Buy Cipla; target of Rs 616: KR Choksey

Cipla’s Q4FY16 revenues were in-line our estimates with a miss on EBITDA front on account of one-offs resulting in EBITDA margins of 6.7% at INR 2.2bn for Q4FY16 down 57% YoY. Domestic formulations sales were up 16% YoY with a weak export formulations during the quarter which grew by a mere 3% YoY on account of high base effect and reclassification of sales in South Africa. PAT for the quarter stood at INR 809mn down 69% YoY.

We expect overall export formulations to grow at a healthy 16.2% CAGR over FY16-18E. We maintain our ‘BUY’ rating and introduce FY18E estimates; lowering our revenues by (1.1)%/ (1.7)% for FY17E/ FY18E respectively and our earnings estimates by (14)%/ (15)% for FY17E/ FY18E respectively. We value the company using SOTP valuation with the base business of the company at 20xFY18E EPS of INR 28.7 (earlier FY18E EPS of INR 33.8) and Inhaler portfolio at INR 42 (earlier INR 78) to arrive at a target price of INR 616.