Buy Cipla; target of Rs 600: JM Financial

JM Financial's research report on Cipla

Cipla disappointed in 4QFY18, in-line with previous years’ trend, with Revenues/EBITDA/PAT being 6%/28%/50% below our estimates, mainly due to negative operating leverage on account of lower sales as well as one-time costs related to sales and distribution (INR 450- 500mn), employee recruitment, disposal of Yemen subsidiary (FX loss of INR 512mn) and provisions (INR 775mn) towards ongoing DPCO overcharging litigation.

Outlook

Cipla’s targets crossing USD 1bn of domestic sales in FY19, implying an ambitious low-teen growth rate which could be difficult to achieve organically. We cut our FY19/20 EPS estimates by 12%/11% to incorporate lower revenues and slower margin expansion going forward and arrive at a Mar’19 TP of INR 600. Maintain BUY.