Cipla Ltd.
(BSE Code: 500087) (CMP: Rs.654.95) (FV: Rs.2) (TGT: Rs.1500)
Cipla Ltd is a pharmaceutical company with business units focused on Active Pharmaceutical Ingredients (APIs), Respiratory and Cipla Global Access. The Company offers APIs, formulations and veterinary products. As of 31 March 2015, Cipla offered services across five continents and in countries like India, South Africa, Europe and North America, among others. It offers over 1,000 products across 120 countries that treat cardiovascular diseases, children’s health, dermatology and cosmetology, diabetes, Human Immunodeficiency Virus/Acquired Immuno Deficiency syndrome (HIV/AIDS), infectious diseases and critical care, malaria, neurosciences, oncology, ophthalmology, osteoporosis, respiratory, urology and women’s health. It also offers veterinary products in categories such as companion, equine, general care, livestock and poultry. Cipla’s UK arm has entered into an agreement to acquire two US-based companies, InvaGen Pharmaceuticals Inc (InvaGen) and Exelan Pharmaceuticals Inc (Exelan) for $550 million. The transaction is likely to close by December 2015, subject to certain closing conditions and will be financed by internal accruals and debt (bulk of the deal will be done through cash). At combined revenues of $218 million (InvaGen sales at $190 million and Exelan sales at $28 million), the deal is valued at price to sales of 2.5x and is likely to be EPS-accretive from the first year of consolidation. This acquisition is in line with Cipla’s growth strategy for the US market. It will scale up Cipla’s US generics market through the product portfolio which ranges from Cardio Vascular System (CVS), Central Nervous System (CNS), antiinfectives, anti-diabetics, anti-inflammatory to anti-depressants. The acquisition of InvaGen will also provide Cipla with about 40 approved Abbreviated New Drug Applications (ANDAs), 32 marketed products and 30 new products, which are expected to be approved over the next four years. Moreover, InvaGen has filed 5 first–to-file (FTF) products which represent a market size of $8 billion by 2018. This acquisition will also help Cipla access the large wholesalers/retailers in the USA. The acquisition of Exelan will help Cipla access the government and institutional markets.Since the said acquisitions will be EPS-accretive from the first year of consolidation on the basis of rough-cut calculation, we expect 1% EPS-accretion in FY16 and ~5% in FY17. However, we currently maintain our earnings estimates for FY16 and FY17 and may revise it after getting appropriate financial details of the acquired companies. These acquisitions will help Cipla end its struggle to get its US distribution on track. These are strategic steps that will help Cipla get the much needed front-end to leverage its existing and future products portfolio. We, therefore, remain optimistic on the long-term growth strategy of the company and recommend a Buy on the share with a price target of Rs.725. Technical Outlook: The Cipla stock looks very good on the daily chart for medium-term investment. The stock is consolidating between Rs.630-740 levels. The stock on the short-term daily chart has formed a strong upward move and shows some strength. The stock is also trading at important support moving averages like 200 DMA. Start accumulating at this level of Rs.655 and on dips to Rs.620 for medium-to-long-term investment and a possible price target of Rs.1500+ in the next 16 Months.
Cipla Ltd is a pharmaceutical company with business units focused on Active Pharmaceutical Ingredients (APIs), Respiratory and Cipla Global Access. The Company offers APIs, formulations and veterinary products. As of 31 March 2015, Cipla offered services across five continents and in countries like India, South Africa, Europe and North America, among others. It offers over 1,000 products across 120 countries that treat cardiovascular diseases, children’s health, dermatology and cosmetology, diabetes, Human Immunodeficiency Virus/Acquired Immuno Deficiency syndrome (HIV/AIDS), infectious diseases and critical care, malaria, neurosciences, oncology, ophthalmology, osteoporosis, respiratory, urology and women’s health. It also offers veterinary products in categories such as companion, equine, general care, livestock and poultry. Cipla’s UK arm has entered into an agreement to acquire two US-based companies, InvaGen Pharmaceuticals Inc (InvaGen) and Exelan Pharmaceuticals Inc (Exelan) for $550 million. The transaction is likely to close by December 2015, subject to certain closing conditions and will be financed by internal accruals and debt (bulk of the deal will be done through cash). At combined revenues of $218 million (InvaGen sales at $190 million and Exelan sales at $28 million), the deal is valued at price to sales of 2.5x and is likely to be EPS-accretive from the first year of consolidation. This acquisition is in line with Cipla’s growth strategy for the US market. It will scale up Cipla’s US generics market through the product portfolio which ranges from Cardio Vascular System (CVS), Central Nervous System (CNS), antiinfectives, anti-diabetics, anti-inflammatory to anti-depressants. The acquisition of InvaGen will also provide Cipla with about 40 approved Abbreviated New Drug Applications (ANDAs), 32 marketed products and 30 new products, which are expected to be approved over the next four years. Moreover, InvaGen has filed 5 first–to-file (FTF) products which represent a market size of $8 billion by 2018. This acquisition will also help Cipla access the large wholesalers/retailers in the USA. The acquisition of Exelan will help Cipla access the government and institutional markets.Since the said acquisitions will be EPS-accretive from the first year of consolidation on the basis of rough-cut calculation, we expect 1% EPS-accretion in FY16 and ~5% in FY17. However, we currently maintain our earnings estimates for FY16 and FY17 and may revise it after getting appropriate financial details of the acquired companies. These acquisitions will help Cipla end its struggle to get its US distribution on track. These are strategic steps that will help Cipla get the much needed front-end to leverage its existing and future products portfolio. We, therefore, remain optimistic on the long-term growth strategy of the company and recommend a Buy on the share with a price target of Rs.725. Technical Outlook: The Cipla stock looks very good on the daily chart for medium-term investment. The stock is consolidating between Rs.630-740 levels. The stock on the short-term daily chart has formed a strong upward move and shows some strength. The stock is also trading at important support moving averages like 200 DMA. Start accumulating at this level of Rs.655 and on dips to Rs.620 for medium-to-long-term investment and a possible price target of Rs.1500+ in the next 16 Months.
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