Cipla hit a 52-week high of Rs 1,283.55 on November 22, 2023, and the company fell 6.8 percent after the warning letter from USFDA. On Tuesday’s session share price of the company opened at 0.11 up Rs 1,200 from its previous close of Rs 1,198.65.
The reason behind the fall of the share?
The USFDA issued a warning letter to Cipla on November 17 for its plant in Pithampur, Indore, highlighting issues with Albuterol inhaler manufacturing, contamination incidents, document disposal procedures, and repeat observations at multiple sites.
Furthermore, the company continued to withhold new drug approvals from the site until the issues were resolved. Cipla expects to complete remediation efforts by July 2024 and is targeting a reinspection by the USFDA in July or August of next year. The delay in new drug approvals is likely to impact Cipla’s financial performance.
Albuterol is an inhaler used to prevent and treat asthma and chronic obstructive pulmonary disease-related wheezing, breathing difficulties, and coughing.
According to Jefferies,
Cipla’s Indore plant has been under Official Action Indicated (OAI) for several months, and the recent warning letter from the USFDA does not change the status of the plant. However, prolonged remedial work on the warnings issued may put FY26 earnings per share (EPS) at risk.
Analysts at Jefferies estimate that the Indore plant contributes around 30 percent to Cipla’s US sales and 8 percent to overall sales, with Albuterol being the largest contributor. While they assign a low probability of an import alert, they warn that the remedial work could be prolonged.
The brokerage also said that 47 percent of import alerts are due to data integrity issues, 37 from product and quality issues, 10 from hiding information from the regulator, and 7 percent were due to repeat observations.
As a result of these concerns, Jefferies has maintained its “hold” call on the stock with a target price of Rs 1,230 which is 2.8 percent from its current level of Rs 1196.25.
Companies Financials
The company has reported its net revenue rose 14.5 percent year on year from Rs 5,828 crores in Q2FY23 to Rs 6,678 crores in Q2FY24. In addition, net profit rose 43 percent year on year, from Rs 789 crores in Q2FY23 to Rs 1,130 crores in Q2FY24.
Cipla Limited is a large-cap business with a market valuation of Rs 96,960 crores. The company has a low debt-to-equity ratio of 0.04 and a low price-to-earnings ratio of 28 when compared to its peers.
The share price of the company has increased by 25 percent in the last six months and by 11.7 percent year to date.
The company’s promoters own 33 percent, foreign institutional investors 25 percent, the general public 16 percent, and domestic institutional investors 24 percent.
About Company
Cipla Limited is a multinational pharmaceutical company headquartered in Mumbai, India. Cipla’s primary focus is on the development of medicines to treat respiratory diseases, cardiovascular disease, arthritis, diabetes, depression, and a variety of other medical conditions.
Written by Sriram KV
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