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Cipla Ltd focuses on the development of new formulations and has a wide range of pharmaceutical products. They offer prescription drugs, bulk drugs, animal products , pesticides, a wide range of food and beverages, baked foods, oral hygiene products, detergents, room fresheners and personal care products. Company drives 44% of its revenue from India, 25% North America, 15% African countries, 13% international market and 3% from API.

Investment Rationale

* Launching of Newer Products to Expand Product Portfolio: Cipla is expanding its product offerings (own products and inlicensing). Company has recalibrated its positioning of products into Prescription, Trade Generics, and Consumer Healthcare categories in India. Product development and approvals are on track for differentiated launches in US Generics. Recently, Cipla has entered into high demand, newer therapy segment such as Anti-Diabetes, which is expected to contribute revenue in material way its newer launches are expected to drive sales till FY25.

* Focusing on All Legs to Drive Sales Growth: Cipla is focusing on various categories to drive sales thorough prescription (Rx), Trade Generics (Gx), and Consumer Healthcare (CHS). These categories set to pave the way for better sales prospects in India business. In addition to gaining traction via the Trade Generic route way in non-metro cities, the management is contemplating using MRs to generate business through prescriptions.

* Higher Direct to Market sales, Adding Newer Geographies: Revenue contribution from direct-to-market have increased to 41% of FY2, International sales in select markets such as UK, Sri Lanka, Morocco are estimated to register modest growth while incremental contribution to contribute in topline from the addition of newer markets of China, Brazil, and Australia. Higher Population in China and Brazil offers significant headroom for upscaling topline in the same.

* Outlook and Valuations: We estimate a 10% CAGR in Topline over FY22-25E, which implies a forward PE (x) of 26.9 for FY 25E earnings. We value it with a earnings multiple of 30x to FY25 earnings estimate (10 yr Median PE 32x) which results per share value of Rs 1248. We recommend BUY on CIPLA at CMP of Rs. 1119 with Target price of Rs. 1248 (12%).

Observation

* While looking at the border picture of CIPLA, we can observe that the prices are moving in a Higher High, Higher Low formation, while respecting the rising trendline since July 2020.

* The stock have started to show bounce to the upside post retesting the neckline of Rounding bottom pattern. The stock scored a breakout on 26th September 2022 suggesting continuation of the prior uptrend .

* The stock has shown bounce from the 13 Week EMA, which is in sync with the above pattern neckline.

* The Ratio charts against NIFTY PHARMA is rising which points towards the outperformance of the stock.

* RSI on the weekly timeframe has shown a bullish reversal reflecting strong momentum of the prices.

Buy Cipla Ltdat CMP: Rs 1119 | Target: Rs 1248 (18%)| SL: Rs 1050

Inference & Expectations

* The stock is in clear uptrend with rising momentum.

* Going ahead we expect the prices to go higher till 1275 level

* The stoploss must be 1050 on the closing basis.

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