Cipla’s revenue grew by 21.8% (y-o-y) - from Rs11.2bn to Rs13.6 billion (we expected Rs13.8bn).
Segment-wise, revenue from domestic market grew at a good growth of 15.9% from Rs4.5 billion to Rs5.2 billion. Revenue from export formulations grew by less-than-expected growth of 17.4% - from Rs4.7 billion to Rs5.6 billion.
Revenue from API de-grew by 4.5% - from Rs1.76 billion to Rs1.68 billion due to alendronate coming-off exclusivity in early August 2008. Other operating income was higher-than-expected due to higher technology know-how fees (Rs998m).
EBITDA margin improved from 18.1% to 26.3% y-o-y. This has been due to a positive impact of 5-6% rupee depreciation as well as change in the product mix. However, other expenses increased from 24.6% to 26.6% y-o-y (as % of sales) on account of higher sales expenditure.
The company reported net profit (Excl. forex adjustment) of Rs2.6 billion against an expected net profit of Rs2.7 billion (Excl. forex adjustment). The depreciation charged has been higher for the quarter due to expansion in the manufacturing facilities.
The interest charge has been Rs80 million, against Rs46m (y-o-y) due to an increase in the working capital loans availed during the quarter. However, tax has been lower for this quarter due to tax incentives availed for EOUs, Baddi and Sikkim.
We expect sales of Cipla to grow at CAGR of 17.1% and net profit to grow at CAGR of 11.2% over the next two years. At Rs239, the stock trades at 16.9x FY10E and 15.1x FY11E. We maintain an ACCUMULATE rating on the stock.