>CIPLA: Indore SEZ likely to receive US FDA approval

Cipla’s Q3FY12 results were in line with our expectations. The company’s revenue grew by 13%YoY, EBIDTA margin was up 190bps and net profit grew 16%YoY. Domestic formulations reported 18%YoY growth whereas exports grew by 11%YoY. Cipla achieved 18%YoY growth in API exports during the quarter. The company has rationalised its export business to optimise profitability. Cipla’s tax rate increased from 15.6% to 21.2% of PBT due to the expiry of EOU benefits for some facilities. We reiterate Hold rating on the scrip and maintain the target price of Rs334 (based on 21x FY13 EPS).


■ Good sales growth in domestic business: During the quarter, Cipla achieved 18% YOY growth in domestic formulations from Rs7.34bn to Rs8.69bn against the industry growth of 15%. The company’s exports grew by 11%YoY from Rs7.82bn to Rs8.66bn. Exports of API were up by 18%YoY from Rs1.39bn to Rs1.64bn due to higher exports of ARV APIs.


■ Margin improvement by 190bps: Cipla’s EBIDTA margin improved by 190bps from 20.4% to 22.3% due to the reduction in material cost. The company’s material cost declined by 400bps from 44.7% to 40.7% of total revenues due to the change in product mix and rationalization of exports. Personnel expenses increased by 200bps from 8.7% to 10.7% of total revenues due to the annual increments and increase in manpower. Other expenses were marginally up by 20bps from 26.2% to 26.4% due to the increase in selling expenses, professional fees and factory expenditure. Cipla reported forex gain of Rs45mn against Rs34mn. The company’s net profit grew by 16%YoY from Rs2.33bn to Rs2.70bn.


■ Indore SEZ likely to receive US FDA approval: Cipla’s SEZ at Indore generated sales of Rs1.3bn during the quarter. The facility is likely to be inspected by US FDA in FY13.


■ Leading exporter of ARV: Cipla’s API exports grew by 18%YoY from Rs1.39bn to Rs1.64bn due to the rise in exports of ARV APIs. ARV constituted 25% of the API exports during the quarter. The company manufactures the entire range of ARV APIs for global requirement.


■ Inhalers to drive growth: Cipla has filed 11 ANDAs for inhalers in Europe, of which 4 are approved. The management expects good export potential from this business.


■ Increase in tax rate: Cipla’s tax rate increased from 15.6% to 21.2% of PBT due to the expiry of EOU benefits. The company has invested over Rs9.0bn on its Indore SEZ facility for which it has to pay tax at MAT rate.


■ Reiterate Hold: We have maintained our EPS estimates for FY12 and for FY13 at Rs13.8 and Rs15.9 respectively. We expect the company to benefit from additional revenues from Indore SEZ and good growth in the domestic formulation business. At the CMP of Rs342, the stock trades at 24.8x FY12E EPS of Rs13.8 and 21.5x FY13E EPS of Rs15.9. We reiterate Hold rating with a target price of Rs334 (based on 21x FY13E EPS).


RISH TRADER