>Cipla (FIRST GLOBAL)

What Happened Last Quarter…

Cipla Ltd. (CIPL.BO/CIPLA.IN) delivered an overall robust performance in Q4 FY09, with total operating revenues up 22% Y-o-Y, the EBIDTA margin (excluding forex loss/gains) expanding by 7.2 percentage points, and net earnings increasing by 41% Y-o-Y to Rs.7.7 bn, ahead of our estimate of Rs.7.4 bn. For the full year FY09, Cipla managed to post a topline growth of 25% Y-o-Y, as against management’s conservative guidance of 12-15% Yo-Y, though a forex loss of Rs.2.3 bn for the full year FY09 prevented the company from maintaining its net margin at the FY08 level, as guided by management. Nevertheless, the EPS for the quarter came in at Rs.9.9, marking a growth of 9% Y-o-Y, as against our estimated growth of 5% Y-o-Y in the EPS to Rs.9.5. We have moderately raised our FY10 revenue estimate from Rs.58.9 bn to Rs.60.4 bn, though we are keeping our FY10 EPS estimate intact at Rs.12.2 and continue to expect a robust bottom line growth of 23% for FY10. In view of Cipla’s robust performance in FY09, we believe that the company will be able to maintain its growth momentum, going forward, particularly given the two important drugs that are expected to be launched soon. For the European market, Cipla has Budesonide inhalers in Germany and Portugal and Salbutamol MDI in Denmark and Portugal. Plus, the recent demand for Tamiflu, on account of the sudden outbreak of Swine Flu, for which Cipla is the only Indian supplier, is likely to help the company comfortable achieve our estimates.

We believe that Cipla’s strong performance in FY09, recent demand for Tamiflu, positive hearing on Tarceva (Erlotinib), and improving near term earnings outlook will continue to drive the stock in the near term. Cipla’s earnings growth is likely to improve from 9% in FY09 to 23% in FY10, which, in turn, will drive an expansion in the company’s return ratios. We, therefore, maintain our ‘ST Outperform’ rating on Cipla.

To see full report: CIPLA