Hold Cipla; target of Rs 765: KRChoksey

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26 Aug, 2025 12:21

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KRChoksey's report on CiplaCipla’s Q1FY16 result beats our estimates due to higher than expected one off revenues in US & growth across geographies. Total income grew by 41.6% YoY to Rs. 3853Crs mainly due to strong export formulation growth which includes profit sharing from Nexium supply to Teva. Excluding one offs, base business had also posted strong growth on account of manufacturing efficiencies, strengthening of supply chain & effective use of assets. EBITDA stood at Rs.1039Crs up by 91.8% YoY. EBITDA margin stood at 27% expanded by 710bps on account of better product mix & positive impact from Nexium. Company is also focusing on ramping up investment in R&D and guided R&D expenses to be around 6-8%. PAT stood at Rs. 651Crs up by 120.9% YoY on account of robust sales & higher operating performance. EPS for the quarter stood at Rs. 8.1Cipla is focusing on restructuring its business model with 2-3 yrs strategy and shifting from partnership model to front end model for which company will be able to reap the benefits in future. US Go-Live on track is as per plan. Launch of combination inhalers in EU/US will be a significant opportunity for the company to drive earnings in long term. Management has guided 20% revenue growth in FY16 & 150bps expansion in operating margins. However, we believe that management has given conservative guidance on margin front & expect 300bps margin expansion on account of higher operating performance in Q1FY16. We believe improvement in base business & sales & profit sharing from Nexium will lead the company to post operating margins around 22% in FY16. We expect revenues to grow by 20.3% & 16.5% in FY16E & FY17E respectively & earnings to grow at 54.4% & 22.8% in FY16E & FY17E respectively. At CMP of Rs. 741 the stock is trading at 32.6xFY16E & 26.6xFY17E EPS. Since the stock price ran up sharply in last few days due to expectation of one off sales in US market we believe upside potential is limited. We, therefore, revise our rating to ‘Hold’ from ‘Accumulate’ & value the base business at Rs 669 & NPV of Rs 96 from Advair launch in EU to arrive at the target price of Rs765.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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