Cipla surges 6% in weak market on upbeat management commentary

The management has guided 24.5 per cent-25.5 per cent Ebitda margin for FY25

Shares of Cipla surged 6 per cent to Rs 1,465.25 on the BSE in Monday's intraday trade, in an otherwise weak market, on upbeat management commentary which guided 24.5 per cent-25.5 per cent Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin for FY25. This guidance does not factor in USFDA compliance at the Goa site.

At 10:15 AM, Cipla was quoting 5.6 per cent higher at Rs 1,414.05, as compared to 0.9 per cent decline in the S&P BSE Sensex. The stock of the pharmaceutical company hit a 52-week high of Rs 1,519 on March 11, 2024.

The guidance is based upon strong India growth, differentiated and complex launches in the US, and strong South Africa momentum. Interestingly, the margin guidance is devoid of any adverse outcome of USFDA embargo and a possible delay in key US launches.

"The company already has a plan B in place to address the launches from other sites. US launches would be mainly confined to complex areas of peptides and respiratory assets," ICICI Securities said in a note.

The brokerage firm believes the management's confidence is brewing upon the successful recent launches in the US and a long-drawn India strategy with a blend of branded Rx- Trade Generics- Consumer Health.

While g-Revlimid contributed meaningfully to overall earnings for FY24, Motilal Oswal Financial Services expects 12 per cent earnings CAGR over FY24-26. This would be largely driven by: commercialisation of complex assets in the US and outperformance of chronic therapies in the DF segment, a transformed operating model in trade generics, and sustained growth in the consumer healthcare segment.

"FY25 margin guidance of 24.5-25.5 per cent comes as a positive surprise and is 100-150bp above expectations. With two key plants under the USFDA radar and likely field force addition in India, we had expected a decline in margins," InCred Research said in a result update.

In respect of the Goa plant, management expects a possible reinspection sometime in Jul/Aug 2024, going by historical timeline of a two-year gap. If the Goa plant is cleared, then gAbraxane launch can be in early FY26F (assuming a six-month lag); gAdvair launch is also likely in FY26F – we build in these launches from 2Q/3QFY25F onwards in our model, the brokerage firm said.

Cipla has filed for five respiratory assets, including gSymbicort and gQvar, and is likely to file for another two assets in the next 12-15 months. As regards peptides, the company has filed for 12 assets so far, and will file for another 8 in the next one-to-two years, it added.