Cipla Q3 Preview: Weak US sales to cap revenue growth, steady India biz to offer support

Cipla will release its Q3 results on January 28.

Pharmaceutical major Cipla Ltd. is all set to announce its October-December earnings on January 23. While a weakness in the drugmaker's US sales is expected to cap its revenue growth in the fiscal third quarter, steady domestic growth is likely to offer some relief.

According to a Moneycontrol poll of 10 brokerages, Cipla's net profit is estimated to grow 16 percent at Rs 1,225 crore, up from Rs 1,056 crore reported in the same period last fiscal. The revenue is likely to see a marginal 5 percent increase to Rs 6,925 crore in the December quarter as compared to Rs 6,603 crore in the corresponding quarter last year.

However, operational performance is expected to witness a blip due to lower US sales impacting the mix. As per the forecasts collated by Moneycontrol, Cipla's EBITDA margin may see a 20 basis points squeeze on-year to 26.1 percent in Q3.

Analysts' growth projection for Cipla are caught in a tight range, meaning any deviation from these expectations can illicit a sharp reaction in the stock.

What factors are impacting the earnings?

The drugmaker's US sales is likely to remain under pressure in an otherwise seasonally strong quarter.

Lower US sales: Cipla's US sales in Q3 are likely to decline on-year due to price erosion and temporary lower off-take of tumor drug Lanreotide. The management had informed about supply disruptions in Lanreotide last quarter, which was expected to normalise around Q4. Accordingly, US sales below $220 million for Q3 was guided.

Margin performance: Weak US sales in the quarter may bring a slight drag on the company's margin performance due to its impact on the product mix. Despite that, brokerages remain confident of the company meeting its margin guidance of 24.5-25.5 percent for FY25, supported by lower raw material costs and operating leverage.

India sales: Nomura anticipates a 7 percent on year rise in India sales for Cipla. "The on year growth is adversely impacted due to weak seasonal demand for acute therapies, particularly in the respiratory segment, and the high base of last year," Nomura said. However, the firm also expects a positive impact from the distribution agreement with Sanofi for CNS (Central Nervous System) products to offer some comfort. In Nomura's view, the sales from this agreement should have a positive 1.5 percent impact on year-on-year domestic growth rates.

What to look out for in the quarterly show?

Analysts will closely monitor updates on the approval and launch timeline of products from Cipla's  Goa facility following its regulatory clearance. In particular, investors will remain focused on the launch timeline of the blockbuster oncology drug Abraxane, which is slated to be filed and manufactured from the Goa facility.

Aside from that, Cipla's outlook on the recovery of Lanreotide sales from Q4 will also be on the radar. The drug is currently a major revenue opportunity for Cipla.

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