Brokerage trims estimates for Cipla amid regulatory setback. Should you buy this pharma stock?

In three trading sessions, Cipla stock is down by more than 6.5% on Dalal Street.

Brokerage firm Prabhudas Lilladher in its report said that it has cut its FY24 and FY25 EPS estimates by 8 percent each, but has recommended ‘BUY’ with revised target price of ₹1,070 per share from the earlier ₹1,280.

The brokerage noted that Cipla’s key facilities (Goa and Indore) have received FDA observations which could lead to delay in new launches like gAdvair in the US.

Also, a few observations raised are critical in nature and time-consuming to resolve. However, these issues are ‘unlikely to escalate import alert and thereby have limited impact on existing business, it said.

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“We cut our FY24E and FY25E EPS estimates by ~8% each, given Cipla’s key facilities (Goa and Indore) stuck in FDA issues leading to delay in new launches like gAdvair in US. Despite earnings cut, we believe Cipla’s risk-reward is favorable at current levels. We expect 14% EPS CAGR over FY23-25E given the recent correction in stock price. At CMP, stock is trading at 18x FY25E EPS. Recommend ‘BUY’ with revised TP of ₹1,070/share (1280 earlier), based on 22x FY25E EPS,” said Prabhudas Lilladher.

The report by Prabhudas Lilladher said that Indore is one of the key facilities for Cipla from which it files respiratory products, mainly inhalers and it contributes 5% to total revenues. This could have a result in ‘increase in remediation cost in near term’ said the brokerage.

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“Indore is one of the crucial facilities for Cipla. The facility contributes 5% to total revenues. Key filings like gAdvair have been made from this facility. Apart from gAdvair, some other niche inhalation filings like gSymbicort, gQvar have been done. Among existing products, gAlbuterol, gBrovana are being supplied from Indore facility. Overall this will also result in increase in remediation cost in near term,” the brokerage said.

Further, Prabhudas added that there could a delay in Cipla’s growth in US market. It said that Cipla had earlier guided a $900 million-$1.2 billion sales in US by FY25 but this pushed back by a year due to the issues in the plant.

“Cipla had earlier guided $900mn-$1.2bn US sales by FY25E. This has got pushed back by a year, given ongoing plant issues. Our FY24E US sales of $720mn hinges on healthy market share in gAlbuterol, continued ramp up in gLanreotide and gLeuprolide along with gRevlimid sales. We are now factoring gAdvair launch in FY25E. Overall, we now factor in $720mn and $760mn US sales in FY24E and FY25E,” it noted.

The stock closed 0.68 per cent low at ₹899.85 on BSE. Cipla share price today opened flat and went on to hit intraday low of ₹896.15 apiece on BSE.