Cipla reports 45% jump in Q4 net profit; what should investors do now?

Cipla Q4: Motilal Oswal expect 12.3% earnings CAGR over FY23-25, led by 9%/11% sales CAGR in DF/NA segments and marginal improvement in profitability.

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Cipla’s share price fell 4 percent in the early trade on May 15 after the company announced its March quarter earnings.

The Pharmaceutical company, Cipla recorded a consolidated net profit of Rs 525.65 crore for January-March, 45.3 percent higher than Rs 362.07 crore in the year-ago period.

According to a poll of brokerages conducted by Moneycontrol, the drugmaker’s net profit was estimated to be around Rs 723.4 crore.

The bottomline missed estimates due to a one-time loss of Rs 182.2 crore on account of goodwill impairment for Cipla’s Yemen operations.

Revenue also grew 9.1 percent on year to Rs 5,739.30 crore, from Rs 5,260.33 crore seen in the same quarter of the previous year, Cipla said in an exchange filing. Notably, revenue was largely in-line with the Street’s expectation of Rs 5,744.42 crore.

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Here is what brokerages have to say about stock and the company post March quarter earnings:

Prabhudas Lilladher

Cipla’s Q4FY23 EBITDA (Rs 11.7 billion; 20.5% OPM) was largely in-line with broking firm estimates, aided by higher GMs (64%) and US sales of US$204mn.

It continues to remain positive on growth across key segments including India and US given 1) strong traction in respiratory and other portfolios, 2) potential growth of +10% in domestic formulations and 3) sustainability of current US revenues, backed by future key launches over FY25. Despite recent FDA issues, we expect a 14% EPS CAGR over FY23-25E.

Maintain ‘Buy’ rating and estimates with unchanged Target Price of Rs1,070 based on 22x FY25E EPS. Any further FDA escalation to Indore unit and erosion in key products in the US will be a key risk to our call, said Prabhudas Lilladher.

Motilal Oswal

Cipla reported lower-than-expected performance in 4QFY23, led by higher operational costs. It achieved the highest-ever annual earnings in FY23, driven by strong traction in North America (NA) sales.

Cipla grew better than the industry in the domestic formulation (DF) market by ~500bp YoY in FY23.

Brokerage house cut its earnings estimates for FY24/FY25 by 7%/4% factoring in a) delays in approval for g-Advair/g-Abraxane, b) costs related to additional field force in the DF segment, remediation measures and adding alternate sites for critical products in the US generics segment.

It values Cipla at 21x 12M forward earnings and adds NPV of Rs 30 related to g-Revlimid to arrive at a Target Price of Rs 970.

Motilal Oswal expects a 12.3% earnings CAGR over FY23-25, led by 9%/11% sales CAGR in DF/NA segments and marginal improvement in profitability. Considering a delay in potential launches in NA, regulatory risk at Indore and limited upside from current levels, we maintain our Neutral rating on the stock.

Macquarie

The research house assigned an ‘Outperform’ rating with a target price of Rs 1,050 per share.

The Q4 revenue was largely in line, however, the company’s EBITDA beat the estimates by 8%, and the adjusted PAT by 7%.

The EBITDA margin is at 20.5% against the estimates of 19%.

The PAT missed estimates by 21% due to a one-time goodwill impairment charge.

JPMorgan

JPMorgan has kept an ‘overweight’ rating with a target price of Rs 1,050 per share.

The long-term growth levers are in place and the FY24 outlook remains steady. The Q4 was ahead of expectations, with the adjusted PAT beating estimates, driven by strong growth in India.

JPMorgan maintains a positive outlook on the market-beating growth outlook for the India business.

The strong pipeline of complex assets to drive longer-term growth in the US beyond FY25.

Kotak Institutional Equities

The brokerage firm has maintained ‘buy’ rating on the stock and set a target price of Rs 1,100 per share.

In the fourth quarter, company EBITDA beat expectations, primarily driven by higher sales in the US and other export markets.

The USFDA compliance status for the Pithampur facility is expected to be disclosed in the next few days.

Kotak Institutional Equities incorporates the OAI (Official Action Indicated) status into their estimates building Advair launch from the Fall River facility in the third quarter of FY25.

Despite a delay in the launch of Abraxane, expect the company to post a healthy 19% EPS (Earnings Per Share) compound annual growth rate (CAGR) over the period from FY23 to FY25.

At 09:35 hrs Cipla was quoting at Rs 903.65, down Rs 31.25, or 3.34 percent on the BSE.

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