Neutral Cipla; target of Rs 950: Motilal Oswal

Motilal Oswal's research report on Cipla

Our Annual Report analysis of Cipla indicates robust improvement in return ratios over FY18-22. Notably, there had been an improvement in ROE in FY21 (+400bp YoY) to 14.1% and it sustained at similar levels in FY22.  Over FY18-20, Cipla’s earnings were largely flat. However, the efforts across key geographies aided by limited competition products in the US generics, COVID (FY21), and cost optimization measures led 34% earnings CAGR over FY20-22. Further, improved working capital requirement and reduction in debt have enhanced the financial health of the company. Going forward, we expect 15% earnings CAGR over FY22-24, led by 19%/6%/ 13% sales CAGR in the US/Domestic Formulation (DF)/EU, respectively. We value Cipla on an SOTP basis (23x 12M forward base earnings and add NPV of INR40 for g-Revlimid) to arrive at our TP of INR950.

Outlook

We maintain our Neutral rating on the stock due to stable return ratios over the next two years. The current valuation adequately factors in the earnings upside over the next couple of years.

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