Hold Cipla; target of Rs 525: ICICI Direct

ICICI Direct's research report on Cipla

Revenues de-grew 3% YoY to Rs 3525 crore, (I-direct estimate: Rs 3518 crore) mainly due to de-growth in domestic formulations. Domestic formulations declined 13% to Rs 1271 crore due to de-stocking at the channel level on account of GST transition. US sales remained flat YoY at Rs 646 crore (I-direct estimate: Rs 634 crore) EBITDA margins improved 159 bps YoY to 18.3%, and came in above I-direct estimate of 15.5% mainly on account of higher-than-expected gross margins. EBITDA grew 6% YoY to Rs 647 crore (I-direct estimate: Rs 545 crore) PAT grew 21% to Rs 409 crore (I-direct estimate: Rs 233 crore) mainly due to higher other income (sale of South African animal business) and better operational performance.

Outlook

Strong performances in South Africa and EU somewhat mitigated dent in domestic formulations in Q1. Going ahead, margins are likely to remain low in the near future mainly due to incremental R&D spending even after factoring in respiratory and other launches in developed markets. The scenario is likely to get challenging on the margins and return ratio improvement front in the backdrop of new challenges emerging in the US especially on the pricing front. Our revised target price is Rs 525 (from Rs 470 earlier) based on 20x FY19E EPS of Rs 26.2 as the company remains at the inflection point.