Result Review: Cipla, Sun Pharma, Tata Global Beverages
Price target: Rs490
Current market price: Rs402
Cipla reported a moderate 5.1% year-on-year (Y-o-Y) growth in the net sales to Rs1,906 crore in Q4FY2013. The revenue growth during the quarter is broadly in line with our estimate. However, the operating profit margin (OPM) declined by 84 basis points year on year (YoY) to 18.3%, which is significantly lower than our estimate of 24% for the quarter.
A 17% Y-o-Y higher other operating income, which includes income from technical know-how fees and export incentives, helped the EBIDTA to increase by 2.7% YoY to Rs409.5 crore. Nonetheless, the net profit declined by 8% YoY to Rs267.6 crore, mainly due to the higher interest cost and tax. The net profit is 22% lower than our estimates of Rs342 crore.
The stock is currently trading at 16.6x FY2015E earnings per share (EPS). We maintain our Buy recommendation of the stock with a price target of Rs490, which implies 20x FY2015E earnings.
Sun Pharmaceutical Industries
Price target: Rs1,150
Current market price: Rs1,066
Sun Pharmaceuticals Industries (Sun Pharma) reported a 31.8% year-on-year (Y-o-Y) rise in the net sales to Rs3,071.5 crore in Q4FY2013, which is nearly 5% lower than our estimate. A lower than expected revenue was mainly attributable to the weak performance of Taro Pharmaceuticals (Taro) during this quarter.
The operating profit margin (OPM) remained flat year on year (YoY) at 41% (in line with expectations) during the quarter. However, due to the lower than estimated interest costs and depreciation, the profit before tax jumped by 18.5% YoY to Rs1,281 crore.
Moreover, the effective tax rate declined by 252 basis points YoY to 13.8% (vs our estimate of 19.7%), which helped the company to post an impressive 23.3% Y-o-Y rise in the net profit to Rs1,011.6 crore. The reported net profit during the quarter was 17% better than our estimate.
In light of the growth guidance given by the management and a better visibility on the business prospects, we have revised our earnings estimates up by 4% and 12.9% for FY2014 and FY2015 respectively. We have also revised our price target upwards to Rs1,150, which implies 26x FY2015 earnings estimate. However, given the limited price over the current market price, we assign a Hold rating on the stock.
Tata Global Beverages
Price target: Rs168
Current market price: Rs142
Tata Global Beverages Ltd (TGBL)’s consolidated results for Q4FY2013 were marginally ahead of our expectations largely on account of a better than expected operating profit margin (OPM) and a lower incidence of tax. The higher tea prices continue to put pressure on the margin of the domestic businesses while Tata Coffee’s consolidated business posted a strong improvement in the OPM (of over 600 basis points YoY) due to a sharp correction in the coffee prices.
Some of the key geographies including South Asia and Australia performed well while Europe’s performance remained muted under recessionary pressure. The fourth quarter of FY2013 was the quarter of innovations in three key segments: tea, coffee and water. The company made seven launches in the domestic and international markets to improve the product portfolio. The TGBL-Starbucks alliance is now operating 13 café outlets in India (seven in Mumbai and six in Delhi). All these cafes are receiving strong footfalls and most of them have registered a robust profit.
We have broadly maintained our FY2014 earnings estimate but marginally revised upwards the OPM estimate for FY2015 to factor in the better than expected GPM. While the prices of Kenyan tea have seen a drop due to an improvement in the tea production, the Indian tea prices have remained stable. The company would be keenly monitoring the domestic tea prices in the coming years.
The management has emphasised the need to build a strong portfolio of brands to drive the growth of the business. However, a large part of its focus would be on improving the profitability in the long run. At the current market price, the stock trades at 19.4x its FY2014E earnings per share (EPS) of Rs7.3 and 16.9x its FY2015E EPS of Rs8.3. In line with the marginal upward revision in our earning estimate, we have revised our price target upwards to Rs168. We maintain our Hold recommendation on the stock.
Source: Sharekhan Research
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