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Cipla
09 June 2021

Reuters: CIPL.NS; Bloomberg: CIPLA IN

Cipla management meet update ACCUMULATE

We recently had an interaction with Cipla management to understand the business as it Sector: Pharmaceuticals
stands in an evolving market environment. The key takeaways being that the company
continues to proactively pursue opportunities to address the COVID-19 pandemic and CMP: Rs953
simultaneously invest in structural growth. The near term growth drivers remain intact
Target Price: Rs977
Management Meet Update

and should help Cipla ensure growth over the next two years. In FY22, the domestic
market should be important for growth while in FY23, the US market should be the Upside: 2%
dominant growth driver.
Adverse commentary on Remdesivir has no impact: Lately, there has been adverse commentary Vishal Manchanda
on the use/benefit of Remdesivir in treating COVID patients, but the same has not translated into Research Analyst
change in guidelines, which continue to recommend usage in moderate to severe patients. vishal.manchanda@nirmalbang.com
Vaccine Import: There are multiple aspects that would affect their decision to import COVID +919737437148
vaccines and distribute them. The situation is evolving and hence currently the management is not in
a position to disclose more on this front. Gaurang Sakare
Cocktail Antibody in-licensed from Roche is seeing good demand: Apart from Remdesivir, Research Associate
cocktail antibody in-licensed from Roche has seen strong demand and is a very effective treatment gaurang.sakare@nirmalbang.com
for reducing the risk of hospitalization in high risk patients with mild to moderate COVID-19. +9122 6273 8093
Inventory write-offs which affected gross margin in 4QFY21 should not recur: Unanticipated
decline in demand for certain products led to inventory write-offs in 4QFY21. To reduce such Key Data
occurrences in the future, there is a sharper focus now on demand forecasting and such risks should Current Shares O/S (mn) 806.5
come down. A case in point is Remdesivir, wherein there has been a sharp reduction in demand as
Mkt. Cap (Rsbn/US$bn) 769.2/10.6
COVID incidences have rapidly declined, the company has been able to ensure that the inventory
level moves along with demand. 52 Wk H / L (Rs) 966/616
Domestic business: The domestic business is doing well with all three components – Trade Daily Vol. (3M NSE Avg.) 6,896,497
generics, OTC and branded prescription growing well. Doctor interactions have not fully recovered
but gradually things are coming back to normal as the second covid wave subsides. Price Performance (%)
Albuterol share should continue to expand despite the competitive pressures. 1M 6M 1 Yr
FY23 should be important for the US business: In FY23, the key launches in the US that would
Cipla 8.0 25.1 49.0
be meaningful for Cipla would be gAdvair, gRevlimid (settled) and gAbraxane. The three
opportunities should ensure growth on the FY22 revenue and a few years beyond. Simultaneously, Nifty Index 6.2 16.3 56.7
the company continues to invest in complex generic pipeline (depot/peptide injectables), which Source: Bloomberg
should ensure that growth sustains in the US market.
SG&A cost savings: The company continues to work on rationalising spends around promotion and Latest Presentation
distribution of drugs in India. Every aspect around these spends is being monitored. The goal is to Latest Annual Report
do away with processes that stand redundant in the current business environment. Digital promotion
is helping. Medical representatives will continue to stay, but digital promotion will aid MR
productivity, improve doctor experience and reduce overall spends on doctor interaction/relationship
building.
We maintain our estimates on Cipla to arrive at a target price of Rs977 based on 23x
FY23EPS.

Y/E March (Rsmn) FY19 FY20 FY21 FY22E FY23E

Net sales 1,63,624 1,71,320 1,91,596 2,10,848 2,31,467
EBITDA 30,973 32,060 42,524 48,093 56,963
Net profit 15,277 15,465 24,049 27,476 34,167
EPS (Rs) 19.0 19.2 29.9 34.1 42.5
EPS growth (%) 8.3 1.2 55.5 14.2 24.4
EBITDA margin (%) 18.9 18.7 22.2 22.8 24.6
P/E (x) 50.2 49.6 31.9 27.9 22.4
P/BV (x) 5.1 4.9 4.2 3.7 3.2
EV/EBITDA (x) 25.9 24.5 18.1 15.6 12.7
RoCE (%) 11.9 13.1 17.7 17.4 18.8
RoE (%) 10.1 9.8 13.1 13.0 14.0
Source: Company, Nirmal Bang Institutional Equities Research
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Financials
Exhibit 1: Income statement Exhibit 2: Cash flow
Y/E March (Rsmn) FY19 FY20 FY21 FY22E FY23E Y/E March (Rsmn) FY19 FY20 FY21 FY22E FY23E
Net sales 1,63,624 1,71,320 1,91,596 2,10,848 2,31,467 EBIT 22,476 23,755 34,508 38,429 47,549
% Growth 7.5 4.7 11.8 10.0 9.8 (Inc.)/Dec. in working capital -20,683 17,665 -7,695 -6,865 -7,885
Raw material costs 57,845 59,914 73,519 76,960 82,749
Cash flow from operations 1,793 41,421 26,813 31,564 39,664
Staff costs 28,565 30,270 32,518 35,445 38,635
Other income -4,766 -3,442 -2,660 -2,078 -2,356
R&D expenses 12,057 11,887 11,677 10,000 10,000
Other expenditure 46,241 49,076 43,034 50,350 53,120 Other expenses -780 -601 -686 0 0
Total expenditure 1,32,651 1,39,260 1,49,072 1,62,755 1,74,504 Depreciation 13,263 11,747 10,677 11,743 11,771
EBITDA 30,973 32,060 42,524 48,093 56,963 Tax paid (-) -5,695 -6,312 -8,888 -10,087 -12,564
% Growth 9.6 3.5 32.6 13.1 18.4 Net cash from operations 3,815 42,812 25,256 31,141 36,514
EBITDA margin (%) 18.9 18.7 22.2 22.8 24.6 Capital expenditure (-) -6,793 -13,975 -10,447 -11,784 -12,557
Other income 4,766 3,442 2,660 2,078 2,356 Net cash after capex -2,978 28,837 14,810 19,357 23,957
Interest costs 1,584 1,874 1,507 987 940
Other investment activities 3,374 1,471 2,308 2,009 1,898
Gross profit 1,05,779 1,11,406 1,18,077 1,33,888 1,48,717
Cash from financial activities -3,863 -26,456 -13,145 -1,774 -2,553
% Growth 8.1 5.3 6.0 13.4 11.1
Depreciation 13,263 11,747 10,677 11,743 11,771 Opening cash balance 9,656 6,188 10,039 14,012 33,604
Profit before tax & Closing cash balance 6,189 10,039 14,012 33,604 56,907
20,791 21,782 32,901 37,341 46,509
Exceptional Items Change in cash balance -3,468 3,851 3,973 19,592 23,303
Exceptional Items 0 0 0 0 0
Profit before tax 20,791 21,782 32,901 37,341 46,509 Source: Company, Nirmal Bang Institutional Equities Research
Tax 5,695 6,312 8,888 10,087 12,564
Effective tax rate (%) 27.4 29.0 27.0 27.0 27.0 Exhibit 4: Key ratios
Share of MI and Associates -172 -475 -128 -128 -128 Y/E March FY19 FY20 FY21 FY22E FY23E
PAT after share of MI and
14,924 14,995 23,885 27,126 33,817 Profitability & return ratios
associates
PAT Attributable to EBITDA margin (%) 18.9 18.7 22.2 22.8 24.6
15,277 15,465 24,049 27,476 34,167
Shareholders
EBIT margin (%) 13.7 13.9 18.0 18.2 20.5
Non-Controlling Interest -353 -470 -164 -164 -164
% Growth 6.4 2.5 55.2 13.5 24.6 Net profit margin (%) 9.2 9.0 12.5 12.9 14.7
EPS (Rs) 19.0 19.2 29.9 34.1 42.5 RoE (%) 10.1 9.8 13.1 13.0 14.0
Source: Company, Nirmal Bang Institutional Equities Research RoCE (%) 11.9 13.1 17.7 17.4 18.8
Working capital & liquidity ratios
Exhibit 3: Balance sheet
Receivables (days) 80 84 69 62 62
Y/E March (Rsmn) FY19 FY20 FY21 FY22E FY23E Inventory (days) 249 251 221 224 221
Equity 1,611 1,613 1,613 1,613 1,613 Payables (days) 127 127 106 99 98
Reserves 1,48,511 1,56,018 1,81,652 2,08,076 2,41,191 Current ratio (x) 3.8 3.0 3.1 3.5 4.0
Net worth 1,50,123 1,57,630 1,83,265 2,09,689 2,42,804 Quick ratio (x) 2.6 1.9 2.0 2.5 2.9
Minority interest 3,320 2,943 2,591 2,591 2,591 Valuation ratios
Net deferred tax liabilities 4,253 3,652 2,966 2,966 2,966 EV/sales (x) 4.9 4.6 4.0 3.6 3.1
Short-term loans 4,862 4,472 3,347 4,694 5,093 EV/EBITDA (x) 25.9 24.5 18.1 15.6 12.7
Long-term loans 38,301 23,693 12,028 10,825 9,742 P/E (x) 50.2 49.6 31.9 27.9 22.4
Other non-current liabilities 5,922 4,777 4,758 4,758 4,758 P/BV (x) 5.1 4.9 4.2 3.7 3.2
Liabilities 2,06,780 1,97,166 2,08,955 2,35,522 2,67,954
Source: Company, Nirmal Bang Institutional Equities Research
Net block 55,073 56,734 56,489 56,953 57,740
Intangible assets and goodwill 47,773 48,341 48,356 47,932 47,932
Other non-current assets 12,542 14,513 14,865 14,934 15,392
Inventories 39,648 43,776 46,692 48,877 52,554
Debtors 41,507 38,913 34,457 37,919 41,627
Cash 6,188 10,039 14,012 33,604 56,907
Other current assets 36,903 24,310 36,649 41,035 45,518
Total current assets 1,24,246 1,17,038 1,31,810 1,61,435 1,96,606
Creditors 19,480 22,818 20,668 21,635 23,263
Other current liabilities 13,374 16,642 21,896 24,096 26,452
Total current liabilities 32,854 39,460 42,564 45,732 49,716
Net current assets 91,393 77,579 89,246 1,15,703 1,46,891
Total assets 2,06,780 1,97,166 2,08,955 2,35,522 2,67,954
Source: Company, Nirmal Bang Institutional Equities Research

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P/E Chart
(x)
50
45
40
35
30
25
20
15
10
Nov/13

Nov/15

Nov/16

Nov/17

Nov/18

Nov/19

Nov/20
Nov/14
May/13

May/15

May/17

May/18

May/19

May/20

May/21
May/14

May/16

PE Mean 1SD -1SD 1SD -2SD

Source: BSE, Bloomberg, Company, Nirmal Bang Institutional Equities Research

Rating track
Date Rating Market price Target price (Rs)
9 February 2017 Buy 560 700
6 September 2016 Buy 577 700
10 November 2016 Buy 566 700
26 December 2016 Buy 582 700
9 February 2017 Buy 603 700
26 May 2017 Buy 504 684
8 November 2017 Buy 608 713
8 February 2018 Buy 569 716
23 May 2018 Buy 525 647
9 August 2018 Acc. 633 647
6 November 2018 Buy 563 657
7 February 2019 Buy 528 657
5 April 2019 Buy 522 695
23 May 2019 Buy 554 653
8 August 2019 Buy 519 636
23 September 2019 Buy 463 632
7 November 2019 Buy 481 632
6 February 2020 Buy 447 632
27 March 2020 Buy 387 523
23 April 2020 Acc 587 582
18 May 2020 Acc 570 575
10 August 2020 Acc 729 773
22 September 2020 Buy 778 933
29 September 2020 Buy 775 933
9 November 2020 Buy 790 951
7 January 2021 Buy 825 1,067
31 January 2021 Buy 826 1,071
17 May 2021 Accumulate 904 977
09 June 2021 Accumulate 953 977

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 300
500
600
700
800

400
900
1000
Apr-16
Jun-16

4
Aug-16
Oct-16
Rating track graph

Jan-17
Mar-17
May-17
Aug-17
Oct-17
Dec-17
Mar-18
May-18
Jul-18

Not Covered
Sep-18
Dec-18
Feb-19
Apr-19
Jul-19
Sep-19
Covered Nov-19
Jan-20
Apr-20
Jun-20
Aug-20
Nov-20
Jan-21
Mar-21
Jun-21

Cipla
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DISCLOSURES

This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as “NBEPL”) for private circulation. NBEPL is a
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NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have
different or contrary views on stocks and markets.

NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in
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Analyst Certification: I, Vishal Manchanda, research analyst and Gaurang Sakare, Research Associate the author of this report, hereby
certify that the views expressed in this research report accurately reflects my personal views about the subject securities, issuers,
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