Launch delays key risk to outlook for pharma company Cipla stock

The country’s second-largest pharma company by market capitalisation, Cipla posted a strong performance in the December quarter led by domestic operations. This, coupled with higher margins, led to an upward revision in earnings estimates by as much as 12 per cent.

While brokerages are positive about the prospects of the company, a sharp run-up in stock prices has meant that valuations factor in the upsides in the near term.

The company reported a 13.7 per cent increase in sales to Rs 6,603 crore led by 11.5 per cent growth in the India business. The domestic business accounts for 43 per cent of sales. Over the last twelve months, the company has been able to outperform the domestic market led by its chronic segment comprising respiratory, cardiac, and urology therapies.

The share of this segment has increased by 115 basis points year-on-year to 60.3 per cent. Improved order execution and traction from new launches helped boost the trade generics segment.

Higher contribution from key drugs in the US market too helped boost overall performance. North America, which accounts for 29 per cent of sales, posted a 19.8 per cent jump in revenues. Growth was led by volume traction in key assets of Lanreotide (for growth hormone disorder) and Albuterol (bronchodilator), seasonal demand coupled with an uptick in the base business.

Say analysts led by Bino Pathiparampil of Elara Securities, “While it seems to have performed well across segments, a major part of the outperformance was driven by a higher contribution from the generic version of cancer drug Revlimid. This contributed $60 million to the US business in Q3.” The analysts believe that Revlimid is turning out to be a bigger product than we had projected. They expect $165 million in revenue for FY24 and $185 for FY25, up from $140 million and $150 million, respectively.

While revenues were better than analyst estimates, the bigger beat came at the operating performance. While gross margins expanded by 90 basis points to 66.4 per cent led by lower input costs, operating profit margins were higher by 220 basis points to 26 per cent, due to gross profit show, lower employee and other expenses. The operating profit was up 24.2 per cent year-on-year.

Param Desai and Kushal Shah of Prabhudas Lilladher Research increased their FY24-26 earnings per share estimates by 5-8 per cent to factor in higher margins. However, they have downgraded the stock to accumulate from buy with a revised target price of Rs 1,400. They highlight that the delay in some key launches like the generic versions of asthma drug (inhaler) Advair and cancer medication Abraxane, timely launch of five peptides (guided for FY25) will be key.

Kotak Research, too, has upgraded its EPS estimates by 2-8 per cent to factor in a strong margin performance. The brokerage highlighted that Cipla’s Q3 show beat its estimates handsomely for the fourth consecutive quarter, led by strength across the US, India and Africa/global markets. The Q3 cheer was dampened to an extent by further delay in Abraxane as well as Advair launches, it adds.