Accumulate Cipla; target Rs 460: Dolat Capital

Dolat Capital is bullish on Cipla and has recommended accumulate rating on the stock with a target price of Rs 460 in its February 07, 2013 research report.

Cipla recorded revenue growth of 17.7% YoY at Rs 20.7bn. This was mainly driven by healthy growth in export formulations (up 38% YoY) at Rs 9.69bn despite low gLexapro supplies and negligible contribution from Dymista supplies. The company has 5 filings in US (Indore facility) of its own which shall be launched in the forthcoming years. During the quarter, the company has clocked Rs 1bn of sales from the Indore SEZ plant and anticipates FY13E sales from the unit at Rs 6bn. Domestic formulations (46.4% of sales) on the other hand reported 10.2% growth at Rs 9.57bn. Lower growth was attributed to general industry slowdown. Export API sales degrew 16% YoY at Rs 1.37bn on account of non recurring sales in Q3FY12. Other operating income declined by 17.2% YoY to Rs 398mn due to lower export incentives on account of reduction in DEPB benefits. Other income included forex gain of Rs 190mn. EBITDA margins stood at 23.8% higher by 150bps YoY. Raw material costs declined by 210bps YoY at 38.5% of sales led by favourable product mix - higher contribution of anti-depressant segment (Escitalopram) and anti-allergic (Dymista) and benefit of increased realizations. Other expenses however stood lower by 120bps YoY at 25.2% of sales while employee costs stood higher by 180bps YoY at 12.5% of sales due to annual increments and increase in manpower. Lower contribution from domestic business and Lexapro supplies coming off sequentially led to gross margins slipping down QoQ. Management has guided EBITDA margin of 22% on sustainable basis while one off exclusivity based product supplies shall aid margin expansion. Interest cost declined 7.3% YoY to Rs 93mn, while depreciation inched up 3% YoY to Rs 780mn. Consequently, PBT grew 34% YoY to Rs 4.59bn Tax rate stood higher than anticipated at 26% (21% in Q3FY12). Reported PAT consequently grew by 25.5% YoY to Rs 3.39bn.Adjusted PAT (excluding forex items) grew 20.5% to ` 3.2bn Management is reviewing viability of Cipla Medpro deal due to changes that occurred off late pertaining to Cipla Medpro stock price movement, change in Medpro top management, currency volatility etc. The company is exploring front end inorganic opportunities in fast growing markets of Brazil, South Africa etc. We anticipate Cipla's domestic franchise to record 13% CAGR over FY13-15E. The impact of NLEM policy however remains a near term concern. On the export formulations front, the company is exploring M&A opportunities (front end in particular) and will be going aggressive in its own US filings. While this augurs well in the long run, we expect near term pressure on its base business margins. Scale up in Dymista supplies and monetization over generic opportunities are near term growth drivers. At CMP, the stock trades at 19.7x FY14E & 17.2x FY15E earnings. We recommend ‘Accumulate' on the stock with a target price of Rs 460 (20x FY15E EPS)," says Dolat Capital research report. FIIs holding more than 30% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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