Cipla (2QFY15) : Dismal quarter, guidance maintained. Maintain BUY :: HDFC Sec, link

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Dismal quarter, guidance maintained
Cipla’s (CIPL) 2QFY15 results were disappointing.
Revenues were marginally lower than expected led
by lower exports. However the huge miss on
EBIDTA margins, adjusted for higher other
operating income ( Rs 1.37bn), down 490/170bps
YoY/QoQ, led to a 17% YoY drop in PAT to Rs
2.98bn.
Stellar growth in domestic formulations segment
(at 20% YoY) cushioned the dismal performance of
export APIs (down 33% YoY). However, no
improvement in gross margins in spite of (1) lower
API revenues (2) possibility of gBaraclude supplies
to Teva (3) better revenues from inhaler products;
was surprising. CIPL has maintained its guidance of
mid-teens growth and ~21% EBIDTA margins for
FY15E. Though 2QFY15 was subdued, we remain
optimistic on CIPL due to visible launches in the high
margin-low competition inhaler space, enhanced
R&D focus and proven technological expertise. Any
further delay in the inhaler launches in EU/US
remains a key risk to our call.
 Trajectory looks impressive : The global respiratory
market is worth ~US$35bn, with US and EU accounting
for ~50%. CIPL’s progress in launching generic Advair
instills confidence of further launches (Advair
MDI/DPI, Symbicort) in large untapped markets. CIPL
has launched the product at ~50% discount and the
initial feedback from the wholesaler/distributor is
positive. CIPL is thus witnessing traction in revenues.
Management has indicated that it has approvals in ten
EU countries (excl. UK) and would be launching over
the coming quarters. Though these launches would be
in FY15E, the benefit would be visible from FY16E
onwards. We have modeled gAdvair MDI revenues of
US$ 12.5/39mn for FY15E/16E.
 Outlook and Valuation : We expect CIPL to post
18/22% CAGR in revenues and PAT over FY14-16E, led
by expanding high margin export revenues. We
maintain BUY with a TP of Rs 673, 24x FY16E EPS of
Rs 24.7 and an NPV of Rs 82 for inhalers.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3009822