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In line quarter; timely launches in US will be key

Quick Pointers:

* Reiterate 24.5-25.5% EBITDA margins for FY25

* US sales to see dip in Q3 to below $220mn

CIPLA’s Q2FY25 EBITDA (Rs19bn; 26.7% OPM) was broadly in line with our estimates. Overall India and US sales growth were muted in Q2 due to seasonality and supply issues in Lanreotide respectively. While India should recover from Q3, US sales will see dip in Q3 with likely recovery from Q4. Despite delay in some key launches like gAdvair and gAbraxane, ramp-up in gRevlimid, market share increase in gAlbuterol and new launches like Lanreotide supported US sales. We continue to remain positive on key segments growth including India & US given 1) strong traction in respiratory & other portfolios, 2) potential 9-10% growth in domestic formulations and 3) sustainability of current US revs. Our FY26E/27E EPS stands reduced by 3-4%. At CMP, stock is trading 23x FY26E EPS. We maintain our ‘Accumulate’ with revised TP of Rs1,615/share. Timely critical launches of 3-4 products in US in FY26/27 will be key, as it will help to compensate decline in key products like gRevlimid and Lanreotide.

* Miss in US & India sales: CIPLA’s Q2FY25 sales increased 6% YoY to Rs70.5bn. Domestic formulation sales reported moderate growth of 5% YoY vs our est of 9% impacted across Rx and Gx due to change in seasonal pattern. US sales came in at $237mn, down QoQ ($250mn in Q1). One Africa reported strong growth of 22% YoY. API revenues came in higher with 9% YoY growth.

* In-line EBITDA aided by higher GMs: GMs came in higher at 67.1% expanded by 220bps YoY and 20bps QoQ. EBITDA came in at Rs19bn, broadly in line with our estimate (Rs19.2bn). OPM stood at 26.7%, up 100bps QoQ. R&D expenses came in at Rs3.85bn, 5.5% of revenue, up by mere 1.6% YoY. Ex of R&D cost other expenses were up 11% YoY and 4% QoQ. Other income came in higher at Rs1.9bn. PAT came in at Rs13bn; up 15% YoY.

* Key concall takeaways: Domestic formulation: Revenue growth was moderate, affected by changes in seasonal pattein rn. Key chronic therapies continue to outperform in the prescription (Rx) market. Cardiac (+11.5%), Respiratory (+8.5%) and Urology (+15.5), delivered healthy YoY growth. Anti infectives reported subdued growth impacted Rx and trade generics. Chronic mix remained steady at 61.5% in Q2FY25. MR strength stood at 7800.

Consumer health: Nicotex, Omnigel, and Cipladine continued to hold leading positions in their respective segments. Grew by 21% YoY.

US business: On Lanreotide facing supply issues at partner end. Expect sales to further decline in Q3 and likely to resolve from Q4FY25. Enjoyed 35% market share with combined 505 b(2)+generic. The QoQ decline in US sales was on account of lower Lanreotide sales and price erosion in base business. Received four drug approvals including one peptide in Q2FY25. Market share in gAlbuterol further increased to 19% in Q2FY25 vs 17% in Q1FY25 and have witnessed not much impact from new generic competition. On gAdvair reiterate its guidance of H1FY26 launch. Goa facility is currently awaiting classification following inspection in June 2024. Launch of gAbraxane is dependent upon of clearance of Goa facility. Reiterated its margin guidance of 24.5-25.5% in FY25. R&D spend at 5.5% of sales driven by product filings. Guided for three niche respiratory launches- gSymbicort, gQvar and gDulera in FY27. SouthAfrica business growth was aided by uptick in key therapies,

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