Cipla shares under pressure as 4 brokerages cut target prices in 2 days — what's worrying analysts

Cipla shares succumbed to selling pressure on Wednesday, after Jefferies maintained a ‘hold’ rating on the drug maker but reduced its target price by Rs 200 to Rs 900 — becoming the fourth brokerage to revise its target for Mumbai-based company within two days. Before Jefferies, Credit Suisse, JPMorgan and Nomura trimmed their targets by Rs 159-250.

The Cipla stock recovered half of its intraday losses to finish the day weaker by Rs 4.1 or 0.5 per cent at Rs 877 apiece on BSE, having fallen as much as 1.1 per cent to Rs 871.1 apiece during the session.

Jefferies lowered its earnings per share (EPS) targets for the company for the two years ending March 2025 by 13 per cent and 15 per cent respectively.

Credit Suisse brought down its EPS estimate for the year ending March 2024 by 10 per cent.

Analysts say concerns persist among investors about the pharma company's key manufacturing facilities.

Here's a look at the target price the four brokerages have assigned to Cipla:

According to Jefferies, the bear case scenario is considered mainly due to the absence of big launches by Cipla in the US market for the next two years. At Wednesday's closing price, the stock changed hands at a premium of 15.6 per cent over the brokerage's bear case target of Rs 740 apiece. 

Last month, the US drug regulator — the US Food and Drug Administration (FDA) — flagged eight observations at the Indian pharma company's manufacturing facility in Pitampur, Madhya Pradesh. 

Last year, the US regulator had highlighted issues at Cipla's Goa facility. The FDA classified the company's plant as "official action indicated", meaning the regulator found objectionable conditions at the unit. 

The regulatory action at Goa impacted Cipla's approvals for the US market from the Goa facility. 

What makes Cipla Pitampur plant important

The Pitampur, Indore unit was estimated to contribute five per cent to the company's revenue and 15 per cent to its EBITDA in the year ending March 2023. 

According to analysts, further inspections are likely at the Pitampur facility — where Cipla manufactured its key products Albuterol and Arformoterol — causing delayed approvals. They fear the next two years might not have Cipla launch a significant product in the US market. 

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