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Strong growth across geographies and margin improvement are key reasons that have kept investors’ sentiments firm on Cipla Ltd’s shares. The stock has more than doubled since its March 2020 lows.

The company’s US market growth remains robust, led by new launches in its respiratory franchise. The gains made with the launch of Albuterol inhaler generics helped Cipla regain momentum in US sales. The company’s US sales in Q3 had grown 6% year-on-year (in constant currency terms), mainly helped by a pick-up in the Albuterol sales. Having garnered a 12% prescription share in the US, it is doing well, and analysts said there is scope for more gains. Cipla also expects to maintain the market share and grow it gradually. Albuterol has a market size of about $900 million annually, according to analysts.

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The company plans to file for more respiratory products in the US. Besides, the target action date is approaching for the approval of its much-awaited generic Advair inhaler. The anticipated launch in FY22 can accrue more benefits for the company’s US sales. The market for Advair inhaler generics is much larger than Albuterol.

Notably, other product launches and approvals are also continuing to accrue benefits. Cipla expects one niche launch per quarter starting Q1FY22 (at least $15-20 million per annum opportunity with each launch, as per analysts).

Strong growth across key markets and improving margins aided by cost controls are driving earnings for Cipla
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Strong growth across key markets and improving margins aided by cost controls are driving earnings for Cipla

Its strong chronic portfolio in India remains supportive of growth. Cipla had reaped benefits of covid-19 treatment drugs launched in the past few quarters. The sales of the same, nevertheless, are likely to decline further, but maybe compensated by the rebound in domestic sales, especially in the acute segment. The Street will be watchful of domestic sales in the near term. The company’s India business had grown 21.6% during Q3FY21.

South Africa remains important for Cipla, where it has its own front-end distribution. The company targets private business, tender business and OTC (over-the-counter) products to drive growth in this market. Cipla’s South Africa sales, too, grew 10% y-o-y during Q3. Europe, emerging markets and API sales grew 18-46% year-on-year in Q3. Sustaining this momentum holds the key for the company.

Meanwhile, cost controls have remained an important reason for margin improvement. Analysts at HDFC Securities Ltd said that Cipla is tracking ahead of its initial cost saving guidance of 400-500 crore for FY21 and expects to retain part of these benefits in the coming quarters.

Some of the costs related to promotional spends and travel, among others, are likely to rise. Hence, all eyes will be on sustaining high margins moving forward. The Cipla management, nevertheless, remains confident on the company continuing to reap benefits of the cost optimization efforts.

Analysts at HSBC Securities and Capital Markets (India) Pvt. Ltd have raised their FY21-23 earnings estimates for Cipla by 8-12% as they have revised the sales assumptions and cost estimates, as per the current outlook.

With the stock trading at 21 times FY22 estimates, gains hinge on the company sustaining robust growth across geographies and maintaining margin trajectory.


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