Cipla - Strong quarter, outlook intact; Buy - Anand Rathi

Results better than estimates. Cipla's 1QFY14 revenue posted a 25.8% yoy rise to Rs. 24.6bn (better than our expectation of Rs. 21.6bn), largely due to strong overall growth along with higher other operating income. Though EBITDA margin declined 20bps yoy on a high base to 27.4%, it was still above our estimates (22%), as higher domestic revenue as well as other operating income lent their support. Accordingly, adjusted PAT grew 24% yoy to Rs. 4.7bn (vs our expected Rs. 3.2bn). The divergence was due to the milestone income of ~Rs. 1.4bn from its partner Meda Pharma pertaining to Dymista. Adjusted for this, PAT would have been at Rs. 3.7bn.

Revenue growth across business segments. Revenue growth (yoy) was significantly higher than our estimate as exports surprised positively. In this, formulations (27.7% yoy) led by the anti-allergy, ARVs and anti-asthma segments was the key driver. However, on the high base, export API revenue fell 13.1% yoy. Domestic formulations registered strong 16.7% yoy growth, much higher than our estimate (5%) led by anti-asthama, candiac and anti-biotics segments.

Our take. We believe that the strong performance can be attributed to strong growth in domestic & export formulations. Additionally, higher other operating income aided margins and PAT significantly. The management is confident of healthy double-digit growth in FY14 and has guided to increased R&D expenditure. Dymista contributed US$6m during 1QFY14 conveying the ramp up, and we expect it to contribute US$25m revenues in FY14. The Cipla Medpro acquisition is consummated and we expect it to be 3.5% EPS accretive in FY15. This acquisition is being valued separately in our estimates.

We maintain a Buy on the stock, with a target of Rs. 472 based on 20x FY15e earnings and Rs. 17 for the Cipla Medpro acquisition. Risks. Currency fluctuations, regulatory hurdles.

Source : Equity Bulls

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