Cipla down 2% on Nomura downgrade, valuations expensive

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26 Aug, 2025 12:21

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Shares of Cipla fell more than 2 percent intraday Wednesday after Nomura downgraded the stock to reduce from neutral rating, citing valuation to be expensive.

The brokerage has price target on the stock at Rs 569, implying 9.7 percent potential downside.

According to the report, the valuation looks expensive as the brokerage sees limited upside risk to earnings in the near term. "Cipla’s stock has increased 64 percent since May 31 2014 versus the Sensex return of 11 percent. The stock trades at 35.7x FY15F and 26x FY16F EPS of Rs 17.65 and Rs 24.27 respectively, a 30-45 percent premium to peers," it elaborated.

However, the brokerage doesn’t expect revenue composition to change significantly, and rise in R&D spend should result in limited EBITDA margin expansion.

It believes investors expectations from Cipla’s inhaler franchise have risen after the recent launch of Seretide MDI in select EU markets. The approval is a positive development, but approvals for other high-value inhalers in the EU and the US still have significant regulatory challenges.

Cipla, on September 2, launched Metered Dose Inhaler (MDI) called Serroflo or Salmeterol/Fluticasone combination in Germany and Sweden. The total market size there is less than USD 100 million. This new launch is a substitute for Advair. The total market size for inhalers - Advair/ Seretide - is around USD 800 million in Europe and UK constitutes nearly half of that, which comes up to USD 350 million.

For Seretide MDI, Nomura is cautious as generic penetration and substitutability of inhalers is likely to be lower and Glaxo may be aggressive on pricing.

"Our industry checks suggest that Cipla has priced Seretide MDI at 40 percent discount to the innovator in Germany which is a small market. The discount could be higher for the UK, which is a much larger market. Further, the discount will likelyincrease with additional competition," the brokerage said.

So it prefers Dr Reddy’s, which is at a similar market cap and trades at 36 percent/25 percent discount to Cipla on FY15F/FY16F P/E.

At 10:42 hours IST, the scrip of Cipla was quoting at Rs 613.50, down Rs 6.15, or 0.99 percent on the BSE.

Posted by Sunil Shankar Matkar