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Buy This Pharma Stock For 30% Return: ICICI Direct

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ICICI Direct, a brokerage company, is betting on Caplin Point Laboratories (CAPPOI) with a target price of Rs 1080, representing a 30 percent gain in a year's time. The market price of the stock was Rs 830 at the time of the brokerage's recommendation, and it is presently trading at Rs 836.

 

Q2FY22 results of Caplin according to ICICI Direct

Q2FY22 results of Caplin according to ICICI Direct

The brokerage has reported that "Q2FY22 revenues grew 13.2% YoY to Rs 303.5 crore as the company's unique end-to-end business model in Latin America continues to drive robust growth. EBITDA margins improved 72 bps YoY to 33.3% mainly due to better gross margins. Subsequently, EBITDA grew 15.7% YoY to Rs 101.2 crore. Net profit grew 31.8% YoY to Rs 75 crore. Delta vis-a-vis EBITDA was on account of higher other income."

ICICI Direct has said "Caplin posted strong Q2FY22 results and is now venturing on a CAPEX journey of Rs 300-350 crore to expand existing capacities, widen its product portfolio and backward integrate the majority of the products. Caplin is extending its US sterile products into other emerging markets. We continue to remain positive about the company's unique business model."

Key triggers for future price performance of Caplin according to the brokerage
 

Key triggers for future price performance of Caplin according to the brokerage

  • By thriving in lesser known CA markets and cracking the US generic pharma code of injectable, the company has created its own identity with long drawn plans on the back of significant CAPEX.
  • The overall development pipeline for US remains robust, with 45+ ANDAs under development with an addressable market in US ~ US$3.5 billion.
  • Growth momentum to persist mainly due to further expansion in front end, increasing product basket, change in product mix, launching of own brands.
  • The company is putting together a domestic market sales team focused on niche hospital injectables, given the company's expertise in this area.
What should investors do?

What should investors do?

Caplin Point Laboratories is one of India's most rapidly expanding mid-cap pharmaceutical businesses. According to the brokerage "For LatAm markets, it outsources ~40% of products from China, ~20% from Indian vendors and in-house manufacturing of the remaining ~40%." ICICI Direct has reported that "Caplin's share price has grown by ~3.6x over the past five years (from ~Rs 231 in July 2016 to ~Rs 830 levels in October 2021)." Hence, the brokerage has recommended buying the stock by saying "We value Caplin at Rs 1080 i.e. 24x P/E on FY23E EPS. We maintain our BUY rating on the stock due to steady growth from legacy LatAm markets, strong US traction and significant visibility CAPEX."

Disclaimer

Disclaimer

The above stock is 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.

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