Cipla - Disappoints on the margin front; Maintain 'REDUCE' - TP Rs338 - PINC Research

Q3FY12 Result Review - Cipla

Disappoints on the margin front

Cipla reported Q3FY12 results which were lower than our and street expectations owing to the rationalization of sales in the export markets. The domestic segment clocked growth of 8.4% YoY driven by the low-margin generic segment. Indore SEZ reported sales of Rs1.3bn for the quarter. The company has maintained its export sales growth guidance of 10-12% for FY12. ARV business contribution came in at 23-25% of sales. Gross margins improved on back of the lower material costs in tandem to the rationalization being undertaken. However, the OPM was lower than expected impacted by the increase in employee costs as well as SG&A expenses. Cipla expects the full impact of rationalization to fructify over the next few quarters.

- Lower sales growth, however domestic improves
- Margins below expectation

VALUATION AND RECOMMENDATION

The stock is currently trading at 25.0x FY12E and 22.3x FY13E earnings. We maintain our REDUCE rating on the stock with a target price of Rs338. We have valued the stock at 22x one year forward earnings.

Source : Equity Bulls

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