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The US and emerging markets drive earnings Work in progress to address the issues highlighted in Goa 483

* Cipla delivered in-line 1QFY25 performance. It continued to track well in the US generics segment, with sales scaling an all-time quarterly high of USD250m. However, the benefit was partly offset by a temporary disruption in the trade generics segment. Cipla continues to outperform the industry in chronic therapies within the branded prescription segment.

* We maintain our earnings estimates for FY25/FY26. We value Cipla at 25x 12M forward earnings to arrive at our TP of INR1,830.

* Cipla is building a niche product pipeline in the peptides/inhaler space within the US generics segment. With a change in its distribution model, the trade generics business is also back on the growth path. The EBITDA trend continues to be better in the consumer health segment. Accordingly, we estimate 12% earnings CAGR over FY24-26. Reiterate BUY.

Product mix/lower R&D expenses support margin uptick YoY/QoQ

* Cipla’s 1QFY25 revenue grew 5.8% YoY to INR66.9b (our est. INR67.6b). DF sales (43% of sales) grew 4.5% YoY to INR29b. The US sales (31% of sales) grew 14.5% YoY to INR20.9b (USD250m, up 12.6% in CC terms). The EM sales (13% of sales) grew 9% YoY to INR8.5b.

* API sales (1% of sales) declined 28% YoY to INR980m. SAGA sales (10% of sales) declined 7.1% YoY to INR7b.

* Gross margin expanded 260bp YoY to 67.2% (our est. 66.4%) fueled by lower raw material costs.

* EBITDA margin expanded 200bp YoY to 25.6% (our est. 25.7%), due to better gross profit. Employee costs mounted 100bp, while R&D expenses/Other costs decreased 24bp/19bp YoY as a % of sales.

* EBITDA increased 14.9% YoY to INR17.2b (our est. INR17.4b) in 1QFY25.

* PAT grew 18.3% to INR11.8b (our est. INR11.3b).

Highlights from the management commentary

* Cipla maintained its guidance of 24.5%-25.5% EBITDA margin for FY25.

* Management reiterated the US generics quarterly sales run-rate at USD230- 245m for the remainder of FY25.

* The company would be filing g-Advair from the Invagen plant before the end of CY24. Management expects 4QFY25 to be a potential approval/launch timeline for this product.

* G-Revlimid traction has been higher on a QoQ basis.

* Cipla indicated that price erosion would be 10% YoY/5% QoQ in the US generics segment.

* It has a surplus cash of INR85b at the end of 1QFY25.

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