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Cipla (CIPLA)
Pharmaceuticals
Results meet our expectations. PAT excluding forex was Rs3 bn, in line with our
estimate with sales 3% higher and margin 40 bps lower than our estimate. However,
we remain concerned in light of (1) domestic sales growth remaining (11% in 1HFY12)
below market growth, (2) export formulation sales excluding Indore SEZ declining 10%
in 1HFY12 and (3) heavy capex underway in FY2012-13E implying front-loading of
expenses in FY2013E. Maintain REDUCE with a price target of Rs310 (18X FY2013E).
Revenues at Rs17.6 bn, 3% higher than our estimate, up 11% yoy
Sales were up 11% yoy, 3% higher than our estimate with (1) India up 12% yoy on a higher base
(20% growth last year) versus our estimate of 10%. Generics (15-20% of sales) grew 15% implying
branded business grew 11.5%, (2) API sales at US$35 mn were down qoq and yoy and (3) export
formulations at US$166 mn were up 13% yoy and higher than our estimate of US$155 mn. Cipla
reported sales of Rs1.5 bn from Indore SEZ in 2QFY12 which were Rs300 mn last year. However,
net of sales from Indore SEZ, formulation sales have declined by 5% yoy.
EBITDA margin at 22.6%, up 160 bps yoy, 40 bps lower than our estimate
Reported EBITDA excluding other operating income was in line with our estimate with margin at
22.6%, up 160 bps yoy mainly driven by gross margin expansion while staff cost and other
expenses grew 22-36% yoy, higher than sales growth of 11%, and 10% higher than our estimate.
Gross margin expanded by 2% qoq to 59% driven by (1) favorable product mix, due to lower ARV
sales and higher proportion from domestic sales and (2) improved realizations (not related to
currency) mainly in contractual agreements struck with partners for exports and (3) focus on cost
control and sourcing resulting in reduction in input costs for certain categories. We expect export
sales growth to pick up to 20% in 2HFY12E from 9% in 1HFY12 and estimate gross margin at
56% in 2HFY12E from 58% in 1HFY12, in line with the management guidance of margin of 22-
23% in FY2012E.
We increase our FY2012-13E EPS by 2-4% due to higher INR assumptions
We estimate sales growth at 12-17% in FY2012-13E and EBITDA margin at 22-23% in FY2012-
13E. Cipla incurred capex of Rs1.3 bn in 2QFY12, in line with its guidance of Rs5-6 bn in FY2012E
and plans to spend a similar amount in FY2013E. We believe this heavy capex will lead to increase
in staff cost (up 30% in 1HFY12) and other expenses (up 20% in 1HFY12) as seen YTD. We factor
in recovery in India business in FY2013E with sales growth at 14% on account of low base (11%
in 1HFY12) and finished dosage exports growth at 18% in Rupee terms (9% in 1HFY12) aided by
Indore SEZ and API sales. At the current run rate reported in 1HFY12, we factor in sales/asset
turnover of around 0.6X at Indore SEZ in FY2012E and expect it to improve to 1X in FY2013E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cipla (CIPLA)
Pharmaceuticals
Results meet our expectations. PAT excluding forex was Rs3 bn, in line with our
estimate with sales 3% higher and margin 40 bps lower than our estimate. However,
we remain concerned in light of (1) domestic sales growth remaining (11% in 1HFY12)
below market growth, (2) export formulation sales excluding Indore SEZ declining 10%
in 1HFY12 and (3) heavy capex underway in FY2012-13E implying front-loading of
expenses in FY2013E. Maintain REDUCE with a price target of Rs310 (18X FY2013E).
Revenues at Rs17.6 bn, 3% higher than our estimate, up 11% yoy
Sales were up 11% yoy, 3% higher than our estimate with (1) India up 12% yoy on a higher base
(20% growth last year) versus our estimate of 10%. Generics (15-20% of sales) grew 15% implying
branded business grew 11.5%, (2) API sales at US$35 mn were down qoq and yoy and (3) export
formulations at US$166 mn were up 13% yoy and higher than our estimate of US$155 mn. Cipla
reported sales of Rs1.5 bn from Indore SEZ in 2QFY12 which were Rs300 mn last year. However,
net of sales from Indore SEZ, formulation sales have declined by 5% yoy.
EBITDA margin at 22.6%, up 160 bps yoy, 40 bps lower than our estimate
Reported EBITDA excluding other operating income was in line with our estimate with margin at
22.6%, up 160 bps yoy mainly driven by gross margin expansion while staff cost and other
expenses grew 22-36% yoy, higher than sales growth of 11%, and 10% higher than our estimate.
Gross margin expanded by 2% qoq to 59% driven by (1) favorable product mix, due to lower ARV
sales and higher proportion from domestic sales and (2) improved realizations (not related to
currency) mainly in contractual agreements struck with partners for exports and (3) focus on cost
control and sourcing resulting in reduction in input costs for certain categories. We expect export
sales growth to pick up to 20% in 2HFY12E from 9% in 1HFY12 and estimate gross margin at
56% in 2HFY12E from 58% in 1HFY12, in line with the management guidance of margin of 22-
23% in FY2012E.
We increase our FY2012-13E EPS by 2-4% due to higher INR assumptions
We estimate sales growth at 12-17% in FY2012-13E and EBITDA margin at 22-23% in FY2012-
13E. Cipla incurred capex of Rs1.3 bn in 2QFY12, in line with its guidance of Rs5-6 bn in FY2012E
and plans to spend a similar amount in FY2013E. We believe this heavy capex will lead to increase
in staff cost (up 30% in 1HFY12) and other expenses (up 20% in 1HFY12) as seen YTD. We factor
in recovery in India business in FY2013E with sales growth at 14% on account of low base (11%
in 1HFY12) and finished dosage exports growth at 18% in Rupee terms (9% in 1HFY12) aided by
Indore SEZ and API sales. At the current run rate reported in 1HFY12, we factor in sales/asset
turnover of around 0.6X at Indore SEZ in FY2012E and expect it to improve to 1X in FY2013E.
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