The drugs total market size is $315 million and there are four generic players, including Teva, Mylan, Actavis and Dey Pharma.
Cipla has a pipeline of 35 pending approvals, including six own Abbreviated New Drug Application (ANDAs) and it has taken back 20 ANDAs from partners to ramp up its presence in the US.
We expect the US to be a critical market for growth over the next 2-3 years, after India and South Africa, as the company ramps up its own filings there. We are positive on Cipla's focus and aggression on reviving growth by consolidating its front-end presence in crucial markets. This strategy will be margin accretive as it churns business from partnerships to the companys own books.
Better execution in the domestic market and scale-up in niche opportunities, such as Dymista and inhalers (six launched in EU), are near-term growth drivers.
Currently, the stock is trading at 17x FY15E EPS, at a discount to its peers due to margin risk as Cipla scales up operations in the year of change. We believe while improved visibility on domestic growth and increasing traction in exports will render healthy growth, rising overheads from series of hiring at the senior level and R&D pipeline are investments for long-term growth, which will render higher RoCEs.