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Cipla Rises On U.S. Drug Regulator’s Clearance For Indore Plant

Cipla is among the top gainers on the Nifty post US FDA’s clearance for Indore plant 

General views of drugs (Photographer: Brent Lewin/Bloomberg)
General views of drugs (Photographer: Brent Lewin/Bloomberg)

Shares of Cipla Ltd. gained after the U.S. drug regulator gave its clean chit to the pharmaceutical major’s Indore plant.

The company "received Establishment Inspection Report (EIR) from the United States Food and Drug Administration for its Indore facility indicating formal closure of the inspection conducted in July/August, 2015," Cipla said in an exchange filing on Wednesday. Cipla had received nine observations during the inspection last year.

The U.S. market contributed around 15 percent to Cipla’s total sales in the financial year 2015-16. In the first quarter of the current financial year, U.S. accounted for 18 percent of Cipla’s sales.

With the EIR for Indore plant, the FDA overhang reduces materially for Cipla, Credit Suisse said in a note to its clients. The approval boosts Cipla’s attempts to scale-up its U.S. presence, the brokerage added.

The key upside in Cipla is from normalisation of margins from the current low level of 16-17 percent. Ramp-up of U.S. sales plays a key role in margin expansion and thus maintaining a clear status of facilities is essential. Observations at the Indore facility were related to good manufacturing practices and were more serious than the Goa plant. Cipla now has a clear status on the Indore facility and the Invagen facility, and in our view, the recent observations on its Goa plant are unlikely to escalate further.
Anubhav Aggarwal, Research Analyst, Credit Suisse

Cipla remains the top pick for Credit Suisse. The brokerage has an 'outperform’ rating on the stock with a price target of Rs 675.

Phillip Capital has maintained a negative view on the stock despite the U.S. FDA approval.

This certainly improves the drug approval visibility in the near future but the stock has already rallied to trade at premium valuation of 24 times FY18 earnings per share and we estimate Cipla to report 27 percent earnings decline in the second quarter. So we remain negatively biased at the current market price.
Surya Patra, Analyst, Phillip Capital

The Cipla stock rose as much as 3.1 percent to Rs 599 before drifting lower to Rs 588 as of 10:30 a.m.