New launches to offset US pricing pressure- Cipla
Update on the Indian Equity Market:
On Monday, NIFTY closed in the green at 17,339 (+1.4%) ahead of the Budget. Among the sectoral indices, REALTY (+3%), PSU BANK (+3%), and IT (+2.8%) were the top gainers and there were no sectoral losers. TECHM (+5.2%), TATAMOTORS (+4.0%), and WIPRO (+3.8%) were the top gainers. INDUSINBK (-3.5%), KOTAKBANK (-2.0%), and COALINDIA (-1.4%) were among the top losers.
Excerpts from an interview of Mr. Umang Vohra, MD & Global CEO, Cipla (CIPLA) with Economic Times dated 31st January 2022:
- On the India growth numbers, CIPLA saw strong momentum in the base portfolio and has pre-allocated resources to the bigger brands. As healthcare begins to expand, it saw a large contribution from Tier 1 to 4 towns to the volume growth. It has re-positioned resources on its key branded franchises in India on the back of consumer business playing out strongly.
- In the US, CIPLA’s respiratory portfolio gained market share resulting in revenues worth US$150 mn. Mr.Vohra said the December quarter always has bunched up sales because that is the buying pattern in the US as there are holidays in the first 7-8 days of January.
- Launch momentum is going to be significant in FY23 because the US is responsive to it.
- In South Africa, the market is divided into private and tender. The tender is linked to government buying. The private market has always shown robust growth and CIPLA has been beating the market over the past five years QoQ.
- There were congestions in the tender market as there are patterns of government buying in response to the Budget of the country. These patterns respond to the aid that the country receives in terms of a portfolio of medicines, in terms of the buying agencies supporting the various governments.
- The South African tender market is going through a new cycle similar to the one 3 years ago. Despite some shifts due to this cycle, it is expected to go back to the way it was originally.
- In India, CIPLA sees doctor practice to come back strongly on the back of volume demand.
- Pricing pressure in the US is expected to continue. It is the nature of the US market. It is a free market and prices fall as more players enter it. CIPLA has responded to these pressures quite significantly and these are expected to continue going forward.
- The issue of pricing will be there in the US markets but new launches are expected to offset that.
Asset Multiplier comments:
- The US business is expected to ramp up on the back of new launches and a complex generics portfolio.
- The revenues were not impacted significantly by US price erosion due to new complex launches and increasing market share. Should the new launches get delayed, CIPLA will be impacted by the pricing pressures in the US.
- With the decline in COVID-19 products’ contribution, the base portfolio has started growing. We expect this base portfolio to perform well in the coming quarters as the cases start declining.
- We expect margins to sustain the upward trajectory for the next few quarters as the complex pipeline is strong.
Consensus Estimate: (Source: Market screener and Tikr websites)
- The closing price of Cipla was ₹ 945/- as of 31-January-2022. It traded at 27x/23x/20x the consensus earnings per share estimate of ₹ 35/42/50/- for FY22E/FY23E/FY24E respectively.
- The consensus average target price is ₹ 1,088/- which implies a PE multiple of 22x on FY24E EPS of ₹ 50/-.
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