Sell Cipla; target Rs 318: Emkay

“Cipla’s Q3FY12 results were below expectation with a) Revenues up 14% to Rs17.1bn b) EBITDA up 23% to Rs3.9bn and c) APAT up 16% to Rs2.7bn. Revenues were driven by 18% growth in domestic biz. EBITDA margins declined 215bps QoQ despite strong growth in domestic biz and INR dep. Going forward with no favorable impact of currency, we believe gross margins will return to ~55% from current levels of 58%, thereby restricting EBITDA margins to 21-22%. On account of delay in Indore SEZ ramp-up and weakening in margins going ahead.”

“We expect Cipla to report 14% revenue growth in FY12 and 16% in FY13. We expect company’s base EBITDA margins to improve from 21.2% in FY11 to 21.5% in FY12 and 22.5% in FY13 as utilization of recently created manufacturing capacities increases. However, on account of low visibility of growth going forward, we value the company at 18XFY13 EPS to arrive at a target price of Rs 318 and downgrade the stock to Sell. At CMP, the stock is trading at 24X of FY12E and 19X of FY13E,” says Emkay Global Financial Services research report.

Public holding more than 90% in Indian cos

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