Kks

Cipla Ltd
Buy Below Rs.700/- only and hold at least 12 to 18 months months

14th Apr, 2015

Industry Overview
The market size of the global pharmaceutical industry is estimated to reach US$ 1.2
trillion by 2017 growing at a Compound Annual Growth Rate (CAGR) of 3-6% and
the emerging markets are likely to be the key growth drivers.
Several factors like economic growth, demographic changes, transition in
community health and policy responses and focus on healthcare funding are
expected to lead to double-digit growth in the pharmerging markets. On the other
hand, economic and healthcare austerity measures and the savings realized from the
growing availability of generic drugs, following their patent expiry, may see
developed markets record low single-digit growth

GLOBAL GENERICS
A shift of the global spending mix towards generic over the next five years has been
forecasted, a move primarily driven by the pharmerging markets, despite branded
drugs continuing to form almost two-thirds of global spending in the developed
markets.
It is estimated that the generic spending on medicines will grow from US$ 261
billion in 2012 to US$ 421-432 billion by 2017 globally. Global generic spending is
likely to reach 36% of total spending by 2017, as against 27% in 2012.

INDIAN PHARMACEUTICAL SECTOR

The Indian pharmaceutical market is estimated to reach US$ 22-32 billion by 2017
compared to US$ 14 billion in 2012, establishing India as the 11th largest market by
2017, compared to its 13th position in 2012.

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Company overview
Cipla is incorporated by Khwaja Abdul Hamied in 1935; he set up The Chemical,
Industrial & Pharmaceutical Laboratories, which came to be popularly known as
Cipla. On August 17, 1935, Cipla was registered as a public limited company with an
authorized capital of Rs 6 lakhs.
Cipla has over 34 state-of-the-art manufacturing units which have been approved by
various Ministries of Health and Regulatory Authorities like USFDA, WHO, MCCSouth Africa, MHRAUK, TGA-Australia among others. The company presence in
over 150 countries, portfolio includes 1500 products in various therapeutic categories
with one quality standard globally, Ciplas product portfolio comprises of Active
Pharmaceutical Ingredients (APIs), Formulations for Human and Animal Healthcare
and OTC products. Cipla has the technological prowess of manufacturing products in
most dosage forms across therapeutic categories, which offers the company a unique
competitive advantage. The Companys R&D centre primarily focuses towards
developing innovative products and drug delivery systems and has given the country
and the world many Firsts. This includes the revolutionary HIV/AIDS cocktail for
less than a Dollar a Day.
As part of its international business, Cipla enters into strategic alliances and agency
arrangements for product registration, development and distribution of its products.
It also provides technological consultancy services for pharmaceutical projects in
developed markets, particularly the U.S. and Europe. In addition, the company also
maintains long-standing relationships with non-governmental organizations and
institutions outside India. Cipla has earned a name for maintaining world-class
quality across all its products and services. With the dedication of its 20,000
employees, Cipla continues to support, improve and save millions of lives with its
high-quality drugs and innovative devices and is focused towards its commitment
that None shall be denied.

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Others overview
Cipla (EU) Limited, U.K., a wholly owned subsidiary of the Cipla Ltd, has
entered into a joint venture (JV) agreement with Company's existing business
partners in Morocco - Societe Marocaine De Cooperation Pharmaceutique &
the Pharmaceutical Institute (PHI).
The Company has signed a definitive agreement to acquire 60% stake of Jay
Precision Pharmaceuticals Private Limited Mumbai, from the existing
shareholders, for a cash consideration of Rs. 960.00 mn.
Cipla Ltd has reporte
d that Meditab Holdings Limited, Mauritius, a
wholly owned subsidiary of the Company, has entered into a definitive
agreement to sell its entire 48.22% equity interest in Jiangsu Cdymax
Pharmaceuticals Co. Ltd., China.
Cipla Ltd has reported that a binding term sheet has been entered into with
the Company's existing partner, Biopharm SPA, for establishing a joint
venture ("JV") company in Algeria. The JV Company will manufacture and
market respiratory products facilitating Ciplas front-end presence in Algeria.
The company has been awarded USD 188.95 million of Global Fund ARV
Tender. Cipla has been selected as a Panel Supplier for a Supplier Partnership
Agreement. The contract is effective from the 1st of January 2015 and will run
for a period of three years.
Cipla Europe NV (Cipla) has signed a distribution agreement with Serum
Institute of India Ltd.(SII).
Medicines for Malaria Venture (MMV) signs collobaration agreements with
two Indian pharmaceuticals companies, Cipla Ltd and Strides Arcolab Limited
for the development of rectal Artesunate for pre-referral treatment of children
with severe malaria.
Stempeutics Research, a group company of Manipal Education and Medical
Group and a Joint Venture with Cipla Group, reported that the United States
Patent and Trademarks Office (USPTO) granted a US process patent for its
novel stem-cell based drug Stempeucel.

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Crisp facts
Ranked thirteenth in terms of value in the global pharmaceutical industry in
2012
Fourth largest among the pharmerging markets in terms of market size in
2012
Projected to grow at a CAGR of 11-14% during 2013-2017
One of the key exporters to the US and other markets - the highest number of
US FDA approved manufacturing facilities outside USA.
Indian pharmaceutical companies received over 150 ANDA approvals from
US FDA during 2013, accounting for approximately 38% of the total
approvals.
The Indian pharmaceutical industry received foreign direct investments (FDI) worth
around US$ 11.95 billion during April, 2000 to September, 2013.

Exports
The pharmaceutical exports from India during 2012-13 stood at US$ 14.6 billion,
witnessing an increase of US$ 1.4 billion from 2011-12. Indian pharmaceutical sector
exports are likely to reach US$ 25 billion by 2016.

Demand drivers
Rising spend on healthcare
Total annual healthcare spending is expected to more than double to US$
201.4 billion, growing at an average annual rate of 15.8% during 2012-2017.
Healthcare spending is estimated to be around 0.5% of GDP in 2013.
Growing health insurance coverage
The Indian government plans to bring 80% of Indias population under health
insurance cover under its Health Insurance Vision 2020. This will lead to
higher volumes for the pharmaceuticals industry.

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Growing incidence of chronic diseases
Chronic therapies have grown at a faster pace than that of traditional acute
therapies over the past four years. Their contribution in the Indian
pharmaceutical market escalated from 27% in 2010 to 30% in 2013. Lifestyle
changes, rapid urbanization and increasing affluence are factors which are
expected to drive it further.
Rapid urbanisation
An increase in urban population from 31% to 40% or more by 2030 will see
better accessibility, with which will come with rapid urbanisation and the
growth of the pharmaceutical industry.

Others Drivers
Building strong foundation to grow faster
Cipla is in the process of business transformation, which is affecting the shortterm performances, but will lead to a solid foundation for a long-term growth
and profitability. During the last 12 months, the company has entered into
several collaborative and joint venture deals (17 deals during the year) to
expand its presence in key markets and sharpen its focus on niche segments.
Although, most of these deals are focused on Europe and emerging markets,
the market is buzzing about the possible inorganic initiatives in the US
market.
Expect margin profile to improve
Most of the recent deals are focused on sharpening its focus on niche
segments, where competition is low and margins are better. A selective
business approach and focus on technology-intensive products profile are set
to strengthen its margin profile over a period of time. I expect over 350-BPS
improvement in OPM over FY2015-17.

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Tie-ups and agreements
During the last 12 months, the company entered into 17 collaborations, tieups, joint ventures, in-licencing and out-licencing deals, most of such deals are
small in size but focused on niche segments.
Tender-based business to see better traction
The deals sealed during the year include manufacturing and supply
agreements with Global Fund for AIDS, Tuberculosis and Malaria tenders
($189-million worth tenders to be executed over the next three years),
Medicines for Malaria Venture (MMV) for the development of rectal
artesunate for pre-referral treatment of children with severe malaria and tieup with Medicine Patent Pool (MPP) to manufacture generic HIV medicines,
atazanavir (ATV) and dolutegravir (DTG) and market them in developing
countries. These deals are set to give higher exposure to tender-based
institutional business over a period of time and also help improve the
operating margins.

Expanding manufacturing base for smaller markets

The company entered into multiple joint-venture agreements to broad-base
the manufacturing infrastructure and tap the growth potential in smaller
markets. These deals include setting up a joint venture in Algeria (with
Biopharma SPA with an initial investment of $6 million) and Morocco (with
Cooper Pharma and The Pharmaceutical Institute).
In-licencing deals to enrich product basket
Cipla Medpro (South African arm of Cipla) entered into in-licencing deals
with Teva Pharmaceutical Industries (Teva) to market a number of generic
products in the South African market. Besides, it also entered into inlicencing
deals with Gilead Sciences Inc to manufacture and market Sofosbuvir and
Ledipasvir in 91 countries including India and South Africa under Ciplas own
brand name. It also entered into in-licencing agreements with BioQuiddity Inc
to market an anesthetic product, OneDose ReadyfusOR, in Europe, with MSD
to co-market raltegravir 400mg tablet in India and with Hetero to launch a
biosimilar of the drug Darbepoetin Alfa under the brand name Actorise in
India.

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R&D collaboration and out-licencing deals

Cipla has collaborated with US-based Chase Pharmaceuticals (Chase Pharma)
to invest in its novel product, which is undergoing clinical trials. Chase
Pharma is focused on developing novel approaches to improve treatment of
Alzheimers disease. Cipla will invest $21 million in two phases to support the
programme and will also collaborate to develop the drug and market it in
India and South Africa. Besides, it also entered in an agreement with Salix
Pharmaceuticals in USA to provide exclusive rights under certain patent
applications in the Rifaximin Complexes patent family controlled by Cipla in
lieu of royalty, upfront and milestone-based payments.

Industry concerns.
Regulatory challenges
The Indian pharmaceutical market has its own set of regulatory challenges in the
form of:

Government-mandated price controls

Delay in new product approvals
Delay in clinical trial approvals
Uncertainties over FDI policy

These concerns act as a deterrent to the growth of the industry.

Manufacturing quality
India is attracting greater scrutiny from the US FDA in relation to cGMP compliance,
owing to the fact that it is the largest drugs supplier to the US. Indian companies will
have to conform to standards at par with the global benchmarks. This will involve
continuous improvement in systems and processes and training of the workforce to
ensure compliance to such standards.

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Recent deals, tie-ups and collaboration by Cipla
Date

Target/
Collaborator
company

Stake/
share

Country
covered

Investments/
Financial
terms

Type of
collaboration

Objective/ Rationale

13-Feb-15

Global Fund
ARV Tender

NA

140
emerging
countries

Not disclosed

Develop and
supply
agreement

12-Feb-15

Biopharma
SPA

40%

Algeria

$6 million

JV

12-Feb-15

Jay Precision
Pharma

60%

India

$15 million

Strategic
investments

9-Feb-15

Cooper
Pharma and
The
Pharmaceuti
cal Institute(
PHI)

60%

Morocco

$15 million

JV

27-Nov-14

Medicines for
Malaria
Venture

NA

Developin
g
countries

Not disclosed

Develop and
supply
agreement

Cipla is among those

selected as a Panel
Supplier for a Supplier
Partnership Agreement;
the contract is effective
from
the January 1, 2015 and
will run for a
period of three years; the
supplies will
begin from Q4FY2015
The new company is
expected to make an
investment of up to $15
million to build a
factory
JPP is an existing supplier
of respiratory devices to
Cipla and has a
manufacturing
facility at Vasai,
Maharashtra; It has an
annual turnover of over
Rs30 crore. Cipla
will use it as a platform to
develop nextgeneration
respiratory devices
The JV will enable Cipla
to establish a front-end
presence in Moroccos
pharmaceutical market;
the JV shall invest in
setting up a
manufacturing
facility in Morocco to
produce respiratory
and neurology products
For the development of
rectal artesunate for prereferral treatment of
children with

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20-Nov-14

Serum
Institute of
India

NA

Europe

Not disclosed

Commercial
collaboration

8-Oct-14

Teva Pharma

NA

South
Africa

Not disclosed

In-licencing
deal

25-Sep-14

Surgipharm
Limited

NA

Kenya

Not disclosed

Commercial
collaboration

25-Sep-14

Medicines
Patent Pool

NA

112
developin
g
countries

Not disclosed

Sub-licencing

18-Sep-14

Salix
Pharmaceuti
cals

NA

USA

Not disclosed

out-licencing
deals

severe malaria; the goal

is to achieve
WHO-prequalification of
a rectal
artesunate product by
2016
SII will develop and
manufacture paediatric
vaccines, Cipla will seek
European Medicines
Agencys approval and
market the products in
Europe
The collaboration is a
sales and
distribution arrangement
whereby Cipla
Medpro will exclusively
market Tevas
broad pharmaceutical
product portfolio in
South Africa; the
products will cover
oncology, central nervous
system, womens
health, cardiovascular,
ophthalmology and
other specialty segments
The products will be
brought to Kenyan
patients in partnership
with Surgipharm,
which will be a
distribution partner
MPP announced six new
sub-licences with generic
companies including
Cipla to allow
generic manufacture of
tenofovir
alafenamide for HIV
treatments in 112
developing countries
Cipla has granted Salix
Pharmaceuticals
exclusive rights under
certain patent
applications in the

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15-Sep-14

Gilead
Sciences, inc

NA

Emerging
markets

Not disclosed

In-licencing
deal

8-Sep-14

S&D Pharma

NA

Czech
Republic
and
Slovakia

Not disclosed

Commercial
collaboration

31-Jul-14

BioQuiddity
Inc

NA

Europe

Not disclosed

In-licencing
deal

17-Jul-14

Medicines
Patent Pool

NA

Not disclosed

Sub-licencing

19-Jun-14

Hetero

NA

India

Not disclosed

In-licencing
deal

10

Rifaximin Complexes
patent family controlled
by Cipla
As per the agreement,
Cipla will be allowed to
manufacture and market
Sofosbuvir and Ledipasvir
in 91 countries
including its home
markets India, South
Africa and Egypt, which
has a high
incidence of Hepatitis C,
under Ciplas
own brand names; Cipla
has the option of
receiving a technology
transfer of the
manufacturing process
from Gilead
Sciences Inc
Under the collaboration,
Cipla will be driving its
respiratory product
portfolio in
both Czech Republic and
Slovakia through
Cipla owned sales force
team, managed by
Cipla commercial head;
S&D Pharma will
physically distribute all
products, including
respiratory products, and
this portfolio will
increase over the next
few years
To market an anesthetic
product, OneDose
ReadyfusOR, in Europe
To manufacture of
generic HIV medicines,
ATV and DTG and
market in developing
countries
To launch a biosimilar of
the drug
Darbepoetin Alfa under

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12-May-14

Chase
Pharmaceuti
cals

NA

US

$21 million
in two phases

R&D
collaboration
and
investments

20-Feb-14

MSD

NA

India

Not disclosed

In-licencing
deal

the brand name

Actorise
Chase is focused on
developing novel
approaches to improve
treatments for
Alzheimers disease;
Cipla will also
collaborate to develop the
drug and
market it in India and
South Africa
Co-market MSDs
raltegravir 400mg tablet,
for the Indian market

Finance at a Glance
INCOME DATA

Year Ending

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Net Sales

Rs m

53,595

63,239

70,207

82,793

1,01,004

Other income

Rs m

3,535

917

1,395

2,221

2,654

Total revenues

Rs m

57,130

64,156

71,602

85,015

1,03,658

Gross profit

Rs m

10,677

13,916

16,618

21,979

21,331

Depreciation

Rs m

1,671

2,733

3,122

3,305

3,726

Interest

Rs m

230

251

383

339

1,457

Profit before tax

Rs m

12,311

11,849

14,508

20,556

18,800

Minority Interest

Rs m

-159

Prior Period Items

Rs m

-1

-62

-123

Extraordinary Inc (Exp)

Rs m

950

398

Tax

Rs m

2,435

1,952

3,065

5,443

4,634

Profit after tax

Rs m

10,826

9,896

11,442

15,449

13,884

Gross profit margin

19.9

22

23.7

26.5

21.1

Effective tax rate

19.8

16.5

21.1

26.5

24.6

Net profit margin

20.2

15.6

16.3

18.7

13.7

11

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BALANCE SHEET DATA

Year Ending

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Current assets

Rs m

43,673

44,431

50,568

67,840

56,514

Current liabilities

Rs m

12,143

16,985

14,132

22,776

25,636

Net working cap to sales

58.8

43.4

51.9

54.4

30.6

Current ratio

3.6

2.6

3.6

2.2

Inventory Days

Days

103

110

96

105

105

Debtors Days

Days

107

86

81

74

59

Net fixed assets

Rs m

26,954

33,795

35,867

39,878

44,452

Share capital

Rs m

1,606

1,606

1,606

1,606

1,606

"Free" reserves

Rs m

57,409

64,672

74,248

87,818

98,591

Net worth

Rs m

59,106

66,661

76,389

90,187

1,00,504

Long term debt

Rs m

38

179

33

3,179

Total assets

Rs m

73,091

85,967

93,498

1,16,588

1,34,032

Interest coverage

54.5

48.2

38.8

61.6

13.9

Debt to equity ratio

Sales to assets ratio

0.7

0.7

0.8

0.7

0.8

Return on assets

15.1

11.8

12.6

13.5

11.4

Return on equity

18.3

14.8

15

17.1

13.8

Return on capital

22.8

18.1

19.5

23.5

19.3

Exports to sales

54.1

53.2

52.6

53.5

49

Imports to sales

19.4

22

16.1

15.9

14.1

Exports

Rs m

29,006

33,615

36,920

44,262

49,480

Imports

Rs m

10,408

13,919

11,333

13,162

14,261

Fx inflow

Rs m

30,577

34,177

37,282

44,947

51,499

Fx outflow

Rs m

12,022

15,635

13,292

15,906

18,943

Net fx

Rs m

18,555

18,542

23,990

29,042

32,556

CASH FLOW

Year Ending

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

From Operations

Rs m

10,430

10,251

17,128

13,977

15,627

From Investments

Rs m

-5,628

-9,084

-9,651

-20,629

-12,499

From Financial Activity

Rs m

-4,716

-828

-7,532

7,178

-2,656

Net Cash flow

Rs m

87

339

-55

526

472

12

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EQUITY SHARE DATA

Year Ending

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Sales per share (Unadj.)

Rs

66.7

78.8

87.4

103.1

125.8

Earnings per share (Unadj.)

Rs

13.5

12.3

14.3

19.2

17.3

Diluted earnings per share

Rs

13.5

12.3

14.3

19.2

17.3

Cash flow per share (Unadj.)

Rs

15.6

15.7

18.1

23.4

21.9

Dividends per share (Unadj.)

Rs

2.8

Adj. dividends per share

Rs

2.8

Dividend yield

0.7

0.8

0.6

0.5

0.5

Book value / share (Unadj.)

Rs

73.6

83

95.1

112.3

125.2

Adj. book value per share

Rs

73.6

83

95.1

112.3

125.2

Shares outstanding

802.99

802.92

802.92

802.92

802.92

Price / Sales ratio

4.3

4.2

3.6

3.6

3.2

Avg P/E ratio

21.3

27.1

22.2

19.1

23.5

P/CF ratio

18.4

21.2

17.4

15.8

18.6

Price / Book Value ratio

3.9

3.3

3.3

3.3

Dividend payout

14.8

22.7

14

10.4

11.6

2,30,057

2,67,774

2,54,124

2,95,475

3,26,829

Avg Mkt Cap

PEER GROUPS
Company Name
Cipla Ltd
Lupin Ltd
Sun Pharmaceuticals
Industries Ltd
Dr. Reddy's
Laboratories Ltd

13

Rs m

PEER GROUPS

MARKET CAP

EPS (TTM)

P/E (X)

P/BV(X)

P/CF(X)

(Rs.)
660.10
1727.00
942.50

Rs. in mn.
529967
775786
1951965

(Rs.)
14.70
53.60
28.80

Ratio
44.80
32.20
32.70

Ratio
5.28
11.12
26.35

Ratio
29.60
36.40
45.50

3516.00

599021

127.70

27.50

6.42

22.90

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Conclusion
Cipla Ltd laid foundations for the Indian pharmaceutical industry back in
1935 with the vision to make India self-reliant in healthcare and is one of the
largest exporters of pharmaceutical products from India and has a strong
presence in over 150 countries.
Cipla (EU) Limited, U.K., a wholly owned subsidiary of the Cipla Ltd, has
entered into a joint venture (JV) agreement with Company's existing business
partners in Morocco Societe Marocaine De Cooperation Pharmaceutique &
the Pharmaceutical Institute (PHI).
The Company has signed a definitive agreement to acquire 60% stake of Jay
Precision Pharmaceuticals Private Limited Mumbai, from the existing
shareholders, for a cash consideration of Rs. 960.00 mn.
Cipla Ltd has reported that Meditab Holdings Limited, Mauritius, a wholly
owned subsidiary of the Company, has entered into a definitive agreement to
sell its entire 48.22% equity interest in Jiangsu Cdymax Pharmaceuticals Co.
Ltd., China.
Net Sales of the company is expected to grow at a CAGR of 9% over 2013 to
2016E.
Buy below Rs.700/- or more for short term target Rs.820/- to long term
Rs.2,100/-

14