Cipla Q2 Preview: Lack of major US drug launches, high base to keep earnings growth tepid

Cipla is slated to release its Q2 earnings on October 29.

Drugmaker Cipla is slated to deliver its earnings for the July-September quarter on October 29. Absence of major drug launches in the US market and high base is likely to keep earnings growth tepid for the drugmaker in Q2.

According to a Moneycontrol poll of eight brokerages, Cipla's net profit is expected to grow just 5 percent in the second quarter of FY25 to Rs 1,215 crore, up from Rs 1,155.82 crore that it reported in the same period last fiscal. Revenue is also likely to show a 5 percent growth at Rs 6,996 crore in the July-September period as compared to Rs 6,678.15 crore in the corresponding quarter last year.

Operational performance is also unlikely to witness a significant change as forecasts suggest EBITDA margin for Q2 to come around 26 percent, slightly up from 25.6 percent seen in the same quarter of the previous fiscal.

Earnings forecasts from analysts polled by Moneycontrol show a tight range of 20 percent, with the most optimistic estimate from PL Capital predicting an 18 percent jump in Cipla's net profit. On the other hand, the most cautious outlook from B&K Securities projects a nearly 2 percent decline in net profit for the company. Barring B&K Securities, all other brokerage estimates forecast a rise in net profit for Cipla.

What factors are impacting the earnings?

Cipla's earnings growth is expected to moderate after a robust FY24 as the pace of major drug launches slows down due to regulatory challenges. Two of Cipla's key upcoming launches are caught in regulatory struggles which has adversely impacted its drug pipeline and thereby revenue and profit growth.

US sales: Cipla's US business is expected to grow by just 3 percent on year to $235 million in absence of major new launch during the quarter, Nuvama Institutional Equities stated. However, Systematix Shares and Stocks expects some support coming from the launch of generic lanreotide last quarter along with consistent contribution from blockbuster cancer drug Revlimid.

Domestic sales: Cipla's domestic business is likely to deliver high single-digit growth in Q2. Some support is also expected from the recently acquired CNS portfolio from Sanofi India. In addition, Kotak Institutional Equities also expects to see some negative impact in the first two months of Q2 due to the transition in the trade generics model in the previous quarter.

Muted margin growth: On the back of an absence of launches of high-margin drugs in the US, the drugmaker's EBITDA margin growth is likely to remain capped. The firm had reported steady EBITDA margin expansion through FY24 aided by strong contribution from Revlimid, however, with competition rising for the drug, margin growth expansion is likely to moderate going ahead.

What to look out for in the quarterly show?

Analysts will look out for updates over the launch timeline for two of Cipla's major drugs--respiratory drug Advair and oncology drug Abraxane, both of which have been delayed from their original launch date due to regulatory hurdles. In addition, any further information regarding the regulatory developments at Cipla's Goa plant will also be on the radar.

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