CIPLA Ltd Stock Research Report

Regulatory Hurdles Cloud the Outlook

Est. Vs. Actual for Q2FY25: Revenue – INLINE; EBITDA Margin – BEAT; PAT – BEAT

Changes in Estimates post Q2FY25.

FY25E/FY26E: Revenue: -3.8%/-1.8%; EBITDA Abs.: -3.8%/-1.8%; PAT: -4.2%/-2.0%

Recommendation Rationale

• The company’s US revenue stood at $237 Mn, reflecting a 3.5% YoY increase, although this was affected by lower Lanreotide sales as the partner’s manufacturing plant underwent capacity expansion.

• India’s branded prescription segment grew by 4.7%, with seasonal impacts on the acute category, which increased by 4.9% compared to 12% in the previous quarter. Chronic products now comprise 61% of revenue, continuing to outpace IPM growth.

• In South Africa, the business expanded by 28.9% YoY, supported by several recent tenders.

• Gross margins improved by 226bps YoY and 38bps QoQ, primarily due to changes in product mix. The company achieved its highest-ever EBITDA margin of 26.7%, an improvement of 78bps YoY and 111bps QoQ.

• Reported PAT reached Rs 1,305 Cr, marking a 13% YoY increase.

Sector Outlook: Positive

Outlook & Valuation: We are reducing our estimates by 4.3% and 2% for FY25 and FY26, respectively, due to lower Lanreotide sales and the delayed launches of Abraxane and Advair owing to regulatory issues. We expect US sales to remain flat in FY27, with GRevlimid contribution potentially halved. Given these considerations, we are adjusting our target price to Rs 1,700, maintaining a BUY recommendation.

Current Valuation: PE 26x for H1FY27 earnings (Earlier Valuation:PE 28x)

Current TP: Rs 1,700/share (Earlier TP: Rs 1,800/share)

Recommendation: BUY

CIPLA Ltd Stock Research Report

Financial Performance:

Cipla’s Q2FY25 results met our expectations, with revenue growing 5.6% YoY. This growth was driven by a 7.6% increase in the SAGA region and a 10% rise in international markets, while India and North America experienced mid-single-digit growth. The company’s US revenue stood at $237 Mn (vs. our expectations of $238 Mn), though it was affected by lower Lanreotide sales as the partner’s manufacturing plant underwent capacity expansion. Sales are expected to rebound in Q4FY25, with Q3FY25 sales projected at around $220 Mn.
Cipla has maintained its market share at 15% in Albuterol and 35% in Lanreotide. The company’s India business grew by 4.7% YoY, propelled by branded prescriptions and trade generics. Seasonal impacts on the acute category increased by 4.9% compared to 12% in the previous quarter. Chronic now comprises 61% of revenue, which continues to outpace IPM growth. The private market has expanded its quarterly revenue by 28.9% YoY, leading to better QoQ margins in the SAGA region. Gross margins improved by 226 bps YoY and 38 bps QoQ, primarily due to changes in product mix. The company achieved its highest-ever EBITDA margin of 26.7%, an improvement of 78 bps YoY and 111 bps QoQ. Reported PAT reached Rs 1,305 Cr, marking a 13% YoY increase.

The company’s Pithampura facility has received 483 observations, with the final inspection classification yet to be determined. Symbicort and Peptides could be launched from the Goa facility after the final results in H1FY26E. Any delay in the clearances of these two major facilities could postpone the top launches.

Key Financials (Consolidated)

Company Outlook & Recommendation:

We are reducing our estimates by 4.3% and 2% for FY25 and FY26, respectively, due to lower Lanreotide sales and the delayed launches of Abraxane and Advair owing to regulatory issues. We expect US sales to remain flat in FY27, with the GRevlimid contribution potentially halved. Furthermore, the addition of 1,000 new MRs has increased the total strength to 8,700, which is expected to drive incremental revenue for India’s business going forward. Given these considerations, we are adjusting our target price to Rs 1,700/share, with a BUY recommendation.