Cipla : Earnings Call Transcript Q3FY23

"Cipla Limited Q3FY '23 Earnings Conference Call"

January 25, 2023

MANAGEMENT: MR. ASHISH ADUKIA - GLOBAL CHIEF FINANCIAL

OFFICER - CIPLA LIMITED

MR. UMANG VOHRA - MANAGING DIRECTOR AND

GLOBAL CHIEF EXECUTIVE OFFICER - CIPLA LIMITED

MR. NAVEEN BANSAL - INVESTOR RELATIONS - CIPLA

LIMITED

MR. ANKIT BHEMBRE - INVESTOR RELATIONS - CIPLA

LIMITED

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	Cipla Limited
	January 25, 2023
Moderator:	Ladies and gentlemen, good day, and welcome to Cipla Limited Q3 FY '23 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 the 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.Ankit Bhembre from Investor Relations team Cipla Limited.
	Thank you and over to you, Mr, Bhembre
Ankit Bhembre:	Thank you, Tanvi. Good evening and a very warm welcome to Cipla's Q3 FY '23 earnings call.
	I'm Ankit Bhembre 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
	projections or other estimates about future events. These estimates reflects 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 could cause our 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 confirmations, future events or otherwise. With that, I would
	like to request Ashish to take over.
Ashish Adukia:	Thank you, Ankit, and good evening to all of you. I hope you've all gone through the presentation
	that we have uploaded on our website. So this quarter, we actually witnessed strong performance
	across all our core businesses with expansion in the profitability, despite increase in the R&D
	investments. The quarterly performance reflects sustained momentum, in our branded markets and
	contribution from our differentiated launches, in the US.
	And this was amid the challenging macro environment and SAGA missing our internal estimates.
	While procurement cost remains escalated, but freight cost has improved sequentially, responding
	to lower rates and improving logistics mix, which is quite reassuring.
	Coming to the highlights of the quarter. Overall, we are pleased to report a quarterly revenue of
	Rs. 5,810 crores. The overall revenue growth for the quarter was at 6% Y-o-Y on a reported basis
	and a COVID-adjusted basis in comparison to last year, a strong 11% growth. Our One India
	franchise grew in healthy double digits on an ex COVID basis and the North American business
	reported the highest ever quarterly revenue, driven by traction in the differentiated portfolio,
	including market share expansion in key respiratory and peptide injectable products.
	Our free cash flow generation and operating efficiency continue to drive our healthy net cash
	position. Our reported RoIC for the trailing 12 month stood at 19.7% which was towards the higher
	end of the range that our long-term target of 17% to 20%. In line with our expectation, EBITDA
	margins stood at robust 24%+ for the quarter, on a reported basis. The reported EBITDA growth
	is 13% Y-o-Y and 24%, if adjusted for COVID, in the base year.

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Cipla Limited

January 25, 2023

Our EBITDA margins for the quarter subsumes the impact of lower-than-anticipated SAGA performance, a higher inflationary market and a higher R&D outlay. Higher R&D investments was driven by ongoing clinical trials on a respiratory asset, as well as other developmental efforts, including contribution to biosimilar JV. Total R&D expense was higher by Rs. 100+ crores versus last year, which is incremental 1.75% of our revenue and part of our profitability business plan.

Our reported gross margin after material costs stood at 65.5% for the quarter, which is 450 basis points above last year's figures, driven by contribution from new launches and overall mix change. Total expenses, which include employee costs and other expenses, stood at Rs. 2,398 crores, increased by about 1.4% on sequential basis.

Employee costs for the quarter stood at Rs. 949 crores, which was flat. The other expenses, which includes R&D, regulatory, quality, manufacturing and sales promotions are at Rs. 1,450 crores, increased by 3.2% sequentially, driven by, like I said, R&D expense, which was also followed up with judicious promotional and growth-linked investments.

Total R&D investment for the quarter are at Rs. 363 crores or 6.2% of revenues. The absolute trajectory remains intact, with assets progressing into clinical trials and other portfolio developmental effort continuing. We expect our absolute R&D investment to inch up gradually from these levels in the coming quarters.

Profit after tax is at Rs. 801 crores or at 13.8% of sales. The PAT for the quarter subsumes onetime charge of reversal of deferred tax assets as we revisit our plan for one of our subsidiaries. The adjusted PAT is Rs. 876 crores, which is more normalized or 15.1% of sales.

The adjusted growth rate over last year is 20%, and adjusted ETR would be 27.5%, which is more normalized. As of 31st December, 2022, our long-term debt primarily constitutes ZAR 720 million in South Africa and working capital loan of about $49 million in the US. Driven by our relentless focus on cash generation and rigor on cost discipline, we continue to be net cash positive company as of December 2022.

To close, we saw robust momentum across portfolio and geographies for the year, till now. Our growth levers in the subsequent quarter will include: continuing market-beating growth in India, across all three categories of prescription, trade generics and consumer health.

Full year operating profitability in line with our guidance of 21% to 22%; robust traction in North America portfolio, with continued contribution from respiratory and peptides; incubate and drive, growth in stable geographies in international markets, with focus on growth in core markets and managing the growth in EM markets; and we continue to monitor the geopolitical headwinds, that have ebbed but still continues.

I would now like to hand over to Umang to talk about the business and operational performance. Thanks.

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Cipla Limited

January 25, 2023

Umang Vohra:Thank you, Ashish, and good evening to all of you. Welcome to our call today evening. We are pleased to report another strong quarter of performance, which demonstrates robust commercial execution and continued investments, in our portfolio and growth-oriented initiatives.

Our Q3 FY '23 performance reflects continued momentum across our businesses of One India and US and has a moderation of the SAGA region coming in lower than our internal estimates. Developmental efforts on delivering a robust future pipeline, investment in capacity creation and high rigor on compliance, including our de-risking efforts, continue to be our top key focus areas.

To accelerate our innovation journey, we also invested in a critical partnership this quarter, to support development in therapies, which are future innovation levers for Cipla. During the quarter, we initiated our investment into a JV focused towards building the biosimilar pipeline. We also partnered with Ethris GmbH for the development of mRNA-based therapies and this fast-tracks Cipla's participation in cutting-edge healthcare solutions to patients.

On our journey to build the consumer health franchise in India and South Africa, we continue our growth driven by new launches, category innovation and actionable consumer insights. Our India consumer franchise grew by 14% year-on-year in INR terms over the last year after adjusting for the acquisition, we made in Q2 FY '23. And the global consumer franchise, including South Africa, now stands at close to 9% of overall Cipla revenue for the quarter. We're expecting the India consumer franchise to be nearly Rs. 1,100 crores, by the end of this year.

Coming to detailed updates for the quarter by market, Our One India segment, the One India core portfolio delivered a 11% year-on-year growth, after adjusting for the COVID contribution in last year base. The double-digit growth reflects solid traction in big brands as well as contribution from launches in the focused chronic categories during the year. Our branded prescription business demonstrated double-digit growth in chronic therapies, in the core portfolio, driven by continued demand.

The market-in beating growth trajectory continued for the seventh consecutive quarter, with the 11% growth significantly higher, than the market growth rate. The core revenue growth is underpinned by a healthy mix of price, volume and contribution, from new launches. And as per IQVIA December '22, we continue to maintain healthy ranks, in market share in key therapies for the quarter.

Our growth in respiratory, cardiac and anti-diabetic therapies, outperformed the market, and overall chronic share has expanded by 240 basis points, over last year and now stands at 60% of mix, for the quarter. We now have more than 21 brands, which have revenues greater than Rs. 100 crores, in the trailing 12 months as compared to 19 in the corresponding previous period as per IQVIA December '22.

Our trade generics business continues to witness strong volume traction, strengthening our leadership in the trade generics segment, in India. The revenue growth for the quarter reflects, a steady order flow from the Tier 2 to Tier 6, in rural towns and demand fulfillment across regions,

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Cipla Limited

January 25, 2023

translating into sustained scale-up in our flagship brands. We launched over 10 products, and therefore, the launch momentum continued in key therapies such as cardiac, antidiabetic and injectable dosage forms.

Our consumer health business continued to deliver consistent growth across anchor and emerging brands, translating into the growth, we had mentioned earlier. We now have four brands, in well- entrenched categories, scaling up over Rs. 100 crores in revenue under a trailing 12 month basis.

Coming to our US generics portfolio. The US core formulation sales for the quarter was the highest at $195 million, registering a robust 30% growth on a year-on-year basis. This is the 10th consecutive quarter of growth, demonstrating an increasing share in our respiratory peptides and differentiated launches like lenalidomide.

The sales of lenalidomide incidentally, are marginally lower than the previous quarter. We continue to keep market well supplied and focus on maximizing value, from all our new launches. Our peptide franchise continues to track well with lanreotide, steadily gaining market share to 14.1% as of November '22 end. We are on track to achieve our 15% guidance, in this category. We have also launched leuprolide depot, during the quarter, which expands our peptide franchise further. We continue to maintain this launch momentum, in the next fiscal and after.

Our generic market shares in respiratory products have witnessed expansion in the last 12 months, driven by sustainable supplies and competitive cost position. The total market share for Albuterol and Arformoterol, stood at 18% and 39%, respectively, as per IQVIA week ending December 31st, 2022.

On the pipeline front, clinical trials on respiratory assets and filings on complex generics, including peptide injectables are on track. From a launch perspective, we've responded to the queries on the Advair file and are working closely with the USFDA on the approval.

We have been proactively communicating with the FDA on the Goa observations as remediation efforts continue at the site. We continue to focus efforts on derisking our key assets from the site and we'll share material updates, as the situation evolves. We believe our North America franchise will witness continued growth, on the back of new launches.

Coming to our international markets business, we continue to drive superior local market growth and navigate a challenging operating environment, in forex volatility. While excluding COVID growth in INR terms is 6% for the quarter, our reported dollar numbers subsumed the adverse impact of depreciating local currencies against the US dollar, which is offsetting the healthy double-digit secondary growth, we are seeing across our DTM markets.

Coming to our SAGA region, as alluded earlier, the South Africa private business is recovering from a reconfiguration of supply and an evolving business mix between, private and tender. In secondary terms, the strong demand continues for our South Africa private business, which

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