Chronic portfolio may help Cipla sustain growth outperformance in near term

Margin gains in the September quarter too are expected to continue

Pharma Stocks, Sun Pharma, Cadila, Cipla — While Covid-related sales might come down going ahead, analysts expect the company’s domestic sales to outperform the market

2 min read Last Updated : Dec 08 2020 | 12:05 AM IST

Led by higher sales of Covid-related drugs, Cipla reported double-digit growth in domestic sales for the third consecutive month. The company posted sales growth of 13.5 per cent, as compared to 1.3 per cent for the Indian pharmaceutical market (IPM) sector.

Adjusted for sales of Covid drugs, such as Remdesivir, growth is pegged at just under 4 per cent, which is still higher than the market growth. Average growth over the last three months has been 17.6 per cent, as compared to IPM’s 5.3 per cent.

While Covid-related sales may come down going ahead, analysts expect the company’s domestic sales to outperform the market, led by the chronics portfolio, which accounts for 55 per cent of sales. The restructuring of the domestic business — which brings trade generics, prescription and consumer or over-the-counter drugs together — is expected to help drive synergies and improve its reach.

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India accounted for 41 per cent of overall revenues in the September quarter with all the three segments contributing to domestic growth of 17 per cent. Besides Covid drugs and the chronics portfolio, what helped the prescription business is an uptick in the hospital business. The prescription business has outperformed the sector for five quarters in a row.

Besides the domestic market, growth is expected to be supported by the US business on the back of the ramp-up in of generic version of Albuterol inhaler and market share gains. Growth in the US market (Q2 levels of 10 per cent) is expected to be sustained on the back of new launches and steady base business. Limited competition launches, coupled with margins scaling up despite competitive pressures in key products, should help US geography margins to match or exceed company profitability.

Analysts expect some margin gains in the past quarter on the back of lower logistics and manpower costs to sustain. Margins in the quarter came in at 23.4 per cent and were up 270 basis points YoY.

While the stock is up 21 per cent over six months, given growth prospects across key markets, investors with a long-term horizon can consider the stock.