Cipla : Earnings Call Transcript Q1 FY24

"Cipla Limited

Q1 FY '24 Earnings Conference Call"

July 26, 2023

MANAGEMENT: MR. UMANG VOHRA - MANAGING DIRECTOR AND

GLOBAL CHIEF EXECUTIVE OFFICER - CIPLA

LIMITED

MR. ASHISH ADUKIA - GLOBAL CHIEF FINANCIAL

OFFICER - CIPLA LIMITED

MR. AJINKYA PANDHARKAR - HEAD, INVESTOR

RELATIONS - CIPLA LIMITED

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	Cipla Limited
	July 26, 2023
Moderator:	Ladies and gentlemen, good day, and welcome to Cipla Limited Q1 FY '24 Earnings Conference
	Call. As a reminder, all participant lines will be in the listen-only mode and there will be an
	opportunity for you to ask questions after the presentation concludes. Should you need assistance
	during this conference call, please signal an operator by pressing star then zero on your touch
	tone phone. Please note that this conference is being recorded.
	I now hand the conference over to Mr. Ajinkya Pandharkar from Cipla Limited. Thank
	you, and over to you, Ajinkya.
Ajinkya Pandharkar:	Thank you, Seema. Good evening, and a very warm welcome to Cipla's Q1 FY '24 earnings call.
	I'm Ajinkya Pandharkar from the Investor Relations team at Cipla. Let me draw your attention
	to the fact that on this call, our discussion will include certain forward-looking statements, which
	are predictions, projections, or other estimate about future events. These estimates reflect
	management's current expectation of the future performance of the company.
	Please note that these estimates involve several risks and uncertainties that could cause the actual
	results to differ materially from what is expressed or implied. Cipla does not undertake any
	obligation to publicly update any forward-looking statement, whether as a result of new
	confirmation, future events or otherwise.
	I would like to request Umang to take over, please.
Umang Vohra:	Thank you, Ajinkya. Good evening to all of you. We appreciate you joining us today for our
	first quarter earnings call for financial year 2024. I hope you have received the investor
	presentation that we have posted on our website. We have also released our sixth integrated
	annual report for financial year 2023. This report continues to be a reflection of our commitment
	and focus towards improving transparency, governance and setting best-in-class disclosure
	practices.
	I'm pleased to share our quarter one FY '24 performance, which demonstrates strong commercial
	execution, sustainability, and growth in our focused markets. Now I'll cover the key highlights
	for the quarter.
	In quarter one FY '24, we recorded a solid 18% year-on-year growth across all markets. We have
	record revenue in both our flagship businesses of One India and the US. Our One India branded
	prescription business grew faster than the IPM as per IQVIA MAT June '23, driven by growth
	in chronic portfolio.US continues to scale new peaks by posting the highest ever revenue for the
	quarter once again on the back of momentum in our differentiated portfolio. In South Africa, the
	Private Market business has strongly bounced back from a challenging FY '23, posting double-
	digit growth in prescription and OTC segments. South Africa prescription business is now
	ranked second by market share in the country as per IQVIA MAT May '23.
	With a strong revenue growth, Q1 FY '24 witnessed a strong EBITDA margin at 23.6%, largely
	driven by mix and efficiency in operations. In this quarter, we strengthened our balance sheet
	further and in line with our strategy. We continue to allocate our capital towards multiple growth
	initiatives, complex pipeline, new science, big brands, and expansion of our consumer portfolio
	to make this growth sustainable for the longer term.
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Cipla Limited

July 26, 2023

I would now like to cover further details on our focus markets, which powered the growth for this quarter. Our India branded prescriptions business continued its market beating growth trajectory with a sustained momentum across all therapies by growing significantly higher than the IPM growth as per MAT June '23. Our share of chronic therapies in our revenue share grew from 58% to 60% on a year-on-year basis with improvement in industry market share from 8.4% to 8.6%.Continuing with our strategy of making big brands bigger, our leading inhaler brand, Foracort, clocked 27% growth in quarter one , which is one of the fastest -in top 10 IPM brands. Ibugesic Plus became the 11th brand to enter the top 100 IPM brands. Cipla is now among top two in terms of number of brands in the top 100 in the Indian pharma market.

Our trade generics business maintains its market leadership supported by traction in big brands. We continue with our launch momentum by adding 23 products in the portfolio to build our future. Our consumer health arm, CHL, witnessed a strong double-digit growth with margins reaching closer to mid-teens for the quarter, leveraging on our brand strength, market penetration, attractive consumer-focused packaging, and positioning.

Our differentiated portfolio in US continues to deliver strong growth for the franchise. The business yet again achieved its highest sales in the quarter by realizing a revenue of USD222 million, growing by a strong 43% over the last year.

Generic Revlimid continues to perform as per expectations, while Lanreotide has improved its market share to 18% as per the MAT May '23. Market share of Albuterol, which witnessed a drop in quarter four of FY '23 has now stabilized. We have not lost any customer awards on the product and continue to execute multiple work streams to capitalize on any new opportunities to grow this share further.

In South Africa, we are pleased to share that, Cipla is now the second largest player in the prescription market by market share. Cipla grew at a four-year CAGR of 8.6% in the market, which is growing at 3.6% per the IQVIA MAT May '23. South Africa's private market grew 13% year-on-year powered by an uptick in focused therapies in our prescription business as well as the high growth of 16% in our OTC portfolio.

Strong momentum across new launches has given our portfolio a new muscle for growth. Our focus continues to be driving market-leading growth and we aim to inch towards the top position in the market in the next few years.

Investing in the future pipeline has always been our priority. We have three differentiated products undergoing clinical trials with filings targeted in FY '24 and '25. We are expecting Symbicort to be filed by the end of this year. On peptides, we expect 4 to 5 peptide launches in the next two years. We also expect a couple of new peptides to be filed in the same period.

On the regulatory front, we still await classification from the US FDA for our Indore facility, which was audited in February 2023. However, we have already initiated corrective actions for observations as per the Form 483, we received from the FDA.

Implementation of CAPA and remediation continues for our Goa facility, where we hope to be re-inspected in the second half of this financial year. As informed in our last earnings call,

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Cipla Limited

July 26, 2023

de-risking has been progressing as per our expectations for our key assets. Generic Advair is being derisked to an in-house facility, while we wait for the Indore classification. As guided earlier, we are expecting to take this product to the market in a period of 12 months with no incremental generic competition expected in that time frame.

Generic Abraxane, which is Nano-Paclitaxel, is being derisked to a CMO site. We expect the ability to supply from both of our sites for this file by FY '25.

I would now like to invite Ashish to present the financial and operational performance.

Ashish Adukia: Thank you, Umang. This quarter we further enhanced our performance across all our core businesses with expansion and profitability. We witnessed growth in all three of our biggest markets of India, US, and South Africa, supported by growth in focus portfolio of chronic and differentiated products.

Now coming to the key highlights for the quarter. We are pleased to report a quarterly revenue of INR6,329 crores. The overall revenue growth for the quarter was at 18% on year-on-year basis.

Our One-India franchise further expanded its market share by growing at healthy 12%, supported by growth in chronic portfolio. The impact of NLEM pricing for the quarter has been largely offset by multiple measures. New launches contributed to the growth in branded prescription business with our in-licensed products, Galvus and Scapho, contributing to the list.

The US business reported the highest ever revenue, driven by traction in differentiated portfolio with revenue of USD222 million, growing at 43% Y-o-Y. South Africa grew at 13% Y-o-Y in local currency terms, powered by a solid performance in private market, including OTC.

Amidst geopolitical and currency headwinds, the focus of international markets has been on margin expansion, which has aided our quarter one performance. Our free cash flow generation and operating efficiency continues to drive our healthy net cash position.

Our EBITDA margin stood at 23.6% for the quarter on a reported basis. As always, this EBITDA margin is not including other income. Our EBITDA margins for the quarter include impact of higher R&D expenses and other provisions. R&D investments are driven by ongoing clinical trials on differentiated portfolio as well as other developmental efforts higher in the quarter by 27% versus last year.

Our reported gross margin after material costs stood at 64.7% for the quarter, which is 230 basis points above last year's figures, driven by contribution from new launches and overall mix change.

Total expense for the quarter included employee cost and other expenses, which stood at INR2,598 crores, up by 3.8% on a sequential basis. Total R&D investments for the quarter are at INR349 crores or 5.5% of revenue and what like I said, 27% higher on a Y-o-Y basis.

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Cipla Limited

July 26, 2023

Profit after tax for the quarter is at INR996 crores, so close to about INR1,000 crores, and about 15.7% of sales. The effective tax rate is constant Y-o-Y at 27.5%. As of 30, June 2023, our debt primarily constitutes ZAR720 million in South Africa, with cash equivalent balance at a company level of INR6,941 crores. This results in improvement of our cash position from INR5,469 crores in March to INR6,138 crores in this quarter end.

Looking ahead, we continue to walk on the path of revenue growth and operating profitability. Growth levers in the subsequent quarters will include continued market beating growth across One-India businesses of prescription, trade generics and consumer health.

Traction, a robust traction in our North America franchise across complex portfolio and continued contribution from respiratory and peptide products, creating a more resilient business through de-risked portfolio and supply.

Sustaining performance of quarter one for South Africa with focus on private market, select tender and improving the margins in South Africa, drive growth in focused geographies in international markets. We expect the full year EBITDA to be trending towards 23% for the year.

I'd like to thank you for your attention, and we request moderator to open for the questions.

Moderator:Thank you very much. We take the first question from the line of Mr. Saion Mukherjee from Nomura Securities. Please go ahead, sir.

Saion Mukherjee: Umang, this quarter-on-quarter improvement in the US, what do you ascribe this to? Is there a big Revlimid contribution? And in the next few quarters, how we should think about it?

Umang Vohra: I don't think the Revlimid contribution quarter-on-quarter is significant, Saion. The base business has also grown very impressively between quarter 4 and quarter 1. And of course, between quarter 1 of last year and quarter 1 of this year, we have seen our base business also grow tremendously. So quarter-on-quarter there is not a material difference in Revlimid between quarter 4 and quarter 1.

Saion Mukherjee: Okay. Thank you. And my second question, Umang, is on the future pipeline in the US. So you mentioned about 4, 5 peptide launches. Leuprolide seems to be having low market share. So how should we think about the potential of this peptides? And also particularly on Abraxane, is the bottleneck just around the site? Or are there any queries on the file that we need to address there?

Umang Vohra: Saion, on Abraxane, we have received notification that the only thing pending on the file is the site. And on your other question and I'm sorry, that was on Leuprolide, you will begin to see share gains because for that, we were waiting for certain price approvals in the market and certain codes being assigned, which is now done. Their codes have been assigned. So hopefully, you will see increase in market share there.

Saion Mukherjee: Okay, sir. Thanks Umang, I will join back.

Moderator:Thank you, sir. We take the next question from the line of Mr. Rohan Vora from Purnartha Investment Advisers. Please go ahead, sir.

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