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Buy Cipla Ltd For Target Rs.1205

Strong Q1 led by core therapies, Covid portfolio…

About the stock: Cipla is a global pharma company with over 1,500+ products in 65 therapeutic categories, with over 50 dosage forms. Cipla supplies branded and generic medicines to over 170 countries globally.

* Indian branded formulations business accounts for ~40% of revenues and enjoys leadership in therapies like respiratory, anti-infective, cardiac, gynaecology & gastro-intestinal

* Cipla derives 21% of its export revenues from the US followed by 12% from South Africa, 5% from Europe and 16% from RoW markets.

Q1FY22 Results: Cipla reported robust Q1FY22 results.

* Sales were up 26.6% YoY to | 5504 crore

* EBITDA in Q1FY22 was at | 1345.9 crore, up 28% YoY with margins at 24%

* Consequent adjusted PAT was at | 803.8 crore (up 39.1% YoY)

What should investors do?

Cipla’s share price has grown by ~1.7x over the past five years (from ~| 527 in July 2016 to ~| 920 levels in July 2021).

* We maintain BUY as we continue to focus on its core strength of following a calibrated approach of focusing more on branded products and core therapies across the world

Target Price and Valuation: We value Cipla at | 1205 i.e. 28x P/E on FY23E EPS + | 41 NPV for gRevlimid.

Key triggers for future price performance:

* The company is focusing at front-end model, especially for the US, along with a gradual shift from loss making HIV and other tenders to more lucrative respiratory and other opportunities in the US and EU

* Management’s long-drawn strategy of targeting four verticals viz. One-India, South Africa & EMs, US generics & specialty and lung leadership

* Across the board transformation from tenderised model to private model in exports market and more focus towards consumerisation of important TGx, Rx products in Indian branded formulations

Alternate Stock Idea: Apart from Cipla, in healthcare coverage we like Sun Pharma.

* Higher contribution from specialty and strong domestic franchise is likely to change the product mix towards more remunerative businesses by FY23.

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