Cipla, a leading pharmaceutical company, had an incredible 9% boost in its share price after an impressive Q1 performance. The good news came as analysts raised their earnings estimates, thanks to reduced competition in the US generics market, promising niche product launches in North America, and improved operational efficiency. The company also saw record-breaking revenues in the US during the first quarter. However, despite these positive developments, some analysts believe that the share price may have limited room to grow in the near future.
One of the key factors driving Cipla's success is its strong performance in the US market, with a remarkable 43% year-on-year increase in dollar terms. The management's insights suggest that the upswing in the US market is happening even faster than expected. They highlighted changes in the market, such as a focus on reliable supply, reduced competition from generic drugs, and evolving customer buying patterns, which should benefit generic drug manufacturers like Cipla.
Looking ahead, Cipla has exciting plans, including the launch of gAdvair and gAbraxane by H1FY25, as well as 4-5 peptide products in the near term. They also aim to submit 10-15 Abbreviated New Drug Applications (ANDAs) every year, most of which will be "limited competition" products. Analysts have adjusted their earnings estimates accordingly, increasing the projections for FY24-FY26 core earnings by 4-7%. With Cipla currently trading at 27.4 times FY24E core EPS, the target price has been raised to Rs 1,191 from Rs 942. A potential upside trigger could be better-than-expected growth in gRevlimid in the US, while a delay in key launches might pose a downside risk.
Choice Broking sees Cipla's growth prospects for FY24-25 in its expansion of the US formulations business, especially in the respiratory and peptide product lines following new launches. Additionally, margin expansion is expected, driven by growing confidence in all markets, with a particular focus on South Africa's high-margin geography. Choice Broking values Cipla at Rs 1,211.
Prabhudas Lilladher notes that Cipla's Q1 Ebitda exceeded estimates by 13%, mainly due to a higher gross margin (64.3%) and strong US sales of $222 million. The brokerage remains optimistic about Cipla's growth in India and the US, given the strong demand for respiratory and other products, expected 10%+ growth in domestic formulations, and steady US revenues supported by upcoming key launches in FY25. As a result, they raised their FY24E and FY25E EPS by 5% and expect a 17% EPS CAGR over FY23-25E. Prabhudas Lilladher maintains a 'Buy' rating with a revised target of Rs 1,220, based on 24 times FY25E EPS.
Motilal Oswal has also revised its earnings estimates for Cipla, raising them by 6% each for FY24/FY25 due to the positive developments. They value Cipla at 22 times 12-month forward earnings and add an NPV of Rs 30 related to g-Revlimid to set a target of Rs 1,130.
While Cipla's strong performance is encouraging, it's essential to carefully consider expert opinions and market trends before making any investment decisions. Remember, investing always carries some level of risk, so it's essential to weigh potential rewards and risks before deciding to invest in Cipla.