Buy Stock For 18% Upside: Cipla Records 63% YoY Gain In Gross Margins, Therapies Grew Double-Digit

Leading brokerage firm ICICI Direct has given a buy rating to the stock of Cipla Ltd. The company's gross margins increased ~165 bps over the previous year to 62.9%. EBITDA margins increased 12 bps YoY to 22.3%, because of lower logistic costs and effective management, while adjusted PAT also increased 10.5% YoY to Rs. 786 crore.

Stock To Buy: Target Price

The Current Market Price (CMP) of Cipla Ltd. is around Rs. 1146. ICICI Direct has estimated a Target Price for the stock at Rs. 1350. This stock has the potential to give an 18% return, in the upcoming 12 months. It is a large-cap stock with a market capitalization of Rs. 92,472 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 1146
Target Price	Rs. 1350
Potential Upside	18.00%
52-week high share price	Rs. 1,185.25
52-week low share price	Rs. 850

Stock Upside

Maintaining a buy rating, the ICICI Direct stated, "Cipla's share price has grown ~2.5x in past three years. We maintain BUY due to 1) continued focus on its core strength of respiratory franchise, along with other niche launches in the US (significant momentum expected from H2FY23), 2) calibrated focus on core therapies in India and 3) shift to private markets from tenderised models in other export markets. The stock is valued at Rs. 1350 i.e. 26x P/E on FY24E EPS of Rs. 50.6 + Rs. 31 NPV for gRevlimid."

Strong Q2 Earnings

Cipla reported strong results in line with our estimates. Revenues up 5.6% YoY to Rs. 5828.5 crore (ex-Covid 12%) driven by traction in core portfolio across therapies in India and launch of gRevlimid in the US. India business witnessed YoY growth of 6.1 % to Rs. 2563 crore driven by double digit growth across all therapies. EBITDA margins up 12 bps YoY to 22.3% (24% adjusted for Covid inventory). After adjusting Covid base growth was at 15%.

Major growth drivers

Significant momentum from H2FY23 onwards in the US on the back of possible approvals/ launches of gAdvair, gAbraxane and other complex generics launches including peptides, traction from existing respiratory portfolio and g Revlimid. Branded prescription portfolio therapy mix reflects strong fundamentals across chronic and acute segments. Better execution and distribution synergies to drive prescription, trade generics, consumer health, the brokerage firm mentioned.

About the stock

Cipla is a global pharma company with over 1,500+ products in 65 therapeutic categories, with over 50 dosage forms. Indian branded formulations business accounts for ~45% of revenues and enjoys leadership in therapies like respiratory, anti-infective, cardiac, gynaecology & gastro-intestinal. Cipla derives 20% of its export revenues from the US followed by 12% from South Africa, 18% from RoW markets and 3% from APIs.

Disclaimer

The above stock was picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.