Cipla Q2 Review: Shares Fall As Analysts See Limited Upside

Shares of Cipla Ltd. declined on Monday as most analysts maintained 'hold' citing limited upside from current valuations following second-quarter results.

The drugmaker's net profit rose 11% year-on-year to Rs 789 crore in the quarter ended September, according to its exchange filing. That compares with the Rs 783-crore consensus estimate of analysts tracked by Bloomberg.

Cipla Q2 FY23 Highlights (YoY)

• Revenue rose 6% to Rs 5,829 crore, against the estimated Rs 5,818 crore. It grew 12% on a Covid-adjusted base of last year, said the company in the filing.

• Ebitda was up 6% to Rs 1,302 crore, compared with the Rs 1,273-crore forecast.

• Ebitda margin stood at 22.3% against 22.2%. Analysts had estimated it at 21.9%.

Shares of Cipla were trading 1.23% lower as of 9:50 a.m., while the benchmark Nifty 50 gained 0.24% on the NSE. Of the 42 analysts tracking the company, 32 have a ‘buy' rating, seven suggest a ‘hold' and three recommend a ‘sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 3.9%.

Here's what brokerages have to say about Cipla's Q2 FY23 performance:

Motilal Oswal

• Maintains ‘neutral' with a target price of Rs 1,180 apiece, implying an upside of 3%.

• Delivered beat Q2 earnings led by better traction in the U.S. portfolio and in the domestic formulation vertical [prescription category and trade generics].

• Cipla remains on track to further extend its launch pipeline of niche products in the U.S. market and maintain its steady outperformance in the DF segment.

• Outlook positive on:

  a) complex products in the respiratory/peptide category of U.S. generics

  b) an enriching brand franchise in the DF market through its One India strategy

  c) cost minimization activities

• Neutral stance on the stock given the limited upside from current valuations.

• U.S. sales grew due to launches and market share expansion in existing products.

• In Q2FY23, there was a one-time Covid-related write-off of Rs 87.4 crore. Adjusting for the same, gross margin expanded by 320 basis points year-on-year to 64.4%.

• There was a one-time gain of $3 million due to a share repurchase agreement with Avenue Therapeutics.

• Adjusting for the same, adjusted PAT grew 20% to Rs 850 crore.

• The management indicated that $175-180 million will be the new quarterly base business sales run-rate in the U.S. from $ 150-155 million earlier. 

• The management is confident of launching g-Advair in H2FY23.

• The opportunity remains attractive as it feels it has a superior cost position. 

• It expects the 505b2 approval for g-leuprolide acetate soon. Addressable market is $200 million, with gradual gains in market share after approval.

Jefferies

• Maintains ‘buy' with a target price of Rs 1,319 [earlier Rs 1,286] apiece, implying an upside of 15%.

• Q2FY23 numbers met brokerage's expectations

• Although Ebidta was impacted by Covid inventory write-offs worth 150 basis points.

• U.S. sales shot up 13% quarter-on-quarter on gRevlimid sales and Lanreotide while India growth was at 15% [ex-Covid].

• U.S. remained the key growth driver during the quarter.

• Cipla re-iterated gAdvair timelines at H2FY23 while gAbraxane will be in FY24.

• Base U.S. portfolio saw 5% price erosion as per their estimate.

• Expect Lanreotide [gRevlimid] to continue to scale up and is on path to achieve company guidance of 15% market share by Q4.

• For Abraxane, management guided that if Goa plant is cleared the product will be launched in Q1FY24 and if it is site transferred then there will be 6 months delay in the launch.

• The company is already working on the site transfer of gAbraxane as a measure of de-risking.

• Cipla is working to build out its biosimilar business which will come into play during FY25-30.

• Cipla is also investing in specialty business and currently working on one product in the segment.

• R&D will increase going forward but not cross 7% of sales.

• Brokerage believes Cipla has the best U.S. generic pipeline products for the next two years in their coverage universe.

• Its U.S. pipeline is strong to drive medium term for the company.

Systematix

• Maintains ‘hold' with a target price of Rs 1,212 apiece, implying an upside of 6%.

• Revenue in-line with estimates.

• Net earnings below estimates due to one-time Covid inventory write-off and Covid related impairment.

• Expect Ebidta margins to move upward with the launch of gAdvair in the U.S. market in H2FY23.

• The company's base business was flattish due to price erosion.

• The quarterly run-rate in the U.S. business has now moved from $150-160 million to $175-180 million.

• This should be the new base on which other launches [gAdvair, gAbraxane and Lutrate depot] should build on.

• Lutrate Depot launch will be imminent and has a market size of around $200 million.

• gAdvair launch is expected in early H2FY23, while gAbraxane could happen in latter H1CY23.

• Cipla also expects to launch one peptide product in FY23, while two more peptide launches are expected in FY24.

• With net cash Rs 3,992 crore, the company will have a large cash pile to deploy for inorganic and internal development opportunities.

• R&D expenses were up 22% due to pick up in clinical trials of one respiratory asset and other development initiatives.

• The company expects to maintain R&D expenses at 5.8-6% of sales.