Wednesday, May 9, 2012

>CIPLA: Dymista approval a tad positive for Cipla (CLSA)

■ Dymista approval a tad positive for Cipla
US FDA approved Meda’s drug Dymista for Allergic Rhinitis. Being a partner, Cipla will benefit through product supplies over the longer term. The product is widely estimated to reach US$300-500m in annual sales over the coming years. Apart from approval (outside North America) related milestone payment (US$5m), we expect gradual increase in Cipla’s sales from product related supplies to Meda. Assuming Cipla supplies product at 10-15% of
sales, it could earn US$50-75m at peak sales.

■ Rupee weakening likely to aid margins
Cipla is one of strongest beneficiaries of a weakening rupee. We expect improving margins over the coming quarters on back of a weak rupee and a low base. We expect strong operating profit growth over coming quarters led by margin expansion and high margin product supplies.

■ Lexapro supplies to Teva, a short term boost
Teva launched Lexapro in March 2012 under six months exclusivity. Cipla benefits from formulation supplies (likely at high margin) during this period. This will help Cipla reported numbers though should be excluded while assigning a price to core earnings multiple. Additionally, a low base in domestic formulations could result in reasonable India growth. AIOCD data on domestic market suggests improving growth for Cipla.

■ Reasonable valuations, Upgrade to O-PF
Post 3QFY12 results, Cipla’s share has corrected more than 10%. We believe margin blip shown in 3Q could correct with multitude of positive triggers like Lexapro supplies and continued weakness in rupee. While we expect modest 12% growth in sales to Rs18.2bn, we see margins expanding by nearly 500bps YoY (low base) and flat QoQ resulting in 47% Ebitda growth and 36% PAT growth to Rs2.9bn (assuming higher tax rate). We upgrade the stock to
O-PF on back of multiple triggers and reasonable valuations while maintaining our target of Rs360/ share based on 19x one year forward earnings.

To read report in detail: CIPLA