[T.S.R:16837] Cipla-At 21X FY13E Earnings Is The Most Expensive Pharma Play; Sell

Cipla - Disappointing results; maintain Sell

 

Cipla's 3QFY10 results were below our estimates. Revenue grew 8% yoy to `15.5bn (vs. our estimate of Rs15.8bn). However, adjusted net profit dropped 24.7% yoy due to a 760-bps fall in EBITDA margin and a high depreciation charge on the Indore SEZ plant commercialization.

n        Muted revenue growth. As expected, revenue growth remained single digit, at a muted 8% yoy. The growth was driven by 11.3% growth in domestic formulations and 11.9% growth in the exports segment. Technical fee was lower, at Rs151m due to a high base.

n        Margin pressure persists. EBITDA margin remained under pressure and slid 760bps yoy to 20.5%. The decline stemmed chiefly from the rupee appreciation, higher operating expenses at Indore SEZ plant and lower technical fees.

n        Outlook. We expect the growth to remain in the 10-12% yoy range for the next few quarters, as pick-up in revenue from the Indore SEZ would be witnessed gradually, post the USFDA approval. We believe that margin would revive to 23-24% as contribution starts from Indore SEZ.

n        Valuation and risk. At current market price, Cipla trades at stretched valuation of 21x FY12e and 19x FY13e earnings.
 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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