Neutral Cipla Ltd for the Target Rs.1,580 by Motilal Oswal Financial Services Ltd
Product mix/cost control drives earnings beat
Stable earnings as pipeline scale-up offsets g-Revlimid erosion
* Cipla delivered revenue in line with estimates for 1QFY26. There was a 9%/7.5% beat on EBITDA/PAT for the quarter, led by an improved product mix and controlled opex.
* YoY growth in North America (NA) sales decelerated for the third consecutive quarter due to rising competition in g-Revlimid. However, new launches (g-Abraxane/Nilotinib) and the scale-up of g-Lanreotide contributed to incremental sales during the quarter.
* In One-India, consumer health and trade generics posted healthy YoY growth during the quarter. However, muted YoY growth in the prescription (Rx) segment impacted the overall India business performance.
* Cipla sustained its industry outperformance in the One-Africa business during the quarter, led by a scale-up in key therapies, tender wins, and new launches.
* Cipla’s first biosimilar is set to launch soon in the US market, with the company implementing an in-licensing strategy in this segment over the medium term.
* We largely maintain our estimates for FY26/FY27. We value Cipla at 24x 12M forward earnings to arrive at a TP of INR1,580. We expect stable earnings over FY25-27. The reduced business contribution from g-Revlimid is expected to be offset by incremental gains from Cipla’s product pipeline in the NA market. Cipla is also focusing on adding differentiated products to its Rx portfolio in India while improving its outlook in the consumer health segment.
* Given the gestation period required to translate these efforts into commercial success across key markets of NA/India, we reiterate our Neutral stance on the stock.
Modest revenue growth; cost pressures offset gross margin gains
* Cipla’s 1QFY26 revenue increased 4% YoY to INR69.5b (in line).
* DF sales (44% of sales) grew 6% YoY to INR30.7b. SAGA sales (13% of sales) grew 25% YoY to INR8.7b.
* EM sales (12% of sales) were steady YoY at INR8.6b. API sales (1% of sales) grew 4% YoY to INR1b.
* US sales (28% of sales) declined 7% YoY to INR19b (USD226m, down 10% in CC terms).
* Gross margin expanded 160bp YoY to 68.8% (our est: 66.7%).
* However, EBITDA margin was stable YoY at 25.6% (our est: 25.4%), as gains from improved gross profit were offset by higher employee/R&D expenses (up 100bp/90bp YoY as a % of sales).
* EBITDA increased 4% YoY to INR17.8b (above our est. INR16.3b).
* PAT grew 10% YoY to INR13b (our est: INR12b).
* R&D spending for the quarter stood at INR4.2b (6.3% of sales).
* Net cash at the end of Jun’25 was INR108b.
Highlights from the management commentary
* Cipla maintained its EBITDA margin guidance of 23.5-24.5% for FY26.
* G-Revlimid sales in 1Q were similar to 4QFY25. In the short- to medium-term, the loss of business from g-Revlimid is expected to be more than offset by new product launches.
* Cipla aims to achieve revenue of USD1b in FY27.
* While YoY growth in the Rx segment in India was muted in 1QFY26, Cipla remains confident of delivering stronger growth over the next three quarters.
* Cipla recorded sales of g-Abraxane and Nilotinib for part of 1QFY26, with their full-scale launches expected soon.
* Cipla is not part of the first wave of sema launches in Canada.
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