Cipla shares climbed 9 per cent in Thursday’s trade on Thursday after the pharma company reported robust earnings for the first quarter of FY24. US revenues for Q1 were the highest ever. Despite limited period gRevlimid cash flow, Cipla has other growth drivers, analysts said. That said, post Thursday’s rise, the share price targets for Cipla suggests limited upside ahead.
Drug major Cipla posted a 45.1% rise in its consolidated net profit in Q1FY24 at Rs 995.7 crore as compared to Rs 696.4 crore in the corresponding quarter of the last year.
The company’s revenue during the quarter ended June 2023 increased 17.7% to Rs 6,328.9 crore from Rs 5,375.2 crore, YoY, driven by performance in India, US & South Africa.
While resonating buoyancy on near-term generics pricing in the US, Cipla has hiked its US sales and EBITDA margin guidance for FY24.
Cipla raised its EBITDA margin guidance for FY24 to 23% from 22% earlier. The management raised its North America (NA) base business quarterly run-rate guidance to $210-215 million from $195 million earlier.
Strong US sales growth and sustained momentum in the domestic market helped Cipla Q1 performance beat estimates. This led analysts to give bullish outlook on Cipla shares with most brokerage houses raising target price on the stock.
What Should Investors Do Now?
Cipla’s US business performance (up 43 per cent YoY in dollar terms) and the management commentary suggest that the upcycle in the US market is manifesting at a faster clip than anticipated, said Elara Securities. The management highlighted several structural changes in the market, which include prioritisation of steady supply, reduction in generic competition and change in buying patterns of customers, which should benefit generic players.
“The management reiterated its guidance to launch gAdvair and gAbraxane latest by H1FY25. In addition, it plans 4-5 peptide product launches in the near-term. Cipla also plans to continue filing 10-15 ANDAs a year, majority of which may be ‘limited competition’ products. We raise our FY24-FY26 core earnings estimates by 4-7 per cent. Cipla trades at 27.4 times FY24E core EPS. We raise our target price to Rs 1,191 from Rs 942, which is 26 times FY25E core EPS of Rs 43.60, plus cash per share of Rs 59. Better-than-expected growth in gRevlimid in the US may be the key upside trigger even as a delay in other key launches may be a downside risk,” it said.
Choice Broking said Cipla’s growth story for FY24-25 is premised on scaling up of its US formulations business across a complex portfolio and continued contribution from respiratory and peptide products on the back of new product launches. I also sees margin expansion that would be driven by rising confidence across all geographies. Besides, it sees sustaining performance of South Africa, a high margin geography. It values Cipla at Rs 1,211.
The stock rose 9.01 per cent to hit a high of Rs 1,165 on BSE.
Prabhudas Lilladher said Cipla’s June quarter Ebitda was 13 per cent above its estimates, aided by higher gross margin (64.3 per cent) and US sales of $222 million. The brokerage continues to remain positive on Cipla’s growth across key segments including India and US, given strong traction in respiratory and other portfolio, potential growth of 10 per cent-plus in domestic formulations and sustainability of current US revenues, backed by prospective key launches over FY25.
“Our FY24E and FY25E EPS stands increased by 5 per cent as we factor in higher US sales and margins. We expect 17 per cent EPS CAGR over FY23-25E. Maintain ‘Buy’ rating with revised target of Rs 1,220 based on 24 times FY25E EPS. Any further FDA escalation to Indore unit and erosion in key products in US will be key risk to our call,” it said.
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