Hold Cipla; target Rs 470: ICICIdirect.com

ICICIdirect.com's report on Cipla

"After pursuing an affordability campaign against MNC pharma giants for almost four decades, Cipla has come a long way to emerge as a formidable global player with a large basket of product offerings across therapies. Despite being equipped with management pedigree, a strong domestic franchise, large capacities approved by various agencies, R&D strength and financial discipline, Cipla remained an under achiever. Also, it was surpassed by the likes of Sun, Lupin and Dr Reddy’s Lab backed by strong US offerings with front end model and feasible acquisitions. However, with a handful of own ANDA filings, a management rejig and product & therapy rationalisation, we believe the company is moving in the right direction. We are initiating coverage on the stock with a HOLD rating to value the newly transformed model." "A key indication of this is the company’s willingness to move on to the front-end in developed markets like the US from a partnership driven model. With the filing of a few own ANDAs with the USFDA, it seems the company is slowly but surely adopting a more lucrative front-end model. Cipla acquired its long time South African distributor Cipla Medpro to consolidate its presence in the African continent." "The company is consciously rationalising its product portfolio in the form of defocusing on non-profit making ARV tenders and pushing for more lucrative respiratory and other opportunities in the US and EU. Similarly, the optimisation of the Indore SEZ, especially after USFDA approval, is likely to improve the overall operating leverage." "Cipla has changed its strategy in a number of areas, be it for region or product rationalisation or management overhaul after a long time. By virtue of being owner of one of the largest product baskets, the company has the liberty of altering its portfolio as visible in the last few quarters. Moving into a front-end model also bodes well in the long run. With its endeavour to launch own products in the US, we expect incremental traction from the US, going ahead. Acquisition of Medpro in South Africa is another testimony to the adoption of the front end model. We have valued the stock at Rs 470 i.e. 20x FY15E EPS of Rs 23.5," says ICICIdirect.com research report. 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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