Outperform Cipla, target Rs 639: IDFC Securities

IDFC Securities has an outperform call on Cipla Ltd. with a target price of Rs 639.0 . The current market price of Cipla Ltd. is Rs 614.25 Time period given by the brokerage is a year when Cipla Ltd. price can reach defined target. Cipla Ltd., incorporated in the year 1935, is a largecap company with a market cap of Rs 49438.74 crore.

Investment rationale by IDFC Securities

With flat profits over FY13-17 at ~Rs15bn, Cipla reported ‘below potential’ earnings for a prolonged period, as revenue growth failed to match aggressive growth investments. Signs of profitability turnaround were visible in FY18 with change in strategy and management. Scale-up in the US business through the launch of niche ANDAs should add to this momentum. Over the medium term, we expect Cipla’s relatively small US business (~$385m in FY18) to grow briskly as on-going R&D investmentsin developing complex drugs including multiple inhalation products begin to yield results. This will complement the steady profitability growth in Cipla’s sturdy domestic formulations franchise. We estimate 20% EPS CAGR over FY18-20E, as Cipla capitalizes on its ‘underleveraged’ R&D capabilities. Maintain Outperformer with a price target of Rs 639.