Anand Rathi: Sell Cipla - Disappointing results

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Cipla
Disappointing results; maintain Sell
Cipla’s 3QFY10 results were below our estimates. Revenue grew
8% yoy to `15.5bn (vs. our estimate of Rs15.8bn). However,
adjusted net profit dropped 24.7% yoy due to a 760-bps fall in
EBITDA margin and a high depreciatio
n charge on the Indore
SEZ plant commercialization.
 Muted revenue growth. As expected, revenue growth remained
single digit, at a muted 8% yoy. The growth was driven by 11.3%
growth in domestic formulations and 11.9% growth in the exports
segment. Technical fee was lower, at Rs151m due to a high base.
 Margin pressure persists. EBITDA margin remained under
pressure and slid 760bps yoy to 20.5%. The decline stemmed
chiefly from the rupee appreciation, higher operating expenses at
Indore SEZ plant and lower technical fees.
 Outlook. We expect the growth to remain in the 10-12% yoy
range for the next few quarters, as pick-up in revenue from the
Indore SEZ would be witnessed gradually, post the USFDA
approval. We believe that margin would revive to 23-24% as
contribution starts from Indore SEZ.
 Valuation and risk. At current market price, Cipla trades at
stretched valuation of 21x FY12e and 19x FY13e earnings. We
retain our target price of `308 and re-iterate Sell. Risk: any large
products-supply deal with an MNC.