Cipla Q3 Review: Brokerages Upbeat On New Launches In U.S., Domestic Growth

Most analysts reiterated ‘buy’ on Cipla Ltd. after the third quarter citing the drugmaker’s healthy pipeline of product launches in the U.S. and growth in the domestic market.

The company saw its net profit fall 3% year-on-year in the quarter ended December but meet estimates. Its India sales rose 13% year-on-year and the U.S. business grew 9%, driving the overall revenue during the period.

Cipla said its portfolio execution in branded markets of India and South Africa and strong respiratory traction driving the U.S. generic franchise to a multi-quarter high quarter were key growth drivers.

But adverse regulatory outcomes and delays in the launch of key products are some of the risks cited by the brokerages.

Of the 39 analysts tracking the pharma company, 32 have a ‘buy’, five suggest a ‘hold’ and two recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 19.5%.

Here’s what brokerages have to say about Cipla’s third-quarter performance:

• Recommends ‘buy’ with a target price of Rs 1,140 apiece, implying an upside of 25.9%.

• Cipla has the best U.S. generics pipeline, coupled with a strong branded business in India and South Africa.

• Higher Ebitda margin was primarily driven by cost-optimisation efforts, which led to lower other expenses (excluding research and development).

• Management maintained FY22 Ebitda margin guidance of around 22%, suggesting a seasonal decline in Q4 FY22.

• For FY23, it expects growth momentum to continue across businesses, with a continuation in the contribution of some Covid products.

• In the U.S. business, product launch momentum is expected to accelerate in H2FY23.

• Though R&D expenses are expected to inch up in FY23, management assured that it will never go beyond 7-8%.

• Catalysts: Limited-competition product launch and Goa plant resolution.

• Risks: Adverse regulatory outcomes and delays in the launch of key products.

• Maintains ‘neutral’ with a target price of Rs 980 apiece, implying an upside of 8%.

• Cipla delivered a better-than-expected Q3 FY22 performance, led by robust growth in the domestic formulation segment, steadily improving sales in North America, and better operating leverage.

• This was partly offset by a momentary slowdown in active pharmaceutical ingredient sales in the developed markets.

• Cipla’s effort to scale commercial traction from respiratory products as well as the buildup of the potential pipeline largely remains on track.

• The execution in India market (across prescription / trade generics / consumer wellness) is backed by new launches and superior marketing efforts.

• The management indicated other expenses have normalised on a quarterly run-rate basis with the easing of the Covid situation.

• Raises estimates factoring in market share gains in already launched abbreviated new drug applications and upcoming potential new launches such as Lanreotide (to treat a condition in which the body produces too much growth hormone), strong growth in anchor consumer brands in India/South Africa, and moderation in the API business outlook.

• The valuation leaves limited upside from current levels.

• Maintains ‘buy’ with a target price of Rs 1,100 apiece, implying an upside of 21.4%.

• Q3 FY22 performance was broad based with strong show in domestic formulation and US sales.

• Positive on Cipla’s growth across key segments including India and the U.S. given a strong traction in respiratory and other portfolio, ex-Covid, Indian pharma market can grow 8-10% with Cipla likely outpacing the market, and a meaningful delta in the U.S. revenues are expected from FY23, backed by potential key launches.

• Cipla remains one of the brokerage’s top pick in large-cap space.

• While gross margins declined due to increase in materials costs as well as inventory provisions for Covid products, other expenses were down by 4% QoQ, aided by strong cost control.

• Management reiterates the U.S. sales delta of $300-500 million (around Rs 2,250 crore to Rs 3,750 crore) by FY25 with some of key launches.

• Company continues to see synergies in domestic formulation under one India strategy.

• Maintains ‘buy’ with a target price of Rs 1,069 apiece, implying an upside of 18%.

• Cipla has beaten our/consensus net earnings estimates due to higher-than-expected growth in the domestic and the U.S. markets.

• Domestic business continues to have support from Covid portfolio, albeit declining in proportion.

• Cipla’s North America business shows promise with its respiratory portfolio.

• Cipla’s R&D expenditure should inch up with its upcoming developmental portfolio of respiratory and peptide products.

• Delay of the U.S. FDA approvals for generics of Abraxane (advanced breast cancer), Advair (asthma) and Revlimid (blood cancer) remains a key risk.

• Lowering Lanreotide sales expectations for FY24 as we build a slower ramp up.

Catch the complete Interview with Cipla's Global CFO Kedar Upadhye here