CIMB sees earnings upgrade for Cipla in FY16

Below is the transcript of Prakash Agarwal's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: What would the impact be - the stock has already up 7 percent today?A: More from the approval that came in yesterday, it is more on the execution capability that Cipla has demonstrated that it has launched a generic Advair MDI and it is going to cater to the complete range of inhaler portfolio which it kept on talking and now has delivered. Now the launches have been in Germany and Sweden which are smaller markets. We expect them to launch in UK also by end of this fiscal, which is a larger market of USD 400 million. So put together they expect to cover the entire EU market in next 12 months, which is a market of around USD 800 million. So base case scenario we assume that 10-15 percent market share would be easily covered. So around USD 60-90 million is what is a base case.Latha: What is the earnings growth you are factoring in in FY15 and FY16 and will there be a valuation re-rating also?A: Clearly, this year I believe it is more of ramping up the product portfolio. It is fiscal 2016 where we will see earnings upgrade coming out of the inhaler portfolio. This is more of consolidation and base business impact, which is India and South Africa, which has come up well after a subdued margins of 16.5 percent in Q4, margins are already up to 20 percent in Q1.

Going forward, company is guiding for 21 percent EBITDA margin for this year and scale up in EBITDA margin to 25 percent by fiscal 2018. So that would be the scale up which would be through inhalers and that would eventually lead to 20 percent kind of earnings compounded annual growth rate (CAGR) for next three-four years.Sonia: I didn’t get the total market size that this drug would throw up and also the stock price that you have on Cipla?A: We have a target price of Rs 600, which is valued at 21 times one year forward and total market of MDI generic Advair is around USD 800 million in Europe.