Cipla shares rally 9% on strong Q1 show. Can this pharma stock gain further?
Cipla’s US business performance and the management commentary suggest that the upcycle in the US market is manifesting at a faster clip than anticipated.
- Jul 27, 2023,
- Updated Jul 27, 2023 11:03 AM IST
Shares of Cipla climbed 9 per cent in Thursday's trade after analysts raised earnings estimates for the drug maker on reduced competition in the US generics segment, better visibility for niche launches in North Amarica and better operating leverage. US revenues for Q1 were the highest ever. Despite limited period gRevlimid cash flow, Cipla has other growth drivers, analysts said. That said, post Thursday’s rise, the share price targets for Cipla suggests limited upside ahead.
Cipla’s US business performance (up 43 per cent YoY in dollar terms) and the management commentary suggest that the upcycle in the US market is manifesting at a faster clip than anticipated, said Elara Securities. The management highlighted several structural changes in the market, which include prioritisation of steady supply, reduction in generic competition and change in buying patterns of customers, which should benefit generic players.
"The management reiterated its guidance to launch gAdvair and gAbraxane latest by H1FY25. In addition, it plans 4-5 peptide product launches in the near-term. Cipla also plans to continue filing 10-15 ANDAs a year, majority of which may be ‘limited competition’ products. We raise our FY24-FY26 core earnings estimates by 4-7 per cent. Cipla trades at 27.4 times FY24E core EPS. We raise our target price to Rs 1,191 from Rs 942, which is 26 times FY25E core EPS of Rs 43.60, plus cash per share of Rs 59. Better-than-expected growth in gRevlimid in the US may be the key upside trigger even as a delay in other key launches may be a downside risk," it said.
Choice Broking said Cipla’s growth story for FY24-25 is premised on scaling up of its US formulations business across a complex portfolio and continued contribution from respiratory and peptide products on the back of new product launches. I also sees margin expansion that would be driven by rising confidence across all geographies. Besides, it sees sustaining performance of South Africa, a high margin geography. It values Cipla at Rs 1,211.
The stock rose 9.01 per cent to hit a high of Rs 1,165 on BSE.
Prabhudas Lilladher said Cipla's June quarter Ebitda was 13 per cent above its estimates, aided by higher gross margin (64.3 per cent) and US sales of $222 million. The brokerage continues to remain positive on Cipla's growth across key segments including India and US, given strong traction in respiratory and other portfolio, potential growth of 10 per cent-plus in domestic formulations and sustainability of current US revenues, backed by prospective key launches over FY25.
"Our FY24E and FY25E EPS stands increased by 5 per cent as we factor in higher US sales and margins. We expect 17 per cent EPS CAGR over FY23-25E. Maintain ‘Buy’ rating with revised target of Rs 1,220 based on 24 times FY25E EPS. Any further FDA escalation to Indore unit and erosion in key products in US will be key risk to our call," it said.
Motilal Oswal said it has raised its earnings estimates for Cipla by 6 per cent each for FY24/FY25 to factor It values Cipla at 22 times 12-month forward earnings and add NPV of Rs 30 related to g-Revlimid to arrive at a target of Rs 1,130.
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Shares of Cipla climbed 9 per cent in Thursday's trade after analysts raised earnings estimates for the drug maker on reduced competition in the US generics segment, better visibility for niche launches in North Amarica and better operating leverage. US revenues for Q1 were the highest ever. Despite limited period gRevlimid cash flow, Cipla has other growth drivers, analysts said. That said, post Thursday’s rise, the share price targets for Cipla suggests limited upside ahead.
Cipla’s US business performance (up 43 per cent YoY in dollar terms) and the management commentary suggest that the upcycle in the US market is manifesting at a faster clip than anticipated, said Elara Securities. The management highlighted several structural changes in the market, which include prioritisation of steady supply, reduction in generic competition and change in buying patterns of customers, which should benefit generic players.
"The management reiterated its guidance to launch gAdvair and gAbraxane latest by H1FY25. In addition, it plans 4-5 peptide product launches in the near-term. Cipla also plans to continue filing 10-15 ANDAs a year, majority of which may be ‘limited competition’ products. We raise our FY24-FY26 core earnings estimates by 4-7 per cent. Cipla trades at 27.4 times FY24E core EPS. We raise our target price to Rs 1,191 from Rs 942, which is 26 times FY25E core EPS of Rs 43.60, plus cash per share of Rs 59. Better-than-expected growth in gRevlimid in the US may be the key upside trigger even as a delay in other key launches may be a downside risk," it said.
Choice Broking said Cipla’s growth story for FY24-25 is premised on scaling up of its US formulations business across a complex portfolio and continued contribution from respiratory and peptide products on the back of new product launches. I also sees margin expansion that would be driven by rising confidence across all geographies. Besides, it sees sustaining performance of South Africa, a high margin geography. It values Cipla at Rs 1,211.
The stock rose 9.01 per cent to hit a high of Rs 1,165 on BSE.
Prabhudas Lilladher said Cipla's June quarter Ebitda was 13 per cent above its estimates, aided by higher gross margin (64.3 per cent) and US sales of $222 million. The brokerage continues to remain positive on Cipla's growth across key segments including India and US, given strong traction in respiratory and other portfolio, potential growth of 10 per cent-plus in domestic formulations and sustainability of current US revenues, backed by prospective key launches over FY25.
"Our FY24E and FY25E EPS stands increased by 5 per cent as we factor in higher US sales and margins. We expect 17 per cent EPS CAGR over FY23-25E. Maintain ‘Buy’ rating with revised target of Rs 1,220 based on 24 times FY25E EPS. Any further FDA escalation to Indore unit and erosion in key products in US will be key risk to our call," it said.
Motilal Oswal said it has raised its earnings estimates for Cipla by 6 per cent each for FY24/FY25 to factor It values Cipla at 22 times 12-month forward earnings and add NPV of Rs 30 related to g-Revlimid to arrive at a target of Rs 1,130.
Also read: RVNL shares in focus as two-day offer for sale kicks off
Also read: PNB shares at Rs 45 or Rs 70? Asset quality ratios improve but elevated opex mars earnings