We reinitiate coverage on the stock with a buy rating and target price of R600.
Since January 2012, Cipla underperformed the BSE Healthcare Index by ~65%, led by six quarters of successive downgrades. Ebitda margins contracted from a stable 22-24% in FY12 to 16.3% in 4QFY14, even as the management acted to correct inherent flaws in its partnering business model in regulated markets.
We believe significant benefits from the FY12-14 investment phase are not yet reflected in the companys financial performance.
Over the next 12-24 months, we see Cipla reaching an inflection point in its earnings trajectory, driven by improving growth momentum in its core markets of India and South Africa (combined 55% of FY14 sales) and scale-up in the US business, which is critical to operating leverage (7% of FY14 sales).
Kotak Institutional Equities