Reduce Cipla, recommends Kotak Securities

Kotak Securities' report on Cipla

"Cipla's revenues are a mixed bag, revenues are in line with expectations at Rs 26.2bn (up 2.8% YoY) but PAT was higher than expectations at Rs 3.27bn, primarily led by higher other operating income of Rs 1.4bn. Adjusted for higher other operating income, Cipla has reported below expected results. EBIDTA margins adjusted for other operating income dipped sharply to 15.7%, down 146bps YoY. We revise our FY15E EPS estimates by ~9.5% to factor lower EBIDTA margin guidance. We maintain our REDUCE rating on the stock with a TP of Rs 684, 20x FY17E EPS of Rs 30.8 plus NPV of Rs 67 (for inhalers).

"Cipla's (CIPL)'s launch of much awaited combination inhalers has led to sharp move in the stock price (from ~Rs450 levels to ~Rs 680). The launch does open up high margin/sustainable revenue stream for CIPL, but we believe most of it is priced in, hence we do not see any significant upside from current levels. We expect CIPL to register 15/21% CAGR in rev/PAT over FY14-17E led by robust 30%/20% CAGR in EU/US revenues coupled with high margin inhaler revenues. We maintain our REDUCE rating on the stock with a TP of Rs 684, 20x FY17E EPS of Rs 30.8 plus NPV of Rs 67 (for inhalers)", says Kotak Securities research report.

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