Cipla shares gained over 2 percent on December 17 after Kotak Institutional Equities upgraded the stock to a 'buy' from its previous 'add' rating. The upgrade was driven by factors such as reasonable valuations, a series of upcoming US launches, expectations of a domestic recovery, and healthy growth in South Korea.
Along with the rating upgrade, Kotak assigned a price target of Rs 1,725 for the stock, implying a 19 percent upside from Monday's closing price.
At 11.51 am, shares of Cipla were trading at Rs 1,469.05 on the NSE.
Kotak noted that the recent correction in Cipla's stock, which had been under pressure due to concerns such as the potential pre-approval inspection (PAI) for its blockbuster cancer drug Abraxane, a slightly subdued Q3 outlook driven by transient factors, and the promoter stake sale, had brought valuations to more reasonable levels. Cipla’s shares have fallen over 12 percent in the past three months.
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While there is still a possibility of a PAI for Abraxane, which could delay its launch beyond FY25, Kotak remains optimistic about the drug’s potential. They project FY26/27 US sales for Abraxane at $30 million and $41 million, respectively. Additionally, the recent clearance of Cipla's Goa facility, where Abraxane was set to be manufactured, adds further confidence.
Kotak also highlighted Cipla's upcoming US launches, which provide a solid growth cushion, even with the impending patent expiry of another blockbuster cancer drug, Revlimid.
Furthermore, Cipla has gained market share in the domestic respiratory segment over the past 1.5 years, although a slow seasonal uptick has temporarily impacted therapy growth, which could slightly affect domestic performance in Q3FY25. However, Kotak views these domestic challenges as driven by transient seasonal factors and is confident in Cipla's market share trends. They expect a gradual recovery in domestic growth, driven by an increasing chronic mix and improved productivity, projecting a ~9 percent India sales CAGR over FY24-27.
Given these expectations, Kotak is bullish on Cipla’s prospects, believing that most concerns are already reflected in the stock’s current market price.
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