Buy Cipla On Dips

Pharmaceutical major Cipla recently posted a very strong September quarter result. The better than expected growth in its revenues and net profit sent the stock up by over 4 per cent immediately after the result was announced. 

The company’s topline growth of 24 per cent to Rs 2,220 crore was aided by an increase in exports which grew at 33.1 per cent in which the formulation business saw a jump of 38.2 per cent while the APIs saw 9 per cent growth. The growth in exports was due to anti-depressants, anti-ulcerants and anti-asthma segments. In the U.S. the company filed a total of four ANDAs in the first half of the fiscal. 

The domestic growth rate at 13.5 per cent was below the market growth rate of 15-16 per cent.  The company has said that this was due to the delayed monsoon but it expects this to pick up in the second half of the current fiscal. During the quarter the company’s drugs for segments such as asthma, antibiotics and cardiovascular saw good pick-up. 

On the back of lower material costs and higher realisations of Lexapro, its EBITDA margins expanded sharply from 23.9 per cent in the September quarter of last fiscal to 30.5 per cent in the quarter under review. The company is almost debt-free and hence there is negligible interest outgo. Its tax expenses rose sharply from Rs 84 crore to Rs 161 crore on account of the increase in turnover. The effective tax rate was 24 per cent during the quarter and the management expects the same to remain for FY13. 

In the course of a conference call, Cipla revised its topline growth estimate to 15 per cent from the earlier estimate of 12-15 per cent. It has also guided that its revenues will grow to USD 5 billion by 2020 and that the base business margins are much better than seen in FY12. Though the domestic business has shown some drag in the quarter, it expects to show a growth of 17-18 per cent in the future. 

The best part is that its Indore SEZ facility has received approval from the USFDA. This SEZ will be good for the company as it expects high growth in exports. It also means that the contribution of the domestic business will further decline in the future, thereby improving its margins. 

On valuation front, the scrip is currently trading at TTM PE of 21x. We expect the growth momentum to continue and therefore investors would do well to enter the counter on every dip.