Buy Cipla; target Rs 750: ICICIdirect

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26 Aug, 2025 12:21

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ICICIdirect.com's report on CiplaCipla recently entered into an agreement to acquire two US-based companies, InvaGen Pharmaceuticals Inc and Exelan Pharmaceuticals Inc. These companies are owned by the promoters of the Hetero group. The transaction is valued at US$550 million and is an all-cash deal. The combined revenues of these two companies in CY14 were ~US$200 million (~US$225 million TTM June 2015) with EBITDA margins of ~25%. Its revenues grew at ~20% CAGR over the last three years. As per the company, the deal is EPS accretive from the first year of consolidation."At ~2.4x TTM June 2015 sales, we believe the deal is fair and a long term strategic fit for Cipla. The enlarging of the US franchisee augurs well for the company not only from the point of view of business but also from a currency point of view as it will bring down the contribution from Africa and RoW markets (that are witnessing currency headwinds) from ~40% in FY15. This proposed acquisition will also strengthen Cipla’s transformation from back-end to front-end and that too in the US as till now the company was acquiring the front-end businesses in some non-core geographies. According to the management, the acquisition is EPS accretive from the first year itself and will be funded via internal accruals and debts. Cipla’s balance sheet and operating cash flows are strong enough to assume additional debt and service the same. However, the recent Form 483 issued on InvaGen’s plants would be a key concern that should be watched. We have revised our target price taking into account ~6% accretion in FY17E earning. Our new target price is Rs 750 i.e. 22x FY17E EPS of Rs 34.2. Buy the stock", says ICICIdirect.com research report.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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