and 15+ limited competition products in its pipeline which will help the company to maintain its growth trajectory. Valuations & Views: We believe in Cipla’s growth story led by its unique offerings of specialty drugs and inhalers. We expect Cipla to deliver robust growth on the back of its exclusive products and complex generics which are limited competition products. Along with the US, the domestic business and RoW will also grow strongly. Going ahead, we believe the topline to deliver a Y-o-Y growth of 6.68% with sales at INR 156,079 mn in FY18 and EBITDA at INR 30,282 with margins at 19.4%. At CMP of INR 600 the stock is trading at PE of 30.9x at FY19 with EPS of INR 19.4 We recommend “BUY” rating on the stock and value the stock at 30x FY20E EPS of INR 23.8 with a target price of INR 714 indicating 19.1% upside from CMP.

Sales breakup: INR Crs

Q3FY18

Q2FY18

Q3FY17

QoQ (%)

YoY (%)

Domestic

16,320

16,770

14,080

-2.7

15.9

Exports

22,820

24,050

21,860

-5.1

4.4

Total

39,140

40,820

35,940

-4.1

8.9



KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ





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Cipla Ltd. Q3FY18 Result Snapshot Exhibit 1 Consolidated Result Update (INR Mn) INR Mn

Q3FY18

Q2FY18

Q3FY17

38345

39882

35500

-3.9

8.0

793

942

972

-15.8

-18.4

Total Income

39138

40824

36472

-4.1

7.3

Expenditure

30952

32780

29696

-5.6

4.2

Materials Consumed

13784

15531

13011

-11.2

5.9

Employee Cost

6573

6608

6331

-0.5

3.8

Other Exp

10594

10641

10354

-0.4

2.3

EBITDA

8187

8044

6777

1.8

20.8

EBITDA margin (%)

20.9%

19.7%

18.6%

121bps

234bps

Depreciation

5224

3022

2577

72.8

102.7

EBIT

2963

5021

4199

-41.0

-29.4

Other Income

529

1133

1535

-53.3

-65.5

Interest expenses

92

420

593

-78.2

-84.6

Net Sales Other operating income

Excep. Items

QoQ (%)

YoY (%)

0

0

0

3401

5734

5141

-40.7

-33.8

Tax

-642

1374

1283

-146.7

-150.1

Effective tax rate (%)

-18.9

24.0

25.0

-178.8

PAT

4043

4360

3858

-7.3

4.8

0

0

101

4043

4360

3959

-7.3

2.1

PBT

Share of Associates Reported PAT Adj PAT

4043

4360

3959

-7.3

2.1

Net Margin (%)

10.3%

10.7%

10.9%

-35bps

-52bps

5.0

5.4

5.8

-8.2

-13.9

AEPS Source: Company, KRChoksey Research

Key Con-call Highlights: • The company has increased its R&D spend from 6% to 7-8% in FY18 sales to fund its ongoing clinical trials. The company has Completed Phase 1study for Tizanidine patch and the results for the same are under analysis • Cipla has adopted various cost saving programs which has resulted in improvement in margins. The company plans to continue it going forward which will help to increase the EBITDA margins by 100 bps each year. • The company plans to focus on Non-US markets such as Australia, South Africa etc where the performance has been improved. In Australia the company plans too ramp-up its respiratory portfolio and have also launched a flagship product FSPM. • Cipla has guided that the domestic business of the company would see growth of 14-15% going ahead. • Cipla has now focused on building strong specialty portfolio for US and is looking forward to acquire assets in neurology and respiratory. • The company has guided for a tax rate of 25%.







Page 5

Cipla Ltd. Exhibit 2: Income Statement INR Mn Revenues Op. Expenses EBITDA Other Income Depreciation EBIT Interest PBT Tax PAT Minority Sh. of Associates Ex. ordinary Adj Pat

FY15 113,454 91,837 21,618 1,656 5,047 18,226 1,683 16,543 4,000 12,543 -735 0 0 11,808

FY16 136,783 111,772 25,011 2,089 5,417 21,683 1,613 20,070 4,396 15,674 -615 0 0 15,059

FY17 146,302 121,545 24,758 2,287 13,229 13,816 1,594 12,222 1,798 10,424 -360 0 0 10,064

FY18E 1,56,079 1,25,797 30,282 2,516 7,374 25,424 5,311 20,113 4,023 16,090 -483 0 0 15,607

FY19E 1,76,087 1,41,404 34,682 2,968 7,974 29,677 4,975 24,702 4,940 19,761 -593 0 0 19,169


Exhibit 3 : Balance Sheet INR Mn

FY15

FY16

FY17

FY18E

FY19E

Equity Share Capital

1,606

1,607

1,609

Reserves & Surplus

106,409

113,555

123,645

Total Shareholders Fund

1,609 1,37,373 1,38,982 4,865 43,815 33,453 8,974 1,387 45,486 13,965 23,436 8,085 2,33,148

1,609 1,54,661 1,56,270 5,458 40,815 30,453 8,974 1,387 49,315 13,965 26,731 8,619 2,51,858

1,18,832 81,852 26,784 1,648 5,626 2,922 1,14,316 9,211 31,764 33,900 29,296 10,145 0 2,33,148

1,23,352 86,207 26,784 1,813 5,626 2,922 1,28,506 10,132 36,838 38,307 31,608 11,622 0 2,51,858

108,015

115,162

125,254

Minority Interest

1,805

3,501

4,382

Non- current liabilties

8,435

13,547

46,815

Long term Borrowings

3,109

2,219

36,453

Deferred tax liabilities

3,317

9,893

8,974

Other LT liabilties & prov

2,009

1,435

1,387

Current Liabilities

38,920

79,071

33,081

Short-term borrowings

13,925

49,695

4,672

Trade payables

15,757

22,137

22,286

Other cur liabilities & Prov

9,239

7,239

6,123

Total Liabilities

157,175

211,281

209,532

81,261

122,870

121,471

Fixed assets

48,521

87,236

84,766

Goodwill

25,585

27,056

26,784

Non-current investments

2,498

1,764

1,374

Long-term loans & adv

2,970

4,315

5,626

Other non-current assets

1,688

2,499

2,922

Current assets

75,914

88,412

88,061

Current investments

3,900

5,823

8,374

Trade receivables

20,043

24,932

28,898

Inventories

37,806

38,080

34,853

Cash & bank balances

5,638

8,582

6,104

Short-term loans & adv

7,074

10,863

9,003

Assets Non- current Assets

Other current assets Total Assets

1,454

133

829

157,175

211,282

209,532








Page 6

Cipla Ltd. Exhibit 4: Cash flow statement INR Mn PBT Depreciation Interest Exp Others CF before W.cap Inc/dec in W.cap Op CF after W.cap Less Taxes Net CF From Operations Inc/(dec) in F.A + CWIP (Pur)/sale of Investments others CF from Invst Activities Loan Raised/(repaid) Equity Raised Dividend Others CF from Fin Activities Net inc /(dec) in cash Op. bal of cash Cl. balance of cash

FY15 16543 5047 1683 -430 22844 -7186 15658 -3923 11735 -6256 -3534 379 -9411 3526 0 -1879 0 1648 3972 1752 5638

FY16 20070 5417 1613 158 27258 -4242 23016 -5077 17939 -10527 -35389 121 -45795 32807 29 -1809 0 31027 3171 5638 8709

FY17 12222 13229 1594 -1026 26019 2307 28326 -4503 23824 -10776 -2519 169 -13127 -10803 120 -3845 1290 -13239 -2541 8709 6104

FY18E 19081 7374 5311 0 31766 -2153 29613 -3816 25796 -4460 -1112 0 -5572 982 0 -1880 0 -898 19326 6104 25430

FY19E 22449 7974 4975 0 35398 -6758 28640 -4490 24150 -12329 -1086 0 -13415 -7975 0 -1880 0 -9855 880 25430 26310

FY15 17.3 21.9 125.2 2.0 11.6

FY16 14.7 21.0 134.4 2.0 13.6

FY17 18.7 25.5 143.3 2.0 10.7

FY18E

FY19E

19.4 28.6 172.8 2.0 10.3

23.8 33.7 194.2 2.0 8.4

39.1 5.4 25.9 0.3

46.0 5.0 25.6 0.3

36.1 4.7 23.4 0.3

30.9 3.5 16.5 0.3

25.2 3.1 14.3 0.3

21.1 13.7 14.6 15.9

19.1 10.4 11.3 13.3

18.3 11.0 13.5 12.5

19.4 10.0 11.8 12.0

19.7 10.9 13.0 12.8

0.0 0.1 0.6 12.1 3.3

0.0 0.1 0.8 9.8 2.9

0.0 0.4 2.1 12.1 2.8

0.2 0.1 1.6 4.3 3.3

0.2 0.1 1.3 5.4 3.3

22.0 -2.9 -7.8

12.3 1.3 -15.0

20.6 15.7 27.5

6.7 22.3 55.1

12.8 14.5 22.8

1.6 99 62

1.6 112 61

1.3 104 61

1.2 82 73

1.3 76 73


Exhibit 5: Ratio Analysis INR Mn EPS CEPS BVPS DPS Payout (%) Valuation (x) P/E P/BV EV/EBITDA Dividend Yield (%) Return ratio (%) EBIDTA Margin PAT Margin ROAE ROACE Leverage Ratios (x) Long Term D/E Net Debt/Equity Debt/EBITDA Interest Coverage Current ratio Growth Ratios (%) Income growth EBITDA growth PAT growth Turnover Ratios F.A Turnover x Inventory Days Debtors Days Source: Company, KRChoksey Research







Page 7

Cipla Ltd. Rating Legend

Cipla Ltd. Date 08-Feb-18 08-Nov-17 14-Aug-17 09-Feb-16 10-Nov-16 16-Aug-16 27-May-16 11-Feb-16 06-Nov-15 14-Oct-15 17-Aug-15 8-Jul-15 30-May-15 9-Apr-15

CMP (INR) 600 630 542 587 528 513 468 539 659 676 741 652 650 728

TP (INR) 714 736 627 690 616 616 616 646 751 765 765 704 704 754

Recommendation BUY BUY BUY BUY BUY BUY BUY BUY ACCUMULATE ACCUMULATE HOLD ACCUMULATE ACCUMULATE HOLD

Our Rating

Upside

Buy

More than 15%

Accumulate

5% - 15%

Hold

0 – 5%

Reduce

-5% – 0

Sell

Less than -5%

ANALYST CERTIFICATION: We, Vaibhav Chowdhry (B.Com, MBA), research analyst and Dhara Patwa (BBA,MBA), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014. 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