Sumeet Bagadia lists Cipla as top 'Valentine's Day 2024 Pick'; here's why

Sumeet Bagadia of Choice Broking has chosen Cipla as his ‘Valentine's Day 2024 Pick’. Bagadia has recommended a ‘Buy’ on the pharma stock at ₹1,450 and up to ₹1,415 for a target price of ₹1,600 to ₹1,660.

According to the expert, Cipla is currently trading at ₹1,450, moving within the range of ₹1,420 to ₹1,450 and showing signs of readiness for a breakout. The formation of new higher highs and higher lows suggests a potential upward movement, with projected targets at ₹1,600 and ₹1,660. 

Importantly, significant support is evident around ₹1,415. Moreover, Cipla is trading above key Exponential Moving Averages (EMAs), including the 20-day, 50-day, 100-day, and 200-day EMAs, indicating a robust bullish momentum. The Relative Strength Index (RSI) stands at 66.8, confirming an upward trajectory and signaling increased buying momentum.

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A prudent strategy involves considering buying opportunities during market dips, particularly around the ₹1,415 level. In summary, based on technical analysis and current market conditions, Cipla appears to present a promising buying opportunity for those aiming at price objectives of ₹1,600 and ₹1,660, contingent upon the implementation of prudent risk management measures, said the expert.

Stock Price Trend

The stock has already jumped almost 39 percent in the last 1 year. In comparison, the Nifty Pharma index has advanced 53 percent in the last 1 year.

Meanwhile, it had advanced 8 percent in February 2024 so far after an 8.4 percent gain in January 2024. February is the fifth straight month when the pharma stock has given positive returns. In this period, between October 2023 and February 2024, the stock has added over 23 percent.

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The stock hit its record high of ₹1,462.20, in intra-day deals today (February 13). It has now rallied almost 72 percent from its 52-week low of ₹852.00, hit on March 22, 2023.

Earnings

The pharma company reported a 32 percent year-on-year (YoY) jump in its consolidated net profit at ₹1,056 crore for the December quarter of FY24, on the back of robust sales across geographies. It had posted a consolidated net profit of ₹801 crore in the year-ago period.

Meanwhile, its total revenue from operations in the quarter under review rose almost 14 percent to ₹6,604 crore as compared with ₹5,810 crore in the year-ago period.

"Our focus continues on expansion in chronic therapies, growing big brands, global wellness as well as developing our R&D pipeline in respiratory and peptides. We will continue to focus on driving profitable growth across businesses," said Cipla MD and Global CEO Umang Vohra.

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"In North America, we continue to scale newer peaks by posting the highest-ever quarterly revenue yet again at USD 230 million, supported by positive traction in key assets and base business. The company's South Africa business further extended its momentum from last quarter by growing at 15 percent in local currency terms driven by strong execution across various segments like prescription and OTC," he added.

Fundamental View

Post the earnings announcement, brokerage house Sharekhan maintained a 'Buy' rating on the stock and raised its target price to ₹1,600 (from ₹1,350 earlier), implying an upside of 10 percent from the current market price. As per the brokerage, Cipla reported strong earnings, beating estimates on all fronts.

"Sales growth was led by strong seasonality across regulated markets, where North America reported the highest-ever growth of USD230mn, India sales growth was driven by higher contribution from the chronic segment of 60 percent, and South Africa growth was driven by improving traction in the private and OTC markets. EBITDA margin was at an all-time high of 26.5 percent due to a healthy product mix. Management maintained its EBITDA margin guidance to 23-24 percent for FY24E. We believe the company should surpass its guidance and report 25.3 percent EBITDA margin in FY24E due to a healthy product mix," it said.

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Cipla is expected to outgrow industries in the regulated markets in India, North America, and South Africa largely through new launches, including peptides, added Sharekhan.

Meanwhile, Motilal Oswal also retained its ‘buy’ call on Cipla with a target price of ₹1,600, again indicating a 10 percent upside.

"CIPLA beat our earnings estimates in 3QFY24, aided by outperformance in the domestic formulation (DF)/North America (NA) segments and better operating leverage. These factors were offset to some extent by a muted performance of emerging markets and the API segment. The company is making efforts to minimize the timeline for potential approvals (g-Advair/g-Abraxane) in the NA market," explained MOSL.

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It raised Cipla's EPS estimates by 12 percent/9 percent/7 percent for FY24/FY25/FY26 to factor in a) peptide-based niche approvals, b) industry-beating growth in core chronic therapies in the DF segment, and c) continued efforts for brand-building in consumer healthcare.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.