Earnings Outlook
Cipla's Jul-Sept profit growth seen lowest in 6 quarters
This story was originally published at 22:21 IST on 21 October 2024
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By Apoorva Choubey
MUMBAI – Cipla Ltd. could report the lowest profit growth in six quarters as its bottom line for Jul-Sept will reflect the slowdown in sales growth in India as well as the high-margin market of the U.S. Supply chain issues for a key peptide drug are likely to have hurt Cipla's US sales growth, while the company's domestic revenue growth has slowed down because of low demand for acute therapy medicines and the lingering impact of a change in the distribution model for trade generics, according to analysts.
The city-based drugmaker's consolidated net profit is expected to rise 9.5% on year to INR 12.4 billion, the average of estimates from 12 brokerage houses showed. The lowest estimate for the profit after tax was INR 11.7 billion, estimated by PhillipCapital India Research, while the highest was Prabhudas Lilladher's projection of INR 13.6 billion.
The reason for the wide variance in the estimates for Cipla's earnings for the September quarter is presumably the difference in the assumptions for the company's India and US sales, given the slew of unexpected trends that have played out over the past few months, according to analysts.
Cipla's consolidated net sales could improve 5.6% on year to INR 70.5 billion for Jul-Sept, extending a slowing growth trend to the sixth straight quarter, the estimates showed. The lowest top line estimate, of INR 68.9 billion, was given by Kotak Institutional Equities, whereas the highest sales expectation was INR 72 billion, estimated by Prabhudas Lilladher.
Cipla is set to detail earnings for the September quarter on Oct. 29. Sequentially, the net profit and net sales are likely to rise over 5?ch.
KEY MARKETS
After clocking the highest-ever revenue of $250 million in the U.S. in Apr-Jun, Cipla is expected to see muted revenues from the region because of lack of new launches during the September quarter and supply issues in Lanreotide, a niche synthetic hormone drug. The U.S. accounts for 31% of Cipla's revenue, but is deemed an even bigger contributor to profitability due to the high margins of drugs sold there.
The sales from the US are expected to rise 3-7% on year from $228 million in the year-ago period, after a 13% on-year growth in Apr-Jun. The muted growth for Jul-Sept will be led by market share gains in niche medicines such as anti-cancer drug Revlimid and respiratory therapy Albuterol. These market share gains will also help Cipla just about meet its guidance for the quarterly run rate of sales from the U.S.
After detailing Apr-Jun earnings, Cipla had raised its guidance for U.S. sales to $235 mln-$240 mln in the coming quarters from $220 mln-$225 mln earlier. The company has either achieved or exceeded its guidance in the last five quarters, including Apr-Jun.
Brokerage Kotak Institutional Equities estimates the company to have earned $30 million in revenues from Revlimid generic in the U.S. It had witnessed sales of $28 million in Apr-Jun.
During the September quarter, Cipla's other key market, India, is also seen slowing down. Analysts estimate 7-12% on-year growth in revenues from the domestic business, which makes up 42-45% of Cipla's consolidated sales.
While the recent acquisition of nervous-system-related portfolio from Sanofi India Ltd. and a higher revenue share of chronic drugs are likely to have aided the Indian business, Cipla is also likely to have faced low demand for acute drugs and some lingering impact of a change in the distribution model of the trade generics segment, which had led to inventory drawdowns in Apr-Jun too. Cipla has changed its distribution model to consolidate channels and increase direct touch-points for better trade visibility and positioning.
The growth in domestic revenues is likely to have been driven by stronger performance in the cardiac and urology portfolios and in-licensing opportunities, said brokerage Motilal Oswal Financial Services. The deal with Sanofi would have added 150 basis points to the expected 8.5% domestic sales growth estimates, Nomura Financial Advisory and Securities India said in a preview report.
For Jul-Sept, Kotak Institutional Equities expects South Africa sales of Cipla to grow 7% on year, boosted by the Actor Pharma acquisition, while in Africa and global access markets, it estimates a 71?cline, following the divestment of Cipla's Ugandan subsidiary last year. It expects a 12% growth in the European and rest of the world markets.
OPERATIONAL PERFORMANCE
Analysts are divided on how the company's profitability may fare during the September quarter. Some, including Nuvama Wealth Management and Kotak Equities, expect operating margin to fall up to 100 bps on year due to the trade generics distribution change, lower share of acute drugs in India and muted sales growth in the U.S. The company had reported an earnings before interest taxes depreciation and amortisation margin of 26% in the year-ago period.
Others, including Nomura and Prabhudas Lilladher, expect margins to rise 40-80 bps on year, aided by market share gains in the U.S. in some niche drugs and cross-currency tailwinds.
The strong outlook for the US business has made the company confident of sustaining overall operating margins of around 24.5-25.5% for the current financial year. During Apr-Jun, Cipla's consolidated earnings before interest, taxes, depreciation and amortisation margin expanded 154 basis points from a year ago to 25.6%.
The equity market will monitor the company's guidance for U.S. sales and operating margins for the next few quarters. Updates on the remediation measures for Goa and Pithampur facilities will also be closely monitored, as will the comments on new launches.
The company is hoping for key launches such as peptide assets to shore up volumes in the coming quarters. The drugmaker has said it is confident of launching key generics Advair and Abraxane next year, as it believes the process for regulatory clearances for these products is now progressing, after having been delayed due to non-compliance at Goa and Pithampur units last year.
Cipla is hopeful that it may be able to launch its generic of Advair in the US in the first half of 2025. With many assets and projects being ramped up, the company has also guided for higher research and development spending, towards the upper end of the range of 5-6% of sales.
For the June quarter, R&D spend was INR 3.5 billion or 5.3% of sales, a rise of 1% over the spending seen last year. Monday, shares of Cipla closed almost 2% lower at INR 1,523.75 on the National Stock Exchange.
Following are the Jul-Sept earnings estimates for Cipla based on reports from 12 brokerages:
| Brokerage Name | Net Sales (INR million) | Net Profit (INR million) |
EBITDA (INR million) |
| Antique Stock Broking Ltd | 71,316.00 | 12,704.00 | 18,590.00 |
| Axis Securities Ltd | 70,300.00 | 12,150.00 | 17,830.00 |
| Elara Securities (India) Pvt Ltd | 71,051.00 | 12,175.00 | 18,550.00 |
| Kotak Institutional Equities | 68,921.00 | 11,950.00 | 17,198.00 |
| KR Choksey Research | 71,934.00 | 12,596.00 | 18,818.00 |
| Motilal Oswal Financial Services Ltd | 70,263.00 | 12,300.00 | 18,549.00 |
| Nomura Equity Research | 69,724.00 | 12,943.00 | 18,571.00 |
| Nuvama Wealth Management Ltd | 70,908.00 | 11,782.00 | 17,936.00 |
| PhillipCapital (India) Pvt Ltd | 69,469.00 | 11,677.00 | 17,443.00 |
| Prabhudas Lilladher Pvt Ltd | 71,991.00 | 13,631.00 | 19,271.00 |
| Sharekhan Ltd | 70,290.00 | 12,050.00 | |
| Systematix Shares and Stocks (India) Ltd | 70,220.00 | 12,575.00 | 18,252.00 |
| Average | 70,532.25 | 12,377.75 | 18,273.45 |
End
US$1 = INR 84.07
Edited by Manisha Baxla
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