Accumulate Cipla; target of Rs 565: Emkay

Cipla's Q4FY16 disappointing results with revenues of Rs 32.6bn (estimate Rs 32.5bn), EBITDA Rs 4.4bn (est Rs 6.2bn) and APAT Rs 3.0bn (est Rs 3.4bn). Adjusted EBITDA margins at 13.5% contracted c360bps sequentially, with no clear explanation for such sharp fall. Guidance of mid-teens revenues growth not a stretch but given continuing disappointments in earning trajectory, investors would rather wait for signs of recovery. Apart from regulatory risks, key risk remains that given the unexplained sequential fall in adjusted EBITDA margins, Cipla’s guidance is more back ended. Retain ACCUMULATE with revised target price of Rs 565/share. Key risk remains further regulatory actions concerning the Form 483 outstanding at Cipla’s Indore facility.

We lower our estimates for FY17/18E by 10.7%/10.2% and value Cipla at 20x FY18 EPS of Rs 28.2/share (Earlier Rs 31.4/share). Our new target prices is Rs 565/share (earlier Rs 630/share). Given the unexplained sequential adjusted EBITDA margin, key risk to our estimates is that Cipla’s growth guidance is actually more back ended.For all recommendations, click here Disclaimer: