Is Cipla up for sale?... If YES, at what price?:: Emkay

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Cipla Ltd

Is Cipla up for sale?... If YES, at what price?

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CMP: Rs367                                        Target Price: Rs350

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n     Several times in the past, rumors that Cipla might be sold out to MNCs have been making market rounds on & off. Reasons being a) Promoters getting aged, b) Successor issue, & c) Mr. Amar Lulla moved out

n     If such an event triggers, the market would be excited to know at what price?  Our calculations  suggests the probable price at which the deal could materialize

n     Considering the valuations at which Piramal and Ranbaxy promoters sold their stake to MNC’s, we have arrived at per share value for Cipla (refer Table 1)

n     Our fair value for Cipla is Rs350 per share.  We are of the view that Cipla will continue to trade at a premium till the stake sale buzz remains active in the market.  We continue to remain positive on the company

Why Cipla is a strategic fit for MNCs?

• Strong domestic presence (largest standalone domestic company; largest distribution
and sales network)
• Presence in other emerging markets such as South Africa, Middle East and Australia
(presence in more than 175 countries)
• Strong product portfolio and development capabilities (1600 formulation products are
already registered)
• State of the art manufacturing facilities (19 manufacturing facilities) including ability to
manufacture complex products such as Aerosols, Hormones, etc
• Largest portfolio of generic inhalers both CFC as well as HFA inhalers including
combination inhalers
• Market for generic inhalers is likely to open in regulated markets which can provide
decent upsides

Why MNCs are willing to pay premium?
• To get the foothold in the high growth emerging markets (growing double digit vs. low
single digit growth of developed markets)
• To strengthen their presence in one of the most lucrative markets (India; likely to
grow 3x in next 10 years) within the emerging countries
• Most of the MNCs are having huge cash piled in the balance sheet (on which they
hardly generate any income) and by investing the same money in the high growth
markets such as India; they can make their cash more productive


How Cipla has fared in the last 1 month?
In the last 1 month, Cipla has outperformed both Sensex as well as its peers (Table 2). This
implies that the market has already factored in some of the value from this possible deal.
Our fair value for Cipla is Rs350 per share (20x FY12E). We are of the view that Cipla will
continue to trade at premium till the buzz of stake sale remain active in the market.
Moreover, low risk business model and strong balance sheet provide downside protection
to the investors. We continue to remain positive on the company.

Potential hurdle
Following the sale-out of domestic businesses by Ranbaxy and Piramal to MNCs,
government regulatory authorities have shown their concerns that an Indian consumer
might end up paying higher prices for the medicines. They have been contemplating to
remove auto FDI in pharma sector so as to discourage Indian promoters selling out their
stake to MNC counter parts. This we believe could be a potential risk.