Cipla Very Likely To Get An Upgrade In FY25, Says Investec On Initiating Coverage
The brokerage said the probability of Cipla getting an upgrade in FY24 is very high as it delivers on key pipeline assets amid continuing improvement in US generic macro.
Cipla Ltd. may get an upgrade in the current and next fiscals as it delivers on key pipeline assets amid continuing improvement in US generic macro, according to Investec. On Wednesday, the brokerage initiated a 'long FAST' on the stock, leading to its biggest gain since Jan. 23.
Shares of Cipla had declined 10% from their 52-week high in anticipation of its competitor Amneal’s entry into ‘albuterol’ and a likely weak 4Q due to muted India, the brokerage said.
"Cipla’s dependence on ‘albuterol’ is low (7% of FY24E Ebitda) and we argue that even with the entry of a new player, the impact on EPS is likely to be low," Investec said.
After the surge in share price on Wednesday, the stock now trades 7.95% lower from its 52-week high of Rs 1,519 apiece hit on March 11. "Cipla currently trades at 20-times FY26 EPS vs. our sector coverage universe average of 26-times FY26 vs domestic branded focused names average of 32-times FY26," Investec said.
The possibility of an upgrade is high for the current fiscal as Cipla delivers on multiple peptides, gAbraxane, gAdvair, and others. Continued improvement in US generic macro will also drive the upgrade.
The base businesses of the company, lanreotide and gRevlimid all contributed to strong earnings momentum, and despite losing share in albuterol, Cipla has seen earnings upgrades over the last 12 months.
The brokerage also noted that the India market's seasonal weakness could muffle results for the quarter ended March, but it anticipates strong performance in the US business and rest-of-world markets. "It is well known that 4Q for Cipla and multiple other players is muted on both sales and margins compared to the first nine months of any fiscal," it said.
Investec stated that they will closely monitor the guidance for FY25 as well as the timeframe for key product launches. "We already built gAbraxane and gAdavir launches for FY26; an earlier launch timeline may work well for the company," it stated.
The brokerage has a target price of Rs 1,550 apiece, implying an upside of 11%. According to the brokerage, the stock's downside risks include further delays in product approvals, US launches, and a slowdown in India. "Indore Facility has a WL, and any escalation here may lead to earnings cuts," it said.
