CIPLANSEQ1 FY23July 29, 2022

Cipla Limited

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13analyst exchanges

3executives

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Management on call

Umang Vohra

MANAGING DIRECTOR AND GLOBAL CHIEF EXECUTIVE OFFICER, CIPLA LIMITED

Dinesh Jain

INTERIM GLOBAL CHIEF FINANCIAL OFFICER, CIPLA LIMITED

Naveen Bansal

CHIEF FINANCIAL OFFICER INTERNATIONAL MARKET AND HEAD INVESTOR RELATIONS, CIPLA LIMITED

Key numbers — 39 extracted

Rs.5,375

and maintaining high serviceability across our markets. The overall revenue for the quarter was Rs.5,375 cores which was 2% lower than last year’s reported base and last year’s reported base included a s

rviceability across our markets. The overall revenue for the quarter was Rs.5,375 cores which was 2% lower than last year’s reported base and last year’s reported base included a strong contribution

VID products. Excluding the COVID portfolio from last year, the core revenue growth was a healthy 6% for the quarter. Our reported operating Cipla profitability for the quarter came in a

21.3%

or the quarter. Our reported operating Cipla profitability for the quarter came in at 21.3% which is tracking in line with the full year 21%- 22% range, we guided to earlier. For the quart

21%

Cipla profitability for the quarter came in at 21.3% which is tracking in line with the full year 21%- 22% range, we guided to earlier. For the quarter, our One-India Business across the prescriptio

22%

profitability for the quarter came in at 21.3% which is tracking in line with the full year 21%- 22% range, we guided to earlier. For the quarter, our One-India Business across the prescription, tra

s across the prescription, trade generics and consumer health. Our business has recorded a robust 9% year-on-year growth adjusted for the normalization in COVID portfolio over last year’s base. The

Rs. 600 crore

n and our domestic consumer business under Cipla Health is well poised to achieve an annualized Rs. 600 crores franchise led by category expansion with new extensions coupled with sustainable growth in the o

62.3%

ompany level which I will come to in a bit. Our report gross margins after material cost stood at 62.3% for the quarter which is broadly in line with last year’s figures. The gross margins for the quar

170 basis point

gross margins for the quarter have baked in higher procurement freight and forex to the extent of 170 basis points which was offset by calibrated price hikes as well as the benefit of decline in the low margin C

Rs.2,207 crore

portfolio. Cipla Total expenses which included employee cost and other expenses stood Rs.2,207 crores declining by 6.6% on a sequential basis, employee costs for the quarter stood at Rs. 956 crores

6.6%

Total expenses which included employee cost and other expenses stood Rs.2,207 crores declining by 6.6% on a sequential basis, employee costs for the quarter stood at Rs. 956 crores an increase by 7% v

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Guidance — 20 items

Coming to the key highlights for the quarter

opening

“We believe this impact will be offset by upcoming new launches scheduled for the later part of the year.”

Coming to the key highlights for the quarter

opening

“The 21.3% tracks closely to the guidance of the 21%-22% range for the full year 2023.”

Coming to the key highlights for the quarter

opening

“With our incremental investment, we hope to further widen updation for each via end-end brand marketing in channel engagement for the year 2-6towns.”

To summarize

opening

“Cipla • Our international market business continues to grow despite ongoing geopolitical volatility and • Our reported EBITDA margin of 21.3% with the elevated cost base baked in, tracks closely with our guidance of 21%-22% for the full year.”

Umang Vohra

“I can give you a sense that we have launched, that we have 5 peptide products and I think hopefully one is probably there are end of the year launch this year or early next year and them the other two after that are probably launches in late next year.”

Umang Vohra

“We will expect approval sign hopefully when the market forms.”

Tushar Manudhane

“However, the EBITDA margin guidance still remains kind of conservative at 21%–22%, where in we have a good niche launches lined up in second half any particular reason, you are kind of conservative on this guidance?”

Tushar Manudhane

“Dinesh Jain Just to answer there, see the reason for that is that the freight cost and other procurement cost related increase, we expect it to continue for some period of time so therefore we want to, may be we are expecting that the launches will compensate for the increase and therefore we want to give guidance in this range only.”

Tushar Manudhane

“So, this Revlimid and Advair launch are kind of factored into this margin guidance.”

Prakash Agarwal

“So, what is holding us, with clear guidance of meaningful products in second half and so if you could just give us more color that would be helpful.”

Risks & concerns — 6 flagged

Please note that these estimates involve several risks and uncertainties including the impact of COVID-19 that could cause our results to differ materially from what is expressed or implied.

— Naveen Bansal

The gross margins for the quarter have baked in higher procurement freight and forex to the extent of 170 basis points which was offset by calibrated price hikes as well as the benefit of decline in the low margin COVID portfolio.

— Coming to the key highlights for the quarter

As alluded earlier the reported 21.3% EBITDA margin has absorbed 170 basis point impact of elevated cost base as well as our forex changes to deliver a higher margin than last year.

— Coming to the key highlights for the quarter

We continue to closely monitor the volatile operating environment for currency and demand headwinds and explore options to mitigate risks and protect our margins.

— Coming to the key highlights for the quarter

So, we still think that core base business should continue to grow in India which is if you take out the impact of COVID etc.

— Umang Vohra

So, it is difficult to plot that for us because beyond saddle to the channel partners, we do not have exact visibility of whether this is going only to the new patients or old patients or a combination.

— Umang Vohra

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Q&A — 13 exchanges

Just if can give some color on the peptide asset that you have launched in the US in terms of pricing market share and how you are seeing that ramping up and secondly presentations suggestions you made around 5 filing on peptide. If you can throw some light on the opportunity and are these near terms opportunities something around the timeline and the size of these opportunity, please.

Umang Vohra

I will come to the peptide portfolio later, but the current peptide product in the market is scaling up as per our plans. We have guided that we would be in the teens market share by the end of the year and we are well on track with that. I do not want to comment too much on pricing at this stage but on market share we are ramping up fairly with our overall commitment that we had made for the product. On the rest of the portfolio. I can give you a sense that we have launched, that we have 5 peptide products and I think hopefully one is probably there are end of the year launch this year or ear

Considering this quarter EBITDA margin 21.3% and even adjusting for the 170 bps impact, it is quite healthy at 23% and kind of base quarter for FY 2023. However, the EBITDA margin guidance still remains kind of conservative at 21%–22%, where in we have a good niche launches lined up in second half any particular reason, you are kind of conservative on this guidance? Dinesh Jain Just to answer there, see the reason for that is that the freight cost and other procurement cost related increase, we expect it to continue for some period of time so therefore we want to, may be we are expecting that

Tushar Manudhane

So, this Revlimid and Advair launch are kind of factored into this margin guidance. Is that safe to assume? Yes.

Just continuing with the previous participant’s question so the procurement is freight cost which we have already seen in this quarter, right? Incrementally, what I see from data is that Q and Q it is actually kind of dipping coming down a bit. So, what is holding us, with clear guidance of meaningful products in second half and so if you could just give us more color that would be helpful. Freight and procurement is what I understand is actually coming little bit versus quarter- on-quarter and please correct me if I am wrong. Cipla

Umang Vohra

We are seeing that coming off but at the same time we are seeing our R&D costs likely to increase in the quarters ahead. So, there will be a balance on account of that and because we have given a guidance does not mean we will hold to making sure that we are within this range. It will be what the business mix allows us to do. Right and R&D what guidance are we given? R&D we have said we will likely be about closer to 5.5%-6% for the full year. And my second question is actually on the India business. So, I understand ex-COVID, we are 6% growth, so two parts here one is, is it pure COVID produc

First one on Advair, so we had the inspection but any update on the filing any queries that are pending or we have responded.

Umang Vohra

Yes, we have responded to queries on Advair and it has been part of it. I think the inspection is also related to the Advair program. Okay so there are no currently any pending queries in the relate to it? Cipla Not that we are aware of. Okay and have you seen any pricing aggression in that market very recently. Let me answer by saying, we believe that the last tender has also gained some share and I think the market we have not seen any significant price aggression. Sure and second question on Lanreotide is there any supply constraint that we are facing in that product? No. we do not have any

Binu

Hi, this is Binu. Hi Umang and just a follow up on Revlimid. Most or some of competitors were planning September launch have got and waiting approval in place, whereas it is missing in your is there anything to read into it or is it technical? Okay, I understood and for Advair and Abraxane do you still hold to a second half FY 2023 launch guidance? Just one last on Lanreotide, what are you seeing in terms of patients gathering in the market. Are you mostly getting only new treatment initiations or are you seeing some conversion from existing users to your product?

Umang Vohra

No, it is just that we do not comment on exact dates for the market if it is a settled product. Yes, for Advair we are hoping it is the earlier part of H2 and Abraxane will be the latter H2. So, it is difficult to plot that for us because beyond saddle to the channel partners, we do not have exact visibility of whether this is going only to the new patients or old patients or a combination. So, we would think based on whatever we have learnt that it would be for both categories of patient.

Umang, it is a pleasant surprise to see the pipeline slide, even more pleasantly surprise to see five peptide products already filed. So, good job done there. Just a couple of questions on this for the first two or three launches that you talked about, can you help us with the addressable Cipla market A., and B. Are these, patent protected? Or are you limited by your own approval to enter the market and do you see a generic competition there or you think you will be the first to entry into these first three products?

Umang Vohra

Sameer for a few of those products we know we are not first but the addressable market is fairly sizable for two or three players to exist together. We think there could be 2-3 players in each of these markets. I do not think, we are first in any of them, frankly. So, that is what I would say at this point in time. I think the market is fairly large for any peptide for the one that are there I think will not be uncommon to see your product in the $35-50 million range, if executed well. I think on the exact question of, sorry what was your third question Sameer? It escaped my mind I was on a fl

So, I think on diabetes Nithya, let me take that one first. I think it is pretty clear we actually not Sita has recently got patent, we do not have a Sita. We were never selling Sita. We did not have it licensed from any innovators. So, for us it is an opportunity, the same time, having said several players launched on, actually more than several players launched from day one. So, we continued to stay extremely cited about what the potential for diabetes is because also our relative size is significantly lesser. I think on the others we are taking calibrated calls and some cases we are going a

Umang Vohra

Nithya on that we are very clear, I think if we feel that the potential for a particular category class is diminished then we would have the conversation with the branded company to either return the asset or continue to sell it with modification etc. in terms. So, that is where we are having those discussions and the overall objective should be that we stay relevant and comparative in the diabetes category. Umang, we will come back on this, we are double checking this. We will come back.

Umang, first question is on the domestic trade generic business for the last couple of years was definitely seeing, quite strong growth but now we are seeing a few more players have entered. Cipla So, just would like your thoughts on how you see this market evolving in the next couple of years and where does Cipla stand now that you have built a critical scale here.

Umang Vohra

We are very bullish about this market specially as healthcare deepens in India and I think the other players who entered, we know that they are also doing well based on comparative intelligence that we have gathered. But we continue to grow significantly higher than market in the trade generic category and I think it is probably because of our legacy of the business that we have here. So, it is very strong growth that we forecast for the trade generic segment and we believe that the deepening of health care will aid in that. So, should we sort of assume that this will grow faster than the bran

Umang, you talked about the complex launches in the second half of the year, can you just put a number to the number of potential launches we are looking at. We have talked about three of them. Are there more than three or is that the three that we talked about at various times in the conversation?

Umang Vohra

I think we put out a detail on which are the significant ones expected I think that is reason that those three have come out. There may be one odd more launch but they will not be meaningful in terms of trajectory elevation. And like ways if you would sort of put it little forward, do you have similar launches of similar sort of size even in 2024? I think some of the peptides that we have mentioned will come in that range and there are a few others also depending on timing level also be a full year effect. Secondly on the biosimilars bid is there any sought of update on your thoughts on how yo

Just there is good launches coming up in the second half, just wanted for your thoughts the US profitability how is that compared to the last year with improving significantly and is it going to be above the average of the company, that is the first question if could throw some light on that please.

Dinesh Jain

Yes, it is in line with the company average. But in H2 if the launches come through so they will be better than the company. No, compared to last year it is in line and when the launches happen then it will become in line with the company. Okay, it will come in line. When you talk about partner’s product what kind of economic do we look at it, are we invest some the bill for us or the partner how does it work for us? Could you show some economics around that please and just one thing on the financial, the other income has increased drastically at this quarter. I just forget the number, the 106

My first question is on Albuterol so in this quarter Q1 FY 2023 have we seen incremental price erosion due to the entry of new player versus Q4 FY 2022 or the ramp up of nuclear.

Umang Vohra

Actually, for albuterol every quarter we see a little bit. So, we have seen it quarter 4, we saw it quarter 3 as well and I think there is incremental price special every quarter actually but it is not deep discounted if erosion if that is what your question. Okay but my question was mostly around, so in Q1 FY 2023 versus Q4 FY 2022 so has the erosion been higher compared to what you see usually see quarter-on-quarter or has it been at similar trend. I am not sure, yes there is erosion but I have not been able to look at the numbers to see whether it is higher or lower or as a trend but quarte

Just a further to one of the earlier participants questions under semantics of partnered products. So, basically, what I wanted to understand is how is it really flowing through the P&L and the R&D. so for instance if it is a partnered product and if development costs are being shared then clearly a portion of it will be reflective in R&D when the product is being developed but as the Cipla product gets and approval and the commercialization takes place. In case the product is being manufactured by the partner do we buy the product and then sell it so we will have a revenue and a cost line ite

Umang Vohra

Which specific product are you asking about because then I can give an answer for that. For instants the peptide’s portfolio, I believe the manufacturing is happening at the partner. Yes, from there we would buy it so the cost of it would come into our gross margin and sales would be captured in our sales Against whatever we would have invested in terms of our R&D in the earlier period, right? The R&D was anyway charged off. So, a lot of the R&D is charged off whatever milestones we may have paid the partner that is anyway getting amortized over the usual life of the asset. Okay and our agreem

Thank you Rutuja. Thank you so much everyone for joining us on the Quarter 1 FY 2023 Earnings call today. In case you have any follow-on questions please feel to reach out to the Investor Relations Team here at Cipla. A very good evening to all you. Thank you so much joining.

Management

Speaking time

Umang Vohra

Moderator

Krishnendu Saha

Prakash Agarwal

Kunal Dhamesha

Sameer Baisiwala

Saion Mukherjee

Dinesh Jain

Tarang Agarwal

Naveen Bansal

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Opening remarks

Naveen Bansal

Thank you, Rutuja. Good evening and a very warm welcome to Cipla’s Q1 FY 2023 Earning’s Call. I am Naveen from the Investor Relation Team etc. Let me draw your attention to the fact that on this call a discussion will include certain forward-looking statements which are predications, projections or other estimates 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 including the impact of COVID-19 that could cause our 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 event or otherwise. With that I would like to request Mr. Umang to take over please.

Umang Vohra

Thank you Naveen. Good evening to all of you. I hope that all of you and your families are safe and well. We appreciate you joining us for our First Quarter Earning’s Call for financial 2023. I hope you have received the Investor Presentation that we have posted on our website. We will shortly release our integrated annual report of the financial year 2022. This is our 5th Integrated Annual Report and reflex our relentless focus on improving transparency, governance and setting best in class disclosure practices. I am pleased to share our Q1 FY 2023 performance which demonstrates strong commercial execution and continued investments and portfolio, sustainability and growth linked initiatives.

Coming to the key highlights for the quarter

As anticipated, the incidence of severe COVID infections came down significantly and seemed more manageable with routine medication during Quarter 1 FY 2023. Consequently, the contribution from COVID products has normalized. Despite the normalization, we have been able to drive strong core revenue growth through focused execution operational efficiency and maintaining high serviceability across our markets. The overall revenue for the quarter was Rs.5,375 cores which was 2% lower than last year’s reported base and last year’s reported base included a strong contribution from COVID products. Excluding the COVID portfolio from last year, the core revenue growth was a healthy 6% for the quarter. Our reported operating Cipla profitability for the quarter came in at 21.3% which is tracking in line with the full year 21%- 22% range, we guided to earlier. For the quarter, our One-India Business across the prescription, trade generics and consumer health. Our business has recorded a robust 9%

To summarize

• We are witnessing strong growth in our one India business despite the normalization in the COVID portfolio. • We see strong and steady momentum in our US portfolio and upcoming launches are on track. Cipla • Our international market business continues to grow despite ongoing geopolitical volatility and • Our reported EBITDA margin of 21.3% with the elevated cost base baked in, tracks closely with our guidance of 21%-22% for the full year. On adjusting for the normalization in the COVID portfolio and API profit share in last year’s base, our core operating profitability for the quarter grew by 12%.

Turning now to the outlook

• We do want to accelerate our growth in the One-India engine with sharp focus on building big prescription brands across chronic therapies driving accessibility to trade generic brands for unmet ailments and sustain expansion in our portfolio and wellness categories in our consumer wellness franchise. • We want to sustainably scale up US formulation business driven by the high serviceability of our current product portfolio and closely launching and monitoring upcoming high value launches in the second half of the year. • Continue our execution on branded and generic portfolio brand building and portfolio interventions in our emerging markets in South Africa business. • Very strong cost focus calibrated pricing actions and other interventions to navigate the inflationary headwinds that we are seeing on procurement and freight and • Focus on regulatory compliance across the manufacturing facilities and implementing globally benchmarked ESG practices. With this I would like to thank for

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