November 16, 2016 / 12:57 IST
Axis Direct's research report on Cipla Q2FY17EBITDA was in line with our expectation; however, higher depreciation & amortization (D&A; driven by Invagen acquisitions) led to 10% earnings miss. Better revenue mix (India sales grew 21% YoY) improved gross margin to 64% (up 230 bps QoQ). EBITDA margin was also up, 140bps QoQ to 18%, despite higher R&D expense at 8% of sales (vs 7% in Q1). While Cipla expects to grow higher than the market in each of its key markets (India, S. Africa), it expects growth in US to pick up in FY18 on some key launches.
We cut FY17/18 EPS by 14%/17% to factor in higher D&A& delay in monetization of Inhalers in UK (from FY17 to FY18), but maintain BUY with revised TP of Rs 600 (22x Sept’18EPS) vs. Rs 650 (23x FY18) given US scale-up & improving transparency, and higher focus on R&D.
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