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Cipla Ltd. (CIPLA) - Qtr. Update - Dtd. - November 05, 2012




Axis Capital Limited


05 Nov 2012





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Cipla’s Q2FY13 revenue (Rs 22 bn; up 23% YoY led by 38% YoY growth in export formulations) and adj. PAT (Rs 4.7 bn; up 61% YoY excluding forex gain of Rs 260 mn) were 10% and 20% above our estimates respectively. Strong performance was led by: (a) full impact of Lexapro supplies to Teva, (b) beginning of Dymista supplies to Meda, and (c) 405 bps YoY expansion in gross margin (product-mix improvement, price hike in few therapies/ geographies and currency benefits). Management guided for 15%+ revenue growth (>Rs 80 bn; our estimate of Rs 81 bn) in FY13. Current EBITDA margin of 31% in Q2 is not sustainable as Lexapro exclusivity has ended, however benefits of product-mix rationalization and higher prices would continue (we build in 27%/26% margin in FY13/ FY14). Management indicated there are more Lexapro-like products to be launched (by partners/ Cipla). Domestic formulations grew 14% YoY; expects to sustain 17-18% growth led by key therapies like respiratory, CVS and anti-biotic. Maintain BUY with TP of Rs 428 (13% upside from CMP) We raise our FY13E/ FY14E EPS by 12%/9% to Rs 19/ Rs 21 to factor in higher EBITDA margin. Consequently, revise TP to Rs 428 (20x FY14E EPS) vs. Rs 391 earlier. Further upside likely from commercialization of inhalers in Europe, ramp-up of Dymista in US /other geographies, launch of blockbuster products like Lexapro (by partners/ Cipla). Pick-up in domestic formulation growth is also a positive sign as it helps in sustaining margins and cash flow generation. Further, USD 5 bn of aspirational revenue target by 2020 (implying 16% CAGR over 2012-20) gives a strong directional indication. Maintain BUY. At CMP of Rs 380, the stock trades at 20x FY13E EPS and 18x FY14E EPS. Regards, Deepak Khetan (Asst VP – Life Sciences) Institutional Equity Research Axis Capital Ltd. Tel: +91 22 4325 1132

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