Brokerages’ Take On Cipla After Q1 Results

Analysts expect new product launches in the U.S. and a recovery in core domestic sales to aid growth for Cipla Ltd.

The drugmaker saw its profit rise 73% sequentially in the quarter ended June. The jump came even as it reported impairment write-off towards its investment in an associate firm, Avenue Therapeutics, that didn’t get approval for a drug from the U.S. health regulator for the second time.

Its revenue rose 19% and Ebitda margin expanded 710 basis points over the preceding three months.

While the analysts stayed upbeat, they highlighted a delay in launches in the U.S. and forex fluctuations as key risks for the pharma company.

Shares of Cipla closed 3.53% lower on Friday compared with a 0.35% fall in the benchmark Nifty 50.

Here’s what brokerages have to say about Cipla’s Q1 FY22 performance:

• Recommends ‘neutral’ rating with a target price of Rs 1,000 apiece, implying a potential upside of 6%.

• Delivered better-than-expected earnings.

• Led by a superior product mix, operational cost efficiency, a healthy offtake of Covid-related products, and one-time income from the API segment.

• Raises EPS estimate riding on strong traction in prescription/trade generics in the domestic formulation segment, extended benefit from cost savings, and lower R&D spend.

• Continues to enhance its niche pipeline for the U.S. market — by building peptide-based products (in addition to respiratory assets)

• Management guided for Ebitda margin of 22.5–23% for FY22 (adjusted for Covid-related benefit).

• It has lined up a few complex products to improve the U.S. sales trajectory expected to happen from FY23.

• It has three peptides in the pipeline and an in-licensing strategy to start building peptide-based products.

• Outperformance of the domestic formulation segment (v/s the industry) is adequately factored in at current valuations.

• Recommends ‘accumulate’ with a target price of Rs 980 apiece, implying a potential upside of 7.5% from Aug. 6 closing.

• The company surpassed its guidance of cost saving estimates by Rs 400-500 crore in FY21, similar trend expected to continue.

• Performance above estimates.

• Favourable product mix with tailwind in Covid portfolio growth.

• Benefit from Covid products to decrease from Q2FY22 given expansion of vaccination programme.

• Next leg of growth will be led by the U.S. market based on launch of inhalation product each year, further ramp up of gAlbuterol (to treat asthma), launch of gRevlimid (to treat blood cancer) in FY23 and approval of Tramadol IV (for pain relief).

• Company confident about its growth to continue from base product portfolio, as the growth related to Covid portfolio is unpredictable.

• Recommends ‘buy’ with a price target of Rs 1,140 apiece, implying a potential upside of 20.6%.

• Revenue beat estimates driven by higher-than-expected revenue in India, South Africa and API business.

• The Ebitda beat was driven by higher revenue and lower-than-expected opex.

• Management expects YoY expansion in core Ebitda margin (ex-Covid impact) and guides for 22%+ sustainable core Ebitda margin in FY22.

• U.S. revenue is expected to grow but meaningful growth is expected in FY23.

• All geographies, except for rest of the world, posted YoY and QoQ growth.

• The rest of the world business was down 16% YoY due to timing deferral pertaining to in-country currency allocation for Middle Eastern markets. The issues are expected to be resolved in Q2.

• The API business was unusually strong due to a onetime profit share, which is not expected to recur.

• Covid-related product sales could sustain longer due to a wide product basket, including antibody cocktail.

• International branded and Europe businesses are set to recover in Q2FY22.

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

• Limited competition product launch, continued uptick form the Covid-19 portfolio and Goa plant resolution are the upside.

• There is risk of adverse regulatory outcome and delay in the launch of key products.

• Recommends ‘accumulate’ with a target price of Rs 995 apiece, implying a potential upside of 5%.

• Cipla’s Q1 beat estimates across led by higher-than-expected growth in Covid sales in India, while exports came in line.

• Impairment charge largely offset by one-time profit share gains in the API segment.

• In FY22E, the brokerage expects Cipla to benefit from stronger demand from Covid-related products.

• Even base business demand, particularly in the respiratory and anti-infective segments are strong.

• Management commentary on the U.S. was positive, as the company expects growth to accelerate, particularly in FY23E.

• The company remains committed on cost savings driven by leveraging digital technology in India branded formulations and calibration of R&D – focused products in inhalation.

• Recommends ‘overweight’ with a target price of Rs 1,122 apiece, implying a potential upside of 19%.

• Progress of inhalation pipeline for the U.S., especially regulatory progress of gAdvair (prevents asthma attacks) and partnered product.

• Albuterol market share ramp-up.

• New ANDA approvals for low-competition, complex product launches for the U.S. market.

• M&A opportunities due to net cash position.

• Quarterly progress on cost control and concomitant margin improvement.

Risks

• Accelerated price erosion in U.S. generics; obstacles in monetizing niche opportunities.

• Delayed recovery because of the Covid-19 pandemic.

• Forex headwinds.

• Recommends ‘outperform’ with a target price of Rs 1,154 apiece, implying a potential upside of 22.1%.

• Till U.S. picks up a meaningful pace, expects India, South Africa as well as consumer health to drive growth.

• Does not anticipate a material improvement in U.S. sales over the next two-three quarters, barring continued benefit from scale-up of Albuterol and gBrovana (to treat chronic obstructive pulmonary disease for better breathing).

• FY23 is a key year for U.S. launches which could drive material shift in U.S. sales trajectory in FY23.

• Key risks to the bullish view are delay in niche U.S. launches and any further impairment charges from Cipla’s specialty investment in Avenue Therapeutics.

• Maintains ‘add’ rating, hikes price target from Rs 966 to Rs 1,000 apiece, implying a potential upside of 10% from Aug. 6 closing.

• Raises earnings estimates by 3-4% to factor in strong Q1FY22 with higher India sales and lower R&D spend.

• Expects Ebitda margin to drop in coming quarters as revenue level normalises and to sustain at 22-23% over FY22-FY23 with improving revenue mix and cost control initiatives.

• High value launches in U.S. like generic Advair can provide upside.

• The company turned net cash in FY21 and will further strengthen the balance sheet over the next two years.

• Downside risks are regulatory hurdles, forex fluctuations and lower growth in India market.

• Recommends ‘buy’ with a target of Rs 1,098 per share, implying a potential upside of 20.5% from Aug. 6 closing.

• Focus shifts to FY23 with key launches of gAbraxane (to treat advanced cancer of the breast, lung, or pancreas), gAdvair and gRevlimid.

• Estimates that Abraxane and Advair generics will drive 11% growth in base U.S. business.

• Assumes 4% growth in India in FY23, driven by a high base in FY22 due to Covid.

• Expects cost-control benefits may last beyond Covid.

• Key launches in the U.S. and respiratory filings.

• Margin improvement in key business.

• Recommends ‘accumulate’ with a price target of Rs 1,006, apiece, implying a potential upside of 6%.

• Growth in domestic branded formulations business adjusted for the Ccovid portfolio stood at 47% YoY.

• There are few important launches lined up for the U.S. market in FY22, but they may not be very large.

• Expects capex for FY22 to be Rs 700-900 crore. The capex involves spends on digitisation of manufacturing facilities to aid in scaling up businesses across branded and generics for Europe and emerging markets.