Cipla (Q1 FY14)

India Infoline News Service | Mumbai |

Beating our estimates by 14%, Cipla reported strong numbers; revenue grew by 25.8% yoy and 25.3% qoq to Rs24.7bn

CMP Rs410, Target Rs463, Upside 12.9%
 
  • Beating our estimates by 14%, Cipla reported strong numbers; revenue grew by 25.8% yoy and 25.3% qoq to Rs24.7bn
  • Domestic market grew unexpectedly higher at 16.7% yoy and 42.7% qoq to Rs11.3bn
  • The growth in domestic revenues was largely on account of growth in anti-asthma, anti-biotics/infectives, and cardiovascular therapy segments.
  • Export business reported again strong growth of 20.7% yoy to Rs11.8bn
  • Export formulation recorded healthy growth of 27.7% yoy while Export API lacklustre(declined by 13.1% yoy)
  • Strong numbers and higher milestone payment led to strong OPM of 27.4%.; core EBITDA margin at 21.7%
  • Robust performance at top-line coupled with higher margin and lower taxes resulted in growth of 77.5% qoq in PAT to Rs4.8bn
  • Managements guided for healthy double digit growth for FY14
  • We believe with changing business model which is visible from of Medpro acquisition, reshuffling in the management and new hirings, growth is inevitable. We maintain our BUY rating with a target price to Rs463.
Result table
(Rs mn) Q1 FY14 Q1 FY13 % yoy Q4 FY13 % qoq
Net sales 24,639 19,582 25.8 19,667 25.3
(Inc)/dec in stock 1,318 299 341.2 (495) (366.3)
Con of Materials (6,729) (5,507) 22.2 (7,004) (3.9)
Purc of Traded Goods (1,382) (1,519) (9.0) (935) 47.9
Employees' Cost (3,070) (2,130) 44.1 (2,551) 20.3
Other Expenditure (5,386) (4,729) 13.9 (5,578) (3.4)
Operating profit 6,754 5,399 25.1 4,095 64.9
OPM (%) 27.4 27.6 (16) bps 20.8 659 bps
Depreciation (789) (728) 8.3 (783) 0.8
Net Interest income (408) (11) 3,639.4 (176) 131.2
Other income 691 531 30.3 585 18.3
PBT 6,249 5,190 20.4 3,720 68.0
Tax (1,500) (1,182) 26.8 (1,045) 43.6
Effective tax rate (%) 24.0 22.8 122 bps 28.1 (408) bps
PAT 4,749 4,008 18.5 2,676 77.5
PAT margin (%) 19.3 20.5 (119) bps 13.6 567 bps
Ann. EPS (Rs) 23.7 20.0 18.5 13.3 77.5
Source: Company, India Infoline Research

Beating our estimates by 14%, Cipla reported strong numbers in Q1 FY14; revenue grew by 25.8% yoy and 25.3% qoq to Rs24.7bn
The company’s Revenue grew by 25.8 yoy to Rs24.7bn, which was 14% ahead of our estimate. Overall Domestic market grew unexpectedly higher at 16.7% yoy and 42.7% qoq to Rs11.3bn despite the new DPCO policy. Even Export business reported very strong numbers. Export formulation recorded healthy growth of 27.7% yoy while Export API lackluster (declined by 13.1% yoy)

Strong numbers and higher milestone payment led to strong OPM of 27.4%; core EBITDA margin at 21.7%
Cipla recorded an OPM of 27.4%, was higher than our expectation of 22%. Operating margin down 16 bps yoy and improved 659 bps qoq. The improvement was largely led by higher other income of Rs1.8bn which includes milestone /technical knowhow payments. We expect improvement in margin with Dymista scaling up. Dymista has also received EU approval. Robust performance at top-line coupled with higher margin and lower taxes resulted in growth of 77.5% qoq in PAT to Rs4.8bn

Revenue Break-up
Rsmn.  Q1 FY14 Q1 FY13 % yoy Q4 FY13 % qoq
Domestic 11,321 9,697 16.7 7,931 42.7
Total Exports 11,807 9,786 20.7 11,282 4.7
Formulations 10,344 8,101 27.7 9,536 8.5
APIs & others 1,463 1,685 (13.1) 1,747 (16.2)
Other operating income 1,792 642 179.1 605 196.3
Technical knowhow/fees 104 58 80.5 387 (73.2)
Others 1,688 585 188.7 218 676.1
Total 24,920 20,125 23.8 19,818 25.7

Cost Analysis
As a % of net sales Q1 FY14 Q1 FY13 bps yoy Q4 FY13 bps qoq
Raw material 32.7 29.6 301 33.1 (44)
Purchases 5.6 7.8 (214) 4.8 86
Personnel Costs 12.5 10.9 158 13.0 (51)
Other Expenditure 21.9 24.2 (229) 28.4 (650)
Total costs 72.6 72.4 16 79.2 (659)

Outlook & Valuation
Cipla has largely completed a strong investment phase in fixed assets, now with higher expenses in R&D and manpower; we expect meaningful impact to come in the next 2-3 years. We believe with changing business model which is visible from of Medpro acquisition, reshuffling in the management and new hirings, growth is inevitable. We maintain our BUY rating with a target price to Rs463.

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Revenues 68,553 80,154 94,115 109,049
yoy growth (%) 11.0 16.8 18.0 15.7
Operating profit 16,589 21,191 22,587 26,172
OPM (%) 23.6 25.8
 

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