Cipla has raised $140mn (Rs671crore), through a QIP, at an average price of Rs263.75 per share, to fund its expansion plans and retire its existing debt; this would result in an equity dilution of 3.2%.
Cipla is contemplating an incremental capex of Rs500-600 crore to set up an API facility in Bangalore, and for expansions at its existing facilities in Patalganga and Kurkumbh.
Cipla would also require an additional Rs300 crore on the working capital front. The company had announced in its AGM that it intends to raise around Rs1,500 crore, primarily to fund its incremental capex, working capital needs and to repay its short-term debts.
Given the supply-based model, we believe that in order to clock a healthy growth in the top-line, the company will continue requiring additional capex, which will suppress its return ratios.
At Rs260, the stock is trading at 19.2x its FY2010E and 17.4x its FY2011E earnings. We recommend a NEUTRAL rating on the stock.