Q4FY23 Review: Cipla: FY24 growth triggers lacking; FY25 also at risk

Cipla’s Q4 Ebitda missed consensus estimates by 5%, driven by a ~100bps margin miss. Analysts of IIFL Capital Services expect FY24 to be muted for Cipla with only 6% EPS growth, given key launches of Advair and Abraxane have got delayed to FY25 due to plant issues, while base-business Ebitda margins ex-Revlimid (at 21% in FY23 vs reported margins of 22.5%) will be under pressure given investments for rep expansion in the India business and R&D spends for 3 complex filings (incl. Symbicort) in FY24. Ramp-up in Lanreotide and Revlimid will be the only growth driver for the US business in FY24.

Key US launches delayed to FY25: 

Advair is being site-transferred to Cipla’s US facility. However, the launch will see 12-month delay as the facility would require USFDA inspection before approval. Abraxane is being de-risked to a partner CMO site, but its launch is also pushed back to FY25. We assume Abraxane/Advair launch in Q1/Q2FY25 resp. These 2 products along with Qvar/Dulera, account for USD80mn sales and 10-12% of Cipla’s EPS in FY25, on which there could be downside risks on further delays. Indore plant inspection status is due in mid-May (we expect OAI), while Goa facility re-inspection will likely happen in Q3FY24.

Lanreotide and Revlimid are the only growth drivers for US in FY24: 

Analysts at IIFL Capital Services expect sales of these 2 products to rise from USD65-70mn each in FY23 to USD100/140mn resp. in FY24, which would drive an increase in Cipla’s overall US sales from USD735mn in FY23 to USD835mn in FY24. Price erosion and recent ~300bps MS loss in Albuterol for Cipla (post Indore ‘483) would be a key risk to our US sales estimates. However, domestic business remains on a resilient footing and with the Covid base behind, we expect Cipla’s India sales to clock ~10% Cagr over FY23-25.

Overall Ebitda margins would remain flat in FY24 at ~22%, as profitability ramp-up led by Revlimid will help offset investments for the domestic business and R&D spends for inhalation clinical trials. However, we have assumed that base margins (ex-Revlimid) will contract from ~21% in FY23 to ~19.5% in FY24 and they downgrade FY24/25 EPS by 1/4%.

Although Cipla is site-transferring Advair and Abraxane to alternate plants, there could be further delay beyond next 12 months, posing a risk to their FY25 estimates as US pipeline products account for ~10-12% of Cipla’s FY25 EPS. Analysts of IIFL Capital Services maintain ADD (TP Rs925), as they expect the stock to consolidate in FY24 owing to absence of meaningful US launches.