Multiple triggers across key markets may support Cipla's recent rally

In addition to the Q3 show, new launches offer upsides from current levels

A strong operational performance helped the country’s second-largest domestic drugmaker beat the Street estimates in the October-December quarter (third quarter, or Q3) of 2021-22. The top-line growth of 6 per cent was largely due to the India business growth of 12.9 per cent.

Growth in the domestic market, which accounts for 46 per cent of overall revenue, was led by its three key segments of branded prescription drugs, trade generics, and consumer health business.

Growth in the branded business was driven by product launches and offtake across key therapies.

Respiratory, anti-infectives, and cardiac therapies account for 70 per cent of Cipla’s domestic sales, with the first two accounting for 60 per cent of sales.

The Covid portfolio was a disappointment, falling 10 per cent over the year-ago quarter and 17 per cent sequentially. Excluding this, core business grew a robust 16 per cent.

The US market growth of 8 per cent was aided by its generic inhaler portfolio, be it Albuterol, where its market share remains steady at 15.9 per cent, or Brovana, which saw sales ramp-up. Additionally, new approvals, such as that of Lanreotide, a drug used in treating and managing hormonal disorders, are expected to keep the sales momentum going.

The company indicated that $150 million per quarter sales in the US, which it achieved in Q3, would be the new base for the company in that geography. Analysts at Edelweiss Research believe that launches of generic versions of Advair (asthma), cancer drugs Abraxane and Revlimid over the next year can potentially double its US revenue by 2023-24.

While its top-line performance in its largest markets was strong, the operating performance was better. Gross margins slipped to multi-year lows of 60.9 per cent, down 41 basis points (bps) sequentially, due to rise in input costs and provisioning for Covid-related inventory. Operating profit margins were higher by 25 bps to 22.5 per cent, led by cost-control measures.

Given the multiple triggers across key markets, both on account of the base business and new launches, as well as reasonable valuations, the rally in the stock (up 4.4 per cent over the last few sessions) could continue.