Maintain Buy with marginally lower PT of Rs. 1,800: The stock is down by 13-14% from its high and is trading at 21.6x its FY2021E earnings. Although Q1FY2020 performance was below our estimates, we feel long-term growth is likely to remain healthy, led by aggressive capacity expansion plans to monetise opportunities in the U.S. and China. However, taking into account lowered OPM guidance, we have reduced our earnings estimates by 5%/6% for FY2020E and FY2021E,respectively. We expect the company to report sales and profit CAGRs of21% and 18%, respectively, during FY2019-FY2021E. We maintain our Buy rating on the stock with marginally lower PT of Rs. 1,800.
Lower margins, limited upside We downgrade our revenue estimates for FY20E/FY21E by 2.9%/3% due to downgrade in Customs Synthesis and Generics business. We downgrade our EBITDA margins by 190 bps/130 bps to Rs 36.2/ Rs 36.7 for FY20E/FY21E. We downgrade our EPS estimates for FY20E/FY21E by 5.1%/4.2% to Rs54/ Rs64.3 respectively. We downgrade our price target to Rs 1744 based on 27x FY21E and maintain our HOLD rating.
As per the management, Q4 margins were just a kind of aberration. The management continues to expect normalised margins, going forward. On the capex front, to further augment capacities besides preparing for growing opportunities arising due to China factor, the company has earmarked an aggressive capex of ~Rs 1700 crore, over and above ~ Rs 2000 crore spent in the last five years. Margins are also likely to get support from extensive backward integration, product mix and operating leverage. We ascribe a target price of Rs 1780 based on 26x FY21E EPS of Rs 68.4.