Cipla - Growth momentum intact; Buy - Anand Rathi

Revenue growth strong. We expect strong 17.8% yoy revenue growth, largely driven by a surge in export formulations and steady growth in domestic business due to implementation of new drug pricing policy. EBITDA margin is expected to increase by just 70bps yoy, to 24.5%, due to increased R&D expenses. We expect adjusted PAT to grow 13.2% yoy, lower than revenue, due to increase in interest and depreciation charges mainly due to consolidation of Cipla Medpro.

Export formulations key growth driver. Formulations for exports are expected to grow 25% yoy, led by higher capacity utilization at its Indore SEZ and favourable currency. However, we expect just 8% yoy increase in revenue from domestic formulations, mainly due to impact of new drug pricing policy and general slowdown in domestic pharma industry growth. API revenues are expected to increase 5%, in line with previous quarters.

Long-term outlook intact. The company could face near-term headwinds due to implementation of new drug pricing policy in India and increased R&D spend. We expect it to report 16.1% revenues and 15% adjusted PAT CAGR over FY13-16. Ramp up in revenue from Dymista in the US and launch of combination inhalers in the EU would be key growth triggers, going forward, and could provide upside to our estimates.

Our take. We expect 17.8% yoy revenue growth, largely driven by strong growth in export formulations business. We estimate its adjusted PAT to grow 13.2% yoy, led by strong revenue growth with higher interest cost. Cipla is one of our top picks from the long-term perspective, considering its steady growth assurance and possible upside from ramp up in Dymista sales in the US and approval for combination inhalers in the EU. We maintain Buy, with a price target of Rs. 472 based on 20x FY15e earnings. Risks. Currency fluctuations, regulatory hurdles.

Source : Equity Bulls

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