Buy This Pharmaceutical Stock For A Target Price Of Rs 1,150: Sharekhan

Cipla Ltd. is one of India's top and global pharmaceutical companies with a geographically diversified presence and products registered in more than 170 countries. Indian branded formulations account for more than 40% of business and Cipla is among the top three players in the market. Cipla is also a well-known global player in inhalers and antiretrovirals. The current market price of Cipla Ltd. on 11 May 2022 closed at Rs 937.60 per share after a gain of 1.24%. The Sharekhan Brokerage firm, following the company's Q4FY22 results, has given the stock a buy call for a target price of Rs 1,150 per share.

Q4FY2022 Results

The brokerage in the report has said, "Cipla reported healthy numbers for Q4FY2022, adjusting for one-off expenses of Rs. 200 crores towards inventory charges on account of its COVID-19 portfolio which was spread across the gross profits as well as other expenses. Adjusting for this, the results were in line on the operating front. The revenues at Rs 5260 crore grew by 14% y-o-y while the PAT, adjusting for one-time expenses was at Rs 619 crore as against Rs 413 crore in Q4FY21."

It added, "The outlook for the Indian as well as the US business is expected to be strong with high-value launches being lined up in H2FY23 in the US markets. Also, traction in acute as well as chronic therapies would drive up India sales. As cost pressures are likely to stay high, the management expects the FY23E OPMs to be at 21-22% (FY22 OPMs at 20.9%) despite topline traction."

Key positives and negatives

According to the brokerage, the key positives for the stocks are, "India sales grew strongly by 21% y-o-y, aided by growth across core therapies of acute and Chronics. US sales grew by 21% y-o-y due to healthy growth in the Albuterol and Aformoterol and a growth in existing products and peptides." In its key negative, the brokerage has stated, "API segment sales declined 38.7% y-o-y due to higher Q4FY21 base due to stock-up by customers and one-time profit share on an API supply."

Buy for a target price of Rs 1,150

Growth prospects for the India business are strong and the Cipla is expected to outpace industry growth, while the US business is also expected to stage an improvement backed by the growth in the existing portfolio and high-value product launches planned in H2FY23. The South African business also offers a healthy growth outlook. At CMP, the stock is trading at a P/E multiple of 24.3x/19.2x its FY23E/FY24E earnings, which is lower than the long-term historical average multiple. Overall, for Cipla, while there are near-term challenges in the form of cost pressures, long-term growth drivers are in place, hence we maintain our Buy recommendation on the stock with an unchanged PT of Rs. 1,150.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. 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. Goodreturns.in advises users to check with certified experts before taking any investment decisions.