Alpha | Cipla Ltd. – Equity Research Desk

Introduction

Established in 1935 and headquartered in Mumbai, Cipla Ltd. is a global pharmaceutical company renowned for its strong presence in key markets such as India, South Africa, North America, and other regulated and emerging regions. Cipla is dedicated to providing high-quality, affordable medications and has a diverse portfolio that includes treatments for respiratory, cardiovascular, and infectious diseases, among others. With a commitment to innovation and sustainability, Cipla continues to make significant strides in improving healthcare access and outcomes worldwide.

Product Portfolio

– Generics and branded generics

– Over-the-counter (OTC) products

– Specialty and consumer health products

– Respiratory drugs

– Anti-retroviral medications

– Urology, cardiology, anti-infective, CNS, and other therapeutic segments

– 1500+ products in 65 therapeutic categories available in over 50 dosage forms

Subsidiaries as of FY23:

– 45 subsidiaries

– 8 associate companies

Growth Strategies of CIPLA

– Cipla has achieved sales exceeding $500 million in the past four years, positioning it as the fastest-growing US generic pharmaceutical company among its competitors.

– The company’s Indian operations have experienced robust growth of 10% in FY24, driven by increased demand for branded prescription medications and trade generics.

-Cipla boosted its market share in North America by 15.5% in FY24, driven by significant shares in key markets such as Lanreotide and Albuterol.

-South Africa’s Private Market witnessed exceptional year-on-year growth of 26% in local currency terms, surpassing overall market growth rates.

-Strategic filings include 5 respiratory assets, including gSymbicort and gQvar, with launches expected within the next three years.

-The company has filed 12 assets in peptides and complex generics, slated for launch over the next 2-4 years, illustrating a focused expansion into specialized segments.

CIPLA Ltd Financial Highlights

Q4FY24 

– Revenue: Rs.6,163 crore (7% increase YoY)

– Operating profit: Rs.1,316 crore (12% increase YoY)

– Net profit: Rs.932 crore (79% increase YoY)

– Operating profit margin: 21% (54 bps YoY improvement)

– Net profit margin: 15% (587 bps YoY improvement)

– R&D expenditure: Rs.444 crore (19% YoY increase)

FY24 

– Revenue: Rs.25,455 crore (14% increase YoY)

– Operating profit: Rs.6,233 crore (26% increase YoY)

– Net profit: Rs.4,106 crore (47% increase YoY)

Financial Performance (FY19-24)

– Revenue and PAT CAGR: 10% and 25%

– Average 5-year ROE: 14%

– Average 5-year ROCE: 17%

– Debt-to-equity ratio: 0.02

 Industry Outlook

– India is the largest provider of generic drugs globally

– Indian pharmaceutical industry: 3rd largest by volume, 14th largest by value

– Projected CAGR of over 10% to reach US$ 130 billion by 2030 and US$ 450 billion by 2047

– Largest number of USFDA-compliant pharmaceutical plants outside the US

– 2,000+ WHO-GMP approved facilities serving demand from 150+ countries

Growth Drivers

– 100% FDI allowed through automatic route for Greenfield pharmaceuticals projects

– Rs.1,000 crore (US$ 120 million) earmarked for promotion of bulk drug parks in FY25

– PLI scheme for pharmaceuticals with a total outlay of Rs. 15,000 crore (US$ 2.04 billion) from 2020-21 to 2028-29

Competitive Advantage

Compared to competitors like Sun Pharmaceuticals Industries Ltd and Lupin Ltd, Cipla stands out as an undervalued stock with significant potential for P/E expansion, supported by its strong margin and earnings growth

Outlook

1. Cipla Ltd. has been crucial in making affordable HIV treatment accessible from India.
2. Cipla is developing new products including inhaled insulin and plazomicin, with more in the pipeline.
3. The company aims to rank 2nd in OTC markets and launch peptide assets in FY25.
4. Cipla is developing complex ANDA products for its future portfolio.
5. Cipla plans to invest Rs.1,500 crore to enhance manufacturing and sustainability, with an EBITDA guidance of 24.5% to 25.5%.

Valuation

With an improved product mix, deepening distribution network, and technological innovations, Cipla is expected to see considerable growth in revenue and margins. A BUY rating is recommended with a target price (TP) of Rs. 1,776, 32x FY26E EPS.

Risks

– Forex risk due to significant operations in foreign markets.

– Regulatory risk, including scrutiny by regulatory agencies like the USFDA.

Recap of our previous recommendations (As on 24 May 2024)

Indus Towers Ltd

Gulf Oil Lubricants India Ltd

Aurobindo Pharma Ltd

Man Infraconstruction Ltd