Cipla shares hit new high; Sharekhan pegs target at Rs 1100 as Pharma giant doubles Remdesivir production

The Pharma Sector has been in focus and many analysts are recommending buying into this sector on the back of Covid issues resurfacing in India. Increase in the production of Vaccines will benefit many Pharma companies including Cipla. Sharekhan has come out with the report today, highlighting how CIpla can benefit from increasing sales. Sharekhan maintains Buy recommendation on Cipla with a revised price target of Rs 1100. Cipla share price closed at Rs 938, up Rs 24 or 2.6%. Cipla share price has moved from Rs 848 to Rs 938, over 10% in the last 1 week.   

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Sharekhan says that Cipla is expected to benefit from the promising growth outlook for Indian pharmaceutical markets (IPM), which has revived with 10.3% y-o-y growth for March 2021. For 2HFY2021, IPM growth has been healthy at 5.8% yoy, as compared to a decline of 2.6% y-o-y for 1HFY2021. Largely IPM growth has been driven by price hikes and share of new products, while volumes have been weak. Going ahead, IPM is expected to stage high single-digit to low double-digit growth for FY2022 backed by sustained price hikes, while volumes are expected to pick up.  

Sharekhan highlights that in addition to sustained growth in chronics, acute therapies (which have underperformed in FY2021) are likely to report healthy growth in FY2022 due to a low base. A strong growth outlook for IPM augurs well for Cipla as it derives around 40% of sales from India and has a higher presence in chronics, which are expected to sustain the strong growth momentum. Recently, the government has restricted exports of Remdesivir and its API so as to cater to the sudden spike in demand in India for the drug due to surging COVID-19 cases.   

Sharekhan said that In order to meet incremental demand, Cipla (with a 50%+ market share of Remdesivir as of January 2021) has almost doubled its production. Sharekhan believes this could yield short-term benefits for Cipla by way of higher revenues. Cipla’s One-India strategy has played out well and would drive the growth momentum upwards going ahead as well. Sustained traction in chronics and market leadership position in therapies of respiratory, inhalation, and urology segments bode well for Cipla.   

Sharekhan says that Ramp-up in gAlbuterol sales with Cipla gaining a 12% share of the total Albuterol market in the US and strong new product pipeline, including high-value respiratory assets and complex generics, are likely to strengthen Cipla’s respiratory franchise and could drive US sales. Sharekhan expects Cipla’s topline and PAT to report a CAGR of 12% and 35%, respectively, over FY2020-FY2023E.