Cipla (CIPL.BO) Inline 3Q; Raise TP to 405  :: Citi Research

Cipla (CIPL.BO)
Inline 3Q; Raise TP to 405
 Maintain Neutral — 3Q was broadly in line (a tad below consensus), with a higherthan-
expected effective tax rate (a trend seen across the sector) being the only
surprise. With contribution from Lexpro exclusivity tapering off, 3Q is reasonably
close to Cipla’s true, sustainable earnings / margins, in our view. We raise our TP to
Rs405 (Rs390 earlier) as we roll over to June’14E (March ’14E earlier). Lupin,
Wockhardt & Glenmark are our top picks in the sector.
 Key To Note — a) Dymista: supplies initiated to Meda, to ramp up gradually on pick
up in US sales & EU launch; b) Base biz EBIDTA margins to be in the c22% range,
with some upside from unique opportunities from time to time; c) Cipla Medpro offer:
no final decision yet in light of change in biz/market conditions & management; d)
looking for small-medium front ends in emerging markets (Turkey, Latam, etc.); e)
ANDAs: 76 approved (>60% marketed) & 28 pending (incl. five own filings).
 3Q Snapshot — Net profit (+26% YoY) was in line/6% lower vis-à-vis
Citi/consensus estimates on higher effective tax rate. Revenues (+18%) were
steady & EBIDTA margin normalized (23.8%, +154bps YoY, -708bps QoQ), as the
Lexapro exclusivity boost tapered off. RM/Sales improved (better mix) but was
offset by higher staff cost (new hires, annual bonus) & overheads. Forex gain
(Rs190m) gave a small boost.
 Exports Strong, India Muted — The momentum in formulation exports (+38%)
continued, aided by the weaker INR. India (+10%) was muted in line with most of
the market but Cipla expects to end the year with c15%+ growth. API exports
declined (-16%) on the high base of 3QFY12 (one-off supplies).
 Other Earnings Call Takeaways — a) Capex guidance: cRs6.7bn in FY13, Rs3-
4bn in FY14; b) Indore SEZ sales to pick up in 4Q; to end the year with Rs6bn
(Rs4bn in 9m) as supplies to US pick up; c) Forward contracts of US$210m; d)
Effective tax rate to remain c24-25% for the next 2-3 years; f) R&D spend to move
up: c5% of sales (vs. c4% earlier).

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