Cipla Q4 Results Review: Shares Decline After Profit Miss, Most Analysts Cut Estimates

Shares of Cipla Ltd. fell on Monday after fourth-quarter profit missed analysts' estimates and cut in earnings estimates by most brokerages.

Analysts also highlighted delays in potential launches and risk of regulatory action from the U.S. FDA at company's Indore facility.

The drugmaker's net profit rose 45% year-on-year to Rs 526 crore in the quarter ended March, according to its exchange filing but fell short of the Rs 751-crore consensus estimate of analysts tracked by Bloomberg.

Cipla Q4 FY23 Highlights (YoY)

• Revenue rose 9% to Rs 5,739 crore. (Bloomberg estimate: Rs 5,776 crore).

• Ebitda was up 57% to Rs 1,174 crore. (Bloomberg estimate: Rs 1,233 crore).

• Ebitda margin stood at 20.5% versus 14.3%. (Bloomberg estimate: 21.4%).

Shares of Cipla were trading 2.98% higher as of 9:32 a.m., while the benchmark Sensex was up 0.26%.

Of 41 analysts tracking the stock, 28 maintained 'buy', 10 analysts suggested 'hold', while three recommended 'sell', according to Bloomberg. The return potential implies an upside of 16.1% over the next 12 months.

Here’s what brokerages have to say about Cipla’s Q4 FY23 performance:

• Maintains 'neutral' with a target price of Rs 935 apiece, implying an upside of 4%.

• Reported lower-than-expected performance in Q4 FY23, led by higher operational costs.

• Achieved the highest-ever annual earnings in FY23, driven by strong traction in North America sales.

• Cipla grew better than the industry in the domestic formulation market by around 500 basis points year-on-year in FY23.

• The chronic share in the domestic formulation was 59% for FY23, up 300 basis points year-on-year.

• Cut estimates factoring in the delays in approval for g-Advair/g-Abraxane and costs related to additional field force in the domestic formulation segment, remediation measures, and adding alternate sites for critical products in the US generics segment.

• Management guided for a 22% Ebidta margin in FY24.

• Expects the U.S. FDA inspection classification in mid-May 2023 at Indore.

• Cipla has started work on a de-risking plan for g-Advair by constructing a manufacturing line at an alternate in-house site. This may require inspection at an alternate site for ANDA approval from the USFDA.

• It has de-risked g-Abraxane (nano-Paclitaxel) for an alternate site. Cipla is in the process of making exhibit batches at an alternate site. The commercial benefit is expected in FY25.

• Maintain neutral considering a delay in potential launches in North America, regulatory risk at Indore, and limited upside from current levels.

• Maintains 'hold' with a target price of Rs 900 apiece, implying a downside of 4%.

• Cipla Q4FY23 revenue and Ebidta were 4% and 10%, respectively, below their estimates on lower India sales and higher opex.

• The U.S. sales were up 5% QoQ, helped by gRevlimid.

• India's business growth came in at just 3% year-on-year on Covid sales boost last year.

• Management stressed de-risking and qualifying additional sites for key products (gAbraxane, gAdvair).

• Management's focus on de-risking and lack of confidence in the clearance of the Indore site during the call indicate that the Indore plant will get 'official action indicated' from the U.S. FDA.

• Site transfer of U.S. products takes at least four quarters, in the brokerage's opinion.

• Management said the gAdvair launch is delayed by 12 months.

• Brokerage believes that since it involves adding new lines at plants and will require at least five to six quarters to get approval from the new site.

• For gAbraxane, Cipla guided for a launch in the next 12 months.

• The brokerage believes this is doable, as Cipla started site transfer of the product two quarters ago.

• For FY24, management guided for a sales run rate of $190–195 million, clearly signalling a lack of any major product launches in the near term.

• For Lanreotide, commentary was also weak, and management didn’t sound confident about major ramp-ups from here on.

• Maintain a hold rating on the delay of key U.S. products and OAI risk at the Indore plant.

• Maintains 'sell' with a target price of Rs 842 apiece (revised from Rs 930), implying a downside of 10%.

• Cipla reported revenue growth of 9% YoY, driven by U.S. generics.

• The growth in US generics was driven by improved gRevlimid sales and increased market share in its key peptide products.

• This was partially offset by higher price erosion.

• Per management, if the Indore site gets OAI, then the re-filing process to a new site in the US is likely to delay the approval for gAdvair by over 12 months.

• Brokerage assumes a much longer delay.

• Besides gAdvair and gAbraxane, the brokerage does not expect Cipla to launch any niche limited competition product by FY25.

• This would result in flat revenue for the U.S. region (ex-gRevlimid).

• Continue to remain conservative on Cipla’s U.S. franchise and factor in a 5% revenue CAGR over a two-year period.

• Brokerage expects Ebidta margins to remain at 21% for its core business given the delays in key product launches and the increasing cost base via the addition of medical representatives in India, elevated R&D spends, and an increased expenditure base.

• Also see higher risk in the base business, with its largest product, gAlbuterol, losing market share.

• With a revenue CAGR assumption of 5% and peak Ebidta margin at 21%, believe the stock has priced in potential launches in the U.S.

• We reduce our revenue and PAT estimates by about 3% and 10% for FY25.