Cipla Ltd - DSIJ.in

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Cipla Ltd 21 st November, 2012 BUY
CMP
Target Price
Rs.390.00
Rs.500.00
Cipla continues to maintain its leadership position in various
therapeutic segments including respiratory, anti-virals,
gynaecology and urology in the domestic market.
BSE Code 500087
NSE Code
CIPLA
Market Cap (Rs Cr.) 31289.85
52 Week High/Low 400.60/286.50
Industry
Pharmaceuticals
Face Value
Rs.2.00
Shares O/S 802921357
EPS 14.25
Book Value 95.14
P/E 27.35
P/B 4.10
Shareholding Pattern
The company has registered sharp numbers for the quarter
ending September 2012. The revenue for the September 2012
quarter is pegged at Rs.2191.84 crore; about 23.86% up against
Rs.1769.66 crores recorded during the year-ago period; driven by
better product mix i.e. lower proportion of anti retrovirals,
Lexapro benefits; price hikes and currency benefits. It gained
Rs.26 crores on account of foreign exchange gain. Operating
profit skyrocketed about 58% at Rs.676.95 crore vis-à-vis
Rs.429.25 crores. Material cost at 36.75% of total sales decreased
by 3.8% during Q2FY13 as compared to Q2FY12. PAT reported a
handsome growth of 61.83% to Rs.500.01 crores from Rs.308.97
crores. Operating profit margins expanded sharply by 663 bps at
30.89% vis-à-vis 24.26% whereas NPM stood at 22.81% as against
17.46% y-o-y.
Domestic revenues grew by 13.5% to Rs.962 cr during Q2 FY13,
up from Rs. 847 cr during Q2 FY12. The growth in domestic
revenues was largely on account of growth in anti-asthma, antibiotics
and cardiovascular therapy segments.
Exports of formulations grew by 38.2% to Rs.1039 cr during Q2
FY13, up from Rs.752 cr during Q2 FY12. Exports of APIs grew by
9.0% to Rs.174 cr during Q2FY13, from Rs.159 cr during Q2FY12.
The growth in export revenues was primarily due to growth in
anti-depressants, anti-ulcerant and anti-asthma segments.
Valuation
Research Analyst: Vineeta Mahnot
research@hemonline.com
With strong product mix, increasing focus on exports, firm guidance
and ramp up of its facilities, Cipla’s revenue visibility looks strong.
We believe Cipla Ltd. is trading at an attractive valuation at 21.69x
and 18.75x of FY13EPS of Rs.17.97 and FY14EPS of Rs.20.78. We
initiate a ‘BUY’ on the stock with a target price of Rs.500 (appreciation
of about 28%) with the medium to long term investment horizon.
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Business Details
Chemical, Industrial & Pharmaceutical Laboratories, now known as Cipla, was incorporated 1935. Khwaja Abdul
Hamied, the founder of Cipla gave the company all his patent and proprietary formulas for several drugs and
medicines, without charging any royalty. On August 17, 1935, Cipla was registered as a public limited company with
an authorised capital of Rs 6 lakhs.
Business of the company:
The company focuses on development of new formulations and has a wide range of pharmaceutical products. It
offers prescription drugs, bulk drugs, animal products and pesticides. It also offers a wide range of food and
beverages, baked foods, oral hygiene products, detergents, room fresheners and personal care products.
Almost 55% of its overall income from its operations come from outside India. It has 5,500 registered products in
various countries. Cipla offers drugs used for treatment of cancer, Alzheimer's, arthritis, Parkinson's, cardiovascular
diesases and many more. It also offers drugs that prevents transmission of AIDS from mother to child. The company
provides consulting services on preparation of products and materials, conducts plant evaluation and supplies plant
equipments.
Cipla has set up two institutes namely Dr K.A Hamied Institute and Cipla Cancer Palliative Care & Training Centre.
It has a presence across 170 countries with manufacturing units approved by regulatory authorities like USFDA,
WHO-Canada and MHRA-UK, among others.
Cipla was first company outside US and Europe to launch CFC-free inhalers. In 2007 Cipla launched oral emergency
contraceptive pill under the brand name I-Pill. Cipla also launched a breakthrough screening technology in India
called the 'No Touch Breast Scan (NTBS); ' the first-ever painless, non- invasive and radiation-free breast scanning
technique for detecting breast cancer at an early stage.
In 2009, Cipla launched generic versions of anti-flu drugs oseltamivir and zanamivir in the local market to treat the
H1N1 influenza, spreading across the globe and in India. In 2010, Piramal Healthcare Limited announced the signing
of a definitive agreement with Cipla Limited for purchase of all intellectual property rights in India related to 'i-pill'
for an aggregate consideration of Rs 95 crore.
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Growing Industry
India's pharmaceutical sector is gaining its position as a global leader. The Indian pharmaceutical industry maintained
its momentum and registered a growth of about 15 percent, according to ORG-IMS statistics. This growth can be
attributed to prominent factors, such as a growing middle class population, rapid urbanization, increase in lifestylerelated
diseases and growth in the health insurance sector. India tops the world in exporting generic medicines worth
US$ 11 billion. The size of the Indian formulations market, which currently stands at around Rs 62,000 crore (US$ 11.21
billion), is growing at 15-20 per cent annually. The cumulative drugs and pharmaceuticals sector attracted foreign
direct investments (FDI) worth US$ 9,596 million between April 2000 to May 2012, according to the latest data
published by Department of Industrial Policy and Promotion (DIPP).
India's exports of drugs, pharmaceutical and fine
chemicals grew by 27 per cent to Rs 60,000 crore (US$
10.85 billion) for the year ended March 2012, according
to data compiled by Pharmaceutical Exports Council of
India (Pharmexcil). Exports were higher by 27.2 per cent
to Rs.6,480.3 crore in the month of June 2012. During the
June 2012 quarter, exports in rupee terms grew by a
robust 37.1 per cent as compared to a 18.6 per cent
growth in the year ago quarter. A sharp depreciation in
the value of rupee boosted the growth in exports during
the quarter. During April-June 2012, exports to US grew
by a whopping 47.2 per cent. Exports to UK and
Germany rose by 25.8 per cent and 34.6 per cent, respectively. Exports to Russia and Brazil grew by 30.5 per cent and
44.3 per cent, respectively. Drug imports were higher by 42.2 per cent to Rs.1,359.4 crore in the month of June 2012. In
the June 2012 quarter, drug imports grew by 39.4 per cent to Rs.4,050 crore.
The export of drugs from India are expected to grow by 22.7 per cent to Rs.77,747 crore in 2012-13. Drug exports from
India are expected to touch Rs.81,889 crore by 2013-14. The pro-generic policies of the developed and developing
countries, the reverse engineering skills, price competitiveness and aggressive marketing strategies of the Indian
pharma companies are likely to boost exports.
Thus, CMIE expects that Indian drug exports to remain strong in the next two years. India imports bulk drugs and
chemicals to manufacture formulations. Drugs imports are expected to increase by 22.7 per cent to Rs.17,655 crore in
2012-13. In the first-half of the year, drug imports are likely to have turned costlier due to sharp depreciation in the
value of rupee. However, in the second-half, as the rupee is likely to be stronger, imports are expected to become less
expensive. Both, the developed and developing countries are increasing their exposure to generic drugs from branded
drugs. This will help them to rein in the rising health cost.
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Indian pharma companies are increasingly filing Abbreviated New Drug Approval (ANDAs) application for the
approval by the US Food & Drug Administrations (FDA). According to media reports, Indian companies are filing an
average of 1,000 ANDAs every year in the US. The share of India in the total bulk drug filings in the US increased from
45 per cent in 2009 to 51 per cent in 2011. A number of drugs are expected to go off-patent in the US in the next two
years. The multi-billion opportunity through the patent-cliff remains strong until 2015.
Six new projects were announced in the drugs
industry in the September 2012 quarter with a
total investment of Rs.1,274 crore. Eight
projects with a total investment of over
Rs.1,273 crore got commissioned during the
September 2012 quarter. In the next two
quarters of 2012-13, 43 projects with a total
investment of over Rs.5,847 crore are
scheduled to commission. In 2013-14, 24
projects with an investment of Rs.3,220 crore
are scheduled to commission.
On the back of increasing middle-class
population base, improvements in medical
infrastructure and the establishment of IP
6 projects announced in Sept 2012 quarter
Qtr
ended New Projects Projects Completed
Rs.
(Nos.) Crores (Nos.) Rs Crores (Nos.)
Projects
Shelved
Rs
Crores
Sep 09 9 1,760 9 605 6 450
Dec 09 26 1,184 17 480 5 325
Mar 10 36 2,385 17 1,052 5 320
Jun 10 30 1,470 15 1,459 1 40
Sep 10 12 740 7 788 2 150
Dec 10 19 436 16 3,065 0 0
Mar 11 71 6,230 20 876 3 149
Jun 11 29 255 19 1,554 2 50
Sep 11 12 401 16 899 7 250
Dec 11 4 175 17 530 2 18
Mar 12 8 1,953 14 3,142 3 83
Jun 12 7 1,612 9 952 0 0
Sep 12 6 1,274 8 1,273 0 0
rights, the Indian pharma industry is estimated to grow manifolds. Revenues from the domestic market are also
expected to grow at a healthy pace. However, export realization of companies is likely to be hurt due to an expected
appreciation in the value of rupee in the second-half. Resultantly, the sales growth of the industry is expected to
marginally slowdown in comparison to the first-half of the year. Sales are expected to grow by 14.8 per cent in the
December 2012 quarter and by 13.3 per cent in the March 2013 quarter. A strong rupee in the second-half will help to
ease the cost pressure on the industry which imports around 40 per cent of its raw material requirements. The PBDIT
margin is likely to be in the range of 19-20 per cent. Industry is expected to earn a net profit of around 12-12.5 per cent
of total income in the second-half of the year.
Furthermore, a 'Pharma Vision 2020' has been prepared by the Department of Pharmaceuticals, for making India one
of the leading destinations for end-to-end drug discovery and innovation and for that purpose, the department will
provide requisite support by way of world class infrastructure, internationally competitive scientific manpower for
pharma research and development (R&D), venture fund for research in the public and private domain and such other
measures. Pharmaceutical companies such as Cipla, Ranbaxy, Dr Reddy's Labs and Lupin might soon be part of the
government's ambitious 'Jan Aushadhi' project. In an attempt to commercialise the project, the government is likely to
rope in the private sector to bulk-procure generic drugs from them. There are 117 Jan Aushadhi stores across the
country and the plan is to expand to at least 600 in the next two years and 3,000 by 2016.
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Firm Guidance
Cipla plans to target a revenue growth in excess of 15% for the year 2012-13 to stay near about Rs.8000 crore which is
about USD 1.5 billion. It hopes to achieve a turnover of USD 5 billion by the year 2020. The domestic formulation
business is expected to grow by 17% to 18% in the coming year led by key therapies like respiratory, CVS and antibiotic.
On the exports front, the company plans to focus more on Europe inhalers business and expects growth to come
in from there followed by some of the African markets. EBIDTA margins are expected to be higher as compared to that
of last year as during the first two quarters the company has enjoyed benefits of Lexapro which benefitted margins
nicely. Going forward too, the company expects to have better margins backed by the cost rationalization and the
better business growth. Capex for the year 2012-13 would be around Rs.400-500 crores. The Company is setting up
additional R&D facilities at Vikhroli and Patalganga. It is anticipated that operations will commence during 2012-13.
The Company is also setting up API facilities at Patalganga, Bengaluru and Kurkumbh which are expected to be
completed in 2012-13. Tax rate would be little higher than last year at 24% for the year 2012-13.
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Dymista sales- next growth driver
Cipla has started Dymista (used for the treatment of allergic rhinitis) supply to its partner Meda for distribution in the
US market. It is expected to contribute in fourth quarter of current fiscal. Cipla has entered into a partnership
agreement with Meda for the supply and marketing of Dymista in the US market while Cipla is the manufacturing
partner. The product is expected to generate revenues of $25-$30 million at peak levels. Further, the company has
emphasized on cost rationalization measures and changed its product mix that is lower proportion of antiretroviral
(ARVs) and higher contribution of antidepressant segment which is benefitting it. Cipla also has better pricing power
as it has taken price increases across therapies and markets and has witnessed better price realization in the recent
quarter gone by. The company has started focusing on its international business due to price control in India. As
earlier its domestic and exports business mix stood at 50%-50% of the turnover; now exports has been at 56% of the
turnover and 44% goes to the domestic business. The company gets better margins outside India.
Ramp up of Indore SEZ facility
The Indore SEZ facility has done about Rs.150 odd crores in the latest quarter ended September 2012 and the same in
the last quarter adding to about Rs.300 crore in the first half of the current fiscal aiding the exports growth. Capacity
utilization stood at about 70% for only tablets and capsules. The capacity utilisation at the Indore SEZ factory has
improved significantly compared to the previous year and is expected to reach optimum capacity in the coming years.
The facility has recently received USFDA approval. A few of the product filing to USFDA has already started and the
company expects to file more going ahead. Earlier, the company with its partners continues to file ANDAs but with
the USFDA approval it has filed about 4 ANDAs on its own in the last six months.
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Consolidated Profit & Loss Account
Rs. Crore
Particulars FY10 FY11 FY12 FY13E FY14E
Net sales 5359.52 6323.84 7020.71 8165.09 9308.20
Growth 17.99% 11.02% 16.30% 14.00%
Expenditure 4291.91 4954.60 5361.86 6131.98 6962.53
EBITDA 1067.61 1369.24 1658.85 2033.11 2345.67
Growth 28.25% 21.15% 22.56% 15.37%
EBITDA margin 19.92% 21.65% 23.63% 24.90% 25.20%
Other income 353.50 91.68 139.52 187.80 204.78
Depreciation & Amortisation 167.07 273.33 312.22 319.23 349.06
EBIT 1254.04 1187.59 1486.15 1901.67 2201.39
EBIT margin 23.40% 18.78% 21.17% 23.29% 23.65%
Interest 22.95 25.10 38.34 19.05 25.19
PBT 1231.09 1162.49 1447.81 1882.62 2176.20
Tax 243.50 195.36 306.51 451.83 522.29
PAT 987.59 967.13 1141.30 1430.79 1653.91
Share of JV/Associates 0.00 22.44 2.94 11.82 14.35
Adjusted PAT 987.59 989.57 1144.24 1442.61 1668.26
Growth 0.20 15.63 26.08 15.64
Net Profit margins 18.43 15.65 16.30 17.67 17.92
Extraordinary item 95.00 0.00 0.00 0.00 0.00
Reported PAT 1082.59 989.57 1144.24 1442.61 1668.26
Equity Capital 160.58 160.58 160.58 160.58 160.58
Res. & Surplus 5749.99 6505.55 7478.35 8,599.80 9,866.61
Equity Shares 80.29 80.29 80.29 80.29 80.29
Adjusted EPS 12.30 12.32 14.25 17.97 20.78
Ratios
Particulars FY10 FY11 FY12 FY13E FY14E
Return on Equity 16.71 14.84 14.98 16.47 16.64
Return on Capital employed 21.20 16.48 19.34 21.49 21.72
Debt/Equity 0.00 0.08 0.01 0.01 0.01
Asset turnover 0.73 0.74 0.75 0.76 0.75
Current Ratio 3.60 3.94 3.14 3.15 3.22
Book value per share 73.62 83.03 95.14 109.11 124.89
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Balance Sheet
Rs. Crore
Particulars FY10 FY11 FY12 FY13E FY14E
Share Capital 160.58 160.58 160.58 160.58 160.58
Reserves & Surplus 5749.99 6505.55 7478.35 8,599.80 9,866.61
Shareholders’ funds 5910.57 6666.13 7638.93 8760.38 10027.19
Borrowings 5.07 541.92 44.91 90.72 109.51
Deferred tax Liability 179.15 213.12 233.24 233.24 233.24
Sources of funds 6094.79 7421.17 7917.08 9084.34 10369.94
Gross block 2,897.26 4,240.55 4,626.90 5267.80 5817.62
Accumulated Depreciation 886.09 1,146.37 1,411.11 1,730.34 2,079.40
Net block 2011.17 3094.18 3215.79 3537.46 3738.22
Capital work in progress 684.24 285.34 371.17 500.44 639.94
Investments 246.41 590.77 1,268.81 1,397.03 1,599.83
Projects in progress 0.00 0.00 0.00 0.00 0.00
Inventories 1,512.58 1,906.16 1,850.08 2,245.66 2,611.82
Sundry debtors 1,566.63 1,490.82 1,553.58 1,791.18 2,165.90
Cash and bank balance 62.06 101.02 95.66 133.67 191.11
Other current assets 4.70 0.00 0.00 0.00 0.00
Loans and advances 1,221.34 1,128.36 995.16 1,176.30 1,401.47
Total current assets 4,367.31 4,626.36 4,494.48 5,346.81 6,370.30
Deferred tax asset 0.00 0.00 0.00 0.00 0.00
Current liabilities and
provisions 1,214.34 1,175.48 1,433.17 1,697.40 1,978.35
Net current assets 3,152.97 3,450.88 3,061.31 3,649.41 4,391.94
Misc exp 0.00 0.00 0.00 0.00 0.00
Uses of funds 6,094.79 7,421.17 7,917.08 9,084.34 10,369.94
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Quarterly Financial Highlights
Rs. Crore
Particulars Q2FY13 Q2FY12 Q1FY12 YoY% QoQ%
Revenues 2191.84 1769.66 1958.19 23.86 11.93
Expenditures 1514.89 1340.41 1418.34 13.02 6.81
Operating Profit 676.95 429.25 539.85 57.71 25.40
Adjusted Net Profit 500.01 308.97 400.76 61.83 24.77
OPM% 30.89 24.26 27.57 663bps 332bps
NPM % 22.81 17.46 20.47 535bps 234bps
Adjusted EPS 6.23 3.85 4.99 61.83 24.85
Past Price movement of the stock
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