Accumulate Cipla; target of Rs 998: KR Choksey

KR Choksey's research report on Cipla

Cipla reported relatively slower growth (relative to Q3FY20 and Q3FY21) in revenue in Q3FY22 at 6.0% YoY (-0.8% QoQ) to INR 54.78 bn in Q3FY22 (vs. estimate of INR 55.22 bn). Gross Profit Margins (GPMs) fell by 55 bps YoY/41 bps QoQ to 60.9% in Q3FY22. This was due to rise in cost of raw materials and provisions related to COVID 19 products. EBITDA grew at a flat pace YoY (+0.4% QoQ) to INR 12.31 bn (vs. estimate of INR 11.62 bn) while EBITDA margins reduced by 135 bps YoY (+25 bps QoQ) to 22.5% in Q3FY22 due to increase in operating costs YoY while it reduced QoQ. Net profit margin (NPM) contracted by 118 bps YoY (+41 bps QoQ) to 13.3%. The company reported 2.6% YoY (+2.4% QoQ) decline in net profit to INR 7.29 bn (vs. estimate of INR 7.06 bn).

Outlook

We apply a reduced P/E multiple of 20.62x (earlier 24.5x) on FY24E EPS of INR 48.4 and arrive at the same target price (TP) of INR 998 per share; an upside potential of 7.5% from its CMP of INR 928. Accordingly, we maintain our “ACCUMULATE” rating on the shares of Cipla.