Cipla : Earnings Call Transcript Q3FY22

29th January, 2022
(1) BSE Limited	(2) National Stock Exchange of India Limited
Listing Department,	Listing Department
Phiroze Jeejeebhoy Towers,	Exchange Plaza, 5th floor,
Dalal Street,	Plot no. C/1, G Block,
Mumbai 400 001	Bandra Kurla Complex,
	Bandra (East), Mumbai - 400 051
Scrip Code: 500087	Scrip Code: CIPLA EQ

1. SOCIETE DE LA BOURSE DE LUXEMBOURG Societe Anonyme
   35A Boulevard Joseph II, L-1840 Luxembourg

Sub: Q3 FY22 - Earnings Call Transcript

Dear Sir/Madam,

We are enclosing herewith copy of the transcript of the Company's Q3 FY22 earnings conference call dated 25th January, 2022. The transcript is also available on the Company's website i.e.www.cipla.comunder the Investors section.

Thank you,

Yours faithfully,

For Cipla Limited

RAJENDR

1. KUMAR CHOPRA

Digitally signed by RAJENDRA KUMAR CHOPRA Date: 2022.01.29 11:59:50 +05'30'

Rajendra Chopra Company Secretary

Encl: as above

Prepared by: Juzer Masta

"Cipla Limited Q3 FY'22 Earnings Conference Call"

January 25, 2022

MANAGEMENT: MR. UMANG VOHRA - MANAGING DIRECTOR AND

GLOBAL CEO, CIPLA LTD.

MR. KEDAR UPADHYE - GLOBAL CFO, CIPLA LTD.

MR. NAVEEN BANSAL - HEAD, INVESTOR RELATIONS,

CIPLA LTD.

Page 1 of 19

	Cipla Limited
	January 25, 2022
Moderator:	Ladies and gentlemen, good day and welcome to the Cipla Ltd. Q3 FY'22 Earnings Conference
	Call. From the Cipla management we have with us Mr. Umang Vohra - Managing Director and
	Global CEO; Mr. Kedar Upadhye - Global CFO; Mr. Naveen Bansal from the Investor Relations
	Team. 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 the conference call, please signal an operator by pressing '*' then '0' on your touchtone
	phone. I now hand over the call to Mr. Naveen Bansal. Thank you and over to you, sir.
Naveen Bansal:	Thank you, Faizaan. Good morning and a very warm welcome to Cipla's quarter three earnings
	conference call. I am Naveen from the Investor Relations Team here 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 estimates about future events.
	These estimates reflect management's current expectations of the future performance of the
	company. Please note that these estimates involve several risks and uncertainties including the
	impact of COVID-19 that will cause our actual results to differ materially from what is expressed
	or implied. Cipla does not undertake any obligation to publically update any forward looking
	statement whether as a result of new confirmations which are events or otherwise.
	With that I would like to request Kedar to takeover, please.
Kedar Upadhye:	Thank you, Naveen. Good evening to all of you and wish you a very happy new year. I hope
	that all of you and your families are safe and well. We appreciate your joining us today for the
	third quarter earnings call for FY22 and I hope you have received the investor presentation and
	other material that we have posted on the website. This quarter we are pleased to report a healthy
	performance. For the last almost 2 years we have been consistently beating our internal targets.
	We recorded revenue growth of 6% driven by robust momentum in branded markets of India
	and South Africa and continued traction in the US portfolio. Our EBITDA margin of 22.7% for
	the quarter tracks convincingly in terms of our full year guidance despite cost headwinds on raw
	materials and freight offset by increased share of the complex and chronic launches, continue
	rigor on cost control and operating efficiencies. Overall our delivery on revenue and profitability,
	as I said continue to be ahead of our targets. Our one India year-on-year growth of 13% continues
	the impressive run driven by sustained momentum across all businesses. Healthy order flow in
	the prescription business continued across all the therapies as well as regions in the trade
	generics. The consumer business saw consistent uptick in core and transitioned brands. The US
	revenue for the quarter was USD 150 million, one of the highest in recent quarters led by strong
	fraction in the respiratory and other portfolio. We have also received approval for the first
	505(b)(2) version of Lanreotide injection. Our South Africa private business maintains market
	meeting trajectory driven by steady launch momentum. The YTD EBITDA for 9 months is at
	23.1% of sales, tracks quite ahead with our full year guidance. As you are aware Q4 is a
	seasonally reverse quarter for India and our EBITDA appropriately will respond to the change
	in mix.

Page 2 of 19

Cipla Limited

January 25, 2022

Our free cash generation and operating efficiency continues to drive our strong net cash position despite strategic inventory buildup for maintaining adequate supply of medicines. The return on invested capital of 21.2% for trailing 12 months continues to track well above the long-term sustainable range that we have highlighted earlier.

Coming to the financial performance, some of the specific highlights I would like to highlight, as expected the revenue of contribution of COVID products at the company level was lower on year-on-year basis. The COVID portfolio declined by almost 10% on year-on-year basis and 17% sequentially. We do expect to see some traction in the coming quarter in line with the case loads amid the ongoing third wave in India. Our emerging market business continues to maintain strong growth in DTM markets. The order flow from developed markets in our API business has witnessed momentary slowdown and our mix has responded accordingly. We will see traction in orders from emerging markets and API Outlook remains robust.

The total revenue for the quarter is Rs. 5,479 crores with a year-on-year growth of 6%, gross margin stood at 60.9% on a reported basis. The marginal decline on year-on-year basis of 55 basis points, about 40 basis points on Q-on-Q basis is attributed to increase in freight and materials cost and certain provisions for the inventory including COVID products. We expect gross margins to respond to launches from complex pipeline in the coming quarters. Total expenses which include employee cost on others are at Rs. 2,105 crores declined by 2.4% on a sequential basis. Employee cost for the quarter is Rs. 872 crores which is flat on a sequential basis. Other expenses which include R&D, regulatory, quality, manufacturing and sales promotion are at Rs. 1,232 crores, the decline by 3.7% driven by strong cost control. We have retained the efficiencies from our reimagination and operational efficiency initiatives from last year while continuing our growth-linked investments which are driving the Y-o-Y increase in other expenses.

Total R&D investment for the quarter is at Rs. 262 crores. All the priority projects continue to be on track. We expect these spends to increase as the respiratory assets progress in the clinical trials.

Overall reported EBITDA for the quarter is at Rs. 1,243 crores or 22.7% of sales. Tax charge is Rs. 295 crores and the ETR is 28%. As of 31st December our long term debt stands at South African Rand 720 million. We also have working capital loans of USD 58 million, South African Rand 137 million and Australian dollar 5 million which act as natural hedges towards our receivables. Driven by our relentless focus on cash generation we continue to be a net cash positive company as of December 21. We continue to be appropriately hedged on key global currencies as per our policies. Finally just to conclude the board at its meeting held on 26th October, withdrew the scheme of arrangement for the proposed transfer of India based US business undertaking to Cipla Biotech Ltd. and the proposed transfer of the consumer business undertaking to Cipla Health Ltd. in favor of a more efficient mechanism to affect the transaction. Based on management proposal post the indepth reevaluation, the board has approved the

Page 3 of 19

Cipla Limited

January 25, 2022

proposed transfer of the US business undertaking and consumer business undertaking by way of slump sale.

We continue to believe that the transaction will simplify the structure, maximize the efficiencies and has the potential to unlock value for all the stakeholders of the company.

To close, we saw impressive momentum across portfolio and geographies for 9 months, growth reversal in subsequent quarters will include continued momentum across all regions, securing market share in peptide assets, Lanreotide, coupled with traction in albuterol and arformoterol in US and driving expansion in the operating profitability above FY21 base by focusing on mix improvement and operational efficiencies. I would now like to invite Umang to present the business and operational performance. Thank you.

Umang Vohra:Thank you, Kedar. I would like to wish all of you and your families, health and wellbeing. As COVID-19 continues to evolve across the globe with the new variants driving caseloads we continue to ensure availability of COVID and other lifesaving products.

Coming to our strategic updates and operational performance for the quarter, I am proud of the strong launch and commercial momentum across our one India business with a 13% year-on- year growth and 7% year-on-year growth in our US business, underpinned by the expanding respiratory franchise. Our EBITDA margins for the quarter came in at 22.7%, as Kedar mentioned earlier, ahead of our internal target and given the 23.1% YTD traction we are well placed to close the year in line with our guidance. In India our One India strategy is witnessing remarkable traction and achieving major milestones along the journey. The One India business maintains double digit growth momentum for the third quarter this year coming in at 13% year- on-year. The core prescription business in India excluding COVID grew strongly by 16% on a year-on-year basis. The branded prescription business is on track to achieve the one billion dollar mark building a formidable franchise in our home market of India. Our customer engagement levels in our trade generic business has driven healthy orders from tier 2 and below towns in India. Some of our flagship generic brands in our trade generic business have grown past a 100 crores mark and few others are crossing the 50 crores mark which speaks about the brand equity in these markets. We also plan to add high growth categories like anti diabetic and injectables to address unmet demand in the coming quarters. The branded prescription business continued the market beating growth for the third consecutive quarter in FY22 driven by sustained traction across almost all our therapies in core portfolio.

As per IQVIA MAT December 21, we continue to maintain healthy ranks and market shares in our key therapy areas across respiratory, urology, anti-infective and cardiac. Our focus continues in creating depth in anti-diabetics and the oncology therapy building on existing and new partnerships with global multinational corporations. The trade generics business witness strong demand. We have launched 10 brands across cardiac and the diabetic range this year. To further strengthen the franchise plan to continue the launch momentum in FY'23.

Page 4 of 19