Cipla
Good gets better
Cipla’s partnership-based, geographically diversified model, with particular focus
on RoW markets, and its formidable R&D capabilities have proved to be a robust
and sustainable growth engine. Momentum will be further boosted by Cipla’s much-
awaited entry into the EU inhaler market as also likely launch of niche partnership
products in USA. Aggressive capex rollout indicates management’s comfort on
future growth outlook. Coupled with significant EBITDA margin expansion of 260bp
to ~26%, we expect 29% EPS CAGR for Cipla over FY09-11 (albeit on a low base)
with upside possibilities. An expected decline in capex FY12 onwards would see
asset turnover ratios plateau and lead to improving return ratios. Maintain estimates
and upgrade the stock to Outperformer with a price target of Rs368 per share.
A winning business model: Recent alliances between Dr Reddy’s-GSK, Aurobindo-
Pfizer, etc endorse Cipla’s strategy focused on R&D and manufacturing as also sales and
marketing tie-ups with global companies. Cipla is among the most geographically
diversified global generics companies with significant presence in multiple RoW markets
including Africa, Middle East, Latin America and Australia. With future global pharma
market growth likely to largely accrue from RoW markets, Cipla has created an enviable
business model to participate in this opportunity.
Inhalers and US launches to drive upsides: With its diversified model yielding steady
revenue growth (10-15%), the much-delayed entry into EU inhalers market as well as
niche product launches in US will generate upsides. Cipla’s inhaler plans for EU (a
US$3bn+ market with limited competition) are fructifying with launch of Salbutomol in
UK in Q3FY10 and likely approval for its first combination inhaler in H2FY11. Cipla
has partnerships for 118 drugs in the US with only 23 commercialized ANDAs so far,
indicating significant potential for ramp-up in the market.
Better days ahead; Outperformer: The recent upswing in EBI