Maintain 'HOLD' on Cipla - Geojit BNP Paribas

- Cipla's Q2FY13 results exceeded expectations on one-off contributions; 1) sales worth USD30 million were related to Lexapro supplies to Teva under exclusivity, which ended in August, and 2) income of USD10 – 15 million was part of profit share related to Lexapro sales, which directly flowed to the EBITDA level.

- Excluding Lexapro contribution in Q2, underlying margins were flat, at 25.3%, YoY. For H1FY13, core margins improved 20 bps to 24.8%, driven by strong domestic growth and a favourable currency.

- H2 margins are expected to be softer than H1 as domestic growth is likely to slow and export growth ex-Lexapro may not be strong enough to bridge the gap.

- Cipla is currently valued at 19 times its one-year forward earnings which is in-line with its historical range and since the positives seem to be adequately priced in we maintain HOLD on Cipla at current levels of Rs.390.

- Key upside/downside risks: Impact from the drug pricing policy and operating leverage.

Source : Equity Bulls

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