16 May 2020
4QFY20 Results Update | Sector: Healthcare
Cipla
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
CIPLA IN
805
459.7 / 6.1
632 / 356
-6/46/19
1964
CMP: INR570
TP: INR550 (-4%)
Neutral
Lockdown lowers growth prospects in DF/overall earnings
Enhancing Respiratory pipeline for US on track
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
171.3 182.5 202.7
Sales
32.1 37.2 43.0
EBITDA
15.8 19.3 22.9
Adj. PAT
EBIT Margin (%)
12.0 13.7 14.4
19.6 24.1 28.6
Cons. Adj. EPS (INR)
4.8 22.7 18.7
EPS Gr. (%)
207.1 228.4 253.3
BV/Sh. (INR)
Ratios
Net D:E
0.1
0.0 -0.1
9.4 10.5 11.3
RoE (%)
8.6
9.9 10.6
RoCE (%)
Payout (%)
15.6 12.5 12.6
Valuations
28.9 23.6 19.8
P/E (x)
14.8 12.3 10.3
EV/EBITDA (x)
Div. Yield (%)
0.4
0.4
0.5
FCF Yield (%)
4.5
4.4
4.3
2.8
2.5
2.2
EV/Sales (x)
COVID-19-led lower-than-estimated performance
The EBITDA margin trajectory has been on the downtrend for the past four
quarters, partly due to increased competition in potential products. The
intensity further increased in 4QFY20 due to COVID-19.
Cipla’s Respiratory product pipeline for US Generics is shaping up well,
providing growth visibility over the next two to three years. Also, efforts to
improve synergies across the Prescription, Trade Generics, and Consumer
portfolios for the India business have started to yield results.
However, we cut our EPS estimates by 7.5%/3% for FY21/FY22 to factor the
lockdown-led decline in the Domestic Formulations (DF) business. We
maintain our price target at INR550 as we roll out our price target on a 20x
12M forward basis. Maintain Neutral, as the valuation factors a potential
upside in earnings over the medium term.
4QFY20 revenues were flat YoY at INR43.7b (our est.: INR43.1b) as 12% YoY
growth in India (40% of sales) was offset by decline in US sales (down 27%
YoY; 20% of sales at USD118m) and EU sales (down 1% YoY; 5% of sales), and
muted growth in the SAGA business (19% of sales). Within SAGA, the South
Africa Private Market business grew 10% YoY in the local currency rate.
The gross margin (GM) contracted ~180bp YoY (-100bp QoQ) to 61.4% due
to a change in the product mix. The EBITDA margin contracted further by
~740bp YoY to 14.4% due to lower operating leverage (employee/other
expenses (+130bp/120bp YoY as a percentage of sales). EBITDA declined
~34% YoY to INR6.3b (v/s est. of INR7.7b).
Adj. PAT declined at a higher rate of ~46% YoY to INR2.7b (v/s our est. of
INR3.6b), weighed by a higher tax rate.
For FY20, sales/EBITDA/PAT grew 5%/4%/5% to INR171b/INR32b/INR15.7b,
led by moderate performances in key geographies: India/US.
Lockdown impacted sales of INR2b for 4QFY20. The decreased share of high-
margin businesses, coupled with cost related to remediation toward the Goa
facility, dragged down the EBITDA margin by 200bp for the quarter.
Cipla has guided for moderation in R&D spend for FY21.
Albuterol is a 60m unit market. The market is interchangeable between
gProair and gVentolin. Another player is in queue to acquire approval for
Albuterol.
Capacity utilization is up by 80–85% against that in the lockdown scenario.
We expect 21% earnings CAGR, led by niche launches in US Generics and
improved growth through renewed strategy in Domestic Formulations. We
continue to value Cipla at 20x 12M forward earnings to arrive at a price
target of INR550. Maintain Neutral, as the valuation leaves limited scope for
return from current levels.
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Dec-19 Sep-19 Dec-18
36.7
36.7
36.7
20.9
17.6
13.7
20.4
24.3
25.9
22.1
21.5
23.7
Highlights from management commentary
FII Includes depository receipts
Valuation and view
Research Analyst: Tushar Manudhane
(Tushar.Manudhane@motilaloswal.com); +91 22 5036 2498
Hitakshi Chandrani
(Hitakshi.Chandrani@MotilalOswal.com); +91 22 6129 1557 /
Bharat Hegde
(Bharat.Hegde@motilaloswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.