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.”