Cipla Rating | Hold — Quarter results were ahead of expectations

Cipla reported Q4 results ahead of expectation led by gSensipar “at-risk” exclusivity launch. Ex of this, revenues were in line while margins were c100bps ahead of expectation. Management expects US business to grow in double digits in FY20 and base margins to improve though it did not quantify the level. Cipla trading at 20x FY21 PE, factors in the base business improvement. We retain Hold, noting the mixed execution over past 12m.

Strong results: Cipla reported results far ahead of expectation: Rev +6% and margins +670bps vs JEFe. The beat though was largely driven by high sales of at-risk gSensipar launch.

US base ramp-up was in line: US revenues increased to $163 mn vs $118 mn in Q3. This was aided by gSensipar sales of $c40 mn and base business increased +5 mn q-o-q below JEFe of 8 mn. India business growth recovered to 10%+.

Estimates: We adjust estimates for the quarter and also build Q1 of gSensipar sales in FY20. Our FY20/21 EPS change by 5/3%.

Valuations full: Cipla is trading at 19.8x FY21 PE leaving no room for error. Execution for the company has been mixed. While US sales have seen a pick-up, it has been below expectations and failed to drive base-margin improvement.

With challenges in EM and the tender market to sustain in the near term, the US becomes key. We expect the US ramp-up to be gradual and margin improvement to be below expectations. Retain Hold with revised TP of `535 implying 19x FY21PE.

Cipla Limited - Mumbai.