CMP: 579.

90 APR 18th, 2018

CIPLA LTD ISIN:
Result Update (CONSOLIDATED BASIS): Q3 FY18 Overweight
INE059A01026
Index Details SYNOPSIS
Stock Data Cipla Ltd is a global pharmaceutical company which
uses cutting edge technology and innovation to meet
Sector Pharmaceuticals
the everyday needs of all patients.
BSE Code 500087
The company has achieved a turnover of Rs.
Face Value 2.00 39138.20 mn for Q3 FY18 as against Rs. 36472.10
52wk. High / Low (Rs.) 663.00/479.00 mn in the corresponding quarter of the previous year,
Volume (2wk. Avg.) 179000 up by 7.31%.
Market Cap (Rs. in mn.) 466790.51 During the 3rd quarter, net profit registered a growth
of 6.85% and stood at Rs. 4005.10 mn as compared
Annual Estimated Results(A*: Actual / E*: Estimated) to Rs. 3748.20 mn in the corresponding quarter
ending of previous year.
Years(Rs. in mn) FY17A FY18E FY19E
During the quarter, EBIDTA stood at Rs. 8715.90
Net Sales 146302.40 156307.91 171938.70 mn as against Rs. 8311.30 mn in the corresponding
EBITDA 27044.80 34428.35 38186.59 period of the previous year.
Net Profit 10063.90 14501.41 16261.81 During the quarter, PBT was at Rs. 3400.90 mn as
EPS 12.51 18.02 20.20 compared to Rs. 5140.60 mn in the corresponding
period of the previous year.
P/E 46.36 32.19 28.70
EPS of the company stood at Rs. 4.98 in Q3 FY18
Shareholding Pattern (%) against Rs. 4.66 in the corresponding quarter of the
previous year.
As on Dec 2017 As on Sep 2017
Total Debt of the company decreased from Rs.
47840 mn as on September 2017 to Rs. 42730 mn as
Promoter 37.24 37.26 on 31st Dec 2017.
Public 62.76 62.74 Cash and Cash Equivalents of the company
registered at Rs. 23850 mn as on 31st Dec 2017.
Others -- --
The Company currently has 150 approved ANDA’s
1 Year Comparative Graph in hand.
The Company currently has 27 tentatively approved
ANDA’s in hand.
During 9M FY18, the company’s Net Sales
increased by 4.28% at Rs. 115212.80 mn as
compared to Rs. 110482.60 mn in the 9M FY17.
PAT during the 9M FY18 rose by 15.69% at Rs.
12319.20 mn as compared to Rs. 10648.20 mn in the
corresponding period of previous year.
Net Sales and PAT of the company are expected to
grow at a CAGR of 8% and 6% over 2016 to 2019E,
CIPLA LTD S&P BSE SENSEX respectively.

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
CIPLA Ltd 579.90 466790.51 14.54 39.89 3.72 100.00
Aurobindo Pharma Ltd 619.80 363145.50 41.42 14.96 3.87 250.00
Lupin Ltd 804.30 363610.20 31.30 25.70 2.69 375.00
Dr Reddys Laboratories 2110.30 350085.10 61.02 34.58 2.85 400.00

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QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS)

Results updates- Q3 FY18,

(Rs. in Millions) Dec-17 Dec-16 % Change

Revenue 39138.20 36472.10 7.31%

Net Profit 4005.10 3748.20 6.85%

EPS 4.98 4.66 6.78%

EBIDTA 8715.90 8311.30 4.87%

During the 3rd quarter, net profit of the company rose by 6.85% and stood at Rs. 4005.10 million as against Rs. 3748.20
million in the corresponding quarter ending of previous year. Revenue for the 3rd quarter registered at Rs. 39138.20
million as compared to Rs. 36472.10 million, up by 7.31% when compared with the prior year period. Reported earnings
per share of the company stood at Rs. 4.98 share during the quarter, as against Rs. 4.66 per share over previous year
period. Profit before interest, depreciation and tax is Rs. 8715.90 million as against Rs. 8311.30 million in the
corresponding period of the previous year.

Break up of Expenditure

Value in Rs. Million

Breakup of Expenditure
%
Q3 FY18 Q3 FY17
Change

Cost of Materials
11973.80 10558.80 13%
Consumed

Purchase of Stock in
3201.00 1904.80 68%
Trade

Employee Benefits
6573.40 6330.60 4%
Expenses

Depreciation &
5223.50 2577.40 103%
Amortization Expenses

Other Expenses 10594.20 10353.70 2%

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Segment Revenue:

Revenue Breakup by Regions:

India (Rx + Gx) Sales:

 Cipla out-performed the market (12% Vs Mkt 10%) with increase in market share by 10bps to 5.3%.

 Key therapeutic areas delivered above market performance including Cardiac (12% Vs Mkt 7%), Anti-infective (14%
vs 11%), Respiratory (14% Vs Mkt 12%), Derma (18% Vs Mkt 17%).

 Leveraging its commercial strength to build strategic partnerships with MNCs; launched 6 in-licensed products in
YTD Dec’17.

 Improved ENT portfolio with launch of Rapid Rhino (nasal device).

North America:

Approval received for Budesonide (gPulmicort) and Decitabine (gDacogen); Healthy contracted shares to help build
stronger trajectory in the coming quarters

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 Consistently ranked amongst the Top 10 most dispensed generic companies in the US

Strong performance across key existing and new products:

o 13 of the 481,2 (27% of portfolio) are in the leadership (#1) position.

o 31 of 48 (65%) products ranked among top 3

Filed 2 products in Q3FY18 taking the 9months count to 10 filings; expecting to file 10+ products in Q4

Abbreviated New Drug Application (ANDA) Portfolio & Pipeline (As on 31st Dec’17):

 The Company currently has 150 approved ANDA’s in hand.

 The Company currently has 27 tentatively approved ANDA’s in hand.

 There are 67 Under Approval ANDA’s in company’s hand.

 Of the 200+ development projectsof the Company, top 50 have market size of > US$ 35bn as on 31st Dec 2017.

SAGA: South Africa, Sub-Saharan Africa and Cipla Global Access:

 South Africa (SA) business delivered its highest ever quarterly sales in history of R1.09 bn growing ~7% vs last year
in local currency; second consecutive quarter of record-breaking sales

 Above market growth in South Africa private market; As per IMS MAT Dec’17, Cipla grew ahead of the market at
11.1% in the private market vs 10.3% market growth

 Partnering efforts saw a significant boost with new launches coming from Anmarate acquisition and a deal with iNova
(Valeant)

 Concluded a deal with Adcock Ingram to commercialise their comprehensive over the counter portfolio in Uganda
and expand the company’s footprint in Sub-Saharan Africa.

Emerging Markets:

 Strong in-market sales growth across key DTM markets

 FPSM in Australia gaining traction; targeting to increase market share in FY19

 Geo-political uncertainties in several Middle Eastern markets impacting sales

Europe:

 Strong growth momentum maintained with 19% growth for Q3 FY18

 Expanded respiratory franchise with approval for Beclomethasone in UK; first generic in the market

 Closed deal with Pharma S for sale of Croatian entity to further sharpen focus on select markets

API:

Continued growth (29%) in Q3 over LY due to successful deliveries for Launch of Products with Key Customers
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 Substantial increase in margins due to launch quantities supplied and product mix

Improved traction in seedings and lock-ins with key customers

Result Highlights:

 Out of Total Sales the company registered an increase in Domestic Sales by 12% at Rs. 16320 mn in Q3 FY18.

 International Sales of the company increased by 5% at Rs. 22030 mn in Q3 FY18.

Performance Highlights:

 EBITDA margins grew by 21% on a year on year basis with PAT growing by 25% when adjusted for one-offs in the
quarter

 Strong momentum continues across key markets including India, South Africa among others; India recorded healthy
double digit growth with South Africa delivering its highest ever quarter in terms of sales

 US launch trajectory gets a major boost with key limited competition products getting launchedgPulmicort and
gDacogen

 Key milestones achieved for initiating gAdvair trials; two additional trials expected to begin soon

 Focus on building a strong Specialty portfolio for US continues with certain assets in advanced stages of discussion in
Neurology and Respiratory space

 R&D investment for the quarter stepped up to 7.6% of revenues, up 150bps from last quarter

Balance Sheet Position:

Total Debt of the company decreased from Rs. 47840 mn as on 30th September 2017 to Rs. 42730 mn as on 31st Dec
2017.

Inventory of the company increased to Rs. 39130 mn as on 31 st Dec 2017 as compared to Rs. 36220 mn in
Septemeber 2017.

Cash and Cash Equivalents of the company registered at Rs. 23850 mn as on 31 st Dec 2017.

Trade Recievables of the company stood at Rs. 31710 mn as on 31st Dec 2017.

Other Updates

 Cipla Ltd and Roche Pharma India have entered in to an agreement under which Cipla will promote and distribute
tocilizumab (Actemra) and Syndyma, the 2nd brand of Roche’s cancer therapy, bevacizumab (Avastin) in India.

 Cipla USA, Inc. (Cipla) announces the launch of an authorized generic version of Aloxi® in the United States under
applicable agreements with Helsinn Healthcare SA, in response to the at-risk launch by Teva.

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COMPANY PROFILE

Cipla Ltd is a global pharmaceutical company which uses cutting edge technology and innovation to meet the everyday
needs of all patients. For over 80 years, Cipla has emerged as one of the most respected pharmaceutical names in India as
well as across more than 80 countries. Its portfolio includes over 1500 products across wide range of therapeutic
categories with one quality standard globally.

Whilst delivering a long-term sustainable business, Cipla recognizes its duty to provide affordable medicines. Cipla’s
emphasis on access for patients was recognized globally for the pioneering role played in HIV/AIDS treatment as the first
pharmaceutical company to provide a triple combination anti-retroviral (ARV) in Africa at less than a dollar a day and
thereby treating many millions of patients since 2001. Cipla’s research and development focuses on developing innovative
products and drug delivery systems.

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FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)
Balance Sheet as of March 31, 2016 -2019E
FY16A FY17A FY18E FY19E
ASSETS
1) Non-Current Assets
a) Property, plant and equipment 46048.50 50086.90 53092.11 56808.56
b) Capital Work in Progress 7410.10 7192.30 7048.45 6837.00
c) Investment Property 10.70 17.40 21.75 26.10
d) Goodwill on Consolidation 27055.70 26784.30 26248.61 25461.16
e) Other Intangible Assets 20579.00 17848.80 19455.19 21147.79
f) Intangible Assets under Development 13198.60 9637.50 8866.50 8334.51
g) Investment in Associate 168.20 124.00 105.40 94.86
h) Financial assets
i) Investments 1584.60 1232.20 1133.62 1076.94
ii) Loans 418.40 394.80 379.01 367.64
iii) Other Financial Assets 762.80 1137.70 1422.13 1720.77
i) Current Tax Assets 2347.10 2412.10 2508.58 2634.01
j) Deferred Tax Assets 786.90 1681.30 2101.63 2521.95
k) Other Non -Current Assets 2498.90 2922.00 3272.64 3599.90
Sub - Total Non- Current Assets 122869.50 121471.30 125655.63 130631.20
2) Current Assets
a) Inventories 38080.50 34852.80 36595.44 37693.30
b) Financial assets
i) Investments 5823.40 8373.90 10048.68 11857.44
ii) Trade Receivables 23562.70 24974.20 25723.43 27009.60
iii) Cash and Cash Equivalents 8581.50 6103.50 7202.13 8354.47
iv) Bank Balances 132.50 138.60 144.14 148.47
v) Loans 109.20 95.30 88.63 84.20
vi) Other Receivables 1369.10 3923.70 4629.97 5370.76
c) Other current assets 10753.40 8908.10 9798.91 10582.82
Sub - Total Current Assets 88412.30 87370.10 94231.33 101101.06
3)Assets Classified as Held for Sale 0.00 859.10 0.00 0.00
Total Assets (1+2+3) 211281.80 209700.50 219886.96 231732.26
EQUITY AND LIABILITIES
1) EQUITY
a) Equity Share Capital 1606.80 1609.00 1609.00 1609.00
b) Other equity 113555.40 123645.20 138146.61 154408.42
Total Equity 115162.20 125254.20 139755.61 156017.42
2) Non-Controlling Interest 3500.90 4382.30 5039.65 5291.63
3) Non Current Liabilities
a) Financial Liabilities
i) Borrowings 2218.80 36453.60 33787.08 31129.60
ii) Other Financial Liabilities 421.10 450.60 473.13 487.32
b) Provisions 1446.80 1405.20 1377.10 1335.78
c) Deferred Tax Liabilities 9757.30 7568.90 6206.50 4965.20
d) Other Non-Current Liabilities 1014.20 936.50 889.68 862.98
Sub - Total Non Current Liabilities 14858.20 46814.80 42733.48 38780.89
3) Current Liabilities
a) Financial liabilities
i) Borrowings 49696.70 4672.30 3971.46 3256.59
ii) Trade Payables 14758.20 15711.40 16339.86 16666.65
iii) Other Current Financial Liabilities 7378.40 6574.30 6179.84 5870.85
b) Other Current Liabilities 2683.00 2663.60 2583.69 2532.02
c) Short Term Provisions 3108.50 3219.00 3283.38 3316.21
d) Current Tax Liabilities 135.70 240.10 300.13 354.15
Sub - Total Current Liabilities 77760.50 33080.70 32358.23 31642.33
4) Liabilities Classified as Held for Sale 0.00 168.50 0.00 0.00
Total Equity and Liabilities (1+2+3+4) 211281.80 209700.50 219886.96 231732.26
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Annual Profit & Loss Statement for the period of 2016 to 2019E

Value(Rs.in.mn) FY16A FY17A FY18E FY19E

Description 12m 12m 12m 12m
Net Sales 137901.00 146302.40 156307.91 171938.70
Other Income 2082.10 2286.90 3658.06 4572.58
Total Income 139983.10 148589.30 159965.97 176511.28
Expenditure -113104.30 -121544.50 -125537.62 -138324.68
Operating Profit 26878.80 27044.80 34428.35 38186.59
Interest -2066.30 -1593.80 -890.95 -980.05
Gross profit 24812.50 25451.00 33537.40 37206.55
Depreciation -7542.20 -13229.30 -16021.38 -17623.52
Profit Before Tax 17270.30 12221.70 17516.02 19583.03
Tax -3315.90 -1797.60 -2637.75 -2913.96
Profit After Tax 13954.40 10424.10 14878.27 16669.08
Extraordinary Items 0.20 0.00 0.00 0.00
Share of Profit & Loss Assoc. -234.30 -290.30 -340.46 -374.51
Minority Interest -120.20 -69.90 -36.40 -32.76
Net Profit 13600.10 10063.90 14501.41 16261.81
Equity capital 1606.80 1609.00 1609.90 1609.90
Reserves 113555.40 123645.20 138146.61 154408.42
Face value 2.00 2.00 2.00 2.00
EPS 16.93 12.51 18.02 20.20

Quarterly Profit & Loss Statement for the period of 30th June, 2017 to 31st Mar, 2018E
Value(Rs.in.mn) 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18E
Description 3m 3m 3m 3m
Net sales 35250.50 40824.10 39138.20 41095.11
Other income 1513.80 1133.30 529.30 481.66
Total Income 36764.30 41957.40 39667.50 41576.77
Expenditure -28785.90 -32780.20 -30951.60 -33019.92
Operating profit 7978.40 9177.20 8715.90 8556.85
Interest -278.60 -420.20 -91.50 -100.65
Gross profit 7699.80 8757.00 8624.40 8456.20
Depreciation -2134.30 -3022.20 -5223.50 -5641.38
Profit Before Tax 5565.50 5734.80 3400.90 2814.82
Tax -1307.70 -1374.20 642.30 -598.15
Profit After Tax 4257.80 4360.60 4043.20 2216.67
Share of Profit & Loss Assoc. -161.00 -123.60 -29.40 -26.46
Minority Interest -8.60 -11.10 -8.70 -8.00
Net Profit 4088.20 4225.90 4005.10 2182.21
Equity capital 1609.10 1609.40 1609.90 1609.90
Face value 2.00 2.00 2.00 2.00
EPS 5.08 5.25 4.98 2.71

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Ratio Analysis
Particulars FY16A FY17A FY18E FY19E
EPS (Rs.) 16.93 12.51 18.02 20.20
EBITDA Margin (%) 19.49% 18.49% 22.03% 22.21%
PBT Margin (%) 12.52% 8.35% 11.21% 11.39%
PAT Margin (%) 10.12% 7.13% 9.52% 9.69%
P/E Ratio (x) 34.26 46.36 32.19 28.70
ROE (%) 12.12% 8.32% 10.65% 10.68%
ROCE (%) 11.57% 8.30% 10.37% 10.80%
Debt Equity Ratio 0.45 0.33 0.27 0.22
EV/EBITDA (x) 18.72 18.23 14.15 12.59
Book Value (Rs.) 143.34 155.69 173.62 193.82
P/BV 4.05 3.72 3.34 2.99

Charts

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OUTLOOK AND CONCLUSION

 At the current market price of Rs. 579.90, the stock P/E ratio is at 32.19 x FY18E and 28.70 x FY19E respectively.

 Earning per share (EPS) of the company for the earnings for FY18E and FY19E is seen at Rs. 18.02 and Rs. 20.20
respectively.

 Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 6% over 2016 to 2019E respectively.

 On the basis of EV/EBITDA, the stock trades at 14.15 x for FY18E and 12.59 x for FY19E.

 Price to Book Value of the stock is expected to be at 3.34 x and 2.99 x for FY18E and FY19E respectively.

 Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

Global Pharmaceutical Market and Macroeconomics:

As per a recent IMS# report, the global medicine spending is expected to reach nearly USD 1.5 trillion by 2021. This
represents a 4-7% CAGR over the next five years. Increased spending in Oncology, Autoimmune and Diabetology
treatments is expected to drive a large part of the spending growth. The US will continue to remain the largest
pharmaceutical market with spending growth driven by originator brands. Increased focus on developing Specialty
medicines by both innovators and generic players is expected to drive increase in the Specialty share of global spending
from 30% in 2016 to 35% in 2021.

In the US, increasing penetration of generics and channel consolidation will lead to significant decline in patient out-of-
pocket costs despite rising costs of brand prescriptions. With rising income levels, penetration of healthcare services and
expansion of healthcare insurance schemes, the Indian Pharmaceutical Market is expected to grow in double digits.
However, an uncertain regulatory environment can have a considerable impact on the growth prospects. While other
emerging markets continue to grapple with challenges of slower economic growth and weakening currencies, Government
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support in expanding healthcare infrastructure will be critical in driving volume growth. Given the volatility in economic
growth in these markets, countries are adjusting their healthcare policies leading to significant volatility in demand.

Regulatory Developments:

The pharmaceutical markets in the key countries of US and India are experiencing regulatory interventions on several
fronts. While this is not new, the pace and direction of these developments require companies to rethink their approach
towards drug development, portfolio, manufacturing and sales & marketing.

The US FDA has increased its focus to further accelerate approval cycle of generics after having seen a significant
improvement in the approval timelines under the Generic Drug User Fee Act (GDUFA). Specifically, clearer guidelines
and faster approvals on complex generics will be beneficial for the Indian Pharmaceutical players. Over the last few years,
US FDA has considerably increased its focus on inspecting facilities outside the US. Considering the increasing presence
of Indian Pharmaceutical players in US, the Indian Pharmaceutical industry is expected to witness heightened scrutiny
from the regulatory authority in the coming years. The new administration in the US has also announced several
healthcare related changes including Border Adjustment Tax, repeal of ‘the Patient Protection and Affordable Care Act’
and others which could potentially alter the US market opportunity for Indian pharmaceutical companies.

The Indian regulatory environment is also rapidly evolving with several announced and expected changes as follows:

Expansion of the National List of Essential Medicines with more drugs coming under price control

Potential ban on fixed dose combination drugs

Expected regulation around mandatory generic prescription by doctors

Stringent regulatory compliance with Uniform Code of Pharmaceutical Marketing Practices (UCPMP)

Pharmaceutical companies are dealing with such regulatory and other macroeconomic challenges by investing in complex
generics and difficult-to-develop and manufacture products. They are also expanding globally with a view to diversify the
footprint and benefit from the scale as well as the opportunity to service patients. Enhancing access, improving
affordability and driving innovation are some of the common themes reflected in the portfolio and pipeline of key
pharmaceutical companies.

FY 2017-18 Outlook:

The Company achieved significant progress on its key priorities in FY 2016-17 despite a number of challenges around an
uncertain regulatory environment, volatility in emerging markets and pricing pressure across the globe. For FY 2017-18,
Cipla will remain focused on its agenda of superior revenue growth, cost consciousness and improving the overall margin
profile of the Company. The Company expects to taper down capital investments and continue its focus on operational
efficiencies to drive strong cash flows. The Company is aiming to ramp-up investments in R&D and maintain the filing
momentum of 20-25 ANDAs in the US. Given the challenges related to GST and certain key product launches in the US
market, the Company expects higher growth in the second half of the next fiscal. Cipla will continue its focus on investing
towards building its Specialty franchise through a mix of in-house development and in-organic opportunities.

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 Disclosure Section

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Exposure/Interest to
Sectorscompany/sector Under
Name of the Analyst Qualifications
CoveredCoverage in the Current
Report
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trading or long term in the analytical view that they form as a part of their work
11 Full Compliance in Place
No conflict of interest and analysts are expected to maintain strict adherence to the
company rules and regulations.

Document code: FOTL_180420184_3 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved
12 Full Compliance in Place
As a matter of policy no analyst will be allowed to do personal trading or deal and
even if they do so they have to disclose the same to the company and take prior
approval of the company
13 Full Compliance in Place
Our entity or any analyst shall not provide any promise or assurance of any favorable
outcome based on their reports on industry, company or sector or group
14 Researchers maintain arms length/ Chinese wall distance from other employees of Full Compliance in Place
the entity
15 Full Compliance in Place
No analyst will be allowed to cover or do any research where he has financial interest
16 Our entity does not do any reports upon receiving any compensation from any Full Compliance in Place
company

Firstcall Research Provides

Industry Research on all the Sectors and Equity Research on Major Companies
forming part of Listed and Unlisted Segments

For Further Details Contact:

Mobile No: 09959010555

E-mail: info@firstobjectindia.com
info@firstcallresearch.com
www.firstcallresearch.com

Document code: FOTL_180420184_3 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved