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Cipla Q4FY24 revenue was in line with the expectation, whereas earnings were above our estimates. The company reported a top line of INR 61,632mn (+7.4% YoY/-6.7% QoQ) which was driven by double-digit growth in the North American market and continued growth in India business. EBITDA reported at INR 13,159mn (+12.1% YoY/ -24.7% QoQ) and margin at 21.4% (+90bps YoY and -511bps QoQ). Adj. PAT was reported at INR 9,390mn with a robust growth of 43.7% YoY and a decline of 21.6% QoQ. The management expects to grow the India & SAGA business by faster than the market growth, improve the EBITDA margin by 100bps, and continue to look for inorganic growth opportunities in India and North America markets.

India Business: The India business reported revenues of INR 24,170mn (+7% YoY / -15.5% QoQ). Branded Prescriptions business grew ahead of the market, outpacing it by 100bps. The performance of the India business was backed by respiratory and cardiac therapies, each posting 10% growth. Further growth in the trade generic segment will be backed by the recent change in the distribution channel, which will increase direct touch points, enabling the company to expand its leadership position in the market. The management expects to continue to outperform the Indian business by growing faster than the market growth in the coming years, expanding the field force, and will continue to look for large acquisitions, where the therapeutic presence is not strong as of now and make it a focus area.

North America Business: In Q4FY24, North America recorded revenue of INR 18,750mn (US$ 226mn, +11.8% YoY), driven by strong demand in the base business and momentum in the differentiated portfolio. The Albuterol market share was c.13% and going forward plan is to increase it by a few more percentage points. The company is ready with one of the largest peptide assets and is waiting for the approval to be launched in the coming quarter. North America top-line growth will be backed by commercial execution of existing product portfolio, new product launches, resolution of the USFDA observations to de-risk the product launch, and continue to explore inorganic partnership and acquisition.

Margin Performance: During the quarter, Gross margin came at 66.7% (+269bps YoY / +35bps QoQ) driven by favorable product mix, the impact of easing cost inflation, and contribution from new launches. EBITDA margin came at 21.4% (+90bps YoY / -511bps QoQ). Going forward, R&D expenditure is estimated to be around 6-7% of the total revenue, other operating expenses will grow in line with the top-line growth, and EBITDA margin to grow by 100bps (24.5%-25.5%) in FY25.

Outlook & Valuation: Cipla’s top objective for One India going forward is to maintain leadership in Gx while growing Rx (within the chronic portfolio), and the US will continue to include the commercial execution of the current portfolio, new product launches, and the resolution of USFDA observations. We expect Revenue/EBITDA/PAT CAGR of 10.6%/13%/13% during FY24-FY26E. We value the stock at 23x FY26E EPS to arrive at a target price of INR 1,552 with BUY rating.

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