Indiabulls Securities downgrades Cipla to 'Hold'

Cipla

RESEARCH: INDIABULLS SECURITIES

RATING: HOLD

CMP: Rs 222.95

Indiabulls Securities downgrades Cipla to ���Hold��� with a fair value of Rs 246. In Q4FY09, Cipla posted a 21.8% y-o-y growth in sales to Rs 1370 crore, delivering in-line domestic growth and lower-than-expected growth in exports. The net profit increased by 40.9% y-o-y to Rs 250 crore and the net profit margin expanded by 251 bps y-o-y to 18.5%. The domestic revenues are likely to remain robust and exports may come under threat due to FDA deviations. Indiabulls expects Cipla���s exports to come under threat if the company fails to rectify or comply with the nine deviations pointed by USFDA in its manufacturing processes at the Bangalore plant. Thus, non-compliance would put 27% of Cipla���s total sales at risk. Furthermore, Cipla���s 20-year supply arrangement with Cipla MedPro in South Africa, which contributes 7% of total exports, may be impacted due to built-in marketing and sourcing conflicts if the latter is acquired by Adcock. Moreover, Indiabulls remains concerned on account of deviation in manufacturing processes at Bangalore, which can significantly impact the export revenues.