Reduce Cipla Ltd for the Target Rs. 1,350 by Choice Institutional Equities
Delayed Launch Scale-up and Margin Reset Weigh on Near-term Outlook
We maintain a cautious view on the company amid ongoing headwinds including delayed revenue contribution from Lanreotide — which was expected to offset Revlimid-led revenue and margin decline — slower ramp-up of other complex generic launches and elevated R&D and investment spends. Meaningful improvement in revenue and margin is now likely only from H2FY27E, contingent on successful scale-up of new launches. The management has revised EBITDA margin guidance downwards, from 22–23% to 18.5–20%, and we expect overall profitability to remain under pressure in FY27E. Accordingly, we revise FY27/28E estimate downwards by 9.5%/4.0%. We now value the stock on FY28E earnings, resulting in an unchanged TP of INR 1,350. We continue to closely monitor launch execution and scale-up trajectory
Q4 Miss across Parameters; Margin & Profitability Under Pressure
* Revenue de-grew 2.8% YoY / 7.5% QoQ to INR 65,412 Mn (vs. CIE estimate: INR 72,251 Mn).
* EBITDA declined 35.2% YoY / 20.6% QoQ to INR 9,970 Mn (vs. CIE estimate: INR 13,305 Mn); margin contracted 761 bps YoY / 250 bps QoQ to 15.2% (vs. CIE estimate: 18.4%).
* PAT decreased 54.6% YoY / 17.9% QoQ to INR 5,546 Mn (vs. CIE estimate: INR 9,653 Mn).
Execution Delays & Investment Cost to Weigh on FY27E
Q4FY26 performance was weak across metrics, largely driven by two major factors linked to the US business:
* Lanreotide: Revenue contribution remains absent due to ongoing remediation issues at the partner’s manufacturing site. Given the product’s high-margin nature, lack of contribution is forecast to weigh on FY27E profitability as well.
* Higher Investment Cost: The company incurred elevated R&D spends, manufacturing opex and talent hiring cost related to complex products. However, revenue contribution from these investments is unlikely before H2FY27E.
We believe these factors will not only weigh on revenue — earlier anticipated to reach USD 1 Bn by FY27E — but also delay margin expansion, as operational leverage and scale benefits are unlikely before H2FY27E. We now expect revenue CAGR of 11.7% over FY26–29E with EBITDA margin in the 20–22% range. Growth should be supported by Yurpeak, Advair and other complex generic launches.
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