Cipla stock rating upgraded to ‘buy’, Motilal Oswal cites multiple growth levers

MOFSL also assigns a P/E multiple of 25 times the firm's on 12-month forward earnings estimates for the drugmaker.

Cipla’s healthy growth outlook with robust revenue and profit expectations has earned the stock a rating upgrade from Motilal Oswal. The brokerage has upgraded Cipla stock to ‘buy’ with a target price of Rs 1,420. This implies about 15 percent upside from Monday’s closing price of Rs 1244.

Motilal Oswal foresees a 16 percent PAT CAGR for Cipla over FY 2023-25, and expects a 15 percent sales CAGR to reach $1 billion through FY25. The drugmaker’s sales growth across the major geographies US, India and South Africa will be powered by niche launches, superior execution and higher offtake in complex generics, prescription drugs and private/ OTC market.

Cipla’s US sales remain resilient amid price erosion

Cipla has been a frontrunner among pharma companies under MOFSL's coverage during FY13-23 as it recorded a US sales CAGR (Compounded Annual Growth Rate) of 21.6 percent to reach $733 million by the end of the decade.

The company also proved its mettle as it recorded 8 percent on-year sales growth in FY23 despite struggling with high price erosion within the industry, thanks to robust sales of the generic blockbuster cancer drug Revlimid and market share gains in lanreotide (used to treat carcinoid syndrome), albuterol (a respiratory drug) and arformoterol (used to treat chronic obstructive pulmonary disease).

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Meanwhile, the company is not just focusing on resolving regulatory issues at its Goa and Pithampur plants but is simultaneously filing critical, high-margin products such as generics of cancer drug Abraxane and respiratory drug Advair from alternate sites to de-risk the opportunity.

In addition, the company is also aiming to expand its offerings in peptides, inhalation, and injectable categories, which are complex and margin-accretive in nature.

Cipla pulling right levers in India, South Africa drug markets too

In the domestic formulations market, the drugmaker is continuously launching new products in trade generics and increasing the penetration in tier-2 and below cities. The management is also looking towards scaling up the revenue and profitability of Cipla's Consumer Healthcare business through its strong brand recall.

The firm also highlighted Cipla's plans for the South Africa market, where it is focusing on a strong pace of launches in the private market across therapies and has also increased efforts towards its OTC (over-the-counter) portfolio.

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