Nomura neutral on Cipla, target Rs 689
Cipla has acquired a portfolio of largely plain vanilla oral solids where its capabilities are already well-established, and hence the acquisition adds little to Cipla’s capabilities.
By ET Online | Updated:
NEW DELHI: Nomura has a neutral rating on Cipla but has slightly raised its target price for the stock from Rs 626 to Rs 689 after the company signed definitive agreements to acquire Invagen and Exelan in the US for $550 million. "We rate the potential acquisition as a good, though not a great deal," it said.
With reasonable valuation at 2.4 times sales, the acquisition will be EPS-accretive immediately, the brokerage said. It adds 32 marketed products where Invagen has an average 28 per cent market share. The portfolio will feed into the newly-established Cipla’s front-end in the US. Cipla gets facilities in the US and the ability to service the governmental and institutional business; and also a pipeline of 30 ANDAs with potential for earnings upside, it said.
However, Cipla acquires a portfolio of largely plain vanilla oral solids where its capabilities are already well-established, and hence the acquisition adds little to Cipla’s capabilities. Plus, it does not get an established front end; whereas significant slowdown in product approval from Invagen is an area of concern. The company has not received any approvals in the past year.
"Given the relative underperformance of the stock (up 17 per cent in last 12 months vs 25 per cent for healthcare index), the likely to have a positive impact of gNexium, the Invagen and Exelan acquisitions plus the currency depreciation, we believe the risk-reward is favourable. We continue to value Cipla at 23 times one-year forward earnings (FY17-18 average EPS of Rs 29.97 per share) to arrive at a 12-month target price of Rs 689 per share implying a return of 6 per cent. Hence, we upgrade the stock to Neutral," the brokerage said.
With reasonable valuation at 2.4 times sales, the acquisition will be EPS-accretive immediately, the brokerage said. It adds 32 marketed products where Invagen has an average 28 per cent market share. The portfolio will feed into the newly-established Cipla’s front-end in the US. Cipla gets facilities in the US and the ability to service the governmental and institutional business; and also a pipeline of 30 ANDAs with potential for earnings upside, it said.
However, Cipla acquires a portfolio of largely plain vanilla oral solids where its capabilities are already well-established, and hence the acquisition adds little to Cipla’s capabilities. Plus, it does not get an established front end; whereas significant slowdown in product approval from Invagen is an area of concern. The company has not received any approvals in the past year.
"Given the relative underperformance of the stock (up 17 per cent in last 12 months vs 25 per cent for healthcare index), the likely to have a positive impact of gNexium, the Invagen and Exelan acquisitions plus the currency depreciation, we believe the risk-reward is favourable. We continue to value Cipla at 23 times one-year forward earnings (FY17-18 average EPS of Rs 29.97 per share) to arrive at a 12-month target price of Rs 689 per share implying a return of 6 per cent. Hence, we upgrade the stock to Neutral," the brokerage said.
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