>CIPLA LIMITED (MORGAN STANLEY)

AGM Highlights – Proxy On Global Generics – Stay OW

What's new: We attended Cipla AGM, a once-a-year management interaction platform. Bottom line, Cipla’s capex (Rs20 bln in F07-09), quality drug filings (7000 in 180 countries), and marketing tie-ups offer good midterm growth visibility and a sustained high ROE.

Management appeared optimistic about growth prospects and agreed that it can potentially double sales again in the next 4-5 years. For FY10, it targets a top-line range of Rs55-57 bln (implying 10-14% growth) and believes it can better its F09 earnings (adjusted for Rs2.3 bln forex losses). Management is concerned about drought conditions in India. Company appears
excited about HFA inhaler opportunities.

Where we differ: To us, the guidance appeared conservative, as it has been for the last 3 years. Cipla’s single location largest capex to date, Indore SEZ (Rs6 bln invested, another 2 bln to go), is the leading indicator of growth ahead with asset turnover of 2-3x (commercial production begins in F1Q11). In particular, we like depth in Cipla’s portfolio which includes HFA inhalers, steroids
hormones, concology, NDDS combination drugs

HFA Inhalers–Approvals Possible in 2010: Though frustrated with the long regulatory process spanning 3-4 years, management thinks the company is likely in the last lap and approvals are possible in 2010. In particular, the company was excited about salbutamol combination and formetrol combination products, and mentioned that these could be ‘game changers’, subject to the (extent of) competition.

We remain comfortable with the OW rating. In our opinion, impending fund raising (5% dilution,
management was comfortable with current valuations to dilute) is an overhang and opportunity to buy.

To see full report: CIPLA