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The Cipla stock has been making fresh all-time highs over the last two trading sessions and has been outperforming its peer index, the BSE Healthcare Index since August. The stock is gaining momentum on the back of the company’s plans to aggressively expand its overseas presence riding on a strong product pipeline and its target to quadruple revenues by 2020.
Given the roadmap of enhancing its revenues and expanding presence in key markets such as the US as well as the traction the domestic formulations space has seen, the Street is upgrading its earnings estimates. Analysts at CIMB have increased their FY15 EPS estimates for Cipla by 5% on the back of a recovery in the Indian business growth as well as upsides from the recent Rs 2,700 crore acquisition of Medpro. The share of the Africa business is thus expected to improve to 25% from the current 18% by FY15.
Given the roadmap of enhancing its revenues and expanding presence in key markets such as the US as well as the traction the domestic formulations space has seen, the Street is upgrading its earnings estimates. Analysts at CIMB have increased their FY15 EPS estimates for Cipla by 5% on the back of a recovery in the Indian business growth as well as upsides from the recent Rs 2,700 crore acquisition of Medpro. The share of the Africa business is thus expected to improve to 25% from the current 18% by FY15.
While revenue and earnings growth due to the South African acquisition could be a near-term catalyst, the inhaler opportunities in the developed markets could play out in the long-term, believe analysts.
One of the key talking points for the company in recent weeks has been its plans to increase its revenues from the current Rs 8,000 crore reached in FY13 to about Rs 30,000 crore over the next seven years. A large part of this growth is expected to come from the US market where it plans to grow its revenues from the current $200 million to a $1 billion during the same period. Similarly, Europe accounts for $100 million sales currently, and should also grow at a fast pace.
In the longer term, the company could see substantial upsides from its commercialisation of inhaler portfolio in regulated markets. While the global respiratory market is $34 billion, the launch of Cipla’s combination inhaler Advair over the next couple of years could open up a combined US and EU market pegged at $6.5 billion. Given limited competition, expect higher margins from the drug which is expected to generate annual sales of $200 million for the company starting FY16.
Meanwhile, even as the new pricing policy is a negative for the domestic industry, the company estimates that revenue impact on domestic sales will be limited to the tune of 2-3%. The company outperformed its domestic peers in July on the back of good performance in anti-infectives and respiratory segments, which together account for more than 50% of its domestic revenues. While the overall pharma market grew at about 9% for July, Cipla thanks to the 14-27% growth from these two segments notched up overall sales growth 17%.
In the backdrop of these events, analysts expect the company’s earnings to grow by 22% in FY15 and another 19% in FY16, which is far higher than the 10% they expect for current year. And, at the current price of Rs 440, they have an outperform rating on the stock, which is trading at 18 times its FY15 estimates.
RAM PRASAD SAHU
