Cipla Ltd. share price target

Nexium cools in 2Q; scale up in respiratory remains critical ffInvagen could act as a transformational catalyst, albeit in the long term, with US contributing 20% to overall sales. However, we assess that most of the products are me-too oral solids lacking differentiation. Besides, it has not received any...

Cipla acquired Hetero's US business (Invagen Pharma and Exelan) for US$ 550mn (2.4x/11.6x TTM sales/EBITDA). The acquisition adds a basket 40 approved ANDAs (32 marketed) and a pipeline of 30 products (including five firsttofile products with a...

Our Assumptions: We assume Cipla would finance the acquisition with internal accruals of US$450mn (cash of US$195mn and other income of US$250mn) and ECB of US$100mn (cost of equity at 5%). Assuming US$5mn per ANDA, 8 launches every year, Cipla could incur US$40mn of incremental sales p.a. along-with base business growth of 19%. However, we understand that ~10 products are overlapping and factor in sales loss of ~US$10mn. Hence, the incremental sales of US$30mn would be offset by the interest costs in the first year. We note the Para IVs: Renvela, Renagel, Latuda, Prezista, Evista could potentially add US$200mn of sales. However, most of these...

ff Teva captured ~35% market share since its launch in Feb-15. This led Cipla to book blockbuster sales in 1Q (30% profit sharing). However, with Mylan being the 2nd generic to enter, we expect generic substitution rates to rise through 50% by year end. Its guidance of 20% sales growth exposes the weak base business; we expect gNexium to fade in the ensuing quarters (expect US$110mn in FY16E). ff Management indicated higher R&D; expense (guided at 8% from 6% in FY15) as it intends to fast track projects in biologics, respiratory and complex generics. Combination of higher staff and R&D; costs to continue in 9MFY16E. This will lead...

Buy on dips to Rs 532 - Rs560 for Target of Rs 630 in 1 quarter

The company expects to launch 2 vaccines, 2 Respiratory, couple of Derma products and 1 Anti Diabetic product in next 2 years. The company has reduced the price of a respiratory product (Seretide) to Cipla's level.

Buy at Rs 668.1 and add on dips to Rs 574 - Rs 602 for Target of Rs 742 in 1-2 quarters