Buy rating on Cipla over Medpro buy

Written by UBS | UBS | Updated: May 31 2013, 06:03am hrs
We maintain a buy on Cipla and a target price of R460. We remain bullish on Medpro acquisition. The medium-term outlook is strong. Medpro deal is expect to close by Q2FY14. We believe Africa represents a significant growth opportunity for Cipla in the long term and securing control of the front end is the right strategic step. We believe a ramp-up in Dymista supplies to the US and EU markets could partly offset the impact of Lexapro.

The revenue grew by 5% y-o-y to R1,900 crore (UBS-e: R2,060 crore) as domestic business grew by 5% y-o-y, international formulations business grew by 12% y-o-y while APIs declined by 24% y-o-y. Domestic business was impacted by weak generic business. Ebitda grew a tad by 3% y-o-y to R400 crore (UBS-e: R500 crore) as employee cost increased strongly by 40% y-o-y due to increase in manpower and also due to annual increments. Ebitda margin declined by 56bps y-o-y to 21% (UBS-e: 24.3%). Cipla had R18 crore of forex gains in Q4FY13, included in other income. Interest cost was higher due to rise in debt. Net profit declined by 8% y-o-y to R2,670 crore (UBS-e: R3,170 crore) impacted by higher tax rate at 28%.

Cipla filed for total 5 ANDAs in FY13. Cumulatively, Cipla filed for 26 ANDAs and received approval for 18 ANDAs. Management guided for double-digit revenue growth in FY14. Cipla expects to maintain Ebitda margins of 21%-22% in FY14.