Buy Cipla; target of Rs 646: KRChoksey

KRChoksey's research report on CiplaCipla’s Q3FY16 Net Sales, EBITDA and PAT were below our estimates. Total income grew by 12% YoY to INR 31bn on account of robust export formulation growth of 28% YoY driven by robust performance in South African and Emerging Markets. Domestic business posted de-growth of 0.4% on account change in distribution policy. EBITDA stood at INR 4,537mn down 18% YoY and 43% QoQ. EBITDA margin stood at 14.6% contracting by 542bps YoY. PAT stood at INR 3,432mn up by 5% YoY on account of lower tax rate which was the net of MAT Credit resulting in an effective tax rate of 3.2%. EPS for the quarter stood at INR 4.3Cipla is focusing on restructuring its business model with 2-3 years strategy. Launch of combination inhalers in EU/US will be a significant opportunity for the company to drive earnings in long term. We expect North American revenues to grow at 61% CAGR over FY15-18E on account of our expectation of an FY17E integration of InvaGen and Exelan into Cipla and ramp-up in Cipla’s own front-end model in US. We expect overall export formulations to grow at a healthy 24.4% CAGR over FY15-18E. We revise our rating to ‘BUY’ on account of attractive valuation post recent corrections and value the company on SOTP valuation with the base business of the company at 20xFY17E EPS of INR 28.4 and Inhaler portfolio at INR 78 to arrive at a target price of INR 646 For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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