KR Choksey has given Accumulate recommendation for Cipla with a target price of Rs. 998 in its research report issued on Jan 28, 2022

KR Choksey’s research report on Cipla

Cipla reported relatively slower growth (relative to Q3FY20 and Q3FY21) in revenue in Q3FY22 at 6.0% YoY (-0.8% QoQ) to INR 54.78 bn in Q3FY22 (vs. estimate of INR 55.22 bn). Gross Profit Margins (GPMs) fell by 55 bps YoY/41 bps QoQ to 60.9% in Q3FY22. This was due to rise in cost of raw materials and provisions related to COVID 19 products. EBITDA grew at a flat pace YoY (+0.4% QoQ) to INR 12.31 bn (vs. estimate of INR 11.62 bn) while EBITDA margins reduced by 135 bps YoY (+25 bps QoQ) to 22.5% in Q3FY22 due to increase in operating costs YoY while it reduced QoQ. Net profit margin (NPM) contracted by 118 bps YoY (+41 bps QoQ) to 13.3%. The company reported 2.6% YoY (+2.4% QoQ) decline in net profit to INR 7.29 bn (vs. estimate of INR 7.06 bn).

Outlook

We apply a reduced P/E multiple of 20.62x (earlier 24.5x) on FY24E EPS of INR 48.4 and arrive at the same target price (TP) of INR 998 per share; an upside potential of 7.5% from its CMP of INR 928. Accordingly, we maintain our “ACCUMULATE” rating on the shares of Cipla.

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