With Cipla turning healthy post Q1 results, analysts increase target price

Our Bureau Chennai | Updated on August 10, 2020

Brokerages give thumbs to pharma major’s cost-saving efforts, robust operating margin

Share prices of Cipla gained almost 12 per cent in intra-day deal on Monday, after the pharma major posted strong quarterly results. After hitting a fresh 52-week high of ₹814.45 in intra-day deal, the stock closed with a gain of 9.20 per cent at ₹795.65 on the BSE.

Cipla reported a 26.528 per cent y-o-y growth in its Q1 FY21 consolidated profit at ₹566.04 crore, thanks to strong performance across its geographies. Revenue from operations grew 9 per cent to ₹4,346.2 crore.



Most analysts gave thumbs to the positive commentary from the management on costs savings and robust operating margin. Emkay Global said strong momentum in the trade Gx business in India and Albuterol ramp-up in the US will keep earnings momentum strong in the medium term. Cipla also guided that part of reduced opex may continue even post-Covid-19, leading to better margins. “We upgrade FY21/22/23 EPS by 10 per cent/9 per cent/9 per cent and retain Buy with a revised TP of ₹800 (from earlier ₹630),” it said.

Morgan Stanley expects better growth visibility through monetisation of complex generics such as albuterol. Strong balance sheet with zero net debt and continuing free cash flow generation; and improving industry dynamics, especially in the US generics market are some of the key factors that make the stock extremely attractive, it said. It retained its overweight stance on the stock with a base case target price of ₹847. The foreign brokerage has revised its bull-case target price to ₹943 a share and a bear-case scenario price at ₹573. "With strong traction in the US (ramp up in albuterol, niche launches), good growth in India (Rx business outperformed IPM growth in the past four quarters, benefits of one-India strategy, Covid portfolio) and reduction in costs (good part of cost savings are likely to sustain owing to digital initiatives), margins are set to structurally improve," said HDFC Securities, which increased the target price to ₹805 from ₹655 earlier. According to ICICI Securities, across-the-board transformation from a tenderised model to a private model in exports market and rapid consumerisation of important TGx and Rx in India bode well. It revised the target price to ₹900 from ₹670 earlier.

However, Motilal Oswal Financial has maintained its neutral stance on the stock with a target price of ₹790, as it sees the valuation level providing limited scope for returns.

Published on August 10, 2020

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