US sales momentum, margin gains to support pharma major Cipla's stock

A strong performance in the July-September quarter of 2023-24 (Q2FY24), an upward revision in the margin guidance and sustained momentum in US sales has helped the stock of pharmaceutical major Cipla gain about 2 per cent over the last two trading sessions.

The brokerages have upgraded the earnings estimates for this financial year (FY24) by 6-9 per cent to factor in the improved margin guidance and sales in the US market. 

Led by the US market, which rose by 31 per cent, the company posted a 16 per cent growth in revenues.

The US market has accounted for 28 per cent of sales. The US revenues at $229 million were its highest ever in a quarter. It was aided by market share gains across key products.

The company’s market share in Lanreotide (growth hormone disorder drug) improved from 18 per cent in Q1FY24 to 20 per cent currently.

Its share in the generic version of Albuterol (inhaler), improved by 90 basis points sequentially to 12.9 per cent.

The company has indicated that the sustainable sales in the US market on a quarterly basis would be in the range of $220-225 million. 

In addition to the existing base/niche opportunities, Cipla has a portfolio of complex products undergoing trial (expected to be launched in the second half of FY24/FY25). It also plans to launch peptide products which have a market size of $300-$400 million. 

Given the multiple triggers for the US market, Motilal Oswal Research expects Cipla to grow sales by 16 per cent annually in that geography for the period FY23-25 to $982 million. 

The India business (42 per cent of sales) grew by 9.8 per cent with branded and trade generics growing at 11 per cent while the consumer business lagged due to muted seasonal demand.

In the domestic branded generics space, the contribution of the higher margin chronic segment has increased by 100 basis points year-on-year (Y-o-Y) to 60 per cent. Aided by gains in the respiratory/cardiac therapy segment, the company has outperformed the domestic sector over the last twelve months. 

Prabhudas Lilladher Research has increased its FY24 earnings estimates by 9 per cent. 

Param Desai and Kushal Shah of the brokerage remain positive on key growth markets including India and the US, given the strong traction in respiratory and other portfolios and potential 10 per cent growth in domestic formulations and sustainability of current US revenues, backed by prospective key launches in FY25.