Cipla Financial Valuation

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Excessive optimism – Downgrade to Sell

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February 06, 2013

Rating Sell CMP Rs405

Previous Reco Hold Target Price Rs350

NA NA 5,959 19,640 n 3M 2 -2 6M 12M 15 2 15 3 n n

Cipla’s Q3FY13 results – a) Revenues up 19% to Rs20.3bn b) EBITDA up 27% to Rs 4.9bn and c) APAT up 22% to Rs 3.2 bn Adjusting for forex gain of Rs. 190 mn, EBITDA margins were at 22.5% and EPS was Rs4, which means base EPS is Rs. 15.5-16 for FY13 Going forward, Pharma pricing policy will be implemented & Cipla with 47% coming from domestic & 40% of its domestic revenue coming under DPCO, will be severely impacted & EBITDA margins will come back to 22-23% in FY14 We believe excessive optimism built in the stock, downgrade to sell with a target price of Rs350 (20xFY14 EPS of Rs17.6)

EPS Chg FY13E/FY14E (%) Target Price change (%) Nifty Sensex

Price Performance

(%) Absolute Rel. to Nifty

Source: Bloomberg

1M -3 -2

Without one-offs this quarter, base business performance visible

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19% growth in total revenue was led by § 10% growth in domestic formulations (contributes 47%) was led by Antiinfective, Gastro & Gynec therapy. § 28% growth in exports (contributes 53%). Supplies for Dymista started.

Relative price chart

450 Rs % 20 410 12 370 4

330

-4

§ §

290

-12

Reported EBITDA margins were at 23.8%, however adjusting for one-off’s, margins were 22.5% for Q3FY13 compared to 22.2% in Q3FY12 and 23.4% in Q1FY13 Reported PAT was Rs 3.39mn. Post adjustments, APAT grew 22% to Rs3.2 bn clocking an EPS of Rs 4.0

250 Feb-12

Apr-12

Jun-12 Cipla (LHS)

Aug-12

Oct-12

Dec-12

-20 Feb-13

Rel to Nifty (RHS)

Source: Bloomberg

Stock Details

Sector

Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn)

Going forward

Pharmaceuticals CIPLA IB 1,606 2 803 435/ 286 325/ 6,117 2,035,101 15.6

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Pharma pricing policy will be implemented & Cipla with 47% coming...