Hold Cipla; target of Rs 510: Edelweiss

Edelweiss' research report on Cipla

Cipla’s Q4FY17 revenue grew mere 7% YoY due to dip in India and emerging markets. US business was flat through FY17 despite 18 launches. EBITDA margin plummeted to 14% due to higher R&D (8.6% of sales), which is expected to remain elevated. Adjusted for INR 2.7bn one-off, net profit came at INR 2bn compared to INR 3bn estimate.

Outlook

Given that some of Cipla’s most important investments in the past 3 years continue to face structural pressures—US (competitive pressure & price erosion) and emerging markets (forex volatility, price decline in Middle East, rising competition)—its organic growth trajectory may not pan out to full potential. We maintain ‘HOLD/SP’ with target price of INR 510.