Cipla - Gladiator Stocks - ICICI Securities

Strategy

Buy Cipla in the range of Rs. 645.00-667.00 for target price of Rs. 750.00 with a stop loss of Rs. 595.00. Time Frame: Six months

Technical View

The stock has generated a resolute breakout above the long term supply line joining the highs of CY 2015 ( Rs. 752) CY 2018 (Rs. 678) currently at Rs. 610 levels signalling reversal of the long term corrective trend and a structural turnaround. Going ahead we expect the stock to outperform in the pharma space thus offering fresh entry opportunity.

Structurally it has witnessed a faster retracement of the last 18 months decline from Rs. 678 to 356 in just four months. A faster retracement in less than half the time interval signals a robust price structure.

Based on the above technical observations we expect the stock to head towards Rs. 750 levels being the price parity with previous up move Rs. 565 to 692 as projected from recent low of Rs. 621 signalling upside towards Rs. 750 levels in coming months.

Fundamental View

Formed by Dr KA Hamied way back in 1935, Cipla is one of the oldest ventures set up by an Indian in the pre-independence era. With 46 manufacturing facilities spread across the world, Cipla has a gamut of therapeutic offerings ranging from simple anti-infectives to complex oncology products. The product basket includes ~1500+ products encompassing almost all therapies and over 50 dosage forms.

Formulation exports comprise ~54% of FY20 revenues. The company is focusing on front-end model, especially for the US, along with a gradual shift from loss making HIV and other tenders to more lucrative respiratory and other opportunities in the US and EU. We expect export formulation sales to grow at 10.9% CAGR to Rs. 11377 crore in FY20-22E. Key drivers will be a launch of inhalers (drug-device) and other products in developed markets.

We continue to focus on the management's long-drawn strategy of targeting four verticals viz. One-India, South Africa & EMs, US generics & specialty and lung leadership. Recent first generic approval by USFDA for Albuterol sulphate (Proventil HFA) amid rise in demand for Albuterol products in the ongoing Covid-19 pandemic are a vindication for its lung leadership quest. While US focus will be on specialty including hospitals, value accretive generics, India focus will be on branded (Bx), trade generics (Tx). On the Africa front, Cipla continues to rebase its business model towards private business in the backdrop of shrinking tender opportunities. Another key aspect to watch would be R&D recalibration. Across the board transformation from tenderised model to private model in exports market and towards rapid consumerisation of important Tx, Bx in India bode well to change the investors' perspective.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_GladiatorStocks_Cipla_Jul20.pdf

Shares of CIPLA LTD. was last trading in BSE at Rs.689 as compared to the previous close of Rs. 674.5. The total number of shares traded during the day was 798323 in over 12485 trades.

The stock hit an intraday high of Rs. 696.2 and intraday low of 669.55. The net turnover during the day was Rs. 547937729.

Source : Equity Bulls

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