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Home >Markets >Mark To Market >Cipla stock corrects after a disappointing March quarter

Amid high expectations, drug manufacturer Cipla Ltd disappointed, posting a weaker than expected Q4 performance. The major disappointment came on the domestic front, which reported a tepid 4% year-on-year (y-o-y) growth. The domestic market accounts for 40% of the overall revenue and is a key driver for Cipla’s growth.

The South Africa business, accounting for about a fifth of the overall revenues, didn’t impress much. The region remains important for the firm, which has its own marketing front end in Africa. While South Africa sales grew 14% y-o-y, Sub-Saharan Africa and Cipla Global Access sales growth was a weak 3% y-o-y. Active pharmaceutical ingredients (API) sales also declined 10% y-o-y, limiting overall revenue growth further. Hence, despite US sales rising 17% y-o-y, the company’s revenues still grew just 5% y-o-y. “Q4 results were below I-direct estimates on all fronts amid lower-than-expected formulations sales across geographies (ex-South Africa) and operational performance," said analysts at ICICI Securities Ltd.

Tepid Q4
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Tepid Q4

It is thus not surprising that the stock that has remained among investors’ favourites, with a growing covid-19 treatment portfolio, corrected more than 2% on Monday. The firm’s Ebitda margins at 17.3%, that expanded 239 basis points (bps) over Q4FY20, however disappointed declining 653bps from 23.8% in Q3FY21. As Q4 margins historically remain weaker compared to Q3, the Street will be watchful on the margin trajectory. Meanwhile, with a weak Q4 performance, analysts are reducing their forward estimates. Those at Motilal Oswal Financial Services have reduced their earnings estimates by 12% and 11% for FY22 and FY23, respectively, factoring in lower operating leverage, increased price erosion in the US base business, and inferior execution in the API segment. In the US, albuterol inhaler generics will keep driving sales during FY22. FY23 will be a year to watch out for, highlighted the company. Advair inhaler generics and others like Nano-paclitaxel, Lanthanum Carbonate, as well as few more niche product launches could drive US growth meaningfully during FY23. Cipla remains in the limelight in the domestic arena, expanding its covid treatment portfolio. The monthly supply of the popular drug remdesivir is being ramped up fivefold. Cipla is also partnering with Merck & Co for the manufacture and distribution of the oral antiviral drug molnupiravir, currently in phase 3 trial for the treatment of non-hospitalized covid-19 patients.

Besides its partnership with Roche for pan-India distribution of antibody cocktail (casirivimab and imdevimab), it is partnering with Eli Lilly & Co, US, for the manufacture and commercialization of the baricitinib drug.

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