COMPANY ANALYSIS

CIPLA LTD

Cipla Ltd focuses on the development of new formulations

and has a wide range of pharmaceutical products. They offer
prescription drugs, bulk drugs, animal products, pesticides, a
wide range of food and beverages, baked foods, oral
hygiene products, detergents, room fresheners and personal
care products. The company offers drugs used for the
treatment of cancer, Alzheimer`s, arthritis, Parkinsons,
cardiovascular diesases,drugs that prevents transmission of AIDS from mother to child, provide
consulting services on preparation of products and materials, conducts plant evaluation and
supplies plant equipments. They have also recently launched a number of products like an oral
emergenccy contraceptive pill under the brand name I-Pill, a breakthrough screening technology
in India called the No Touch Breast Scan (NTBS); ` the first-ever painless, non-invasive and
radiation-free breast scanning technique for detecting breast cancer at an early stage and a generic
versions of anti-flu drugs oseltamivir and zanamivir in the local market to treat the H1N1
influenza.

1. Cipla Economic Moat

The pharmaceutical industry is dominated by Innovation and R&D. Cipla spends around 7.5% of
its revenue in R&D, which is considered very high in pharmaceutical business. It has 6 R&D
facilities across the globe and has a dedicated patent pipeline. They already have a total of 308
patent out of which 32 were granted in FY 2018. The new COVID-19 therapy drug “Remdesivir”
and its manufacturing Licence from Gilead Sciences will however not be a profitable business for
CIPLA.

The other factor which strengthens the moat is the distribution network. Cipla has a network of
4,00,000+ health care professionals and 3,50,000+ pharmacists. It also has a supplier network of
1000+ suppliers, which makes it one of the largest buyer of pharmaceutical ingredients in India.
The company, however, faces competition from other large players like Sun Pharma, Abbott and
GSK Pharma. Therefore, this category gets 4 stars in CIPLA shares fundamental analysis.

1928809- Jijoy Varghese- Cipla Ltd

 2. Competitors

Company Name Market Cap Sales qtrs. Net Profit Qtrs.

Cipla 61070.11 12,659.15 2,318.17
Sun Pharma 116523.7 12,531.93 3,211.14
Dr Reddys Labs 83527.03 11,850.40 2,937.70
Divis Labs 81914.31 5,310.57 1,372.71
Torrent Pharma 45927.05 6,168.00 939

3. Competitive Edge

Until the mid-1990s when India signed the WTO agreement, many leading Indian pharmaceutical
companies relied on the domestic market alone. Since 2002, over $80 billion worth of block
busters have lost their patents. Another $74 billion worth is expected to be exposed to generic
competition as a result of loss of patent between 2009 and 2012(Long 2009). As a result, Indian
generics are taking advantage of the global generics market and expanding to developed countries.
Cipla is well positioned as it has a competitive edge of low cost manufacturing and advance
chemistry capabilities.

Many of the foreign MNCs that fled India as a result of the former conditions are now returning to
India to become full-fledged research based multinationals. Within the next five years, it is
estimated that ‘Indian generics will lose about $650 million of the local generics market to patent
holders’ (Singh 2006). This is as a result of big pharma defensive strategies which include

1928809- Jijoy Varghese- Cipla Ltd

undermining the credibility of generics with health care providers, offering their own authorized
generics, engaging in fierce price wars with generics and slowing the rate at which generics hit
pharmacy shelves (Christopher 2006). This has created the need for Cipla to increase sales of its
products to other countries.

Luo and Pend (1999) identified three strategies open to Indian firms as they make steps to respond
to institutional and market changes and maintain their market share. These are; 1) Exit strategy:
exit the market by divesting the business; 2) A defensive strategy targeted at the defence,
protection and consolidation of the firms position in the domestic market in the same product
market domains; 3) A bold, assertive and aggressive strategy of leveraging the current stock of
capabilities and dynamically building new capabilities to expand geographically through
internationalization. Cipla is presently carrying out a defensive strategy by expanding domestic
sales and also expanding to other countries through its partnerships

The industry is changing its model from its ‘reverse engineering’ model to a ‘consolidation model’
where companies can pool resources together with other domestic and foreign firms. Cipla has
formed Ciplagenpharm with an Australian company after entering into agreement in
1997(Ciplagenpharm 2005 cited in Malhotra 2005). Cipla also went into a research alliance with
Avesthagen, a Bangalore-based biotech company to develop bio therapeutic products. (Cipla
2005). Cipla tied up with Morton Grove Teva/Ivax, AkomWatson, and Sandoz /Eon for the US
market. In the UK with NeoLabs,and with Medpro in South Africa (Bisserbe 2006).

Cipla’s strategy is more suitable to today’s scenario, in which competition is growing and pricing
pressure is persistent. Cipla is geographically diversified, it now exports to 160 countries and its
exports account for around 50% of its revenues (Cipla 2009). It is present in markets through
partnerships and is focused on its core competencies of product development and manufacturing.
Previously, Cipla was engaged mostly in sales to its domestic market. More recently this has
changed as Cipla is reducing its over-dependence on the domestic business by generating strong
consistent growth in export markets. Cipla has also begun to export its products to developed
countries.

In 2001, there was a sales growth of 84% in the export division. Total export for that year
amounted to Rs. 2583 million. This was attributed to the launch of Dinex, Cipla’s chewable anti-
retroviral drugs in the same year (Cipla 2002).

1928809- Jijoy Varghese- Cipla Ltd

 4. SWOT ANALYSIS

STRENGTHS WEAKNESS

 Rising net cash flow and cash from  Negative breakdown support
operating activity. (LTP<S1)
 Company with low debt.  Lack of significant presence in
 Strong cash generating ability from developed countries.
core business.  Negative campaigning
 Book value per share improving for
last 2 years.
 Strong R&D.

OPPORTUNITIES THREATS

 Highest recovery from 52-week low  Competitions from peer groups.

 Strategic expansion.  Drug pricing methods in India
 Grow in emerging markets  Fluctuations in exchange rates.

5. Shareholding Patterns

1928809- Jijoy Varghese- Cipla Ltd

 Category No. of shares Percentage

Promoters 12,05,78,409 14.95

Foreign Institutions 16,14,39,396 20.02

NBFC and Mutual Funds 13,34,81,851 16.55

Others 5,92,31,756 7.35

General Public 12,98,22,996 16.1

Financial Institutions 2,57,02,591 3.19

Foreign Promoters 17,49,07,187 21.69

GDR 11,73,270 0.15

6. Capital Structure

Authorized Issued
Period Face
Instrument Capital (Rs. Capital Shares (no’s) Capital
-From -To Value
cr) (Rs. cr)
2019-2020 Equity Share 175 161.25 80,62,35,329 2 161.25
2018-2019 Equity Share 175 161.14 80,57,01,266 2 161.14
2017-2018 Equity Share 175 161.02 80,51,19,164 2 161.02
2016-2017 Equity Share 175 161.1 80,45,10,074 2 160.9
2015-2016 Equity Share 175 160.88 80,33,84,282 2 160.68
2014-2015 Equity Share 175 160.79 80,29,60,440 2 160.59
2013-2014 Equity Share 175 160.78 80,29,21,357 2 160.58
2012-2013 Equity Share 175 160.78 80,29,21,357 2 160.58
2011-2012 Equity Share 175 160.78 80,29,21,357 2 160.58
2010-2011 Equity Share 175 160.78 80,29,21,357 2 160.58
2009-2010 Equity Share 175 160.78 80,29,21,357 2 160.58
2008-2009 Equity Share 175 155.66 77,72,91,357 2 155.46
2007-2008 Equity Share 175 155.66 77,72,91,357 2 155.46
2006-2007 Equity Share 175 155.66 77,72,91,357 2 155.46
2005-2006 Equity Share 175 60.17 29,98,70,233 2 59.97
2004-2005 Equity Share 65 60.17 29,98,70,233 2 59.97
2003-2004 Equity Share 65 60.17 5,99,72,349 10 59.97
2002-2003 Equity Share 65 60.17 5,99,72,349 10 59.97
2001-2002 Equity Share 65 60.17 5,99,72,349 10 59.97

1928809- Jijoy Varghese- Cipla Ltd

 2000-2001 Equity Share 65 60.17 5,99,72,349 10 59.97
1995-1999 Equity Share 25 20.19 1,99,90,783 10 19.99
1994-1995 Equity Share 25 18.7 1,86,47,400 10 18.65
1993-1994 Equity Share 25 3.16 31,07,900 10 3.11
1992-1993 Equity Share 10 3.16 3,10,790 100 3.11
1991-1992 Equity Share 1.94 1.61 1,55,395 100 1.55
1987-1991 Equity Share 1.94 1.55 1,50,184 100 1.5
1985-1987 Equity Share 1.94 0.8 75,092 100 0.75
1979-1985 Equity Share 0.54 0.43 37,546 100 0.38
1962-1979 Equity Share 0.24 0.24 18,773 100 0.19
1947-1962 Equity Share 0.24 0.24 17,464 100 0.17
1945-1947 Equity Share 0.24 0.15 15,000 100 0.15
1944-1945 Equity Share 0.06 0.06 6,000 100 0.06
1943-1944 Equity Share 0.06 0.03 3,000 100 0.03
1935-1943 Equity Share 0.06 0.03 1,108 50 0.01

Management

Name Designation

Y K Hamied Chairman

M K Hamied Vice Chairman

Samina Hamied Executive Vice Chairman

Umang Vohra Managing Director & Global CEO

S Radhakrishnan Non-Executive-.Non Independent Director

Peter Mugyenyi Independent Director

Punita Lal Independent Director

Ashok Sinha Independent Director

Adil Zainulbhai Independent Director

Naina Lal Kidwai Independent Director

Fundamental Analysis
Ratio Analysis for CIPLA

FINANCIAL RATIOS Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

PER SHARE RATIOS

1928809- Jijoy Varghese- Cipla Ltd

Basic EPS (Rs.) 19.19 18.97 17.53 12.52 16.93
Book Value [InclRevalReserve]/Share
199.16 190.45 181.12 161.37 147.7
(Rs.)
Revenue from Operations/Share (Rs.) 212.49 203.08 188.25 178.92 171.65
PBT/Share (Rs.) 27.02 25.81 20.74 15.19 21.5
PROFITABILITY RATIOS
PBT Margin (%) 12.71 12.7 11.01 8.49 12.52
Net Profit Margin (%) 9.02 9.22 9.36 7.24 10.11
Return on Net worth/Equity (%) 9.81 10.17 9.91 8.02 11.8
Return on Capital Employed (%) 12.32 11.13 9.78 7.82 14.48
Return on Assets (%) 6.53 6.37 6.17 4.78 6.43
Total Debt/Equity (X) 0.18 0.29 0.29 0.33 0.45
Asset Turnover Ratio (%) 72.4 68.28 66.29 68.42 65.26
LIQUIDITY RATIOS
Current Ratio (X) 2.66 3.29 2.82 2.61 1.14
Quick Ratio (X) 1.67 2.24 1.77 1.58 0.65
Inventory Turnover Ratio (X) 3.91 4.13 3.75 4.13 3.62
Dividend Payout Ratio (NP) (%) 36.48 15.81 13.41 19.23 13.3
Earnings Retention Ratio (%) 63.52 84.19 86.59 80.77 86.7
COVERAGE RATIOS
Interest Coverage Ratios (%) 12.04 13.34 16.29 8.67 9.36

VALUATION RATIOS          

Market Cap/Net Operating Revenue (X) 1.99 2.61 2.89 3.31 2.98
Retention Ratios (%) 63.51 84.18 86.58 80.76 86.69
Price/BV (X) 2.16 2.84 3.07 3.8 3.57
Price/Net Operating Revenue 1.99 2.61 2.89 3.31 2.98
Earnings Yield 0.05 0.04 0.03 0.02 0.03

1. Solvency Ratios

1928809- Jijoy Varghese- Cipla Ltd

  Current Ratio: The company's current ratio decreased in the year 2020 than in FY 19. It
improved to 3.29 during FY19, from 2.82 during FY18. The current ratio measures the
company's ability to pay short-term and long-term obligations.
 Interest Coverage Ratio: The company's interest coverage ratio deteriorated and stood at
12.04 in the FY 20 and 13.34 during FY19, from 16.29 during FY18. The interest coverage
ratio of a company states how easily a company can pay its interest expense on outstanding
debt. A higher ratio is preferable.
 Inventory Turnover Ratios:
2. Performance Ratios/ Profitability Ratios

 Return on Equity (ROE): The ROE for the company declined and down at 9.9% during
FY20, from 10.0% during FY19. The ROE measures the ability of a firm to generate
profits from its shareholder’s capital in the company.
 Return on Capital Employed (ROCE): The ROCE for the company improved and stood
at 12.32 in the FY20, 11.8% during FY19, from 9.78% during FY18. The ROCE measures
the ability of a firm to generate profits from its total capital (shareholder capital plus debt
capital) employed in the company.
 Return on Assets (ROA): The ROA of the company improved and stood at 6.53 in
FY20, 6.3.7% during FY19, from 6.7% during FY18. The ROA measures how efficiently
the company uses its assets to generate earnings.
3. Efficiency Ratios

 Inventory Turnover Ratio: we can see that there is a fluctuation in the inventory turnover
ratios all these years. But overall the company have a good inventory turnover ratio.
 Fixed Capital / Sales: it was improved in a good manner in the last two years and the
company is in the good position now.

Current Valuations for CIPLA

 The trailing twelve-month earnings per share (EPS) of the company stands at Rs. 19.19
in the FY20 and Rs 18.5 in FY19, an improvement from the EPS of Rs 17.6 recorded last
two years.
 The price to earnings (P/E) ratio, at the current price of Rs 476.9, stands at 25.0 times
its trailing twelve months earnings.
 The price to book value (P/BV) ratio at current price levels stands at 3.1 times, while
the price to sales ratio stands at 2.9 times.

1928809- Jijoy Varghese- Cipla Ltd

 The company's price to cash flow (P/CF) ratio stood at 13.5 times its end-of-year
operating cash flow earnings.

Balance sheet of Cipla Ltd

Equities & Liabilities Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

Share Capital 161 161 161 160 160
Reserves & Surplus 15,548 14,794 14,068 12,382 11,355
Current Liabilities 4,393 3,771 3,832 3,373 7,776
Other Liabilities 3,559 5,236 4,799 5,119 1,835
Total Liabilities 23,662 23,963 22,860 21,037 21,128
Assets          
Fixed Assets 7,573 7,415 8,116 8,478 8,724
Current Assets 11,706 12,426 10,814 8,804 8,841
Other Assets 4,382 4,121 3,929 3,754 3,562
Total Assets 23,662 23,963 22,860 21,037 21,128
Other Info          
Contingent Liabilities 1,382 1,137 1,002 1,441 1,150

CIPLA Balance Sheet Analysis

 The company's current liabilities during FY20 was increased to 43 billion compares to
FY19 Rs 37 billion and Rs 38 billion in FY18, thereby witnessing an increase of 16%
 Long-term debt stood at Rs 38 billion as compared to Rs 37 billion during FY18, a
growth of 4.6%.
 Current assets rose 15% and stood at Rs 124 billion, while fixed assets fell 4% and
stood at Rs 105 billion in FY19 compared to FY18. In FY20, current assets decreased to
117 billion compared to FY20.
 Overall, the total assets and liabilities for FY19 and FY20 stood at almost Rs 240
billion and 237 billion as against Rs 229 billion during FY18, thereby witnessing a growth
of 5%

CIPLA Cash Flow Statement

  Mar-20 Mar-19 Mar-18 Mar-17 Mar-17

Operating Activities 2,219.49 3,110.72 215.02 4,352.09 916.66

-739.56 -2,865.07 -1,159.79 -1,940.55 -2,629.17

Investing Activities
Financing Activities -367.85 -295.38 -986.98 -160.02 16.92

Others 0 0 0 0 0
Net Cash Flow 1,112.08 -49.73 -1,931.75 2,251.52 -1,695.59

1928809- Jijoy Varghese- Cipla Ltd

 CIPLA Cash Flow Statement Analysis

 CIPLA's cash flow from operating activities (CFO) during FY20 stood at Rs 30 billion
and Rs 17 billion in FY20, an improvement of 76.4% on a YoY basis.
 Cash flow from investing activities (CFI) during FY20 stood at Rs 1 billion and Rs -17
billion in FY19, an improvement of 6.23% on a YoY basis.
 Cash flow from financial activities (CFF) during FY20 stood at Rs -29 billion.
 Overall, net cash flows for the company during FY20 stood at Rs 2 billion from the Rs
(-3 ) billion net cash flows seen during FY19.

CIPLA Income Statement Analysis

 Operating income during the year rose 8.3% on a year-on-year (YoY) basis.
 The company's operating profit increased by 9.6% YoY during the fiscal. Operating
profit margins witnessed a fall and down at 19.4% in FY19 as against 19.2% in FY18.
 Over the last 5 years, revenue has grown at a yearly rate of 8.71%, vs industry avg of
7.11%
 Over the last 5 years, market share increased from 7.11% to 7.68%
 Over the last 5 years, net income has grown at a yearly rate of 5.55%, vs industry avg of
3.25
 Over the last 5 years, ebitda margin has been 19.85%, vs industry avg of 20.87%
 Over the last 5 years, net profit margin has been 8.72%, vs industry avg of 10.47%

Technical Analysis

 Relative Strength Index (RSI)

1928809- Jijoy Varghese- Cipla Ltd

 Stands for Relative Strength Index. It is a momentum indicator used to identify overbought or
oversold condition in the stock. Time period generally considered is 14 days. RSI reading below
25 is interpreted as oversold. RSI between 25 & 45 is interpreted as a bearish condition. RSI
between 45 & 55 is interpreted as a neutral conditioner between 55 & 75 is interpreted as a bullish
condition. RSI reading greater than 75 is interpreted as an overbought. Here Cipla shows 66.81
which shows the bullish indication.
 Moving Average Convergence Divergence
Stands for Moving Average Convergence Divergence. It is a trend following momentum indicator.
For calculation three moving averages are taken which are 9 day EMA, 12 day EMA & 26 day
EMA. The 26 day EMA subtracted from the 12 day EMA along with the 9 day EMA which is the
"signal line", together give buy/sell signals. If the MACD is above 0 and crosses above the signal
line it is considered to be a bullish signal. If the MACD is below 0 and crosses below the signal
line it is considered to be a bearish signal. Here it shows 46.85 which indicate that bullish trend.
 Stochastic
It is a momentum indicator. It shows the location of the close relative to the high-low range over a
set number of periods. Time period generally considered is 20 days. Readings above 80 indicate a
security is overbought. Readings between 55 & 80 indicate Bullish condition. Readings between
45 & 55 indicate Neutral condition. Readings between 20 & 45 indicate Bearish condition.
Readings below 20 indicate a security is oversold. Here Cipla shows the overbought condition.
 Rate of Change (ROC)
It stands for Rate of Change. It is a momentum oscillator that takes the current price and compares
it to a price "n" periods ago. Time period generally considered is 20 days. The ROC is plotted
against a zero line that differentiates positive and negative values. Value above 0 indicates Bullish
condition. Value below 0 indicates Bearish condition. Value equal to 0 indicates Neutral
condition. Here Cipla shows 36.61 which indicates the bullish trend.
 Commodity Channel Index (CCI)
It stands for Commodity Channel Index. It gives an indication of trend change & also the
momentum within the trend. Time period generally considered is 20 daysack is relatively high
when prices are far above their average & relatively low when prices are far below their average.
The CCI typically oscillates above and below a zero line, above zero line it enters into positive
territory & below zero into negative territory. Normal oscillations will occur within the range of
+200 and −200. Readings above 200 imply an overbought condition, while readings below −200
imply an oversold condition. CCI between -200 & -50 implies a bearish condition. CCI between

1928809- Jijoy Varghese- Cipla Ltd

 -50 & 50 implies neutral condition. CCI between 50 & 200 implies bullish condition. It shows a
level if 16.47 which indicated the bullish trend.
 Williamson%R, Money Flow Index
It is a momentum indicator which indicates the current closing price of the stock in relation to its
high & low of the past 14 days. Its purpose is to tell whether a stock is trading near the high or the
low, or somewhere in between of its recent trading range. Readings between 0 and -20 imply an
overbought condition, readings between -20 to -50 implies bulish condition, readings between -50
to -80 implies bearish condition and readings between -80 to -100 imply oversold position.
It stands for Money Flow Index. It is a momentum indicator that measures the flow
of money into and out of a security. Time period generally considered is 14 days. MFI considers
both price & volume to measure buying and selling pressure. Very high MFI that begins to fall
below a reading of 80 while the underlying security continues to climb is a reversal signal to the
downside. Conversely, a very low MFI reading that climbs above a reading of 20 while the
underlying security continues to sell off is a reversal signal to the upside. Here both shows
overbought conditions.
 Average True Range (ATR)
Stands for Average True Range. It is a volatility indicator which indicates the degree of price
volatility at an absolute level compared with its 9 SMA. Time period generally considered is 14
days. If the value is greater than its 9 SMA it considered to be Highly Volatile. If the value is less
than equal to its 9 SMA it is considered to be Less Volatile. It does not provide any indication of
price trend. Here Cipla shows 83.91 which indicates high volatility.

INTRINSIC VALUE CALCULATION

We can calculate the intrinsic value in three ways:

1. B/V Valuation
The easiest way to value a company is by looking at the book value. Here the book value is
Rs.199.16, hence we can say that the company book value is less than the CMP.
2. Graham Number Valuation
Graham’s Fair Value Price = Square Root of (22.5 * EPS * BVPS)
Graham’s Fair Value Price = Square Root of (22.5* 14.24 * 202.7) = 254.84
Since Current Market Price is 990.8 is more than the Intrinsic value 254.84. the stock price is
overvalued.

1928809- Jijoy Varghese- Cipla Ltd

 3. Price/ Earnings Valuations

Year 2020 2019 2018 2017 2016 2015

PE Ratio 22.05 27.92 31.01 47.35 30.26 48.36
EPS 19.18

In this we are going to use average P/E ratio multiplied by EPS

Price Per Share = 5-Year Average P/E Ratio * EPS
Price Per Share = 41.39 *19.18
Price Per Share = Rs. 793.86
Current Market Price = 757.85
From this we can see that the company is undervalued since it is trading at 757.85 which is
less than the intrinsic value Rs. 793.86

So, MP is less than Intrinsic Value. So the investor can purchase the share of Cipla ltd.

CONCLUSION
It has been argued that Cipla like other Indian generic companies is changing its business model
and investing more in R & D and pursuing an expansion strategy to other countries while still
retaining their market share in the home country. There is the opportunity for generics and big
pharma companies to work together to achieve their distinct organisational aims. Despite the
inherent competition, there will be a significant opportunity for generics and big pharma to
leverage each other’s strengths to cooperate. The generics that boast strengths in mass production
alongside big pharma who are innovative can work together to create a model that would be far
more successful in the future. As a result, a model of cooperation and competition can be formed
at the same time

Now it is the best time to purchase the Cipla Ltd as the value will raise in the near future and the
pharma industry is doing well in this pandemic situations. So the investor can rely of the purchase
of Cipla ltd shares.

1928809- Jijoy Varghese- Cipla Ltd