Cipla Share Price Declines 2.2%; Geojit Financial Services Suggests BUY with TP Rs 1,695
Geojit Financial Services has reaffirmed its BUY recommendation for Cipla Ltd., assigning a revised target price of Rs. 1,695. This valuation is based on a 26x FY26E adjusted EPS. The pharmaceutical giant has demonstrated robust performance in Q2FY25, driven by diverse market gains and an expanding portfolio. Despite challenges, including supply constraints and regulatory hurdles, Cipla’s strategic initiatives and strong business fundamentals position it well for sustainable growth. Investors can anticipate a 10% upside potential from the current market price of Rs. 1,534.
Q2FY25 Performance Highlights
Revenue Growth Across Segments: - Cipla’s consolidated revenue grew by 5.6% YoY, reaching Rs. 7,051 crore. - The South Africa segment saw a remarkable 28.9% YoY growth, contributing Rs. 799 crore. - Emerging markets and Europe delivered a robust 19.1% YoY increase, totaling Rs. 806 crore.
North America Challenges and Recovery Prospects:
Cipla’s North American revenue rose by 5.2% YoY to Rs. 1,986 crore. While growth was supported by a differentiated portfolio, lower sales of Lanreotide due to a partner's manufacturing constraints tempered performance. A recovery in this segment is expected in Q4FY25 as supply issues ease.
Margin Expansion and Profitability
EBITDA and Margins: - EBITDA grew by 8.8% YoY, reaching Rs. 1,886 crore. - The EBITDA margin improved by 70 basis points to 26.7%, aided by a favorable product mix and operational efficiencies.
Profitability Metrics:
Adjusted PAT increased by 15.2% YoY to Rs. 1,303 crore, reflecting Cipla’s focus on cost control and value-added products.
Adjusted EPS stood at Rs. 16.1 for Q2FY25, up from Rs. 14.0 in Q2FY24.
Regulatory and Operational Updates
Key Regulatory Progress: - The Goa facility received clearance, paving the way for Abraxane’s market launch. - Efforts to address US FDA compliance at the Indore plant are ongoing, with corrective actions and re-inspections in progress.
Product Development and Market Expansion:
Cipla plans to pursue approvals in the Chinese market, including for Pulmicort respules.
Seasonal triggers, such as pollution and allergens, are expected to boost respiratory product demand post-Diwali.
Revised Target and Valuation
Valuation Metrics: - The target price of Rs. 1,695 reflects a valuation of 26x FY26E adjusted EPS. - Cipla’s focus on chronic therapies, operational efficiencies, and market diversification underpins its valuation.
Growth Projections:
| Metric | FY24A | FY25E | FY26E | Growth % (FY24-FY26) |
|---|---|---|---|---|
| Sales (Rs. cr) | 25,774 | 27,829 | 30,639 | 18.9% |
| EBITDA (Rs. cr) | 6,291 | 6,888 | 7,660 | 21.8% |
| PAT (Rs. cr) | 4,316 | 4,739 | 5,262 | 21.9% |
| EPS (Rs.) | 53.5 | 58.7 | 65.2 | 21.9% |
Key Risks and Concerns
Supply Chain and Regulatory Risks: Supply constraints in the Lanreotide franchise and pending regulatory clearances at the Indore plant remain challenges. However, Cipla’s proactive measures to address these issues demonstrate strong management commitment.
Market Competition:
Intensifying competition in chronic therapies and respiratory segments may exert pricing pressure. Cipla’s differentiated product pipeline is expected to mitigate these risks.
Actionable Insights for Investors
1. Investment Strategy: - Geojit’s target price offers a 10% upside from the CMP of Rs. 1,534. Investors should consider accumulating the stock for a 12-month horizon.
2. Key Triggers: - Clearance of regulatory hurdles, seasonal demand in the respiratory segment, and strategic market expansion.
3. Long-Term Outlook: - Cipla’s focus on innovation, operational efficiencies, and diversified market presence positions it as a strong player in the pharmaceutical sector.
