Q1FY24 Review: Cipla: Key new launches likely to get delayed to H2FY25

27 Jul 2023 , 12:44 PM

Cipla’s Q1 Ebitda (up 31% YoY) was 7% ahead of analysts of IIFL Capital Services estimates, driven by higher Revlimid sales, US base business improvement on account of supply chain disruptions, and robust growth in the India business. While mgmt attributed 9% cc QoQ increase in US sales largely to base business improvement, analysts of IIFL Capital Services believe Revlimid would have accounted for 60-65% of the QoQ growth in US; consequently, ex-Revlimid Ebitda was only 3.5-4% ahead of analysts of IIFL Capital Services estimates. Although Cipla is targeting 4-5 peptide launches in the US over the next 18 months, key launches of Advair and Abraxane will get pushed back to H2FY25, since the site-transfer approvals for these products will take >12 months. In the absence of meaningful launches in the US over the next 1yr and pending compliance status on Indore plant, analysts of IIFL Capital Services find limited upside on Cipla in the near term and they maintain their ADD rating on the stock with a TP of Rs1,075. They upgrade their FY24/25/26 Ebitda by 5/2/2% to account for higher margins led by Revlimid/US base business. 

Revlimid would have contributed 60-65% of QoQ growth in the US: 

US sales increased QoQ from USD204mn to USD222mn in Q1. Mgmt stated that lower price erosion, rebalancing of supply chains owing to shortages and NBOs, aided base business performance in the US, while Revlimid sales didn’t materially increase QoQ. However, the USD18mn QoQ increase in US sales cannot be entirely explained by the base business. Analysts of IIFL Capital Services estimate that Revlimid contributed USD12mn incremental sales QoQ (from USD28mn to USD40mn) and ex-Revlimid Ebitda margins at 20.5% were only marginally ahead of analysts of IIFL Capital Services estimate of 20%. 

Advair and Abraxane launches will likely get delayed to H2FY25, as analysts of IIFL Capital Services assume a warning letter on the Indore plant in the base case scenario. While Cipla is site-transferring Advair to its US facility and Abraxane to a CMO facility, major amendments in ANDA filings of these products would mean that USFDA approvals will take >12 months. With Cipla losing MS in Albuterol as well, analysts of IIFL Capital Services see only Revlimid/Lanreotide as the key growth drivers with incremental sales contribution of USD90/40mn respectively in FY24. 

Analysts of IIFL Capital Services upgrade FY24 Ebitda margins by ~80bps to 23%, in line with mgmt’s revised guidance, to bake in the benefit of higher Revlimid sales and improvements in the base US business. Their revised estimates assume 11/13/16% overall revenue/Ebitda/EPS Cagr over FY23-26, driven by 16/10% Cagr in US/India sales over the next 3 years.