Cipla (Q2 FY13)

India Infoline News Service | Mumbai |

Cipla (Q2 FY13)

CMP Rs381, Target Rs436, Upside 14.7% 
  • Overall strong Q2 FY13 results; revenue grew by 24% yoy to Rs22bn beating estimate by 7.5%

  • In line with the market growth and our expectation, Domestic market grew by 14% to Rs9.6bn

  • Export business witnessed growth 33% yoy to Rs12.1bn; largely backed by Lexapro generic

  • Sharp improvement in margins to 31% led by one time impact of Lexapro generic along with notable improvement at operating front

  • PAT jumped by 62% to Rs5bn yoy; adjusted for forex PAT grew by 54% yoy

  • We raise our FY13 earnings estimate to factor in one-off opportunity and FY14 to factor in higher operating leverage. Raise our target price to Rs436 from Rs388.

Result table

(Rs mn) Q2 FY13 Q2 FY12 % yoy Q1 FY13 % qoq
Net sales 21,918 17,697 23.9 19,582 11.9
(Inc)/dec in stock (509) 189 (370.0) 299 (270.4)
Consumption of Materials (6,557) (5,594) 17.2 (5,507) 19.1
Purchase of Traded Goods (1,838) (1,334) 37.7 (1,519) 21.0
Employees' Cost (2,426) (1,875) 29.4 (2,130) 13.9
Other Expenditure (4,837) (4,413) 9.6 (4,729) 2.3
Operating profit 6,770 4,293 57.7 5,399 25.4
OPM (%) 30.9 24.3 663 bps 27.6 332 bps
Depreciation (740) (656) 12.7 (728) 1.6
Net Interest income (54) (24) 125.2 (11) 391.7
Other income 641 327 96.3 531 20.9
PBT 6,618 3,939 68.0 5,190 27.5
Tax (1,618) (850) 90.4 (1,182) 36.8
Effective tax rate (%) 24.4 21.6 288 bps 22.8 166 bps
PAT 5,000 3,090 61.8 4,008 24.8
PAT margin (%) 22.8 17.5 535 bps 20.5 235 bps
Ann. EPS (Rs) 24.9 15.4 61.8 20.0 24.8
Source: Company, India Infoline Research

Overall strong Q2 FY13 results; Revenue grew by 24% yoy to Rs22bn beating estimate by 7.5%
Cipla reported overall strong quarter at all fronts. Revenue growth of 24% is primarily led by accelerated export market growth. Domestic business clocked in revenue growth of 14% yoy in line with market growth though lower than our expectation. Domestic growth was equally distributed in growth in branded formulations and generic-generic which contributes around 15% to overall domestic business. Export formulation grew by 38% yoy to Rs10.3bn, whereas exports APIs grew by 9% to Rs1.7bn. Overall Export business witnessed growth 33% yoy to Rs12.1bn; largely backed by Lexapro generic. We expect Export momentum to continue even after the expiry of Lexapro generic (had 180 days exclusivity) led by Indore SEZ (now has USFDA approval) and Dymista supply.

Sharp improvement in margins to 31% led by one time impact of Lexapro generic along with notable improvement at operating front
Cipla recorded an OPM of 31%, far better than our expectation of 27%. The improvement in margin by 663bps yoy was notable. Along with one time effect, the margin expansion was led by higher gross margin, cost rationalization and better business mix. Material cost has decreased by about 5% on a yoy mainly on account of rationalization of product mix and markets. We expect slight tapering down of margin but strong performance to continue (stabilize at 27%). 

Revenue Break-up
Rsmn.  Q2FY13 Q2FY12 % yoy Q1FY13 % qoq
Domestic 9,617 8,470 13.5 9,697 (0.8)
Total Exports 12,127 9,111 33.1 9,786 23.9
Formulations 10,389 7,516 38.2 8,101 28.2
APIs & others 1,738 1,595 9.0 1,685 3.2
Other operating income 460 378 21.5 642 (28.4)
Technical knowhow/fees 46 78 (40.3) 58 (19.3)
Others 413 301 37.5 585 (29.3)
Total 22,203 17,959 23.6 20,125 10.3

PAT jumped by 62% to Rs5bn yoy primarily on account of improved margin and higher other income along with the effect one time sales
The company reported net incremental forex gain of Rs260mn. Adjusting the impact of forex, adjusted PAT grew 54% yoy to Rs4.7bn is again well above our estimates. The growth in PAT was also backed by higher interest income earned from FD & mutual fund.

As a % of net sales Q2FY13 Q2FY12 bps yoy Q1FY13 bps qoq
Raw material 27.6 32.7 (508) 29.6 (206)
Purchases 8.4 7.5 85 7.8 63
Personnel Costs 11.1 10.6 47 10.9 19
Other Expenditure 22.1 24.9 (287) 24.2 (208)
Total costs 69.1 75.7
 

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