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Margin disappointment
Cipla’s net sales growth at 22.6% YoY was substantially higher than our
expectations though was surprise led by low margin API and anti-retroviral
formulations. Hence, the results disappointed at gross margin as well as Ebitda
margin level. Both domestic formulations (14.7% YoY) and exports formulations
(21% YoY) grew reasonably well and the company expects to maintain strong
growth momentum in FY12. We expect Ebitda growth to improve in FY12
especially in the second half. We downgrade earnings by 10-12% for FY12/13 and
lower our target price to Rs343/ share.
Pick up in revenue growth
q Cipla’s 4QFY11 net sales grew 22.6% YoY with reasonable performance in both
domestic formulations (14.7% YoY) and export formulations (21% YoY).
q The company expects to maintain trend in domestic growth in FY12 and achieve a
market average growth. Some biosimilar products are expected to be launched in
mid-2011 that would aid growth from FY12.
q Export growth should pick up further filings from Indore SEZ facility. Interesting
launches like Seroflo (combination inhalers) in a couple of markets like South
Africa and Russia/CIS and traction in recent launches like salbutamol in UK should
aid in growth. API growth should sustain over coming quarters as it is linked to
pick up in a specific product.
Further decline in Ebitda margins
q Ebitda margins for the quarter declined by 140bps YoY to 15.4% led by sharp
increase in raw material and staff costs. The pressure on gross margins is result
of higher proportion of low margin business (anti-retrovirals and APIs).
q Technology license income at Rs207m was up on a YoY basis due to a low base
same quarter last year. We build flat tech income at Rs700m for FY12/13.
q Meditabs consolidation for the full year provides 4-5% uptick to the earnings (we
provide standalone numbers below).
Growth profile to improve in the coming year
q We expect better Ebitda growth during FY12 and FY13 led by improving sales
growth and expansion in margins as utilisation of existing facilities improve.
q The management has guided for 10%+ revenue growth though we expect this to
be beaten and incorporate a 16% revenue growth for FY12.
q Cipla’s working capital position has improved substantially over FY10 and FY11
resulting in strong cash generation.
q We downgrade earnings by 10-12% for FY12/13 and lower our target price to
Rs343/ share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Margin disappointment
Cipla’s net sales growth at 22.6% YoY was substantially higher than our
expectations though was surprise led by low margin API and anti-retroviral
formulations. Hence, the results disappointed at gross margin as well as Ebitda
margin level. Both domestic formulations (14.7% YoY) and exports formulations
(21% YoY) grew reasonably well and the company expects to maintain strong
growth momentum in FY12. We expect Ebitda growth to improve in FY12
especially in the second half. We downgrade earnings by 10-12% for FY12/13 and
lower our target price to Rs343/ share.
Pick up in revenue growth
q Cipla’s 4QFY11 net sales grew 22.6% YoY with reasonable performance in both
domestic formulations (14.7% YoY) and export formulations (21% YoY).
q The company expects to maintain trend in domestic growth in FY12 and achieve a
market average growth. Some biosimilar products are expected to be launched in
mid-2011 that would aid growth from FY12.
q Export growth should pick up further filings from Indore SEZ facility. Interesting
launches like Seroflo (combination inhalers) in a couple of markets like South
Africa and Russia/CIS and traction in recent launches like salbutamol in UK should
aid in growth. API growth should sustain over coming quarters as it is linked to
pick up in a specific product.
Further decline in Ebitda margins
q Ebitda margins for the quarter declined by 140bps YoY to 15.4% led by sharp
increase in raw material and staff costs. The pressure on gross margins is result
of higher proportion of low margin business (anti-retrovirals and APIs).
q Technology license income at Rs207m was up on a YoY basis due to a low base
same quarter last year. We build flat tech income at Rs700m for FY12/13.
q Meditabs consolidation for the full year provides 4-5% uptick to the earnings (we
provide standalone numbers below).
Growth profile to improve in the coming year
q We expect better Ebitda growth during FY12 and FY13 led by improving sales
growth and expansion in margins as utilisation of existing facilities improve.
q The management has guided for 10%+ revenue growth though we expect this to
be beaten and incorporate a 16% revenue growth for FY12.
q Cipla’s working capital position has improved substantially over FY10 and FY11
resulting in strong cash generation.
q We downgrade earnings by 10-12% for FY12/13 and lower our target price to
Rs343/ share.
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