Maintain 'hold' on Cipla - Geojit BNP Paribas Financial Services

- Company's 3QFY13 PAT missed analysts' estimates due to EBITDA margin shortfall and higher effective taxes.

- India business growth at 10% is slower than the earlier quarters while export formulations reported strong growth of 38%.

- Excluding the forex gain of 19 crore, the results are all the more disappointing.

- 3QFY13 margins at 23.8% were materially lower than the 29.3% achieved in 1HFY13, which had the contribution of generic Lexapro supplies to Tewa under exclusivity.

- In addition, favorable forex and a strong performance in India helped 1H margins. With the quantum of currency benefits coming down and India growth slowing down, the margin levers appear exhausted.

- Factoring in the 3Q miss, EPS estimates for FY13 has been cut by 4% while retaining estimates for FY14/15.TP has also retained at the earlier level.

- Cipla continues to move away from its highly successful partnership model outside India by developing its own front-end in the US and looking out for acquisitions in emerging markets.

- Large-ticket-size acquisitions would need funds, which can be raised by leveraging the balance sheet without any problem (as a net-cash company) though Cipla's preferred route in the past has been equity dilutive.

- Dr Hamied's stepping down as MD comes at an interesting time, just as Cipla is moving away from its tried-and-tested business model.

Source : Equity Bulls

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