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Cipla’s reported sales of Rs. 37.8bn in Q1FY16 were better than estimates by 26% due to one-off revenues of US$78m from the supply of Nexium to Teva in US. Even after adjusting for revenues from Nexium and other operating income, Cipla’s sales beat estimates by 9.6% in Q1FY16. Domestic sales grew 8% though management maintained guidance of double digit growth in FY16E. Adjusting for Nexium sales, core exports grew by 38% due to strong growth in South Africa, Europe and other emerging markets.

Adjusted with Nexium sales and other operating income, Cipla’s core EBITDA of Rs. 4.8bn grew by 1% vs estimates of Rs. 5.1bn. Employee costs grew by 20.5% in Q1FY16 and company guided for similar levels for rest of the three quarters in FY16.

With strong traction of one-off revenues, Cipla increased guidance of sales growth to 20% with improvement in EBITDA margin by 100-150bps in FY16E. Management’s guided revenues implied sales growth of 12.7% and adjusted EBITDA margin of 16.8% in rest of the three quarters in FY16E. 

So, although Sales and PAT have increased significantly but  weak guidance of sales and margin is bit disappointing. So, some profit booking expected if opens gap up.

Cipla closed at 740 on Friday. Technically 748-750 is tough resistance. Therefore, either buy on Dip or buy above 750 but if opens near 750 then wait. However, if crosses 750 and sustains, it may reach 780-790.

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