Hold Cipla; target of Rs 700: Emkay

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26 Aug, 2025 12:21

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Emkay Global Financial Services' report on Cipla

Cipla reported strong numbers with revenues of Rs 38.5bn (Est. Rs 34.6bn), EBITDA Rs 10.4bn (Est. Rs 8.6bn) and net income Rs 6.5bn (Est. Rs 5.4bn). We believe that Nexium revenues were ~Rs 4.8bn in Q1, cost of production of which appears to have been expensed in Q4 itself which has resulted in higher than expected EBITDA and net income.  Although core revenues came in better at Rs 33.7bn (Est. Rs 32.1bn), underlying earnings appear to be weak with EBITDA of Rs 5.6 bn (Est. Rs 6.2bn) and weaker EBITDA margins at c16%-17% (Est. c19%).

Cipla’s guidance of 20% revenue growth in  FY16E appears  conservative  as  it includes Nexium driven revenues as well. More important was management commentary on  planned  evolution  of  respiratory  franchise  which  is  a  key  asset.  Company  expects respiratory revenue CAGR of c25% over FY15-FY20E to USD1.1bn from FY15 sales of USD350mn. Regulated markets (US/EU) to account for nearly 50% of the franchise from under 10% currently. This is the first time thecompany has clearly articulated the trajectory and would be a key measurable in coming years.

Current valuations leave little to imagination; Cipla currently trades at a P/E of 25x to FY17E EPS of Rs29/share despite factoring EPS CAGR of 33.5% over FY15-18. Given the  sharp  run  up  and  the  rich  valuations,  we  expect  stock  to  remain  range  bound.  We maintain our HOLD rating valuing the company at PE of 22x Sept2017E EPS (earlier March 2017)  of  Rs32/share.  Our  new  target  price  is  Rs 700/share  (earlier  Rs 640/share).  Key risks remains execution given the now well-articulated respiratory goalposts,says Emkay Global Financial Services.  For all recommendations, click here 

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