Cipla faces challenges of slow growth, drug launch; analysts slash target

Growth challenges galore; brokerages slash target price after subdued Q2 show

Shares of pharmaceutical major Cipla dropped over 4 per cent on Wednesday at Rs 1,417 per share after analysts highlighted near-term challenges following a muted performance in the second quarter results for the current financial year (Q2FY25). 

In Q2FY25, Cipla’s domestic business underperformed due to seasonal weakness in the anti-infective and trade generics business. However, this was offset by strong growth in Africa, emerging markets, and European business, said analysts. Growth for Cipla was lower in the US and India than analyst estimates. 

“The narrative for Cipla has worsened in the recent past, driven by US prospects and a slowdown in India. Supply constraints in Acromegaly drug Lanreotide, potential competition for the drug in due course, a delay in clearance of the Goa site resulting in Cipla failing to have the first-mover advantage (a competitor has gained approval) present potential risks to earnings,” analysts at Nomura said in a report.  

 

 

The pharmaceutical company is facing a temporary supply glitch in Lanreotide drug as its product partner is enhancing capacity. Analysts at Nuvama Institutional Equities said if this challenge persists till Q3FY25, then their FY27 estimates for the company could be at risk.

 

They also highlighted a potential entry of Sun Pharma and Dr Reddy’s Labs in Lanreotide in due course. Cipla is also facing regulatory challenges at its Goa manufacturing facility, delaying the launch of the cancer drug Abraxane, which is also a part of analysts' FY27 estimates.

 

“We are cutting FY26 and 27 earnings per share estimates by 1 per cent each. With the key product challenges and high concentration risk (three products contribute 20 per cent of FY26 Ebitda), we retain ‘hold’ on Cipla with a target price of Rs 1,593 (earlier Rs 1,663),” Shrikant Akolkar, Aashita Jain, and Gaurav Lakhotia of Nuvama wrote in a report.

 

Nomura, too, kept a ‘neutral’ rating on the Cipla stock with a target of Rs 1,568.

 

Investec retained a ‘buy’ rating on the company with a reduced target of Rs 1,800. UBS Securities also gave a ‘buy’ call with a slashed target of Rs 1,960. However, Bank of America gave an ‘underperform’ rating to the stock with a lower target of Rs 1,400. 

On the upside, there are opportunities, too, for Cipla with a potential launch of Asthma drugs Symbicort and Qvar and a few more peptides over the next two years, said Nuvama analysts, adding that the China facility commercialisation and the first wave of diabetes drug Semaglutide launch in India will also serve as catalysts for the company.

 

Cipla reported a 15.2 per cent year-on-year growth in its consolidated profit after tax (PAT) at Rs 1,303 crore for Q2 FY25, up from Rs 1,131 crore in the same quarter of FY24.

 

Revenue from product sales rose by 5.6 per cent to Rs 6,961 crore, compared to Rs 6,589 crore a year earlier. This increase in net profit is attributed to strong domestic market performance, a favourable product mix, and operational efficiencies.

 

Sequentially, revenue from operations grew by 5.1 per cent, while net profit increased by 10.6 per cent. Earnings before interest, tax, depreciation and amortisation (Ebitda) rose by 10.7 per cent year-on-year to Rs 2,076 crore, with an Ebitda margin reaching 26.7 per cent due to efficiency gains. 

The Indian branded prescription business grew by 5 per cent, while revenue from the North American market was $237 million, reflecting a 4 per cent year-on-year increase, driven by momentum in differentiated products.