Cipla - On an upswing; Sustainable Growth Path - Karvy

Semi‐urban Thrust, Respiratory & Gynaecology to Sustain Growth: Cipla's reach in semi‐urban / (Tier‐II to Tier‐VI cities) segment is formidable and is better than any of its listed peers. Its pan‐Indian presence with 7,000‐fieldforce and 58% portfolio in acute segment will be the major growth drivers. Its niche therapeutic segments - Respiratory (28%) & Gynaecology (12%) - will continue to outperform the industry. The Company has been pro‐active in launches in both these segments, while the price‐hikes have been undertaken selectively in Respiratory segment.

Launch of Combination Inhalers - Exploring High‐Margin Opportunity: Cipla has launched four products in several EU markets, while it is planning to launch five more combination products in next five years. We believe that the launch of combination products in the EU markets - with Seretide likely to be launched in FY13 - is one of the key triggers for Cipla. Our revenue assumptions on combination inhalers are above street estimates as we have assumed a combination launch in FY 13E and FY 14E which may be a risk to our assumption.

Return Ratios & Asset Turnover to improve due to better utilsation of Indore SEZ: Cipla has spent Rs. 9 bn for its Indore SEZ (ISEZ) facility, which houses facility for oral, topical injectables and others. The compression of the return ratios and asset turnover ratios has been in lieu of ISEZ. We believe that with improving capacity utilisation at the ISEZ plant and maintenance capex, the operating leverage will aid the key profitability ratios, going forward.

Outlook &Valuation

Cipla's domestic formulations are expected to grow in line with the market (on a high base) on back of price‐hike in select segments, product launches and better MR productivity. Launch of combination inhalers in EU will also aid CAGR revenue growth of 14% in FY11‐14 period. With better operating leverage, focus on profitable products and segments, Cipla's profits would record 18.5% CAGR in the same period. We initiate coverage on the stock with "BUY" recommendation with a target price of Rs. 375 per share based on 19xFY14E. Our target price includes Rs. 1.1 coming from Lexapro exclusivity supplies to Teva.

Source : Equity Bulls

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