Add Cipla Ltd For Target Rs.1,4500 By Emkay Global Financial Services Ltd
We upgrade Cipla to ADD from Reduce, nudging up our TP by ~7% to Rs1,450 from Rs1,350. While Cipla’s 4QFY26 EBITDA margin performance was weaker than street/our expectations, the silver lining was the meaningful beat in gross margin. Even as the domestic sales beat primarily came on the back of inlicensed brands, this has notably been the nature of Cipla’s domestic growth profile over the last 2 years (and is likely to continue in FY27 too). US sales were in line with our expectations and, to that extent, offer a clearer picture around the ex-Lanreotide, ex-gRevlimid quarterly revenue base (no negative surprise here was good news, in our view). Our negative thesis on Cipla has, for a long time, partly hinged on our contention that the path to inhalation approvals for Cipla is likely to be long-winded. Notably, all the inhalation and peptide assets in the pipeline are a part of the street’s and our FY27/28 estimates. While the risk of further cuts in consensus earnings is not yet behind us (the management’s FY27 EBITDA margin guidance range of 18.5-20% also reflects this risk), stress-testing our FY28 US sales and overall earnings estimates for further delay in key product approvals suggests limited downside from CMP. More importantly, catching the bottom of Cipla’s stock price hereon will be extremely challenging once the new product approval momentu in. We roll forward to FY28E earnings and introduce FY29 estimates.
US sales in line with expectations; domestic sales marginally ahead
US sales at USD155mn were in line with our expectations. Overall domestic sales were marginally ahead of expectations, with branded prescription (driven by brands in-licensed from Pfizer) as well as consumer health sales being ahead of our estimates. Trade generic growth (double-digit) was broadly in-line. Gross margin at 65.6% was ~280bps ahead.
KTAs from the earnings call
1) Aims to achieve quarterly US revenue run rate of ~USD250mn by the end of FY27; expects to deliver market-beating double-digit domestic growth in FY27/28 (partly aided by an adverse acute seasonality in the base). 2) EBITDA margin will be higher in 2HFY27 vs 1H; the FY27 guidance does not factor in Lanreotide sales. 3) The company has identified an alternative supplier for Lanreotide based in the US, with a filing expected by early CY27. 4) 40-50 products will be filed in the US over the next three years; these include 12 first-to-file and eight 505(b)(2) opportunities; 4 respiratory assets (2 with green propellant), 3 peptides, and 1 oligonucleotide asset will be filed within the next 24 months. 5) gVentolin will be launched in 1QFY27, with a ramp-up expected in 2HFY27; does not expect gVentolin to cannibalize the sales of gProventil, nor does it see any nearterm impact of the innovator switching to a green propellant version of Ventolin. 6) Cipla’s US facility has recently undergone a PAI for gAdvair and the company expects an approval in FY27; new launches will help address the cost-revenue mismatch for its US facilities.
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