IDEA2WIN - Buy: Cipla Limited


CMP (NSE) 15:52, 02 Dec

1,114.35 -10.55-0.94%




Pharmaceuticals & Drugs

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Last updated on

07 Sep, 2021

Founded in 1935 by Khwaja Abdul Hamied, Cipla has established itself as a reliable and reputable pharmaceutical company in the home markets of India, South Africa and North America. Cipla's product portfolio spans complex generics as well as drugs in the respiratory, anti-retroviral, urology, cardiology, anti-infective, CNS, and various other key therapeutic segments. Its products are distributed in more than 80 countries worldwide. Cipla is the third-largest pharma company in the domestic formulations market, which contributes ~40% of its total revenue. Cipla is developing a comprehensive portfolio of respiratory products across varied dosage forms (MDI, DPI and nasal sprays) for the regulated markets of EU and the US.

Investment Rationale
US growth driven by Cipla’s DTM business
: Cipla’s US business has grown at 10% cc CAGR over FY18-21, as launches of complex generics and respiratory products enabled it to ramp-up its DTM (own front-end) business, from ~USD80m in FY18 (20% of US sales) to ~USD305m in FY21 (56% of US sales). Cipla’s respiratory portfolio (Albuterol, Budesonide) has crossed the USD100m sales-mark, accounting for 18% of its overall US business. Although most Indian peers saw significant QoQ decline in US sales during 1QFY22, market-share ramp-up in Albuterol has allowed Cipla to maintain steady US sales.

Outlook & Valuation:
Cipla has defined 10 Strategic Business Objectives in its FY21 AR, with the company maintaining focus on superior execution across its branded home markets of India & SA and portfolio expansion in the US respiratory & complex generics space. While Albuterol market-share ramp-up has allowed Cipla to maintain steady US sales as against the sharp erosion witnessed by peers, the recent Brovana launch along with upcoming launches (Qvar, Abraxane & Advair) will drive further traction in the US business over the next 2-3 years. Factoring of trade receivables has driven significant reduction in WCap intensity, thereby enabling Cipla to generate USD680m cumulative FCF during FY20 & FY21. We expect the strong US product launch momentum to drive cumulative FCF of USD1.3bn over FY22-24ii and RoIC to improve to 20/26% in FY23/24ii. Cipla remains our top-pick among large-cap pharma and we initiate a Buy with a TP of Rs1,127.

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