07 May 2010

Bloomberg: CIPLA IN EQUITY Reuters: CIPL.BO Recommendation: BUY No Change EVENT UPDATE Recommendation
CMP: Rs Target Price (Period): Rs Previous TP: Rs Upside (%) EPS (FY12E): Rs
% change from previous

Focus on Niche Product Development – Long term driver for Future Growth
Cipla ties up with Stempeutics for Stem Cell Therapy based Products
Cipla has tied up with the Stempeutics Research to market stem cell-based products. Cipla becomes the first domestic drug player to diversify into stem cell therapy and will fund Rs500mn in the next two years to conduct clinical trials. With this funding, Cipla would get marketing rights of Stempeutics’ eight pipeline products. The first of the products, Stempeucel-CLI (Critical Leg Ischemia), is now poised for phase III trials on a wider set of 110 patients and could be launched in 2013. Stem cell therapy market in India is about Rs24bn, and growing at ~ 15%. Stem cell therapies are gaining prominence world over and are considered a major branch of medical treatment in the future with a potential of revolutionizing medicine. Cipla is the first Indian company to enter this market through this tie-up, which augurs well for its future growth.
Exhibit 1: Projected Revenues for a Single Product– Stempeucel-CLI FY2014 No of Patients (mn) Insurance Coverage Cost of Therapy (in Rs) Target Market Size (in Rsmn) Cipla's Revenues (in Rsmn) Patients Treated
Source: Ambit Capital research

346 400 400 18 20

Stock Performance (%)
Absolute Rel. to Sensex 2.1 7.9

11.2 4.2

51.7 6.7

3.1 6.0

Performance (%)
20,000 18,000 16,000 14,000 12,000 10,000 May-09 Sep-09 Sensex 400 350 300 250 200 Feb-10 Cipla

FY2015 1.005 11% 48,000 5,306 1,327 27,638

FY2016 1.008 12% 46,000 5,561 1,668 36,270

1.000 10% 50,000 5,000 1,000 20,000

Stock Information
Mkt cap: 52-wk H/L: 3M Avg. daily vol.(mn): Beta(x): BSE Sensex: Nifty:
Source: Company, Ambit Capital research

Rs277bn/US$6,2bn 364 /204 2 0.6 16,988 5,091

Currently the no of CLI patients in India are close to one million and increasing every year. We believe that a specialized care product like Stempeucel-CLI which can significantly improve quality of life and reduce the no of amputations caused by CLI could be launched at Rs50,000 per therapy. The target market size for this single product (CLI) is estimated to be Rs5.0bn and we arrive at Cipla’s revenues of Rs1.0bn in FY2014 (~ 20% share) which should be 2-3% of Cipla’s domestic revenues. Cipla’s tie-up with Stempeutics is for eight products and we believe that Stem Cell products could form a significant share of Cipla’s revenues (5-6%) in the long term. Valuation and recommendation: Any product launches in the niche product categories including biosimilars has not been included in our projections for the next two years. We reiterate our BUY recommendation on Cipla with a target price of Rs400, which is 20x our FY12 EPS estimates.
Exhibit 2: Key financials Y/E Mar (Rsmn) Net Sales EBITDA EBITDA Margin % Adj. PAT EPS P/E (x) EV/EBITDA(x)
Source: Company, Ambit Capital research

FY08 42,157 8,316 19.7 7,010 9 38.5 32.9

FY09 52,343 12,183 23.3 7,723 9.9 34.8 22.8

FY10E 58,150 15,330 26.4 11,233 14 24.7 18.1

FY11E 66,944 17,880 26.7 13,431 17.7 20.7 15.2

FY12E 77,833 21,102 27.1 16,044 20 17.3 12.5

Analyst contact Anshuman Gupta Tel .: + 91-(022) 3043 3286 Vijay Chugh Tel .: + (022) 3043 3054

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