Aug 14, 2017 01:54 PM IST | Source:

Cipla jumps 6% after management's FY18 outlook; analysts retain hold rating

With stock trading at 19x FY19 PE and growth dependent on the challenging US business, Jefferies said it maintained hold rating with increased target price at Rs 510 (from Rs 480 earlier).

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Cipla shares rallied 7 percent intraday on Monday after the company's outlook for current financial year 2017-18 and analysts maintained hold rating on the stock post Q1 earnings.

Company's chairman Y K Hamied on last Friday said even as the industry faces several hurdles, the government's new drug policy will boost the pharma sector. He is hopeful that the company will generate sustainable and profitable topline growth in FY18.

"In the US, we are eyeing over 20 ANDA filings, strengthening the execution of key launches and building our specialty focus in respiratory and CNS," said Cipla managing director and CEO Umang Vohra.

The company filed three products in Q1FY18 and filing is expected to intensity in the remaining part of the fiscal with a target to file 25 ANDAs in the full year.

Cipla posted 21 percent rise in net profit to Rs 409 crore on a year-on-year basis for the first quarter ended June 30 reigning in expenses and enhancing operational efficiency.

Revenues declined 3 percent to Rs 3525 crore while EBITDA margins stood at 18.3 percent gaining 6 percent YoY.

The results were above analysts' expectations on net profit and EBITDA margin front, while low on revenue. A CNBC-TV18 analysts poll estimated the net profit at Rs 324 crore and revenues at Rs 3650 crore. The poll also estimated the EBITDA margin at 16.4 percent.

"Despite the impact of GST on India business, we had a very healthy quarter from an operational perspective," Umang Vohra said, adding the quarter saw EBITDA margins expanding to over 18 percent driven by strong focus on enhancing operational efficiency and control on spends.

With stock trading at 19x FY19 PE and growth dependent on the challenging US business, Jefferies said it maintained hold rating with increased target price at Rs 510 (from Rs 480 earlier).

The research house expects growth for Cipla to improve from current levels led by recovery in India and launches in US market.

Pricing challenges, rising cost (led by R&D) though will limit margin improvement, it feels. While it expects 21 percent EPS CAGR over FY17-20, this is dependent on success in US business, where challenges are rising.

Most businesses disappointed in growth in Q1. South Africa and Europe were the only businesses that grew 10 percent YoY. India business was down 13 percent due to GST. US revenues were up only 2 percent YoY. Growth in Rest of World businesses was 4 percent YoY.

"Some of Cipla's most important investments in the past 3 years continue to face structural pressures—US (competitive pressure & price erosion) and emerging markets (forex volatility, price decline in Middle East, rising competition). Moreover, the stock’s rich valuation of 20.1x FY19 factors in the optimism, but not the challenging macro environment. Hence, we maintain hold rating on the stock," Edelweiss said.

Cipla has guided for a few limited competition launches like gVidaza, gDacogen and gRenvela in the US market in FY18/19. However, competition has started building up as 5 players have already launched gVidaza and 4 players gDacogen, and have become totally commoditised. Aurobindo has launched gRenvela and 3/4 more players are expected in next 2 quarters as all are sourcing the API from Strides. Cipla’s R&D cost is poised to inch up as clinical trial for Advair kicks-off in FY18.

In the medium term, products like Nanopaclitaxel and Albuterol MDI (TAD for end FY18) will be critical, the research house said.

At 12:18 hours IST, the stock price was quoting at Rs 570.80, up Rs 28.10, or 5.18 percent on the BSE.

Posted by Sunil Shankar Matkar
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