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* North America Business:

In Q3FY24, North America recorded the revenue of INR 19,160mn (US$ 230mn, +18% YoY), driven by continuing momentum in key assets and robust demand in base business along with some year-end buying. In US, the price erosion was stable in the range of 4-6%. The management’s focus remains on commercial execution of existing portfolio and resolution of USFDA observations. The company is ready with one peptide asset and is waiting for the approval to launch (expected to launch the product in Q1FY25). On the whole, there are 4 launches planned in FY25. For this, the management is emphasizing on de-risking strategy. Further, inorganic partnerships and acquisitions remains key priorities for the U.S. market.

* India Business:

The India business reported revenues of INR 28,590mn (+11.5% YoY / +1.5% QoQ). Branded Prescriptions business grew ahead of the market with chronic portfolio outpacing the market (growth of 13% vs 11% IPM growth). The share of chronic therapies in portfolio has improved by 115bps YoY to 60.3%. Future plans in branded prescription includes growing Big Brands bigger. Trade Generics performance was supported by execution of order book, traction in new introductions, and deepening distribution, network and technology to improve reach. Business will further execute these work streams to expand their offerings and reach.

* Margin Performance:

During the quarter, Gross margin came at 66.4% (+89bps YoY / +103bps QoQ) driven by overall mix change, contribution from new launches as well as low procurement cost of key APIs. EBITDA margin came at 26.5% (+224bps YoY / +50bps QoQ) due to calibrated price action across branded and generic portfolio, and impact of easing cost inflation. EBITDA margin for FY24 is expected to be higher than guided earlier, which was in the range of 23% to 24%.

Outlook & Valuation:

We understand that Cipla’s growth story for FY24-26 is premised on: 1) Scaling up of share across the focused areas through new product launches, especially in the complex portfolio; 2) margin expansion which will be driven by a rise in the share of chronic therapies and favorable product mix, and 3) continuous focus on big brands and core therapies. We improve our estimates and expect Revenue/EBITDA/PAT CAGR of 10.4%/12.5%/14.6% during FY24E-FY26E. We value the stock at 23x Mar-26E EPS to arrive at a target price of INR 1,541 and maintain our ADD rating.

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