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Cipla Ltd. (CIPLA) - Qtr. Update - Dtd. - February 06, 2013




Axis Capital Limited


07 Feb 2013





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Cipla’s Q3FY13 PAT (Rs 3.4 bn; up 26% YoY) was in line with our estimate (Rs 3.2 bn). However, earnings was below Street estimate (Rs 3.7 bn) as consensus was building in milestone income from Meda (which did not materialize). Revenue grew 18% YoY to Rs 21 bn, driven by 38% YoY growth in exports (even post Lexapro exclusivity), while India formulations grew 10% YoY (vs. 21% in H1FY13) due to slowdown in domestic market. EBITDA margin, at 24%, improved 147 bps YoY driven by one-offs and higher export realization, while lower domestic growth impacted margin. Management indicated core EBITDA margin (ex-Lexapro supplies and currency benefits) would be close to 22%. We do not expect significant improvement in core EBITDA margin as benefits from improved domestic growth and aggressive exports expansion would be largely offset by cost of setting-up front-end. Maintain HOLD with TP of Rs 445 (10% upside from CMP) We expect 21% earnings CAGR over FY12-15 led by exports and front-end focus; domestic growth over the period would track industry average of 14-15%. We roll forward our valuation to FY15E EPS with TP of Rs 445 (18x FY15E EPS of Rs 25). Maintain HOLD. At CMP of Rs 405, the stock trades at 19x FY14E EPS of Rs 22 and 16x FY15E EPS of Rs 25. Domestic growth to normalize to 14-15% p.a: We believe structural drivers for strong growth in domestic market – increasing accessibility, affordability, and acceptability of healthcare facilities – continue to exist and thus market shall grow at normalized rate of 14-15% over next 5-7 years. We expect Cipla to follow industry average. 38% YoY growth in exports formulations (ex-Lexapro exclusivity) was a positive surprise. We expect 20% CAGR over FY12-15 in export formulations revenue driven by: (a) ramp-up in niche products like Dymista/ inhalers in EU and (b) focus on setting up own front-end (a divergence from traditional strategy of selling through partners). Regards, Deepak Khetan (Asst VP – Life Sciences) Institutional Equity Research Axis Capital Ltd. Tel: +91 22 4325 1132

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