Analyst Corner: Maintain ‘buy’ on Cipla, raise TP to Rs 1,065

We remove NPV of Rs 7/share for IV tramadol in view of uncertainty around its approval in the US.

4Q miss on lower India sales and certain one-off costs: 4Q revenue of Rs 46.1 bn declined 10.9% qoq (+5.3% yoy) on lower sales in the key markets of India, the US and Ro. India sales at Rs 18.1 bn declined 19% qoq in 4Q, which is one of the seasonally weakest quarters. EBITDA margins at 17.3% declined 653 bps qoq on low gross margins and higher other operating costs. PAT at Rs 4.1 bn declined 44.7% qoq (+68.1% yoy on a low base).

US on a steady growth path; sizeable launches lined up in FY23: Cipla continues to see strong traction for its gProventil (albuterol inhaler) launch in the US where it has garnered 13.2% volume share. 4Q US sales at $138 m declined 2% qoq on lack of meaningful launches. In our view, its US sales remains on a steady growth path with improving margins on: a) continued scale-up in respiratory sales (~24% of US sales in FY21); b) visible key launches in FY22/23 (e.g. lanthanum carbonate and sumatriptan nasal spray in FY22; gRevlimid, gAbraxane and potentially gAdvair in FY23); and c) improving reach in institutional channels.

Maintain ‘buy’ on strong business outlook: Despite the 4Q miss, we maintain our positive view on Cipla for its strong outlook in focus segments like India and the US. ‘One India’ initiative led portfolio synergies should sustain outperformance of its India sales versus the market. The outlook remains steady for other key markets like the US and South Africa. Cipla is seeing rising demand for COVID-19 related products (e.g. remdesivir) and the impact should be reflected in 1QFY22.

Raise TP to Rs 1,065 (from Rs 1,055): We add NPV per share of Rs 25 for the inhalers pipeline and Rs 20 for gRevlimid (lower than earlier value of Rs 25 on higher competition) to the base business value to arrive at our fair value target price of Rs 1,065 (from Rs 1,055). We remove NPV of Rs 7/share for IV tramadol in view of uncertainty around its approval in the US.

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