Cipla

Looking at quarterly run rate of $140 mn in US market – Cipla

Update on the Indian Equity Market:
On Wednesday, Nifty ended 0.9% higher at 12,749 led by the pharma & metal stocks. The top gainers for Nifty 50 were Hindalco (+8.0%), Tata Steel (+7.7%), and Dr Reddy (+4.1%) while the losing stocks for the day IndusInd bank (-5.2%), Reliance (-4.1%), and Titan (-2.1%). Top gaining sectors were Pharma (+3.6%), Metal (+3.5%), and IT (+1.7%) while the losing sectors for the day were PSU Bank (-0.5%), and Media (-0.3%).

Edited excerpts of an interview with Mr Umang Vohra, MD & Global CEO, Cipla Ltd; dated 10th November 2020 from CNBCTV18:

Cipla’s second-quarter performance exceeded analyst estimates on most parameters. Talking about growth sustaining in the second half of FY21E Mr Vohra said that the numbers are in response to the market forces and he thinks these numbers in a certain range will continue to exist going forward at least for the next one quarter.
There might be a marginal dip or off in revenue or in profit but by and large, Cipla is on this trajectory for 3QFY21E as well.

On the outlook for the India business, he believes that the COVID portfolio growth will begin to abate as cases go down in India. Other than COVID, Cipla’s businesses are fairly strong on its fundamentals. Non- Covid portfolio has been doing well and beating the industry growth for the 5th consequent quarter.

Cipla can expand its margin trajectory by about 300 basis points from the start of the year on a normalise basis to where it thinks it would be in 2-3 years.

Talking about US markets Mr Vohra said that approximately $140 million is now the new base of the US and as they launch new products this run rate would increase.

The Albuterol category is a fairly large category, Perrigo was in the market till about a month and a half back, and Perrigo will be back in the market soon as well.

He thinks that the arrival and the departure of players may create a little bit of short-term pressure in volumes, but he doesn’t think that the prices would correct as significantly because of Perrigo’s arrival back into the market.

The Company has finished the remediation efforts and has reverted back to the US FDA on Goa facility. The Company is also expecting some response from USFDA on the Goa facility soon.
The Company is open for acquisitions which would be strategic for the Company rather than big acquisitions. But as of now, the Company is focused on delivering organic growth with timely product launches.

Consensus Estimate: (Source: market screener website)

The closing price of CIPLA was ₹ 741/- as of 11-November-2020. It traded at 25x/ 23x/19x the consensus book value estimate of ₹ 29.5/32.9/38.4 for FY21E/ FY22E/ FY23E respectively.

The consensus target price of ₹ 882/- implies a PE multiple of 23x on FY23E EPS of ₹ 42.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

An opportunity to re-imagine business – Cipla

Update on the Indian Equity Market:
On Wednesday, Nifty50 snapped its six-day winning streak to end 0.1% lower at 11,308. HCLTECH (+4.7%), SBIN (+4.3%), and TECHM (+2.8%) ended the day in the green. KOTAKBANK (-2.1%), CIPLA (-2.1%), and SUNPHARMA (-2.0%) led the laggards. Among the sectoral indices, PSUBANK (+2.7%), MEDIA (+2.4%), and AUTO (2.0%) led the gainers while PHARMA (-1.6%), REALTY (-0.7%), and METAL (-0.7%) led the losers.

Cipla recently declared 1QFY21 results. Mr. Umang Vohra, MD & Global CEO discussed the opportunities provided by the covid epidemic to the business with Economic Times on 11th August 2020. Here are the edited excerpts of the interview:

• He outlined three reasons for the good numbers reported. The first being that healthcare is a part of essential services continues to work despite the pandemic led lockdowns. The second being the tailwinds of the crisis is the increased levels of collaboration and cooperation with every healthcare authority in the world. The third reason being getting more Covid treatments out as soon as possible and ensuring drug supply is not affected.
• The Covid crisis has given an opportunity to reimagine their business. It has given an opportunity to understand what is important to running their business. There were a few costs that could not be incurred. Since all the manufacturing plants are operating, those costs have increased slightly as more precaution for social distancing needs to be taken. The absence of some of the field costs has helped the bottom line.
• The timelines of approvals are at an all-time high and in terms of pricing, the only market that was a concern was the US. In the US, more attention is paid to the availability of the product against price.
• Respiratory is the core therapy for Cipla and they are trying to expand their respiratory franchise. Albuterol is the first one and there is a reasonable pipeline built for unlocking the respiratory franchise in the US over the next 18-24 months.
• Albuterol production has ramped up quite significantly in the first quarter and it being a 60-million-unit market, Cipla will get its fair share in the market.
• Some of the cost control measures were voluntary and some were involuntary. Due to lockdowns, travel costs were not incurred. Some of that would resume again in the coming quarters. There is an ambitious cost program which has been running for the past 2-3 years and which will continue to run.
• The guidance for margins has been to the same level before lockdown; as a large portion of the cost base cannot be maintained so low. So the sustainable basis for every quarter is going to be slightly lower than the first quarter in absolute percentage terms.
• With the crisis lasting a little longer in India, chronic conditions will continue to stay the same. The respiratory linked illnesses, linked to weather and linked to winter will continue. Acute therapy is impacted as patients are healthier and not reporting sick. Hospitals are beginning to uptick now and expect to see a resumption of surgeries and elective procedures in a quarter’s time.
• Cipla’s business is changing and about 15-20% of its market will be very different compared to pre-covid.
• Digital has the ability to penetrate healthcare more significantly compared to physical representatives. Digital provides remote connect which is faster and economical.

Consensus Estimate: (Source: market screener website)
• The closing price of Cipla was ₹ 762/- as of 12-August-2020. It traded at 29x/ 25x/ 21x the consensus earnings estimate of ₹ 26.2/ 30.2/ 36.7 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 769/- implies a PE multiple of 21x on FY23E EPS of ₹ 36.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

A big opportunity is beginning to unlock for us in the US: Cipla

Update on the Indian Equity Market:

On Tuesday, NIFTY ended up 56 pts (+0.63%) at 8879 level. Among the sectoral indices, MEDIA (2.0%), AUTO (1.03%) and IT (0.99%) were among the top gainers while PSU BANK (-2.59%), REALTY (-0.7%) and PVT BANK (-0.49%) were the losers.
BHARTIARTL (10.81%), ADANIPORTS (+9.0%) and ONGC (+5.69%) were the top gainers. UPL (-9.78%), VEDL (-2.65%) and RELAINCE (-2.2%) were the top losers.

A big opportunity is beginning to unlock for us in the US: Cipla

Edited excerpts of an interview with Mr. Umang Vohra, Managing Director (MD) & Global Chief Executive Officer (CEO), Cipla:

Our ambition is to dominate the inhaler space across all markets and offer solutions to patients, says Umang Vohra, MD & Global CEO, Cipla.

• His comments on Profit Margins: Company has guided at the beginning of the year and that is standing up at close to 19% range. The fourth quarter is usually off-season for the company and therefore historically, have always been subdued. There are some of the specific one-offs:
o Company was not able to invoice about Rs 2000 odd mn of sales on account of the last week of Covid closure and that is pretty high margin sales. The impact would have been directly on profitability.
o In comparison to the base in the previous year where there was a huge amount of cinacalcet sales, that is not the right comparison for 4QFY20 and for 1QFY21E too.
o Cinacalcet itself had some charges in 4QFY20 as exclusivity has ended.
o In the last six to nine months, a fair amount of cost and effort on the remediation was required for Goa which is now completely in numbers. The remediation effort and work for Goa that is required will finish approximately by June/July, 2020. The charges have largely been taken in 3QFY20.

• His views on sale pick up in the year to come – A pretty solid year is expected on account of Sensipar, Albuterol approval and also esomeprazole granules approval received in the last week of 4QFY20.
• When asked about the US market he informed that US is a 55 mn unit market and with the recent shortage of Albuterol in the US, it moved to a 50-65 mn unit market. On the branded side, it is close to 4 bn in sales across the three brands of Albuterol. It is a very significant and sizable market for Cipla to play in.
• When asked about the main growth drivers going ahead he commented that respiratory franchise might be boosted by another complex inhaler filing. The inhaler opportunity can add to position Cipla as the lung leader. Already, Cipla is number two in terms of both Metered-dose inhaler (MDI) and Dry-powder inhaler (DPI) sold worldwide, just with the number of devices that Cipla sells worldwide in both these categories. Company’s ambition is to dominate this space across all markets and offer solutions to patients which they are not getting today.
• Cipla had albuterol approved that is a great validation for MDI. The trial just finished and a filing is imminent in the next one or two days for the Advair product which is a product that many companies have struggled to get a first part clinical trial approval and Cipla have just passed that.
• Cipla also filed another product which cannot be disclose right now due to IP. It has also filed another product which is again another inhaler in 4QFY20 and have a partnered asset which is another very large category where nobody else is working. That product is at the clinical trials stage with their partner.
• If we combine the above four and the rest of the products that Cipla is likely to do, a big opportunity is beginning to unlock for Cipla in the US and carries a fairly significant value for the company in the long term.
• His views on COVID-19, India and other emerging market business and the process for other prescription drugs: In the first two, three weeks of the lockdown, there was a serious dip because everyone was dealing with the lockdown initially. In week three and four, activity was resumed by doctors, who started interacting virtually with their patients. In the last week, the green and orange zones are opening up and activity is resuming in these areas. Of course, there are sections where the doctors are not meeting as much. For example, dentists and dermatologists because of the risk of this infection being real, are perhaps not meeting as much as interventionists, chest physicians etc. So, it is gradually opening up. As the red zones begin to open up, resumption in activity can be seen depending on the zone.

Consensus Estimate: (Source: market screener website)

• The closing price of Cipla Ltd. was ₹ 594/- as of 19-May-20. It traded at 25.4x/ 21.2x the consensus EPS estimate of ₹ 23.7/28.4 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 623/- implies a PE multiple of 22x on FY22E EPS of ₹ 28.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”