>CIPLA: Launch of vancomycin in the US market

PAR EXCELLENCE


Cipla’s results for Q1FY13 were better than our expectations. The company reported 24%YoY growth in revenues, 480bps improvement in EBIDTA margin and 58%YoY growth in net profit. The sales growth predominantly came from domestic operations, which grew by 30%YoY. Cipla’s margin improvement came solely from reduction in material cost. Cipla supplied escitalopram to Teva , which has 180-day exclusivity in the US market. The company’s interest cost declined by 91%YoY from Rs120mn to Rs11mn due to the reduction in debt. We have a Buy rating for the scrip with a revised target price of Rs429 (based on 22x FY14E EPS) from the earlier target price of Rs390 (based on 20x FY14E EPS).

Excellent sales growth: Cipla reported 24%YoY growth in revenues from Rs15.83bn to Rs19.58bn due to excellent growth in the domestic market and benefit of rupee depreciation against the dollar. The sales growth in various geographies is as follows: India formulations 30%, Export- formulations 23%, API -2%. The strong domestic growth was in anti-infective and anti-asthmatic segments. Export of formulation was driven by supply of escitalopram to Teva during its 180-days exclusivity period in the US.
 
Margin improvement: Cipla’s EBIDTA margin improved by 480bpsYoY from 22.8% to 27.6% solely due to the reduction in material cost. Material cost declined by 480bps from 42.2% to 37.4% of revenues due to the change in product mix and lower sales of anti-HIV products. The improvement of margin was also due to the supply of escitalopram to Teva and launch of vancomycin in the US market.

Indore SEZ progressing well: Cipla’s Indore SEZ has witnessed increased capacity utilization of 45-50%. The SEZ unit contributes around Rs1.90bn to revenues per quarter. This is likely to be the future growth driver for the company.  Leading player in antiasthma segment: Cipla is the market leader in antiasthma segment and has over 80%MS in the inhaler segment. Four out of top 5 products of Cipla are in anti-asthmatic segment. The company markets the full range of anti-asthmatic products in the domestic market.
 
Valuations: We expect Cipla to benefit from favorable currency movement and supply of escitalopram to Teva. The company is likely to benefit from excellent growth in anti-infective and anti-asthmatic segments in the domestic market. At the CMP of Rs339, the stock trades at 20.5x FY13E EPS of Rs16.5 and 17.4x FY14E EPS of Rs19.5. We have a Buy rating on the scrip with a revised target price of Rs429 (based on 22x FY14E base EPS of Rs19.5) from our
earlier target of Rs390 (based on 20x FY14E EPS).





RISH TRADER