Cipla quarterly results of q1Ffy23 numbers better than expected by the street

Cipla is a leading pharmaceutical company from India with presence across the world. Company was founded in 1935 under the name Chemical Industrial & Pharmaceutical Laboratories Ltd, and in 1984 it adopted its present name. Cipla is a global pharma company with over 1,500+ products in 65 therapeutic categories, with over 50 dosage forms.

Cipla specialises in developing medications to treat a variety of illnesses, including arthritis, diabetes, depression, cardiovascular disease, respiratory diseases, and many others. Cipla is present in more than 80 nations, including South Africa, India, and the United States, among others.

Cipla announced their Q1FY23 results on 29^th July 2022, where they reported a marginal single digit decline in their YoY profits and revenue. In spite of this, analysts believe that margins were better than expected as it prepares for complex launches in the US market. On the stock exchanges Cipla has gained almost 6% post announcement of Q1FY23 results and is currently trading approximately 5% lower than its 52 weeks high. So, let’s now have a deeper look over their Q1FY23 performance to understand the future direction of Cipla Ltd.

Key highlights of Cipla Q1FY23 results

• Revenues for Q1FY23 fell 3% YoY to Rs 5,375 crore, while it went up marginally by 2.1% QoQ in Q1FY23
• Cipla saw a 3.96% YoY drop in consolidated net profit at Rs 686.40 crore in Q1FY23, while it rose 90% QoQ
• API saw 57% YoY decline in Q1FY23 which can be attributed to higher Q1FY22 base due to one-time profit share on an API
• EBITDA fell 15% YoY to Rs 1,143 crores, while on a sequential basis it grew 52%
• EBITDA Margin % came out as 21% in Q1FY23 as compared to 24% in Q1FY22 and 14% in Q1FY23

Cipla results Q1FY23: Both revenue & PAT fell YoY while they grew QoQ

Cipla saw a 3.96% YoY drop in consolidated net profit at Rs 686.40 crore in Q1FY23 compared with Rs 714.72 crore in Q1FY22. However, the profit figure managed to beat the Rs 601 crore figure anticipated by analysts across brokerages. Sales for Q1FY23 fell 2.3% YoY to Rs 5,375 crore compared with Rs 5,504 crore in Q1FY22.

While on a sequential basis, both sales and revenue saw decent growth. PAT increased by almost 90% QoQ to Rs 686 crores in Q1FY23 from Rs 362 crores in Q4FY22, supported by 2.1% QoQ rise in revenue from Rs 5260 crores in Q4FY22 to Rs 5375 crores in Q1FY23.

This was against Rs 57.50 crore in exceptional items in Q4FY22 and Rs 124.6 crore in Q1FY22.

Cipla derives around 46% of their revenue from India while the rest 54% from rest of the world, with North America as second highest contributor followed by SAGA (South Africa, Sub-Saharan Africa, and Cipla Global Access) and international markets.

Cipla saw around 9% YoY growth in One-India, while it saw a robust 10% YoY growth in North America due to Steady momentum in core formulation business led by contribution from respiratory and peptide products.

SAGA saw a negative growth of 8% but recovery is expected in Q2FY23. International markets grew highest 18% led by Strong DTM2 growth across geographies and offset emerging market forex volatility and muted B2B demand in Europe. Whereas API saw 57% YoY de-growth in Q1FY23 which can be attributed to higher Q1FY22 base due to one-time profit share on an API supply.

Over the past four years, Cipla has developed solid relationships with multinational corporations (MNCs) to strategically broaden its therapy portfolio with speciality products in antidiabetic therapy with Eli Lilly and Boehringer Ingelheim and oncology with Roche.

In order to market Trulicity and Humalog in India, the business has partnered with Eli Lilly. The in-licensing franchise is in a good position to meet its FY23E annual revenue objective of Rs 5 bn. Currently respiratory therapy is the highest contributor in therapy revenue in Cipla. Cipla has also seen a growth of 30.4% YoY in market share.

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Cipla results Q1FY23: EBITDA fell 15% YoY while margins% remained robust

EBITDA fell 15% YoY to Rs 1,143 crores in Q1FY23 from Rs 1,346 crores in Q1FY22. While on a sequential basis it grew 52% to Rs 1,143 crores from Rs 750 crores in Q4FY22. Whereas core margin trajectory remained intact, despite sharp normalisation in covid portfolio contribution compared to Q1FY22. EBITDA Margin % came out as 21% in Q1FY23 as compared to 24% in Q1FY22 and 14% in Q1FY23.

In Q1FY23 there was a 170 bps adverse impact on margins due to high procurement cost, freight cost and negative forex impact which was partly offset by price hike and decline in sale of low margin Covid products. Adjusting for above, EBITDA margins grew by 12% YoY to 23%.

Further, R&D cost is expected to go up in following quarters with guidance for 5.5- 6% of revenues in FY23. Amid declining freight and other cost trends, management has not increased EBITDA margins guidance of 22-23%.

Strategic product deals and investments in Q1FY23

Acquisition of 21.05% for Rs 25 Crores in Achira Labs, engaged in development and commercialization of point of care (PoC) medical test kits in India. Cipla’s entry in the PoC diagnostics and AMR (Antimicrobial Resistance) space through the design, development, and manufacturing of microfluidics-based technologies; increasing patient access to innovative, affordable, and quality diagnostic solutions.

Secondly acquisition of Endura Mass, a renowned nutritional supplement brand in the category of weight gain from Medinn Belle Herbal Care Private Limited. This is done to expand Cipla’s wellness portfolio by foraying into new category nutritional supplements for weight gain.

Including Endura Mass, Domestic Consumer Business under Cipla Health expected to achieve additional annual revenue of INR 600+ Cr

Third is the acquisition of additional stake for Rs 25.9 crores in GoApptiv Private Limited: Cipla’s total stake increases to 22.02% on a fully diluted basis post investment (Initial investment in June 2020). This will enable Cipla to further widen its patient reach to affordable and quality drugs with end-to-end brand marketing and channel engagement across tier 2- 6 towns in India by leveraging GoApptiv’s end to end digital solutions.

Further, Cipla’s ANDA (abbreviated new drug application) over the last five years has experienced changes as well. Filling rate has fallen from in FY18 to just 11 in FY22. While ANDA launches went up from 11 in FY18 to 15 in FY22. Cipla was granted permission for the initial 505(b)(2) formulation of lanreotide injection in FY22. This approval increases the company’s peptide portfolio and is consistent with its goal to increase the proportion of complicated assets in its portfolio.

Technical analysis of Cipla share price:

Cipla share had hit a 52-week high of Rs 1,083 on 15 March 2022, and since then the stock corrected sharply. Whereas after the announcement of Q1FY23 results, the stock has again made an up move and is currently trading close to 52 weeks high. The 50 EMA is well above 100 and 200 EMA, indicating bullishness in the Cipla Share price. Further it is has an immediate support at Rs 970.

Credit Suisse maintained its outperform rating on Cipla with a target price of Rs 1,100 which translates into an upside of more than 12% from Rs 978 recorded on 29 July.

Key H2FY23 catalysts are on track as the US pipeline is getting stronger with peptide injectables, it said. Consumer Wellness (in India and SA) is already 9% of total sales. The global investment banks’ positive stance is driven by a strong pipeline of Cipla.

Sharekhan maintained its buy rating on Cipla with a target price of Rs 1,150 which translates into an upside of more than 17% from Rs 978 recorded on 29 July. “Cipla reported weak results for Q1FY23 on a YoY basis given the high base due to Covid-led demand. However, sequentially, there has been a marked improvement with the operating profit and PAT staging a double-digit growth,” it said.

Our view

Cipla anticipates outpacing industry growth in domestic markets, supported by robust expansion in both acute and chronic medicines, new brands, and probable development in the consumer business. To further accelerate the trajectory of their Global Consumer Wellness franchise in India and South Africa. Cipla hopes to increase its market share through prudent and strategic acquisitions and to generate larger revenue and profit levels in the following years, making it a worthwhile investment bet for the long-term investors in this sector.

On the Univest app, the stock has neutral fundamentals and is bullish in the short term trend as well as the long term trend indicating an entry point or further additions in the Cipla.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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