Cipla delivered yet another solid quarter, driven by healthy growth across businesses (India, CGA, Europe, API). EBITDA margin came ahead of expectation at 24% (+647bps YoY, +46bps QoQ), aided by tight control on costs. Cipla is tracking ahead of its initial cost saving guidance of Rs 4-5 bn for FY21 and expects to retain part of these benefits in the coming quarters. Its US business outlook remains strong as respiratory/ niche filings add longer-term growth visibility. Cipla expects to add USD 300-500 mn to its US revenue base of USD 500 mn+ by FY25.
 
In India, while Covid sales contribution is likely to go down materially, recovery in ex-Covid business is expected to drive double-digit growth of 10% CAGR over the next two years. HDFC Securities expects RoCE to expand by 550bps over FY20-23e, driven by operating leverage benefits and cost optimisation efforts. Maintain BUY rating on Cipla with revised target price of Rs 1020/sh.
 

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Cipla Revenues in line, Margin beat: 
 
Cipla revenue stood at Rs 51.7 bn were largely in line as strong growth across markets offset muted performance in US (flat QoQ). While gross margins were stable (61.4%, -93bps YoY, flat QoQ), continued savings in staff cost (-72bps YoY, flat QoQ) & other exp (-668bps YoY, -44bps QoQ) improved EBITDA margin to 23.8% (+647bps YoY, +46bps QoQ).
 
Cipla Strong pipeline drives growth visibility in the US: 
 
US revenue remained flat QoQ at USD 141 mn as market share gains in Albuterol were partly offset by product recall (USD 2-3 mn impact). Cipla has ~12% market share in Albuterol and ~85% in the gProventil category and believes it can gradually ramp up as capacity is not a constraint. The US pipeline remains strong with gAdvair, gAbraxane, Albuterol and other respiratory filings driving visibility over the next few years. Its pipeline includes 35 para IV assets with market size of USD 42 bn. Cipla expects to add USD 300-500 mn in revenue to its base of USD 500 mn+ revenue by FY25.
 
Cipla Key call takeaways:
 
a)     US business - margins are at corporate average levels, expect one niche launch per quarter staring from 1QFY22 (USD 15-20 mn+)
b)    gAdvair – TAD is late Q4FY21 or early Q1FY22, R&D spends to remain at 6-7%
c)     India – ex-Covid portfolio, growth was at 6-7%
d)    US respiratory portfolio – USD100 mn+ in 9mFY21
e)     Albuterol – Cipla will defend its share as it has a cost edge
f)     plans to ramp up consumer business in India and South Africa to 12%+ of sales (vs. 5-7% currently).
 
Maintain BUY on Cipla: 
 
HDFC Securities marginally tweak their estimates and revise target price to Rs 1020, based on 23x FY23e EPS and NPV of Rs 30/sh for gAdvair and Rs 40/sh for gRevlimid. 
 
Cipla Key Risks: 
 
Lower than expected growth in India, slower market share gains in Albuterol, delay in resolution of Goa warning letter, higher price erosion in the US.