Cipla -Q2FY11: Slightly below expectation: UBS

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UBS Investment Research
Cipla Ltd.
Q2FY11: Slightly below expectation
􀂄 Sales Q2FY11: Rs 15.8bn (+15%YoY, 11% QoQ); Strong growth in India
The revenue grew by 15% YoY on account of strong growth in the India market
which grew by 20%YoY. The export business grew by 11% YoY on account of
strong performance in the formulation business which grew by 14% YoY. Seroflo
inhaler is to be launched in the South Africa and CIS markets in 2HFY11. Co.
expects to receive approval for the Australia and UK markets in next few months.


􀂄 EBITDA: Rs 3.7bn (-2%YoY); PAT: Rs 2.6bn (-5%YoY)
EBITDA declined 2%YoY as EBITDA margins declined 320bps YoY to 22.7%.
Other operating income declined 51% YoY on account of a higher base - one time
technological fees received in the 2QFY10. Staff costs grew sharply by 59%YoY
driven by increase in manpower at Indore SEZ, reclassification of contract workers
at Goa facilities and annual increments. The over head cost increase due to the
Indore SEZ was in the range of Rs 250mn- Rs 300mn during the quarter.

􀂄 Domestic market to maintain momentum, maintains guidance
The mgmt. indicated that 20% YoY growth in the domestic market is sustainable.
The API revenue declined by 1% YoY during the quarter but mgmt. expects it to
grow in double digit. Co. expects to launch couple of bio-generics products by Mid
2011. Co. maintained the revenue guidance of growth of 8-10% for FY11.

􀂄 Valuation: Maintain Sell, PT Rs 340
We derive our price target using DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11%.