Hold Cipla; target of Rs 836: Prabhudas Lilladher

Prabhudas Lilladher's research report on Cipla

We increase our earnings estimate by 15.5%/15.5%/2% for FY21/22/23E and upgrade CIPLA to Hold (earlier Sell). Discounting guidance of digital marketing and lower R&D spend will continue to lead cost savings partially even in post COVID scenario, we believe this will lead to EBITDAM expansion by 500bps over FY20-23E v/s FY20. 2QFY21 earnings were higher than our estimate led by 1) contribution of Rs2.5bn from COVID related products such as Remdeisvir, Favipiravir, Actemra and hand sanitizers, 2) SAGA sequential growth of 21% on account of clearance of order backlog post normalization of logistics related issue and 3) savings in marketing-related overheads on the launches of COVID related products. We believe large part of earnings growth guidance is led by cost saving program and COVID related products, where opex could normalize in 2HFY21E/FY22E as MRs would head back to field and market scenario (demand and pricing) for COVID related products could change rapidly. With reported growth of 21% YoY for domestic formulation during the quarter, its adjusted growth (Ex COVID products and CHL) would have been in mid single-digit while its top inhalers brands growth continues to drift lower.

Outlook

We roll over our valuation to FY23 (earlier FY22E) and derive at a new TP of Rs836 (earlier Rs657) based on 22x (Unchanged) PE of FY23E EPS of Rs38. We upgrade our rating to Hold (earlier Reduce).

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