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Cipla Q2FY25 earnings were in line with our expectations on all fronts, with the reported revenue of INR 70,510mn (+5.6% YoY/+5.3% QoQ) driven by growth across all the focused geographies. EBITDA reported at INR 18,856mn (+8.8% YoY/+9.9% QoQ) with the highest ever quarterly margin of 26.7% (+78bps YoY and +111bps QoQ). Adj. PAT was reported at INR 13,025mn with a growth of 15.2% YoY and 10.6% QoQ. The management expects the launch of Advair by mid-FY26, while Abraxane’s release depends on regulatory approval for the manufacturing site at Goa.

* India Business: The India business reported revenues of INR 29,480mn (+4.7% YoY /1.7% QoQ). With respiratory expanding by 8.5%, cardiac by 11.5%, and urology growing by 15.5%, chronic therapies outperformed the market. Anti-infectives, which is one of the largest acute therapy of the company has shown a slow growth during the quarter at 4.9% compared to 12% last year. The portfolio's overall chronic mix increased to 61.5%, as per IQVAI MAT Sep 24. The management continues with the earlier guidance of outpacing the market growth in the coming years. The majority of the capital allocation will be in India with a focus on respiratory therapy.

* North America Business: In Q2FY25, North America recorded revenue of INR 19,860mn (US$ 237mn, +5.2% YoY & -4.9% QoQ), due to Lanreotide franchise impacted due to supply challenges. The company is facing temporary supply issues in Lanreotide, which is expected to impact Q3FY25 revenue, but these issues are anticipated to be resolved by the end of Q3. Albuterol’s market share has been continuing to increase to 19% during the quarter. The company's primary objectives are expanding the launches from the US facilities, focusing on resolving commercial execution and resolving supply-chain issues. Moving ahead, a quarterly run rate has been downgraded from $250mn to $230– 240mn in the coming quarters.

* Margin Performance: During the quarter, Gross margin came at 67.6% (+226bps YoY/+38bps QoQ) driven by a better product mix. Highest ever quarterly EBITDA margin at 26.7% (+78bps YoY/+111bps QoQ). In South Africa, the company continues to remain focused on margin expansion. Going forward, R&D expenditure is estimated to be around 5-6% of the total revenue, other operating expenses will grow in line with the top-line growth, and the EBITDA margin to be in the range of 24.5%-25.5% in FY25, implying the low impact from Q4FY25.

* Outlook & Valuation: Cipla’s growth will be muted due to delays in the timeline of drug launches, supply-chain issues in the North American market, and slow growth in the antiinfective therapy which is a major contributor. We expect Revenue/EBITDA/PAT CAGR of 9.3%/11.7%/11.9% during FY24-FY27E. We have introduced FY27E and valued the stock at 22x Sep-FY27E EPS to arrive at a target price of INR 1,543 with a HEDUCE rating on the stock.

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