Stock Market Result Update on Cipla for 2QFY2012

Stock Market Result Update on Cipla for 2QFY2012 with a Buy recommendation and a Target Price of `369 (12 months).

For 2QFY2012, Cipla’s numbers came well above our expectations on the top-line and bottom-line fronts, mainly on the back of better-than-expected performance on the gross operating profit front. Improvement in the operating front came on the back of strong growth in the domestic formulation business.
We maintain our Buy view on the stock.

Results above expectations: For 2QFY2012, Cipla reported net sales of `1,731cr, posting 9.6% yoy growth and above our estimate of `1,649cr. Gross margin expanded by 628bp yoy to 58.9%. This was mainly on account of better product mix, which had lower proportion of anti-retroviral in formulation exports and domestic formulation sales. However, despite such gross margin expansion, OPM was flat at 22.6%, led by increased manpower cost and negative contribution of Indore SEZ, as it is in the optimization phase. Furthermore, net profit came in at `308cr, posting 17.2% yoy growth, higher than our estimate due to operating profit growth.

Outlook and valuation: We expect the company’s 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 20.8x and 16.8x FY2012E and FY2013E earnings, respectively. We recommend Buy on the stock with a revised target price of `369.