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Brokerages divided on Cipla despite strong Q3 earnings beat; buy or sell?

Cipla Q3 results review: The shares of the third largest pharmaceutical firm Cipla rose 2.44 per cent at Rs 1,454.20 a piece on the BSE intraday after the company delivered a solid quarterly earnings

Pharma, medicine, Pharmaceuticals

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Shivam Tyagi New Delhi

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Cipla Q3 results review: The shares of the third largest pharmaceutical firm Cipla rose 2.44 per cent at Rs 1,454.20 a piece on the BSE intraday after the company delivered a solid quarterly earnings report, substantially beating street estimates. 
 
The brokerage estimates were surpassed on the India as well as the US business sales despite the US sales declining in the third quarter of the financial year 2024-25 (Q3FY25). 
 
Domestic drug sales surged due to outperformance in respiratory and urology therapies coupled with operating leverage of a sales force that has expanded by 1,800 recruits since FY23, said analysts at Nuvama Institutional Equities. 
 
 
In the US, COPD drug Albuterol held a 21 per cent market share for the company, while Cancer drug Revlimid sales came in stable, though, with stiff competition, FY26 sales pattern is set to differ for Revlimid.
 
Further, analysts also noted that Lanreotide supplies are likely to normalise by Q1FY26 and may show capacity-led growth from second half of FY26 in the US.   Also Read: Cipla Q3 result: PAT soars 48.7% to Rs 1,570.5 cr , revenue grows 7.1%  Brokerages split on future growth
 
While brokerages in unison sang praises on the Q3 positive earnings surprise, they remain divided on Cipla’s future growth prospects, which faces key drug launch delays. 
 
“Our thesis—that approvals for key assets in the pipeline (inhalation assets in particular, owing to site transfers) could be delayed—is likely to play out with launch of gAdvair and gAbraxane getting pushed out to 2HFY26. Consensus FY26 EPS would start seeing gradual downgrades, in our view. Palatable valuations notwithstanding, given our expectation of ~3 per cent earnings CAGR over FY25-27, even as we optimistically build in the launch of all key products in Cipla’s US pipeline,” Shashank Krishnakumar, senior research analyst at Emkay Global Financial Services wrote in a report.
 
The brokerage maintained a cautious stance with a “Reduce” call on the stock at a target price of Rs 1,550.
 
On similar lines, Nuvama also stayed with their “Hold” rating, as Abraxane and Advair delay will cause a minor setback in FY26 but will lead to 1 per cent upward move in FY27 profits, according to their estimates. The brokerage gave a target of Rs 1,620 (earlier 1,601) at 26 times FY27 earning per share (EPS).
 
Meanwhile, those at InCred Equities put faith in Cipla’s potential to fill the void of cancer drug Revlimid which is expected to witness stiff competition from 2026 onwards, with new launches, along with the ramp-up of existing products, and the US business aiding Cipla to register growth in FY26.
 
“The US business should witness a gradual recovery from 1QFY26F, with the Lanreotide franchise’s supplies resuming. With the USFDA’s clearance to the Goa plant, the path for Abraxane approval is cleared and it is likely to be launched by 4QFY26F (due to validation batches). Also, the gAdvair launch is expected to take place in 2QFY26F while three peptide launches are expected in the next 15 months,” said Praful BOHRA and Yogesh SONI of InCred Equities.  
The brokerage upgraded its FY25 EPS estimates by 7 per cent whereas maintained its FY26 estimates, giving “Add” rating on Cipla with an unchanged target price of Rs 1,640. 
 
Meanwhile, international brokerages HSBC and Nomura were bullish on Cipla, maintaining their “Buy” calls on the stock, at a target price of Rs Rs 1800 and Rs 1780, respectively, according to reports. 
 
Q3 financial print
 
Cipla reported a 48.7 per cent year-on-year (Y-o-Y) increase in its consolidated profit after tax (PAT) for Q3FY25, reaching Rs 1,570.5 crore, while revenue from operations grew 7.1 per cent to Rs 7,073 crore.  
 
The rise in net profit was driven by strong performance in the domestic market, an improved product mix, and operational efficiencies. 
 
On a sequential basis, revenue from operations inched up by 0.3 per cent, while PAT saw a 20.6 per cent jump. The company’s earnings before interest, tax, depreciation, and amortization (Ebitda) grew 14.4 per cent Y-o-Y to Rs 2,210.5 crore. 
 
Domestic drug sales increased by 10 per cent Y-o-Y, whereas US sales saw a slight decline of 0.5 per cent. Meanwhile, sales in Emerging and European markets stood out, climbing 21 per cent Y-o-Y.
  At 10:44 AM; the stock price of Cipla was trading 0.42 per cent higher at 1425.50 a piece, against the BSE Sensex rise of 0.49 per cent at 76,271.86 level. 

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First Published: Jan 29 2025 | 10:45 AM IST

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