Is Cipla over-valued after over 60% rally since June?
Dealers are recommending to accumulate the stock as funds are extremely bullish on the counter.
By ET Online | Updated:
MUMBAI: Cipla has been one of the top performers in the pharmaceutical sector in the last three months. The stock has surged over 62 per cent since June and it appears that the upmove will continue.
Dealers are recommending to accumulate the stock as funds are extremely bullish on the counter.
"We are fundamentally positive on Cipla and it is among our top picks. For the medium term, we are expecting a price target of around Rs 650. We are factoring in a very strong 18 per cent CAGR in revenue growth for FY15-16 and a 25 per cent bottomline growth for FY16," said Ajay Bodke, Head-Investment Strategist & Advisory, Prabhudas Lilladher.
"The company’s ROEs are trending up. From 14 per cent, they will move to around 16 per cent in FY16 and the company is trading at around 23 times FY16 earnings. So in the pharmaceutical space, Cipla is what we would urge investors to look at in the medium term," Bodke added.
Barclays has raised its target on Cipla to Rs 584 from Rs 408 while maintaining equal-weight rating. According to the brokerage, a strategic turnaround is in progress for the company. It has raised Cipla’s FY16 EPS by 9 per cent and target multiple to 22x.
However, Nomura is not so bullish on the counter and has downgraded it to ‘reduce‘. The stock is trading at 30-45 per cent premium to peers, it says. "The stock trades at 35.7x FY15F and 26x FY16F EPS of Rs 17.65 and Rs 24.27, respectively, a 30-45 per cent premium to peers. The valuation seems expensive as we see limited upside risk to earnings in the near term," said a Nomura report.
Dealers are recommending to accumulate the stock as funds are extremely bullish on the counter.
"We are fundamentally positive on Cipla and it is among our top picks. For the medium term, we are expecting a price target of around Rs 650. We are factoring in a very strong 18 per cent CAGR in revenue growth for FY15-16 and a 25 per cent bottomline growth for FY16," said Ajay Bodke, Head-Investment Strategist & Advisory, Prabhudas Lilladher.
"The company’s ROEs are trending up. From 14 per cent, they will move to around 16 per cent in FY16 and the company is trading at around 23 times FY16 earnings. So in the pharmaceutical space, Cipla is what we would urge investors to look at in the medium term," Bodke added.
Barclays has raised its target on Cipla to Rs 584 from Rs 408 while maintaining equal-weight rating. According to the brokerage, a strategic turnaround is in progress for the company. It has raised Cipla’s FY16 EPS by 9 per cent and target multiple to 22x.
However, Nomura is not so bullish on the counter and has downgraded it to ‘reduce‘. The stock is trading at 30-45 per cent premium to peers, it says. "The stock trades at 35.7x FY15F and 26x FY16F EPS of Rs 17.65 and Rs 24.27, respectively, a 30-45 per cent premium to peers. The valuation seems expensive as we see limited upside risk to earnings in the near term," said a Nomura report.
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According to the brokerage, investors’ expectations from Cipla’s inhaler franchise have risen after the recent launch of Seretide MDI in select EU markets. The approval is a positive development, but approvals for other high-value inhalers in the EU and the US still have significant regulatory challenges. "Our FY15/16F EPS are 5 per cent/0 per cent below consensus. Our 12-month target price is based on 22x one-year forward EPS of Rs 25.8," the report added. At 02:45 pm, the stock was at Rs 614, up 0.70 per cent, on the BSE. It touched a high of Rs 623 and a low of Rs 606.60 in trade today. Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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