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Buy Cipla; target Rs 605: HDFC Securities

Buy Cipla Ltd. at a price target of Rs 605.|
Updated: Dec 26, 2018, 01.37 PM IST
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Buy Cipla
The current market price of Cipla is Rs 512.25.
HDFC Securities has a buy call on Cipla with a target price of Rs 605.

The current market price of Cipla is Rs 512.25.

Time period given by the brokerage is one year when Cipla price can reach the defined target.

Investment rationale by the brokerage
Ongoing challenges: Cipla is facing multiple issues: (1) Supply constraints due to capacity rebalancing have cut quarterly sales by Rs about 100 crore; (2) Iran and Yemen sales are expected to decline from US$ 70-80mn in FY18 to US$ 30-40mn for FY19E due to geopolitical concerns; and (3) The South Africa tender biz (40 per cent of SA sales) could face double-digit price erosion. We expect these issues to normalize in FY20/21.

Guidance: Resolving supply constraints, acceleration in the US business and traction gained in India and SA branded businesses will drive revenue growth at 10 per cent plus over FY20-21E. Cost rationalization, a ramp-up in the US, and rebalancing within segments will help maintain EBITDA margin at 18-20 per cent.

Focus on DTM: Quarterly US sales to reach US$ 120-130mn by FY19-end. The DTM is growing at double digits and should cross US$ 180-200mn in sales this year. B2B revenue slumped from US$ 150mn (FY18) to US$ about 70mn now, having largely bottomed-out. The low-margin Invagen business is likely to remain flat. Lucrative launches over FY20-21 include gProventil, Tramadol, and potentially gAdvair.

Growing branded businesses: Domestic growth (12-14 per cent) will be led by in-licensed products and chronic therapies, with the acute portfolio remaining steady. South Africa’s private business is growing at 14 per cent, 2-3x the market rate. The Mirren acquisition is a high-margin OTC business, growing at strong double-digits.

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Disclaimer: This recommendation is analyst's own and does not represent those of & Please consult your financial advisor before taking any position in the stock/s mentioned.

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