PL Stock Report - Cipla (CIPLA IN) - Q1FY24 Result Update - Strong quarter; margins and US sales guidance revised upward - BUY

Cipla (CIPLA IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs1,069 | TP: Rs1,220

Q1FY24 Result Update - Strong quarter; margins and US sales guidance revised upward

Quick Pointers:

♦ Ramp-up in Lanreotide and market share gains in other products aided US.

♦ Margin guidance increased to 23% vs earlier 22% for FY24.

CIPLA’s Q1FY24 EBITDA (Rs15bn; 23.6% OPM) was 13% above our estimates, aided by higher GMs (64.3%) and US sales of US$222mn. We continue to remain positive on growth across key segments including India and US given 1) strong traction in respiratory and other portfolio, 2) potential growth of +10% in domestic formulations and 3) sustainability of current US revs, backed by prospective key launches over FY25. Our FY24E and FY25E EPS stands increased by ~5% as we factor in higher US sales and margins. We expect 17% EPS CAGR over FY23-25E. Maintain ‘Buy’ rating with revised TP of Rs1,220 based on 24x (22x earlier) FY25E EPS. Any further FDA escalation to Indore unit and erosion in key products in US will be key risk to our call.

♦ Healthy revenue growth across key markets: CIPLA’s Q1FY24 sales increased 18% YoY (up 1% QoQ) to Rs63.3bn. Domestic formulation sales grew by 11.5% YoY led by momentum across portfolio of One-India business. US sales came in at $222mn, up 9% QoQ, above our estimates. International markets grew by 8% YoY, while SAGA continued to report 5% decline. API saw growth of 1% YoY.

♦ Strong EBITDA beat aided by higher US sales and GMs: GMs were up by 70bp YoY to 64.3%, we est 63%. OPM of 23.6% was above our estimate led by higher US sales and better product mix. Other expenses increased by 22% YoY. R&D cost came at Rs3.5bn; 5.7% of sales; up 27% YoY. Tax came in at 27.5%, while depreciation charges were lower. PAT of Rs10bn (up 45% YoY) was above our estimate of Rs8bn.

♦ Key concall takeaways: (1) US business reported highest quarterly revenue aided by ramp up in gLanreotide and expansion in market share of key launches. Currently CIPLA enjoys +18% market share in Lanreotide vs 17% in Q4FY23. Mgmt cited that QoQ growth in US sales was aided by base business while gRevlimid was largely flat QoQ. Guided quarterly run-rate of $205mn-210mn vs $190-195mn earlier. Expects four-five peptides launch over next 18 months (2) Mgmt cited that large number of US generic companies are amalgamating and thereby seeing rebalancing of supply chain. This has resulted in price stabilization (3) On gAdvair company has initiated site transfer to its own facility and reiterated FY25 launch, while gAbraxane is derisked to CMO facility. gAlbuterol has seen decrease in market share, however it has now stabilized. Classification on Indore facility is still pending. (4) Domestic formulation - continued to report market beating growth with overall contribution from chronic expanding well. During Q1, added 250 additional MRs with another 150-200 net addition likely in Q2. CIPLA consumer biz achieved mid teen margins in Q1, while trade generic segment reported 8% YoY growth (6) Overall guided 23% OPM for FY24E vs 22% earlier. Capex of Rs15bn in FY24. Net cash stands at Rs61bn as of Q1FY24 end.

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