Brokers’ Call: Espirito puts a buy on Cipla

Espirito Santo Securities has given a ‘Buy’ rating on Cipla with a fair value of Rs 440. “Cipla’s proposed acquisition of Cipla Medpro (CMP) for $512 million, marks a significant shift in Cipla’s export strategy and would also see it take control of its largest and fastest growing distributor, accounting for 8% of Cipla’s revenues, or 1/3rd of its exports business. Based on our initial estimates, we estimate that the transaction will likely add between 7% and 9% to Cipla’s FY14E EPS on a fully annualised basis (6.4% for 9MFY14E), with potential additional earnings accretion due to operational improvements at CMP. We estimate that India and SA will contribute >60% of FY14 revenues, so Cipla’s business mix is now changing towards higher margin as well as an intrinsically higher RoE businesses,” Espirito Santo said in a report.