PL Stock Report: Cipla (CIPLA IN) - Q2FY24 Result Update – Another quarter of higher margins and US sales - BUY

Cipla (CIPLA IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs1,174 | TP: Rs1,350

Q2FY24 Result Update – Another quarter of higher margins and US sales

Quick Pointers:

♦ Ramp-up in Lanreotide and strong product demand in bae biz aid US.

♦ Guidance on margins and US sales further revised upwards.

We increase our FY24/FY25E EPS estimates by 9%/6%, as we factor in higher US sales and margins. CIPLA’s Q2FY24 EBITDA (Rs17.3bn; 26% OPM) was 10% above our estimates, aided by higher GMs (64.9%) and US sales of US$229mn. We continue to remain positive on key segments growth including India & US given 1) strong traction in respiratory & other portfolios, 2) potential +10% growth in domestic formulations and 3) sustainability of current US revs, backed by prospective key launches in FY25. We expect 17% EPS CAGR over FY23-26E. Maintain ‘Buy’ rating with revised TP of Rs1,350 based on 24x Sept 2025E EPS. Any further FDA escalation to Indore unit and erosion in key products in US will be key risk to our call.

♦ Higher US revenues aided growth: CIPLA’s Q2FY24 sales increased 14.4% YoY (up 5.5% QoQ) to Rs67bn. Domestic formulation sales grew by 10% YoY led by continued performance across portfolio of One-India business. US sales came in at $229mn, up 3.1% QoQ, higher than our estimates. SAGA delivered double digit growth of 14.5% YoY, whereas International business and API reported YoY decline of 3.8%/3.5% respectively.

♦ EBITDA beat aided by higher US sales and GM: GMs were up by 240bps YoY to 64.9%, we estimate 64%. OPM of 26% was above our estimate led by higher US sales and better product mix. Other expenses increased by 9.6% YoY. R&D expenses stood at Rs3.8bn; 5.7% of sales; up 13% YoY driven by continued clinical trials. Depreciation charges include impairment cost to tune of Rs530mn. PAT of Rs11.3bn (up 43% YoY) was above our estimate.

♦ Key concall takeaways: Domestic formulation: Continued to report market beating growth with overall contribution from chronic expanding well. During the quarter branded and trade generic business reported ~11% YoY growth while OTC growth was lower due to seasonality. Currently have 22 brands more than Rs1bn in Rx segment, while seven brands more than Rs500mn in trade generic segment. US business reported highest quarterly revenue aided by ramp up in gLanreotide and strong demand in base business. Currently CIPLA enjoys 20% market share in Lanreotide vs 18% in Q1FY24. gAlbuterol mkt share has touched 12.9%, 90 bps improvement sequentially. Currently three complex products are undergoing clinical trials with filings targeted in H2FY24 & FY25. Plan is to launch 1 peptide product in Q4FY24 and 3-4 peptide products in FY25. Mgmt cited likely mkt size of Peptide product in range of $300-400mn. (3) gAdvair site transfer process is still going on; Sales from gRevllimid were largely flat QoQ (4) Input costs have eased complemented by decline in freight costs, supporting margins. Further Q1FY24 also had some recall cost related to gAlbuterol (5) Overall guided 24% OPM for FY24E vs 23% earlier. US quarterly sustainable sales run-rate of $220-225mn. Capex of Rs15bn in FY24. Net cash stands at Rs59bn as of Q2FY24 end.

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