4 February 2011

India Pharmaceutical Initiating Coverage| |

Cipla Limited

BUY

Target: 416`

Stock Statistics

NDA Securities Ltd

Historical Prices

for private circulation only

Company Description: Founded in 1935, Cipla is the second largestpharmaceutical company in India with market share of 5.4% in FY10.

Company offers various drugs and healthcare products with major share in manytherapeutic categories & in most dosage forms. The company has well diversifiedproduct portfolio that includes OTC products, prescription products, flavors andfragrances, pesticides, and animal products. The Company's products are certifiedby various recognized regulatory authorities namely Food and Drug Administration(FDA), USA; Medicines and Healthcare products Regulatory Agency (MHRA), UKand like. The Company also provides technology services for preparation of product,product and process know how and new developments with various manufacturingfacilities and R&D centers located across India.

Company's business model is based on international strategic alliances by focusingon pursuing organic growth while reducing capital commitment and regulatory risks.In the US, Cipla has entered into partnership for 118 products with 22 partners.Number of partners has increased from 17 to 22 over the last 12 months. Of thepipeline of ~100 ANDAs filed till date, 57 have been approved (35 commercialized)while 45ANDAs are awaiting approval.

In addition, Company has developed a strong presence in the 170 countries includingboth developed and developing countries and derived 55.4% of its FY10 revenuesfrom exports to regions including US, Europe, Middle East,Africa andAustralia.

In May 2007, Cipla overtook Ranbaxy and GlaxoSmithKline India (GSK) to becomethe largest pharmaceutical company in the domestic market. Recently in May 2010, itset up a wholly owned subsidiary, Cipla Singapore Pte. Ltd. In April 2010, itcommenced commercial production of pharmaceutical formulations at its SpecialEconomic Zone project at Indore, Madhya Pradesh.

Company History:

Business Overview:

In 1935, Khwaja Abdul Hamied, set up the Chemical, Industrial& Pharmaceutical laboratories known as Cipla. The company was registered as apublic limited with an authorized capital of INR 6 lacs. Today Cipla is leading playerin anti infective and anti-asthmatic formulations. Company manufactured ampicillinfor the first time in the country in 1968.

The present businesses of Cipla can bebroadly classified into:

Domestic branded formulationsales.

Domestic unbrandedformulation sales.

Exports.

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Initiating coverage with an FY11 earnings estimate of 15.7 -` We areinitiating coverage of Cipla with earning estimates of 15.7 per share in FY11and 18.5 per share in FY12 backed by the company's

Keeping in view, the company'sbetter global positioning and increasing product basket, we believe Cipla ispoised to gain strong market standing with expected upsurge in market share as aresult of growing demand for generics. This represents a huge opportunity for thecompany to further enhance its top-line as well as bottom-line in next 2-3 years.We believe the stock offers good investment opportunity for investors looking atmedium to long-term investment. Considering expansion plans, we value Ciplaat 21.4x P/E of FY11E and recommend BUYwith a price target of 416.

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regulatory approvals forthe Indore SEZ start to flow in, exports are likely to pick up from FY12E andlaunch of combination inhalers in the EU.

Promoter

s

16%

Foreign

21%

Public

33%

Non-

Institution

s

29%

Others

1%

Shareholding pattern as on 30/9/2010

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16,000

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19,000

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21,000

300310

320

330

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350360

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390

Cipla's Share Price vs Sensex

Close Price BSE_SENSEX

1M 3M 12M

Price ` 365.70 345.00 337.25

Gain/Loss -3.34% 2.46% 4.81%

Bloomberg code CIPLA.INBSE code 500087NSE code CIPLA

CMP (`) 335.10Face Value (`) 2BSE Sensex 18,395.97

Market Cap (`Crore) 26,865.7552 Wk Hi/Lo (`) 381/300Average Daily 1,72,210

RATIOS (TTM) 2010Price Earning (P/E) 26.09Price Book Value 4.37Price to Cash EPS 21.45EV/EBITDA 16.66

Africa,34%

Australasia,

14%

North, Central

& South

America, 26%

Middle

East, 9%

Europe, 17%

Exports Break up

NDA Securities Ltd Page 2

4 February 2011Cipla Limited

Products:

Prescription:

OTC:

Active Pharmaceutical Ingredients(API):

Cipla's tie-ups in different countries:

Manufacturing Facilities:

EU inhalers to lead growth:

Cipla has the largest product basket among all the pharmaceutical players in India ranging fromprescription to OTC to animal health, besides a big kitty for active pharmaceutical ingredients (APIs)or bulk drugs. In FY10, company has introduced approx. 200+ brands and expects to launch 120-150new brands over FY11-12.

Amoebicides/Antiprotozoals, Anabolic steroids, Anaesthetics,Analgesics/Antipyretics,Antacids,Anthelmintics,Anti-inflammatory drugs,Anti-TB drugs,Antiacnedrugs, Antiallergic drugs, Antialzheimer drugs, Antiasthma drugs, Antibiotics and AntibacterialsAnticancer drugs etc.

Cipla's over-the-counter drugs portfolio comprises the following:Analgesics – Oral, Artificial Sweetener, Calcium Preparations, Child Care, Cold & Flu, Constipation,Cosmetics & Skin Care, Dental Care & Oral Hygiene, Diarrhoea, Food Supplements, Indigestion,Infant Food, Medicated Plasters, Medicated Shampoos,Veterinary etc.Cipla's animal health care products division has four sections dedicated for equine, poultry,Companion animals, livestock animals products, apart from Herbal Specialities.

Cipla is one of the biggest exporters of low-cost,high qualityAPIs across the world. Major bulk drugs and intermediates manufactured by Cipla are:Adefovir Dipivoxyl, Albendazole USP, Albuterol Sulfate, Alendronate Sodium.3H2O, Alprazolam,Amlodipine Besylate,Anastrazole,Atorvastatin,Aripiprazole,Azelastine HCl etc.

In the US, with Teva/Ivax, Watson, Morton Grove, Sandoz /Eon andAkorn.

In Germany, entered into agreements with Stada, Hexal and Ratiopharm.

In the UK, with NeoLabs.

In SouthAfrica, with Medpro.

Cipla has various manufacturing facilities at Bengaluru, Patalganga, Kurkumbh, Goa, Baddi, and atSikkim to produce wide range of products. Indore SEZplant is under construction and the company plans tobuild twoAPI plants during the next two years.

Cipla has launched Salbutamol inhalers in the UK and receivedapprovals for Budesonide inhalers in Germany and Portugal and Beclomethasone in Portugal. Cipla

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R&D Spend:

Aggressive launch of new products - maintains domestic growth momentum

Cipla's R&D division focuses on new productdevelopment and new drug delivery systems across arange of therapies. However, Cipla has relatively lowprofile on its R&D initiatives compared to the domesticpeers, all of whom have set their sights on discoveringnew chemical entities (NCEs). But lately, R&D spend ofCipla has been increasing and in FY10, the total R&Dexpenditure as a percentage of total turnover was ~ 5%.

: The total domesticdrug market is valued at INR 40,052 crore, an increase of 17% over FY09, according to data from drugsales tracking agency, ORG-IMS. With the growth in domestic market Cipla domestic business grewat a CAGR of 13.5% during FY07-FY10 Cipla is one of the largest players in the domestic formulationmarket, with a market share of around 5% contributing 46% of the total turnover in FY2010. Thecompany is the market leader in key therapeutic areas such as respiratory care, anti-viral andurological. Cipla's distribution network in India comprises a field force of around 5,100 employees and42 exclusive and dedicated sales depots, as well as approximately 2,300 stockists and 160,000chemists. During 2QFY11, domestic sales grew by 20% and in FY10, company has introduced approx.200+ brands and expects to launch 120-150 new brands over FY11-12 contributing ~2-3% to sales.Cipla plans to focus on growing its market share and sales by increasing penetration in the Indianmarket, especially in the rural areas. It has plans to expand its product portfolio by launchingbiosimilars, particularly relating to the oncology, antiasthmatic and anti-arthritis categories.

We expect Cipla will continue to derive its future growth from past introductions plus new brandlaunches in forthcoming years.

Investment Thesis

Products

Growing Tie-Ups

ManufacturingFacilities

Increasing R&Dexpenditure

Wide array ofnew products inbouquet

has developed eight CFC-free inhalers for the EU region, of which six have been submitted forregulatory approvals. The company expects most of these registrations and compliances to becompleted in two years. Launch of CFC-free inhalers in Europe and US with a potential market size ofmore than US $3 billion would be the long-term growth driver for the company. In addition, Ciplaexpected to launch the inhaler in Russia and South Africa in 2HFY11. Management has alsoindicated that Inhaler sales contribution could increase to 25% of net sales over the next three years(from current 15% levels) if the regulatory approvals for EU come through.

Growing domestic demand for health care would help drive an increase inacquisitions of Indian drug makers and Indian pharma majors, such as Cipla, which have a strongdomestic presence, appear to be the probable acquisition target. We believe that Cipla has one of thestrongest generic pipelines amongst Indian companies. It has tie-ups with various US based genericcompanies for supply of products, this coupled with the company's low-risk strategy and strong capexshould ensure good long-term potential.

The domestic pharma industry appears all set to witness a string of M&A. Some of the few acquisitiondeals closed during the fiscal 2011 indicates that global pharma companies are willing to pay a highprice for acquiring Indian pharma companies. Abbott Laboratories agreed to buy Piramal Healthcare'sgeneric-drug business to expand in a market expected to more than double by 2015 from almost $8billion this year. Abbott agreed to pay $3.72 billion - almost nine times Piramal's domestic revenue,higher than the four times revenue seen in previous takeovers of Indian drug makers. Hospira, based inLake Forest, Illinois, agreed in December 2010 to buy Orchid Chemicals' generic injectable-drugbusiness for about $400 million. Tokyo-based Daiichi Sankyo bought 64 % of Ranbaxy, India's largestdrug maker, for about 489 billion yen ($5.4 billion) in 2008.

We believe that Cipla being the second largest pharmaceutical company with market share of 5.4% inFY10 is a good potential buy for foreign companies seeking to tap growth prospects in India.

a Cipla has initiated investments in biotechnology in India and China.The company is setting up a factory to produce biosimilar activities and formulations at Goa. Throughits joint venture in 3QFY10 with Desano, a Chinese company, CIPLA has initiated clinical trials andregulatory processes for the Indian markets and is currently working on six products. In biosimilars, thecompany is focusing on anticancer antiasthmatic and antiarthritis categories. Over the next three years,the company expects to invest up to USD 65 million in biosimilars, excluding any major additions inmanufacturing capabilities. It plans to launch two products in the domestic market by FY2012.

The key markets for generics are the EU nations,USA and several Latin American countries. Regulators have been pushing for greater genericpenetration to reduce healthcare-related costs. Currently, the global generics market is pegged ataround USD 124-billion and is growing at a CAGR of 11 % since the last three years. Due to lowmanufacturing and R&D cost in India and China as compared to other European markets, key playersare prompt to set up or shift their base in India. We believe Cipla is strongly positioned to emerge as akey supplier of generic products to global MNC companies due to large manufacturing infrastructure,strong chemistry skills and large capacity for inhalers.

Company commenced commercial production of pharmaceuticalformulations at its INR 9 billion Special Economic Zone (SEZ) project, at Indore, Madhya Pradesh.The facility has significant capacity to manufacture products ranging from aerosols, nasal sprays, eyedrops to tablets and capsules. While it has already started production for non-regulatory markets fromthis facility but awaiting approvals from developed markets regulators such as UK MHRA and USFDA. As regulatory approvals at the Indore SEZ start to flow in, growth in exports is likely to pick upfrom FY12E. We are expecting Indore SEZ would start contributing from FY12 onwards and will boostoverall growth and margins of the Company.

Seroflo

Possible acquisition target:

Biosimilars launches in Indi :

Bright industry prospects in generic market:

SEZ facility at Indore:

Exports momentum to improve from FY12: Cipla exports to more than 175 countries, with growthcoming through the marketing alliances and distribution tie-ups in the various markets. Exportscontributed 54% of the total turnover of FY2010, withAfrica, US and LatinAmerica constituting morethan 60% of total exports. During 2QFY11 export formulation sales grew by a healthy 14.1% to INR664cr, while API sales remained flat at INR168cr. Africa continued to the largest region for Cipla withcontribution of 42% to total exports. Also during 2QFY11, the company indicated that appreciation inthe rupee by 4-5% YoY impacted overall growth of the export segment. Also, management hasindicated that it is negotiating with various MNC's like Pfizer, GSK, and Boehringer for long termsupply agreements. Generally, such deals span across many products and multiple markets. Thesepotential contracts are likely to raise earnings for FY12/13 and exports are likely to pick up from FY12onwards as Indore SEZ would also be fully operational.

Launch of CFC-free inhalers inEurope – stronggrowth driver

Possibleacquisitiontarget

Upside fromBiosimilars

Growingprospects ofgeneric market

SEZ facility topick up exports

Exports likely toimprove further

NDA Securities Ltd Page 3

4 February 2011Cipla Limited

Capacity ramp up:

Domestic business adds to top line

Cipla has made substantial investments in capacities over the last five years.Manufacturing capacities have been enhanced across bulk drugs, tablets, capsules, liquids and, mostimportantly, nearly double for aerosols/inhalers. The company is also investing in the Indore SEZprimarily this facility will be utilized for exports and will include capacity for aerosols, liquid orals,PFS etc. Two API plants - one in Patalganga, and the other at Banglore - will be commissioned overnext two years to meet API requirements ahead. In addition to its own investments in manufacturingplants, Cipla also meets its manufacturing requirement via outsourcing. We believe Cipla is well placedto efficiently utilize these capacities in future given a track record of operational excellence.Availability of huge capacities is just an indicator of future growth plans, which will be driven byefficient utilisation of available capacity and improvement in asset turnover in the short and mediumterms. We strongly believe Cipla has the appropriate targets and capabilities that enable success in itsendeavor to supply products to pharma players worldwide and create value for itself and its partners.Given expectation of a generics boom, strong growth in India/global markets, and demand pick-up forinhalers in the EU, Cipla should improve capacity utilisation and the fixed assets turnover ratio isexpected to improve going forward.

- During FY10, Company registered a revenue growth of 8% to5,713 crores as against 5,316 crores in FY09 due to improvement in domestic business growth. In2QFY11 as well, due to improved performance in domestic business Company registered a revenuegrowth of 12% YoY to 1,615 crore. However, sales were impacted to some extent by lower growth inexports of API due to non-availability of important raw material, lower tender business in anti-retroviral and unfavorable currency movement.

HC index outperformed BSE Sensex

Strategic Partnership Model:

Adverse Currency movements

NPPA order for overpricing:

Strategic partnership model to sell its products in global market:

- In the last sixmonth we have seen the BSE healthcare index hasoutperformed the sensex (Healthcare gained 14% vs4.86% by sensex). On the contrary Cipla gained not somuch (Cipla gained only 1.24% during last six months.Hence it is undervalued. Along with this, during therecent downtrend seen in market since last 7-8 days thissector has registered least decline in comparison to othersectors which have witnessed a fall of 7-8%. That's why;we are positive on the stock and see good investmentopportunity in to the same.

Buoyed by the success of the partnership model in less-regulatedmarkets such as South & Central America, Africa, Australia and Asia, Cipla began replicating thestrategy for the high-risk and high-return regulated or developed markets. As per a typical partnershipagreement, Cipla manufactures the specified products, while its partner is responsible for theregulatory, legal and marketing aspects. Over the past few years, Cipla has partnered 8 leading genericscompanies in the US.

: Cipla derives a major proportion of its revenues from overseasmarkets (more than 50% of total revenues) making it highly vulnerable to currency fluctuation risks,which may affect revenues significantly.

NPPA (National Pharmaceutical Pricing Authority) has fined Cipla andsome other pharmaceutical companies for overpricing which could result in cash outflow (INR 15billion) and negative impact the profitability.

The pharma industry isundergoing a major consolidation phase. The waves of mergers and acquisitions in the global genericsmarket and the entry of many mid-size Indian pharma companies have created additional competitionwhich might result in losing alliance with existing clients due to acquisition or merger of the clientswith other companies.

We expect this trend to continuegoing forward as well. EBITDAmargin improved in FY10 to 26.5% from 21.9% in FY09 as a result ofimproved product mix as the management decided not to participate in some non-remunerative ARVtenders. However, during 2QFY11 EBITDA margins were impacted by higher start up expenses ofIndore plant resulting in decline in margin. The overall cost in FY10 declined but material costincreased marginally by 4.5% due to change in the product mix and staff cost to 5.95% as a percentage

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Company has been able to reduce its COGS as a percentage of sales to 45.77% during FY10 over

47.32% in FY09 which improved the gross margins of the company.

Concerns

Financial Highlights

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Sensex vs BSE Health Care

BSE Health Care BSE_SENSEX

Huge capacityexpansion

Healthcare indexoutperformedSensex

Partnershipbased model

Foreign riskexposure

Notice fromNPPA

Ciplaparternershipmodel

Domesticdemand helpedvolume growth

ImprovingEBITDA andOperatingMargins

NDA Securities Ltd Page 4

4 February 2011Cipla Limited

of due to overall increase in manpower as well as annualincrements. However, Interest cost declined due torepayment of short term working capital loans and fixeddeposit availed by the company during the year.Operating margins improved from 18.8% in FY09 to23.4% in FY10 due to decline in overall cost as apercentage of sales. In 2QFY11 as well, staff costincreased by INR 51 crore due to increase in manpowerparticularly at Indore SEZ, regrouping of contractualstaff at Goa facilities and annual increments.

- Cipla spent 520 crore on capex in FY10with a totalcapex of approx 2,500 crore during (FY06-FY10).Cipla generated its highest free cashflows of 655 crorein FY10 after posting negative free cashflows for the pastfive years (FY05-09). Total working capital days fellfrom 207days in FY09 to 201days in FY10 largely due totighter control over debtor days, which fell from 128 daysin FY09 to 102 days in FY10.

The company always preferred the organic growth routeand never opted for big ticket acquisitions, maintaining ahealthy under-leveraged balance sheet. Its low-riskstrategy has ensured a very low net debt to equity ratio

since the past four years.

Also, the interest rate hike will have minimal impact on thecompany's books.

– Company has maintained a conservative revenue guidance of 8-10% growthfor FY2011 driven by 10% growth in domestic business and 10-12% growth in export business. Wehave modelled a revenue growth of 10% for FY11E and 15% for FY12E. Income from technologylicensing will be in the range of 75-100 crore for FY11E and may even be lower in FY12E.Management has indicated a capex plan of INR 1,000 crore in near future on building manufacturingfacilities and expanding existing ones.

Cipla has received fresh notices from theNational Pharmaceutical PricingAuthority, demanding an amount of INR 477 million in respect of thedrug Salbutamol and an amount of INR 254.6 million in respect of the drug Ciprofloxacin.

Amar Lulla will cease to be the Joint ManagingDirector of the Company effective from the Dec. 13, 2010.

Cipla reported 5% decrease in net profit to263.01 crore despite 15% increase in net sales to 1,579.88 crore for the quarter ended September

2010.

Dr Reddy's Laboratories(DRL) has entered into an agreement with drug major Cipla and UK-based Vitabiotics to market over-the-counter (OTC) and

Negative to positive Free Cash Flow and improved

balance sheet

Management guidance

(Dec. 28) Cipla receives demand notice from govt:

(Dec. 09) Amar Lulla resigns as Joint MD of Cipla:

(Nov. 12) Net Profit down by 5% for Sept quarter:

(Oct. 25) Dr Reddy's enters pact with Cipla, Vitabiotics to market drugs:

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Company has repaid most of the loans in its books and repaid loans of INR9.35 billion in FY10 which will further improve net debt to equity ratio and will enable company toutilise cash into capacity expansion.

prescription drugs, besides nutraceutical products, in Russia and CIS countries.

The pharmaceutical industry in India is the world's second-largest by volume and is likely to lead themanufacturing sector of India. The Indian pharmaceutical industry has grown from a humble 15-billion turnover in 1980 to approximately 1,006.11 billion in 2009-10 as per the pre-Budget survey.This industry plays an important role in promoting and sustaining development in the field of globalmedicine. Due to the presence of low cost manufacturing facilities, educated and skilled manpower andcheap labor force among others, the industry is set to scale new heights in the fields of production,development, manufacturing and research. According to data from drug sales tracking agency ORG-IMS, total domestic drug market is valued at 40,052 crore in 2009 an increase of 17% over the 2008.

According to data published by the Department of Pharmaceuticals, Ministry of Chemicals and

Recent Developments

Industry Outlook

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Revenue Growth

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FY07 FY08 FY09 FY10 FY11E FY12E

EBITDA Margins Operating Margins

Net profit margins

Positive freecash flow

Strong Balancesheet

NDA Securities Ltd Page 5

4 February 2011Cipla Limited

Fertilizers, the total turnover of India's pharmaceuticals is expected to reach $ 55 billion in 2020 from $12.6 billion in 2009 and has the further potential to reach $ 70 billion by 2020 in an aggressive growthscenario. Few of the facts below further strengthen our belief:

The US generics market, which accounts for a little over70% of prescriptions in the US, was valued by IMS atabout $31 billion for the 12 months ended November2009. BCC Research estimates the US market genericsales worth $34 billion in 2009. Indian pharmacompanies maintained their ‘No 1’ position in the USgenerics market by bagging 33.17% or 139 of 419original Abbreviated New Drug Application (ANDA)approvals from the US FDA in 2010.

Generics sales particularly to foreign markets remain thelargest business Segment for Indian pharma companies.The global generics market is expected to grow at aCAGR of about 10.5 percent between 2007 and 2012,outperforming the overall pharma market CAGR ofabout 5.5 percent in the same period.

With several companies slated to makeinvestments in India, the future scenario of thepharmaceutical industry looks pretty promising. Thecountry's pharmaceutical industry has tremendous potential of growth considering all the projects thatare in the pipeline. Due to the low cost of R&D, increasing public spending on healthcare andgovernment support, the Indian pharmaceutical off-shoring industry is designated to turn out to be aUS$ 2.5 billion opportunity by 2012.

CIPLA is the second largest pharmaceutical company in India, after the ABT-PIHC combine, with amarket share of 5.4% in FY10. Twenty of the company's brands rank in the Top 300 brands in thecountry. The company's strong generic pipeline, entry into biosimilars and the likelycommercialization of CFC-free inhalers offer it a significant long-term growth potential. Thecommencement of API supply to Teva for Zyprexa's 180-day exclusivity too would provide it asignificant revenue earning opportunity (slated for expiration inApril 2011). Besides, management hasindicated that it is negotiating with MNC pharma majors (likes of Pfizer and GSK) for long-termsupply agreements. Closure of such a deal too would present a significant growth opportunity.

Indian Pharma remains top in US generics.

Generic sales expected to grow at CAGR of 10.5%

Conclusion:

Bio-Pharma biggest contributor to industry growth-

Govt explores capping FDI in pharma -

Indian Pharma market is likely to triple by 2015.

Biopharmaceuticals are seen as growth drivers in thepharma space, with an expected compound annualgrowth rate of 10 per cent over the next five years, compared with 4-6% for the whole pharma market.India's bio-tech industry clocked a 17 percent growth with revenues of INR 137 billion ($3 billion) inthe 2009-10 financial year over the previous fiscal. Bio-pharma was the biggest contributor generating60 percent of the industry's growth at INR 8,829 crore, followed by bio-services at INR 2,639 crore andbio-agri at INR 1,936 crore. Indian pharma majors expect to see rising global demand for biosimilardrugs. Biosimilars, which are the generic version of patented biotechnology drugs, are estimated tohave a market size of around $78 billion by 2013, with the market size likely to expand even further asmany biopharma products fall off the 'patent cliff' by 2014.

Hoping to cash in on the upcoming opportunity in India,some global pharma majors are entering into strategic alliances with domestic companies to developand market their biosimilar drugs worldwide. The Indian government is exploring a proposal to reducethe limit on foreign direct investment (FDI) allowed in the pharmaceutical industry through theautomatic route to 49% from 100% amid concerns over the takeover of local drug makers by overseasfirms.

According to the McKinsey report, The Indian Pharma market is expected to triple to US$20 billion by2015 if the Indian economy continues on its current high growth path. Generics will continue todominate, while patent protected products are likely to constitute 10% of the market within thistimeframe.

Peer Comparison and Valuation

Indian top in USgenerics

Biopharmaceuticals growthdriver in pharmaspace

FDI capping inPharma

Pharma marketexpected to triple

Generic Segmentgrow

NDA Securities Ltd Page6

Source : KPMG

4 February 2011Cipla Limited

Performance-wise, during second quarter 2011, Company posted a 20% growth in domestic operations(Y-O-Y) and its export formulations business posted a growth of about 14%, while API exportsdeclined by 1%. The company has managed this growth despite rupee appreciation.

Meanwhile given the huge expansion plans into the pipeline and plans to invest about Rs 1,300 croreover the next few years towards upgrading and expanding existing facilities as well as setting up newones. It is setting up API facility in Bengaluru (for anti-cancer products). The company also recentlyacquired a small-sized domestic pharma company, Meditab (earlier owned by promoters), for about133 crore. Meditab has formulations manufacturing facilities at multiple locations (China and

Uganda) and R&D Centres in India and Malaysia. The acquisition promises to give Cipla better controlover operations and costs even as it would help expand itsAPI and intermediates international businessinto the Chinese andAfrican markets.

We are initiating coverage with a “BUY” rating on Cipla Ltd. (CIPLA) with a price target of 416(rounded off two decimal places). At current levels, the stock is trading at 21.4x and 18.2x FY2011Eand FY2012E earnings, respectively. We recommend a Buy on the stock, with a Target Price of 416.Our calculations show that the stock is trading at 22.3% discount from its calculated fair market valueof 416. Thus, CIPLA valuations on the street appear attractive with healthy dividend yield andgrowing profits. We believe the stock offers good investment opportunity for investors looking atmedium to long-term investment. The Indore SEZ ( 1,000cr invested) is expected to contribute fromFy2012 onwards and boost overall growth and margins for the company.

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Peer Comparison Table

NDA Securities Ltd Page 7

Company CMP Mkt. Cap(Cr)

Market

Cap/Sales EV/EBIDTA P/E P/BV

Cipla 334.60 26,865.03 4.52 16.66 26.09 4.37Dr Reddy's Labs 1,566.20 26,503.24 5.51 19.83 28.69 4.76GlaxoSmithKline Pharma 2,270.20 19,228.59 8.88 22.42 33.09 10.64Lupin 420.40 18,754.04 5.15 25.57 29.98 8.47Ranbaxy Labs. 535.45 22,556.37 4.35 9.46 15.56 5.93

CIPLA LIMITED

Income Statement

4 February 2011Cipla Limited

Equity Research Division

Mumbai Office

16, Krishna Market, 1st Floor, Kalkaji, New Delhi 110019Phones: EPABX: 47152222 (30 lines), Fax 47152211 Email: equityresearch@ndaindia.com

906, Arunachal, 19 Barakhamba Road, New Delhi 110 001 Phones: 011-46204000 (30 lines), 23717551, Fax 011-46204050Web: www.ndaindia.com Email: info@ndaindia.com, investorcell@ndaindia.com

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Regd. & Corp. Office

Disclaimer: This document is meant for private circulation only. This document is not to be reported, copied or made available to any other withoutwritten permission of NDA. The information contained in this report has been obtained from sources that are believed to be reliable and NDA has noresponsibilities for the accuracy of the facts stated. The recommendation made herein does not constitute an offer to sell or solicitation to buy anysecurities. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financialcircumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. NDA Securitiesrecommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financialadviser. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. The readersusing the information are solely responsible for their actions. Either NDA or its affiliates, directors, employees, representatives, clients or their relativesmay or may not have position(s) in the stocks recommended. This report has been prepared by ASP Research Service Pvt. Ltd. under exculsive rights of

NDA Securities Ltd

Balance SheetMarch March March March March

FY 08 FY 09 FY 10 FY 11E FY 12E

Gross Block 2,201.79 2,693.29 2,895.44 3,498.79 4,222.71

Depreciation 540.43 700.80 884.27 1,085.72 1,330.61

Net Block 1,661.36 1,992.49 2,011.17 2,413.07 2,892.10

Investments 94.75 81.32 265.10 265.10 265.10

Capital work in progress 233.12 366.32 684.24 684.24 684.24

Current assets:

Inventories 1,120.49 1,398.32 1,512.58 1,649.79 1,840.45

Debtors 1,393.91 1,837.15 1,552.71 1,768.64 2,033.94

Cash & Bank 79.28 53.00 60.84 0.00 0.00

Other current assets 34.49 23.45 57.82 57.82 57.82

Loans & Advances 1,115.81 912.65 1,168.18 1,168.18 1,168.18

Total Current Assets 3,743.98 4,224.57 4,352.13 4,644.43 5,100.38

Total Assets 5,733.21 6,664.70 7,312.64 8,006.84 8,941.83

Shareholders' Funds

Equity Share Capital 155.46 155.46 160.58 160.58 160.58

Reserves & Surplus 3,600.36 4,195.29 5,753.51 6,991.04 8,448.63

Total Shareholders Funds 3,755.82 4,350.75 5,914.09 7,151.62 8,609.21

Secured Loans 14.09 2.79 0.41 0.41 0.41

Unsecured Loans 526.36 937.45 4.66 4.66 4.66

Total Debt 540.45 940.24 5.07 5.07 5.07

Deferred Tax Liability 149.15 164.15 179.15 179.15 179.15

Current liabilities & Provisions:

Current Liabilities 870.98 1,012.85 997.96 1,374.82 1,687.08

Provision 416.81 196.71 216.37 216.37 216.37

Total Current Liabilities 1,287.79 1,209.56 1,214.33 1,591.19 1,903.45

Total Liabilities and SE 5,733.21 6,664.70 7,312.64 8,927.03 10,696.87

FY ending -March

All figures in INR Crore

Key RatiosMarch March March

FY08 FY09 FY10

Debt-Equity Ratio 0.1 0.18 0.09

Long Term Debt Equity Ratio 0.02 0.01 0.01

Current Ratio 2.17 1.89 2.36

Turnover Ratios

Fixed Assets 2.05 2.06 1.94

Inventory 3.9 3.99 3.72

Debtors 3.38 3.11 3.19

Interest Coverage Ratio 48.88 18.26 47.82

ROCE (%) 22.41 19.93 24.18

RONW (%) 20.12 19.21 21.11

Valuation Ratio

Price to Earning (P/E) 25.32 22.77 25.65

Price to Book Value (P/BV) 4.56 3.93 4.58

Price/Cash EPS (P/CEPS) 21.59 18.93 22.18

EV/EBITDA 18.04 16.26 17.79

Market Cap/Sales 4.18 3.4 5.0

Dupont Model

PBIDT/Sales(%) 23.78 22.01 28.06

Sales/Net Assets 0.95 0.95 0.91

PBDIT/Net Assets 0.23 0.21 0.26

PAT/PBIDT(%) 72.15 70.28 71.22

Net Assets/Net Worth 1.15 1.22 1

ROE(%) 20.12 19.21 21.11

Particulars

4 February 2011Cipla Limited