Stock market Result Update on Cipla for 1QFY2012

Stock market Result Update on Cipla for 1QFY2012 with a Buy recommendation and a Target Price of `369 (12 months).

For 1QFY2012, Cipla’s numbers came in below our expectations on the top-line and bottom-line fronts, despite better-than-expected performance on the gross operating profit front. For FY2012, management has guided for 10–12% top-line growth. We maintain our Buy view on the stock.

Results below expectations: For 1QFY2012, Cipla reported net sales of `1,550cr (`1,427cr), 8.6% yoy growth and below our estimates of `1,649cr. Gross margin expanded by 390bp yoy to 56.9% (53.0%). This was mainly on account of better product mix, which had lower proportion of anti-retrovirals in formulation exports. However, despite such gross margin expansion, OPM was flat at 21.2% (20.8%), led by increased manpower cost and negative contribution of Indore SEZ, as it is in the optimisation phase. Overall, other operating income reported a drop of 21.6% yoy to `41.4cr (`52.4cr) in 1QFY2012. Furthermore, adjusted net profit came in at `253.4cr (`257.4cr), a dip of 1.6% yoy, lower than our estimates due to higher interest costs during the quarter.

Outlook and valuation: We have revised our estimates and expect net sales to post a 15.5% CAGR to `8,164cr and EPS to record a 23.8% CAGR to `18.4 over FY2011–13E. The stock is trading at 20.7x and 16.7x FY2012E and FY2013E earnings, respectively. We recommend Buy on the stock with a revised target price of `369.