Cipla Ltd. share price target

US ramp-up progressing well H2 muted but largely priced in We met the Cipla management who reiterated their focus on building US operating leverage and confidence in achieving 18-19% EBITDA margins in the business for FY19 despite tender contract headwinds. Tender business US funding squeeze, price pressure to weigh on growth: Cipla expects a sharp cut in Global Access (GA) revenues in FY19 to US$ 60mn70mn (US$ 110mn in FY18). The South Africa (SA) tender business which forms ~40% of SA revenue should see allocation for the three-year tender cycle kicking in by Apr'19 (bidding process underway). Management expects H2FY19...

Upgrade to BUY with a TP of Rs 605 (22x Dec-20E EPS). The recently diagnosed issues related to supply constraints in one of the sterile plants, US sanctions on Iran, war in Yemen, falling prices in the tender business and higher inflation in APIs are likely to persist over the next 2-3 quarters.

Cipla Limited's profit misses analysts' estimates in the July-September period, even as its operational performance fell short of expectations. Net sales declined 2 percent to Rs 4,011 crore year-on-year, the operating income, or earnings before interest, tax, depreciation, and amortization, fell 12 percent over the last year to Rs 702 crore. The operating margin contracted to 17.5 percent during the period from 19.7 percent a year ago. It has reported a fall of 11 percent (year-on-year) in its net profit for the September...

At CMP, valuations remain unsupportive (30/24x FY19E/20E EPS). Maintain NEUTRAL with a TP of Rs 605 (22x FY20E EPS). Cipla reported a disappointing set of numbers in 2QFY19 with revenue at Rs 40.1bn, down 2%YoY/ up 2%QoQ. The domestic business was flat YoY on a high base due to post-GST restocking, whereas US sales grew 12%YoY in constant currency to US$ 108mn led by new launches. Despite gross margin expanding 285/95bps YoY/QoQ to ~65%, increased R&D; spend, sales-linked costs and capacity issues led to a 220/95bps YoY/QoQ fall in EBITDA margin, now at 17.5%.

Cipla's Q2FY19 sales at Rs40bn were 3.6% above our expectations while EBITDA/PAT at Rs7bn/Rs3.8bn were 0.3%/12.5% below our expectations. Domestic business was down 0.1% YoY impacted by 1) higher base due to restocking post GST implementation and 2) Q2FY18 experienced a strong acute season while there is a delay during this season. We have revised upwards our USD currency estimates from 68 to 70 for FY19/20E, however, given concerns on sales pickup in 1) US, 2) Global API and 3) SAGA, we have revised downwards our sales estimates. We expect Cipla's sales/EBITDA/net profit to grow at a CAGR of 10.7%/17%/23.5%, respectively, over FY18-20E....

Cipla's Q2FY19 results were weaker-than-expected on the operational front. Revenues de-grew 1.7% YoY to | 4012 crore (Idirect estimate: | 4042.4 crore) mainly due to high base of restocking in the domestic market and a fall in the tender opportunity in South Africa and other emerging markets EBITDA margins contracted 220 bps YoY to 17.5% (I-direct estimate: 19.1%) due to higher other expenditure and employee cost. EBITDA de-grew 12.7% YoY to | 702.2 crore (I-direct estimate: | 771 crore) Net profit fell 15.6% YoY to | 356.8 crore (I-direct estimate: | 368.9...

Revenue growth led by improved India and SA performance Cipla reported 12% YoY growth in revenue in Q1FY19 on the back of continued strong growth across India (up 22% YoY), South Africa (up 23% YoY) and API business (up 54% YoY). The company highlighted that the growth in India business in Q2FY19 should be lower as compared to corresponding quarter last year due to high base on account of GST led re-stocking. The company's South Africa business delivered yet another strong quarter with a robust 23% YoY increase in revenue (15% in dollar terms), outperforming the market (7% in dollar terms) led by strong momentum in Sereflo Synchrobreathe which grew at 45% YoY. Going ahead, the company remains optimistic about the growth...

Revenue rose by 10.01% to Rs. 3845.84 Cr in Q1FY19 when compared to the previous quarter. Cipla Ltd Q1FY19 results Comment

We expect domestic growth to be in-line with the industry, while the US business to increase its contribution going forward. One specialty product launch in US every quarter to support better overall margins. Since the US sales is ~USD100mn lower than expectations, we are slightly tapering down our sales forecasts for FY19/20. We have reduced the run-rate of depreciation which has resulted in our EPS to increase by 17% for FY19 and 6.3% in FY20.expect Cipla's sales/EBITDA/net profit to grow at a CAGR of 12.5%/19%/31.7%, respectively, over FY18-20E. US growth the key for improvement in the EBITDA margins: Cipla continues to have...

Positive Outlook on India & US Biz; Upgrade to BUY ff South Africa Biz (15% of Sales): Adjusted for discontinuation of Animal Health business, South African business grew by 14% YoY (vs. 7% market growth). It plans to launch Filgrastim...