Cipla Q1 Review: Shares Gain 5% As Analysts Bet On U.S. Pipeline, India Growth
Here’s what brokerages have to say about Cipla’s Q1 FY23 performance.
Shares of Cipla Ltd. gained the most in more than four months as analysts bet on its expected launch of high-value complex generics for asthma and cancer in the U.S., and improved anticipated sales from its peptide line-up, as well as growth in India.
The optimism comes even as the drugmaker saw its net profit fall 4% year-on-year, missing estimates. Its revenue declined 2% year-on-year as India business—which contributes to almost half of its total revenue—shrank 8% on a covid-sales base.
Ebitda margin stood at 21.3%, in line with its FY23 guidance, despite elevated costs.
Shares of Cipla gained as much as 5.5% after opening of trade on Monday. The stock was trading 4.8% higher as of 9:35 a.m. Of the 44 analysts tracking the company, 36 have a ‘buy’ rating, five suggest a ‘hold’ and three recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 6.1%.
Here’s what brokerages have to say about Cipla’s Q1 FY23 performance:
Motilal Oswal
Maintains ‘neutral’ with a target price of Rs 950 apiece, implying a downside of 3%.
Cipla delivered a better-than-expected Q1 FY23 performance, led by healthy traction in the U.S. and emerging markets, and controlled cost.
The strategy of ‘One-India’ (prescription, trade generics, and consumer health) as well as building a complex respiratory and peptide pipeline in the U.S. generics is progressing well to cater to better business prospects over the next three to five years.
Estimates tweaked to factor in healthy outperformance in the domestic formulation segment, and steady momentum in the U.S. portfolio.
Overall sales grew 6% year-on-year, adjusting for Covid-related sales in Q1 FY22.
Ebitda margin contracted around 250 basis points to 21.3% (estimated 18.8%) on higher operating expenses, that is, staff cost/other expenses.
The management guided at an Ebitda margin of 21-22% in FY23.
The recently launched peptide asset has been on track in terms of gaining market share in the U.S. (that is, up to mid-teens by the end of CY23).
Out of the five filings in the peptide category, none are first-to-file. However, the company sees limited competition products, if executed well. The same can provide a business opportunity of $30-35 million per product (about Rs 230-280 crore). The management expects one launch in FY23 and two in the latter part of FY24.
It expects a U.S. FDA inspection for g-Abraxane (breast cancer) soon.
Although Cipla expects a further ramp-up in g-Albuterol (asthma) and some meaningful launches over the next two–three quarters, the fillip to the U.S. business hinges on big launches from H2 FY23.
In the domestic formulation segment, acquisitions such as Achira, EnduraMass and GoApptiv are expected to drive growth in the mid-to-long-term. These three will help Cipla enter and expand the diagnostic, wellness and digital business.
Current valuation adequately factors earnings upside.
Morgan Stanley
Recommends ‘overweight’ with a target price of Rs 1,122 apiece, implying an upside of around 15% from pre-result closing price on Friday.
Cipla continues to enrich its U.S. pipeline of complex products with inhalers and peptide products.
There is good visibility of two to three complex launches per annum, for next three years, which should help ensure consistent growth momentum.
Cipla expects growth momentum to continue across its portfolio.
For India, it expects Cipla to grow faster than industry (10% ex-Covid).
U.S. business should benefit from three niche launches in H2 - g-Advair (asthma), g-Revlimid (blood cancer) and g-Abraxane.
South Africa should normalize Q2 onwards.
Consumer Health should reach over Rs 600 crore sales per annum.
It reiterated its FY23 margin guidance of 21- 22% (21.3% in Q1). The freight, procurement and research spend will inch up, which should mitigate the benefit of niche US launches.
New U.S. pipeline disclosures imply deep value waiting to be unlocked over the next three years.
It has already filed five peptide injectables over the past six quarters, and the approval cycle should begin from next year – one in early- and two in late- FY24. Each of these products has a large addressable market, with likely two-to-three player dynamics with $45-50 million (around Rs 350-400 crore) per product sales opportunity.
In respiratory, it has two products filed pending approval, one is under clinical trials and one is in Phase 2.
Pricing pressure in the U.S. business continues but there are no deep discounts thus far.
New launch updates: g-Advair—the FDA had recently done the site inspections with two minor observations; approval is expected in early H2. g-Abraxane is awaiting site inspection; approval is expected towards late H2. For g-Revlimid, it expects approval close to market formation timelines.
Upside risks: Unlocking value from its inhalation pipeline for the U.S., mainly g-Advair; U.S. launches, monetisation of value-accretive products and accelerated exposure to biosimilars in emerging markets, favourable currency movement, ramp-up in international sales.
Downside risks: Accelerated price erosion in U.S. generics; obstacles in monetising niche opportunities, forex headwinds, NPPA /FDC challenges, delayed recovery because of the Covid-19 pandemic.
HSBC Global Research
Maintains ‘buy’ with a target price of Rs 1,180 apiece, implying an upside of around 21%.
Operating margin at 21.3% grew 322 basis points quarter-on-quarter in Q1 with price hikes, mix and cost control offset high input cost and forex impact.
Healthy India sales trends, impressive line-up of U.S. launches and focus on cost efficiencies should sustain margins growth.
U.S. approval and launch of g-Abraxane, g-Revlimid, g-Advair key catalysts.
Gross margins (excluding other operating income) at 61.9% remained steady both year-on-year and quarter-on-quarter with better mix and calibrated price hikes offset impact of higher input costs (example: procurement, freight costs) and adverse forex.
Despite near-term input cost headwinds, we believe Cipla should sustain Ebitda margins growth on upcoming key US launches, India sales momentum and cost efficiencies.
It expects to sustain ‘above-market’ growth for India sales in FY23 despite high base of FY22 on healthy traction for the core branded portfolio.
For the U.S. segment, sustained traction in respiratory franchise (g-Proventil and g-Brovana) and lanreotide (peptide injection where it aims for double digit share in FY23) pick-up should support sales in the near term.
It is geared up for big ticket launches of g-Abraxane, g-Advair, and g-Revlimid in H2FY23.
South Africa sales should recover from Q2 FY23 from the disruption of sales in the retail/private segment in Q1.
Management maintained its guidance for Ebitda margin of 21-22% (guidance accounts for upcoming big US launches).
Retains buy on a strong outlook for its focus segments (India, South Africa and the U.S.) and its prudent capital allocation for future growth.
Despite initial costs build-up for launches in India and US and higher R&D for pipeline assets, we expect core Ebidta margins to expand by around 200 basis points between FY22 and FY25 driven by sales growth-led operating leverage and cost efficiencies.
Cipla has maintained a net cash position as of Q1 FY23.
Its focus remains on measured investments towards respiratory products, specialty portfolio, debt reduction and strategic mergers and acquisition opportunities in India.
Nirmal Bang
Maintains ‘buy’ with a target price of Rs 1,141 apiece, implying an upside of 17%.
Cipla’s revenue was in line with estimate, but profit after tax was well above their estimate as well as consensus estimates.
The strong bottom line performance was mainly on account of margin expansion and higher other income.
As per the company’s guidance, Ebitda margin is expected to remain in the 21-22% range, which potentially assumes significant erosion in the Covid portfolio as well as higher R&D spends going forward.
Potential timely approval of g-Abraxane can skew the numbers on the higher side.
The company launched 16 new generic products in India in Q1 FY23.
It expects domestic trade generics to grow at a faster rate than the market and also outpace its branded product portfolio in terms of growth.
Growth in the respiratory portfolio and contribution from peptide products aided growth of the North American business. It has a strong pipeline of products lined up for the U.S. market.
R&D expense as a percentage of total sales is expected to be in the 5.5-6% range.
Cipla has taken price hikes in Q1 FY23 to offset higher input costs.
Cipla and Kemwell are progressing well on the respiratory biosimilar asset; however, it is a long-term play for the company and may take five to six years before it is actually launched.