Phillip Capital Highlights 12% Earnings Concern For Cipla; Reiterates 'Sell' Rating
The halt of exports of one of Cipla Ltd.'s inhalation products could hit the drugmaker's earnings by as much as 12%.
That's according to Phillip Capital's February report on pharmaceuticals, which traced the halt of exports to November 2023. The brokerage has a 'sell' rating on the company with a target price of Rs 1,150 apiece.
Cipla’s export of albuterol sulfate—inhalation therapy for asthma—from its Indore facility seems to have stopped since the U.S. Food and Drug Administration issued a warning letter in November 2023, Surya Patra, vice president of healthcare and specialty chemical research at Phillip Capital, said in a recent report citing export-import (EXIM) data.
This impact, the report said, was "on top of the 25% year-on-year (decline in) generics... post the adverse inspection observations in February 2023."
"We believe Albuterol sulfate is a $140 million (around Rs 1,160 crore) opportunity for Cipla for FY25," Patra said. "If the supply disruption continues, it could have a negative impact of 4%,10% and 12% to the revenue, EBITDA and PAT estimates of FY25, respectively."
Additionally, he expects a possible earnings risk for the quarter ending March as seasonality benefits seen in Q3 FY24 start to taper off.
Other Highlights
CMP offers a good opportunity to book profits.
Q3 earnings surpassed expectations, led by an improved product mix in the U.S. due to the gRevlimid ramp-up and temporary flu season benefit in albuterol.
In the near term, do not expect any major near-term earning triggers.
Further delay on launch date of key products gAdvair (due to site transfer) and gAbraxane (due to overhang of launch post clearance of Goa facility).
On the domestic front, businesses could also face moderate growth.
Earning concentration risk (>35% from gRevlimid and >12% albuterol) and delay in key drugs keep us pessimistic on Cipla.
Cipla's shares closed 2.57% lower on the BSE today at Rs 1,465.30 apiece compared with a 0.22% gain in the Sensex.
