Value Pick: Strong India franchise, rich product pipeline makes Cipla shares lucrative; brokerages see 15% upside

Several brokerages are betting big on Cipla Limited stocks on the back of robust fundamentals, strong product pipeline in US and improved business outlook. They see an upside of up to 15 per cent in the stock price and find the current valuations attractive. Buying is recommended in this stock.   

See Zee Business Live TV Streaming Below:

Axis Securities 

The brokerage has initiated coverage on Cipla with a Buy rating and a target price of Rs 1,200 (PE 24x for FY24E EPS) per share, implying an upside of 15 per cent from the current levels. Cipla's continuous focus on the demand levers in the chronic and acute therapies and complex products in its existing as well as pipeline portfolio for the branded and generic markets of India and South Africa.  

Cipla’s active advancement of innovative consumer-centric products is expected to accelerate the augmentation of the global consumer wellness franchise across both India and South Africa. Besides,  it continues to lead and grow in respiratory categories such as gAlbuterol and gAfrometrol and other complex products in the pipeline. 

The buildout of the respiratory portfolio would drive strong operating leverage for Cipla in the US business. This coupled with a sustained high single-digit growth in the India business along with further cost optimisation measures undertaken would aid the company in expanding its RoIC by around 200 basis points over FY21-FY24E to around 18 per cent. 

IIFL Securities 

Management indicated that majority of the key US product launches are on track, with Advair and Abraxane in 2HFY23, partnered inhalation product in early FY24, and 2 peptide injectables in FY24 & FY25. Cipla’s Revlimid will be launched as part of the second wave of generic launches in the US.  

The launch momentum in the US will help Cipla generate incremental US $300-500 million of US sales over the next 2-3 years. Although ramp-up in US sales will drive margin improvement, Cipla intends to reinvest part of the profitability improvement for clinical trials for 2-3 respiratory products in FY23.  

The brokerage maintains a Buy rating for a target price of Rs 1130 per share, which translated into an upside of 8 per cent from the current levels. The company’s RoE estimated in FY23/24 is 16/17.5 per cent respectively by IIFL Securities. 

BoB Caps 

This brokerage also maintains a Buy stance with target price of Rs 1,160 per share, which translates into an upside of 11 per cent. With a strong India franchise, rich US pipeline and low risk of price erosion in the US, Cipla is poised to leverage the network reach of the robust core portfolio to launch major generics.  

In our view, operating leverage in the US business will be a key margin driver for FY22-E-24E. The brokerage’s target multiple from 17x to 16x EV/EBITDA (implied P/E of 26x) in light of the slowdown in API sales, lower Covid contribution and cost headwinds. 

The stock of this pharma major on Friday closed flat with minor gains of 0.35 per cent to Rs 1048 per share on the BSE as against over 1.5 per cent rise in the BSE Sensex. It has surged over 10 per cent in the last five sessions as compared to 7 per cent rise in the BSE Sensex during same period.