IIFL views on Nestle, Cipla

IIFL on Cipla - Target of Rs 246

IIFL has maintained its buy rating on Cipla with a price target of Rs 246 in its research report.

"We expect Cipla’s core earnings to register a CAGR of 36% over FY08-11, significantly aided by rupee depreciation and consequent margin expansion, apart from accelerated growth in volumes. Recent capacity expansion through new plants in Indore and Sikkim will contribute to volume growth. Recent industry reports indicate the return of growth momentum in the domestic pharma market, where Cipla has one of the strongest franchises, especially inrespiratory medicine."

"In the long term, it can also benefit from consolidation in the domestic market. Cipla’s unique business model of registering products in other countries and partnering with other companies to market them makes it the best counter-cyclical play in the Indian pharma space. We are raising our FY09-11 earnings estimates by 5-20% and raising our price target to Rs 246 from Rs 215. Maintain BUY rating," says IIFL's research report.


IIFL on Nestle India - Target of Rs 1800

IIFL has recommended a buy rating on Nestle India with a price target of Rs 1800 in its research report.

"Nestle’s earnings growth of 29% in 4QCY08 was significantly ahead of our estimate. Sales growth was broadly in line with estimates at 22%, driven by a robust 25% growth in the domestic FMCG business, while exports declined by 10%. This is the 9th consecutive quarter of strong sales growth. EBITDA margin expanded by 188bps YoY, thanks mainly to a 174bps YoY reduction in ‘other expenses’ as proportion of sales, as operating leverage from sustained rapid growth kicked in."

"Raw-material cost, surprisingly, dropped 45bps YoY owing to a combination of price hikes and other cost optimisation measures, though prices of key inputs like milk, wheat and sugar remained high. We believe Nestle’s presence in high-growth categories, its dominant marketshare and the strong line-up of new products launched in 2008 will help sustain 18-20% growth in CY09 and CY10. Buy, target price of Rs 1800," says IIFL's research report.