Buy Cipla; target of Rs 643: P Lilladher

Prabhudas Lilladher's report on Cipla

"Cipla reported disappointing set of sales, EBITDA and PAT v/s our expectation in Q2FY15. The company’s sales grew only 7% YoY to Rs26.2bn on the back of lower institutional sales and 5% decline in exports. EBITDA declined by 18% YoY mainly due to lower export revenues both in formulations and APIs. EBITDA margin at 16%, down 170bps QoQ, on the back of aggressive setup costs of marketing team in EU and ROW markets. R&D costs however maintain at 5% of sales in Q2FY15. Technology fees (License income) grew strongly by 82% YoY and 89% QoQ due to strong out-license income from Salix. As a consequence, PAT decreased by 17% YoY."

"Management maintains guidance for mid-teen sales growth and 21-22% Ebitda margin in FY15E. Cipla expects growth in sales and EBITDA in H2FY15E due to (a)rise in EU sales, (b)tender offer for respiratory drugs in South Africa and (c)large institutional offtake following capaicty utilisation improvements in will drive exports, while maintaining midteen growth in domestic formulaitons. The company however expects strong growth in EU from respiratory drugs in 12-18 months folllowing registrations from local market regulators. We maintain ‘BUY’ and retain TP at Rs 643", says Prabhudas Lilladher research report.

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