Stock opinion: CIPLA is a long term blue chip

powerfulpicks stock opinion:

1. A huge generics potential is being created in the coming couple of years for Indian pharma companies going by the increase in product approvals of their foreign generic partners. The export revenues from the bulk drugs segment is expected to grow at an average annual rate of 10-12% between FY10 and FY13. CIPLA's initiative to tie up with new customers are also expected to drive the growth of bulk drug exports. In addition, Cipla's formulation exports are expected to grow at an annual rate of 20% over the next three years. Formulations in anti-hypertensives, anti-AIDS, anti-asthma and anti-ulcerants therapeutic segments will be the growth drivers. Overall, we can expect exports to grow at an average annual rate of 16-18% between FY10 and FY13.
2. CIPLA also has a track record of launching new products faster than any other of its competitor in the high value therapeutic segments.
3. Cipla's exports strategy is different from domestic companies such as Ranbaxy and Dr. Reddy's. The latter are competing directly in the global generics market. Cipla's focus however is on contract manufacturing. The global generics players, meanwhile, take care of the regulatory aspects. They also launch the drugs in the market. In that sense, Cipla's business model is relatively steadier because the stability in terms of revenues and margins is higher than that in the generics model.
4. The company has entered into partnerships with around 22 companies in the US. Some of these include Teva, Watson, Eon, Morton Grove, Pentech Pharma, Paddock, Akorn and Metpoint. Around 57 ANDAs of its partners have been approved. 35 of which so far have been commercialized. Besides this, the company has over 6,000 product registrations in more than 170 countries worldwide.
5. Cipla enjoys a near dominant position in the asthma segment (about 15% of sales). It is one of the few companies globally having the required technology to manufacture CFC-free inhalers. With CFC (Chlorofluorocarbons) inhalers to be compulsorily phased out by 2010, this segment is expected to see growth in the future. Cipla is targeting to market its inhalers in Europe, which is the biggest market for inhaler drugs. At present, it has received approvals for 'Budesonide' in Germany and Portugal, 'Salbutamol MDI' in Denmark, UK and Portugal. Moreover, 8 inhalers have been developed for the EU and 6 have been submitted for registration. The timeframe for the regulatory and compliance work for these inhalers is expected to take another 2 years. By that time, the inhalers will also lose their patents and so Cipla would be able to launch these inhalers then.
6. Cipla also has a strong presence in the antiretroviral segment and is one of the key suppliers to the Clinton Foundation HIV/AIDS Initiative (CHAI) and the US President's Emergency Plan for AIDS Relief (PEPFAR). These organizations supply medicines to developing nations around the world most notably Africa. Among the purchases made by the WHO and CHAI, around 69% are from Indian generic players namely, Cipla, Ranbaxy, Hetero, Aurobindo, Strides and Emcure. Among these, Cipla enjoys the highest market share at 51%.
7. Cipla is also harnessing ambitions of being a strong player in the biotech space. The company recently acquired stakes in two biotech companies called Mab Pharm in India (40% stake) and BioMabs in Hong Kong (25% stake). The company has invested US$ 65 m in these acquisitions and the primary focus initially will be on oncology (anti-cancer). Other focus areas would include asthma, arthritis, rheumatism and the like. Cipla will have the rights to market products of both the companies in India and the international markets. Biotech is a very niche area as the products are quite difficult to manufacture and so there is
   potential for higher revenues and profits due to limited competition. Plus manufacturing 'biosimilars' (generic versions of patented biotech products) require clinical trials too. Hence, the barriers to entry are higher.

Buy CIPLA on dips around 308 or lower for a 18 month target of 391 (+27%).