Cipla Q1 Preview: Restructure in biz may dent sales; profits to rise 7%

Cipla is expected to see a decent June quarter with revenues estimated to increase in upper single digits on a year on year basis and net profits seeing a mid single digit growth

Cipla, the Indian pharmaceutical giant, is set to release its quarterly earnings for the first quarter of financial year 2024-25 (Q1FY25) on Friday, July 26, 2024. 

The pharma major is expected to see a decent June quarter with revenues estimated to increase in upper single digits on a year on year basis and net profits seeing a mid single digit growth. That apart, some analysts say that Cipla’s domestic business may only grow by 5 per cent Y-o-Y due to the one-time impact of restructuring of its trade generics business. 

According to brokerage estimates compiled by Business Standard, Cipla may see its revenue rise by 6-9 per cent year-on-year (Y-o-Y) between Rs 6,867 crore to Rs 6,749 crore. 

On quarter-on-quarter (Q-o-Q) basis revenues are expected to be logged in the range of 10-11 per cent growth. The company registered revenues of Rs 6,163 crore in Q4FY24 and Rs 6,328 in the first quarter of FY24. 

Moreover, the pharma major may register an average net profit of Rs 1070 crore for the June quarter, against Rs 995 crore in Q1FY24. This translates to an increase of 7.5 per cent Y-o-Y for Q1FY25. 

Though on a quarterly basis, profits could improve by 13 per cent. The company reported profit after tax of Rs 939 crore in the March quarter of FY24. 

Key monitorables: The street will look out for progress on pipeline developments for drugs such as Advair, Abraxane and Symbicort, updates on upcoming peptide launches and regulatory issues at the Goa plant that could potentially impact operations.

Meanwhile, here’s what key brokerages expect from Cipla’s Q1FY25 results:

Kotak Institutional Equities: Analysts at Kotak expect Cipla to clock a 9 per cent Y-o-Y growth in domestic sales in Q1FY25, led by 8 per cent growth in its organic business and contribution from Sanofi's CNS portfolio. 

Within the organic business, there is expectation of some impact due to change in distribution model, undertaken by the company in the trade generics segment.

The brokerage is building US sales at $236 million, up 4 per cent Q-o-Q driven by higher market share in Albuterol and Lanreotide, along with Revlimid sales of $28 million. The Revlimid sales are higher in this quarter than the sales of $25 million in the March quarter. 

Further, the brokerage said that sales in South Africa will grow by 21 per cent Y-o-Y,, while in Africa and global access, a 68 per cent Y-o-Y decline is on the cards, following the divestment of Cipla's Ugandan subsidiary, QCIL.

Additionally, the brokerage estimates a 9 per cent Y-o-Y growth in Europe and rest of the world sales with overall sales to grow 7 per cent Y-o-Y and over 10 per cent Q-o-Q.

“We expect gross margin to decline 170 bps Q-o-Q to 65 per cent. We expect overall Ebitda to grow 4 per cent Y-o-Y (18.5 per cent Q-o-Q) to Rs 15.6 billion, with Ebitda margin declining by 60 bps to 23 per cent in 1QFY25,” analysts at Kotak wrote in a report. 

Nuvama Institutional Equities: The brokerage said that Q1 is generally a sequentially better quarter for Cipla. However, for Q1FY25E, its domestic business is likely to grow 5 per cent Y-o-Y due to the one-time impact of restructuring of its trade generics business (TGx). 

Analysts at Nuvama believe that Cipla’s prescription drugs business will grow at 10 per cent Y-o-Y while TGx business is likely to decline. 

“We are building in Q-o-Q improvement in the US business to $232 million on the back of improvement in Lanreotide twins, market share gains in albuterol inhaler, uptake in Revlimid and lower price erosion.

“SAGA to grow 7 per cent Y-o-Y with sustained outperformance against the local industry. Due to the TGx restructuring, we expect consolidated revenue to grow 5.6 per cent Y-o-Y, Ebitda margin to be at 23 per cent, down 57 bps Y-o-Y and up 168 bps Q-o-Q,” the brokerage noted. 

BNP Paribas: BNP Paribas expects US revenue to reach $232 million, showing a Q-o-Q growth of 3 per cent. The contribution from Revlimid is anticipated to remain consistent with levels seen in the fourth quarter of FY24. Double-digit growth is projected for the domestic business. Ebitda margin is expected to improve by 300 basis points sequentially following a seasonally weak quarter.

According to the brokerage, the key downside risks include lack of high-value launches in the US and continued pricing pressure; regulatory hurdles; further delay in approval of Advair; and delayed resolution of facilities under the FDA scanner.

InCred Equities: InCred Equities forecasts a 9 per cent year-on-year growth in India and stable US revenue quarter-on-quarter at $228 million. Market share for Lanreotide remains steady at 19 per cent, while for Albuterol, it has increased to 16 per cent from 13 per cent two to three months ago. Profit margins are expected to be 24.6 per cent, up by 320 basis points compared to the low base of Q4.

Centrum: Those at Centrum anticipate a 6 per cent Y-o-Y growth (in constant currency) in US sales to $235 million, driven by Revlimid and Lanreotide, partially offset by market share decline in other products like Albuterol. 

Domestic formulations sales are expected to grow by 10 per cent year-on-year to Rs 3,000 crore.