SBI & HDFC Mutual Fund-Backed Pharma Stock Has 13% Potential Upside: Here’s Why

Cipla is a large-cap pharma company with a market cap of around Rs 96,398.69 Cr. Cipla is a well-known pharmaceutical firm that offers more than 1,500 drugs in more than 50 dosage forms across many therapeutic areas. The company which has a presence in the key markets of India, South Africa, and the U.S. among other economies of the emerging world has received a buy call rating for a target price of Rs 1350 from the leading brokerage firm Sharekhan which implies a potential upside of 13.06% from the current market price of Rs 1,194.

Cipla News

"Cipla received a warning letter for its Pithampur unit on November 17, 2023, after the plant received OAI status in August 2023. The warning letter was issued for cGMP inspection from 6-17 February 2023. The USFDA has issued three critical observations out of which the USFDA emphasised on its key drug gAlbuterol which has received 3,000 complaints from the start of commercial activity in April 2020-December 2022. From the 3,000 complaints received, approximately 91% complaints were categorized as 'no spray' or 'empty/less weight.

' Furthermore, many of these complaints remained open for extended periods of time i.e., up to 314 days. The USFDA also notified about inadequate response for valve manufacture and concluded that the queries on 'defective valves' remained unresolved. gAlbuterol is one of the key products of Cipla with ~13% market share. Cipla's US sales have grown for 14 quarters in a row to US$229 mn in Q2FY2024," said the brokerage firm Sharekhan.

Cipla Outlook

"Cipla has seen an increase in the US revenue base to USD222 million a quarter vs. an average base of USD160 million before, driven by differentiated products. The company's differentiated products comprising respiratory and peptide products are performing well in the US. Although some of the concerns are that gAbraxane's and gAdvair's launches are likely to be delayed due to USFDA compliance pending at Indore and Goa plants, but they are being de-risked. At the same time, India's market growth is recovering and is expected to continue to grow on account of a strong set of product launches in branded prescription and trade generics. The rebalanced supply chain in the US coupled with a strong set of existing products such as gRevlimid and Lanreotide should continue to drive profitable growth over FY2023-FY2025E," stated the brokerage.

Cipla Share Price Target

"With Goa plant already under WL and Pithampur unit receiving additional Warning Letter, we believe timeline of the new launches will get impacted; however, there would be no impact existing products. The resolution timeline is tricky and remains a key monitorable for the stock. We have reduced our EPS by 5% and 6% for FY2025E and FY2026E, respectively, to Rs. 52.9 and Rs. 61.2, respectively, as the plant contributes ~30% to US sales. The stock is trading at an attractive P/E valuation of 22.7x/19.3x its FY2025E/FY2026E EPS. We have marginally lowered our PT to Rs. 1,350 and maintain our Buy rating," said Sharekhan in a note.

Cipla Shareholding Pattern

During Q2FY24, the company reported promoters shareholding of 33.46%, FIIs stake of 25.74%, DIIs stake of 23.90%, Govt stake of 0.21% and public stake of 16.68%. As per the shareholding pattern of Cipla for July to September quarter, SBI Mutual Fund held 3,77,43,188 shares or 4.68% stake, UTI MF held 91,92,462 shares or 1.14% stake, Kotak Mutual Fund held 86,31,946 shares or 1.07% stake, HDFC Mutual Fund held 2,89,98,693 shares or 3.60% stake and ICICI PRUDENTIAL MUTUAL FUND held 85,48,138 shares or 1.06% stake.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.