Cipla slips 7% on Q4 shocker; margins pressure may persist

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26 Aug, 2025 12:21

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Moneycontrol Bureau Cipla is reeling under pressure as its January-March quarter margins and profit shocked the street because of multiple one-offs. Margins in Q4 were hurt due to ongoing investment phase and certain adjustments in costs. The stock fell over 7 percent intraday on Wednesday. Investors are worried about management guidance of mid-teen sales growth on the base business (ex-Nexium) over the next three years and EBITDA growth of 15-20 percent. The company has said that continued investment in research and development (R&D) medium-term for growth may further pressurise near-term margins.Analysts are also cautious as margins remained a drag in Q4. Morgan Stanley has an underweight rating on the stock with a target of Rs 440 per share. Though it feels that benefits will be gradual, it says that FY16 has reset base business profitability a lot lower. On a consolidated basis, total revenues were Rs 3260 crore in Q4, driven mainly by domestic business. The pharma major has posted net profit of Rs 80.87 crore (down 69 percent) for the fourth quarter.CLSA also has an underperform rating with a target of Rs 515 per share. The brokerage firm says that Q4FY16 miss and delays in key drivers lead to 18-22 percent cuts in 17-18 earnings per share (EPS). It expects FY17 to be another tough year for Cipla as margin pressure continues due to high R&D spend (8 percent of sales) along with rationalisation activities in certain markets and the product portfolio.

Goldman Sachs has retained sell rating on Cipla and lowered EBITDA by 2-4 percent to factor in weaker outlook for margins. It has also reduced target price to Rs 467 per share.

Macquarie has downgraded the stock to neutral rating on with a reduced target of Rs 550 from Rs 680 per share. EBITDA margin was impacted by several one-offs on inventory write-off /reduction of 340 basis points (bps), restructuring charges of 210 bps and regulatory one-offs adjusted for which margin was 13.6 percent. While the brokerage firm is positive on the long-term potential of its initiatives, it believes current valuations have potential for improvement.Bank of America Merill Lynch reiterates neutral rating and cuts estimates by 13-21 percent over FY17-18 and slashed target price to Rs 520 per share. Cipla plans to launch 13-17 products in the US in FY17 and targets to file additional 20-25 ANDAs including respiratory and oncology products.However, Deutsche Bank still maintains buy rating on the stock with a target of Rs 550 per share. It has also cut EPS estimates by 13.9/11.3 percent for FY17/18, respectively, to incorporate higher operating costs. It feels that Cipla's operating leverage will play out as business restructuring nears end. At 10:43 hrs Cipla was quoting at Rs 466.20, down Rs 28.70, or 5.80 percent on the BSE.Follow @NasrinzStory