Phillip Capital Highlights 12% Earnings Concern For Cipla; Reiterates 'Sell' Rating

The halt of exports of one of Cipla Ltd.'s inhalation products could hit the drugmaker's earnings by as much as 12%.

That's according to Phillip Capital's February report on pharmaceuticals, which traced the halt of exports to November 2023. The brokerage has a 'sell' rating on the company with a target price of Rs 1,150 apiece.

Cipla’s export of albuterol sulfate—inhalation therapy for asthma—from its Indore facility seems to have stopped since the U.S. Food and Drug Administration issued a warning letter in November 2023, Surya Patra, vice president of healthcare and specialty chemical research at Phillip Capital, said in a recent report citing export-import (EXIM) data.

This impact, the report said, was "on top of the 25% year-on-year (decline in) generics... post the adverse inspection observations in February 2023."

"We believe Albuterol sulfate is a $140 million (around Rs 1,160 crore) opportunity for Cipla for FY25," Patra said. "If the supply disruption continues, it could have a negative impact of 4%,10% and 12% to the revenue, EBITDA and PAT estimates of FY25, respectively."

Additionally, he expects a possible earnings risk for the quarter ending March as seasonality benefits seen in Q3 FY24 start to taper off.

• CMP offers a good opportunity to book profits.

• Q3 earnings surpassed expectations, led by an improved product mix in the U.S. due to the gRevlimid ramp-up and temporary flu season benefit in albuterol.

• In the near term, do not expect any major near-term earning triggers.

• Further delay on launch date of key products gAdvair (due to site transfer) and gAbraxane (due to overhang of launch post clearance of Goa facility).

• On the domestic front, businesses could also face moderate growth.

• Earning concentration risk (>35% from gRevlimid and >12% albuterol) and delay in key drugs keep us pessimistic on Cipla.

Cipla's shares closed 2.57% lower on the BSE today at Rs 1,465.30 apiece compared with a 0.22% gain in the Sensex.