Whalesbook
Cipla Correction Presents Buying Opportunity
Systematix Group's Pharma Analyst, Vishal Manchanda, believes Cipla's current stock weakness represents a significant buying opportunity. He posits that the market has largely priced in the downside risks, and an earnings rebound is likely as the company resolves ongoing approvals and supply chain issues.
Key Headwinds and Analyst View
The US market, contributing approximately 27% to Cipla's sales, has faced headwinds. A temporary halt in manufacturing for its top US product, Lanreotide, due to US regulator observations, poses a risk, with resupply not expected until the first half of FY27. Furthermore, increased competition in a key generic cancer drug has diminished its profit potential, leading to revised downward EPS estimates for FY26-FY28. US sales are projected to be flat or decline slightly in the near term.
Valuation and Future Outlook
Manchanda highlights that Cipla is currently trading at around 21 times its FY27 estimated earnings, a valuation considerably lower than its 10-year median multiple of approximately 30 times. This suggests limited downside risk. For FY26, US sales are expected to remain stable, with new product launches offsetting declines in older ones. Management has set an ambitious target for a US revenue run rate of $1 billion by Q4 FY27, which could lead to upside surprises if achieved.