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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-intestina

* Cipla derives 20% of its export revenues from the US followed by 12% from South Africa, 18% from RoW markets and 3% from APIs

Q1FY23 Results: Revenues were in-line with I-Direct estimates while margins were better than expected as company prepare for complex launches in US market.

* Sales were down 2% YoY to | 5375 crore [Ex-Covid: 6% YoY growth]

* EBITDA was down 15% YoY to | 1143 crore, with margins at 21.3%

* Consequent PAT was at | 685 crore (down 15% YoY)

What should investors do? Cipla’s share price has grown ~1.9x in past three years

* We maintain BUY due to 1) continued focus on its core strength of respiratory franchise, along with peptide assets in US, 2) calibrated focus on core therapies in India and 3) likely improvement in off-take from private market in exports amid shift away from tenderised models

Target Price and Valuation: Valued at | 1135 i.e. 24x P/E on FY24E EPS of | 45.8 + | 33 NPV for gRevlimid.

Key triggers for future price performance:

* US: Expects significant momentum from H2FY23 onwards in the US on the back of peptide portfolio unlocking and possible approvals, launches of gRevlimid, gAdvair, gAbraxane and other peptide assets in pipeline

* One-India: 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

* Exports: Across the board transformation from tenderised model to private model in exports market and more focus towards DTM and new frontier markets for organic growth in Europe and Emerging markets

* The company is focusing on front-end model, especially for the US and shift to more lucrative respiratory and other complex opportunities

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 business

* BUY with a target price of | 1125

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