Jefferies has slashed its price target for Cipla to Rs 900 per share from Rs 1,100 earlier and retained its 'hold' rating.
"We have also lowered the FY24/25 earnings per share (EPS) estimates by 13 percent/15 percent as we factor in delays in key US approvals from the Indore plant post recent observations. A bear-case scenario considering no big US launches for the next two years, sharp erosion in the value of top-selling US drug Albuterol- and higher R&D spend leads to a fair value of Rs 740," the research firm said.
According to Jefferies, the stock is still away the from bear-case value despite a sharp 15 percent fall in one month. It is of the view that there is a reasonable chance of the observations escalating to an OAI (Official Action Initiated) or a warning letter based on precedent with peers. We believe big-ticket respiratory filings like gAdvair, gSymbicort, and gQvar could face delays along with injectables, as observations point to Cipla's inability to prove that sterility was not compromised.
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The research firm notes that two of Cipla's largest Indian facilities, including Goa and Indore, are under the regulatory scanner, which could impact new launches in the medium term. It estimates the value of India business at Rs 680 per share.
Jefferies feels that the May 2023 timeline for the Indore plant status will be monitored keenly. As per regulatory procedures, the US FDA is likely to announce the status of the Indore plant by May. There is a reasonable chance of an OAI classification (a scenario where pending approvals are put on hold and may require a re-inspection for corrective action taken). However, if the classification is a VAI (Voluntary Action Indicated, a scenario in which pending approvals will be taken up for review despite outstanding observations), it would be a positive catalyst for the stock, the research firm noted.
"Cipla's plan of action will be keenly watched, including moving key respiratory products to alternate sites. Our price target consists of Rs 880 per share for the base business (22x FY25 EPS of Rs 39.8) and Rs 20 per share for the Revlimid opportunity. While the stock is down 15 percent over the last month, it is still away from our bear-case valuation," Jefferies added.
The Indian pharma major posted a consolidated profit after tax (PAT) of Rs 801 crore for October-December quarter, rising by 10 percent. It had reported a profit of Rs 789 crore in the September 2022 quarter. Consolidated revenue came in higher year on year by 6 percent at Rs 5,801 crore, compared to Rs 5,479 crore logged during the same period in 2021. Revenue in Q2FY23 stood at Rs 5,829 crore.
At 9:33am, Cipla was quoting at Rs 872, down Rs 9.05, or 1.03 percent, on the BSE. It has touched an intraday high of Rs 882.90 and an intraday low of Rs 871.10.
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