Nomura Financial Advisory and Securities expects Cipla to gain significantly from gNExium in the near term, which should help company counter the adverse impact of currency movements and slippage in EU inhaler pick up, in our view. ''Based on Teva's 1QCY15 results, we conclude that the pricing of gNexium is strong and at the current price the generic market size is USD 1.8bn, implying only a marginal 10% discount to innovator's price realisation,'' it said. ''We also estimate Cipla might be entitled to approx. 20% of Teva's profit on gNexium. Accordingly we are revising up our 4QFY15 earnings estimate to INR 4.8bn from INR 3.8bn (see 4QFY15F results preview 10 April 2015). Our earnings estimate for FY16F and FY17F remain largely unchanged as the upside from Nexium is negated by lower EU inhaler sales and currency movements. Since September 2014, CIPLA is up 4%, underperforming BSE Healthcare Index, which is up 18%. Despite the underperformace we believe the valuations do not factor in risk of slippage as the stock continues to trade in line or at a premium to peers. The stock may have some near-term strength on account of Nexium upside. We would be sellers in such a rally,'' said Nomura. Cipla is trading at 25.8x and 23.4x FY16 and FY17 estimates. Cipla trades at a discount to LPC but at a premium to Sun Pharma and Dr Reddy's. Cipla is executing a transformational strategy with a new management team. Its peers on the other hand have management teams with long established track records. ''Further there are significant regulatory and commercial risks to the high value inhaler program. Though Cipla has stepped up investment in personnel and front-end infrastructure, it is yet to step up R&D investments. Hence, we believe Cipla is unlikely to trade at a premium to peers. We value Cipla at 23x FY17F to arrive at our 12m target price of Rs 626,'' Nomura added.
| 
