Buy Cipla, target price Rs 668: ICICI Securities
The brokerage has raised FY21-FY22 EPS estimates by 11-12 per cent on generic Proventil approval and the increase in Rs/$ rate to 74 from 70.
By ETMarkets.com | Updated:
ThinkStock Photos
ICICI Securities has given a buy rating to Cipla with a revised target price of Rs 668 (earlier Rs 542) based on 23 times FY22E earnings.
Cipla has received the final USFDA approval for generic Proventil HFA Inhalation Aerosol (albuterol sulfate inhalation aerosol). This approval was expected in the second half of FY21 and the early approval has surprised positively. Cipla’s albuterol is the first ABrated generic approval, though an authorized generic is already in the market. There are three brands of albuterol namely, ProAir, Ventolin and Proventil and has a combined market size of $2.8 billion. Proventil market size is $153 million. The brokerage expects Cipla to generate annual sales of $45 million. It remains positive on Cipla considering its renewed strategy of focusing more on branded generics business in India and South Africa and reduction in expenses in the US market.
The share price moved up by 2.28 per cent from its previous close of Rs 579.60. The last traded price is Rs 592.80. Incorporated in 1935, Cipla has a market cap of Rs 46721.34 crore.
Investment Rationale
The brokerage expects revenue and adjusted PAT CAGR at 9.2 per cent and 16.9 per cent, respectively over FY20-FY22E with EBITDA margin improving 80bps to 20.8 per cent. The earnings growth appears lower on a high base of generic Sensipar in FY20.
Free cash flow (FCF) generation of Rs 42 billion over FY21-FY22E would strengthen the balance sheet. The management’s focus on cost control initiatives, capex and working capital would aid in improvement of RoCE where Cipla has historically lagged its peers.
The brokerage has raised FY21-FY22 EPS estimates by 11-12 per cent on generic Proventil approval and the increase in Rs/$ rate to 74 from 70. The target has been raised P/E(x) to 23 times from 20 times on improving revenue mix with higher proportion of branded generic businesses.
The stock currently trades at attractive valuations of 23.4 times FY21E and 20.0 times FY22E earnings and EV/EBITDA multiples of 11.9 times FY21E and 10.2 times FY22E. The company has restructured its total business into four verticals namely, One-India, South Africa & EMs, US generics & specialty and Lung leadership. Increased focus of the management on India business and in improving RoCE is a key positive change in the brokerage view.
Key risks: Regulatory hurdles and lower growth in the Indian market.
Financials
Cipla has received the final USFDA approval for generic Proventil HFA Inhalation Aerosol (albuterol sulfate inhalation aerosol). This approval was expected in the second half of FY21 and the early approval has surprised positively. Cipla’s albuterol is the first ABrated generic approval, though an authorized generic is already in the market. There are three brands of albuterol namely, ProAir, Ventolin and Proventil and has a combined market size of $2.8 billion. Proventil market size is $153 million. The brokerage expects Cipla to generate annual sales of $45 million. It remains positive on Cipla considering its renewed strategy of focusing more on branded generics business in India and South Africa and reduction in expenses in the US market.
The share price moved up by 2.28 per cent from its previous close of Rs 579.60. The last traded price is Rs 592.80. Incorporated in 1935, Cipla has a market cap of Rs 46721.34 crore.
Investment Rationale
The brokerage expects revenue and adjusted PAT CAGR at 9.2 per cent and 16.9 per cent, respectively over FY20-FY22E with EBITDA margin improving 80bps to 20.8 per cent. The earnings growth appears lower on a high base of generic Sensipar in FY20.
Free cash flow (FCF) generation of Rs 42 billion over FY21-FY22E would strengthen the balance sheet. The management’s focus on cost control initiatives, capex and working capital would aid in improvement of RoCE where Cipla has historically lagged its peers.
ADVERTISEMENT
The brokerage has raised FY21-FY22 EPS estimates by 11-12 per cent on generic Proventil approval and the increase in Rs/$ rate to 74 from 70. The target has been raised P/E(x) to 23 times from 20 times on improving revenue mix with higher proportion of branded generic businesses.
The stock currently trades at attractive valuations of 23.4 times FY21E and 20.0 times FY22E earnings and EV/EBITDA multiples of 11.9 times FY21E and 10.2 times FY22E. The company has restructured its total business into four verticals namely, One-India, South Africa & EMs, US generics & specialty and Lung leadership. Increased focus of the management on India business and in improving RoCE is a key positive change in the brokerage view.
Key risks: Regulatory hurdles and lower growth in the Indian market.
Financials
ADVERTISEMENT
For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 4234.55 crore, down -.70 per cent from last quarter sales of Rs 4264.24 crore and up 8.41 per cent from last year's same quarter sales of Rs 3906.20 crore. The company reported net profit after tax of Rs 353.58 crore in the latest quarter.Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
Bookmark or read stories offline -
Download ET Markets APP
Download ET Markets APP
ADVERTISEMENT
