KRChoksey has recommended an "ACCUMULATE" rating for Cipla Ltd. with a target price of Rs 1,680, indicating a potential upside of 6.0% from the current market price of Rs 1,585. This rating reflects Cipla’s solid growth in high-margin segments, strategic expansion in international markets, and the anticipated launch of its key respiratory product in FY26E. Cipla’s recent Q2FY25 results highlight revenue growth driven by robust performance in One Africa, Emerging Markets, and Europe segments. Notably, EBITDA margins expanded due to improved product mix and operational efficiencies. The stock’s valuation at a forward PE of 25.7x for FY25E appears favorable for long-term accumulation.

Key Financial Performance

Revenue Growth of 5.6% YoY Cipla’s revenue reached Rs 70,510 Mn in Q2FY25, a 5.6% YoY increase, driven by strong growth across multiple regions, particularly One Africa, Emerging Markets, and Europe.

EBITDA Growth and Margin Expansion EBITDA rose by 8.8% YoY to Rs 18,856 Mn, with EBITDA margins expanding to 26.7%, up 111 bps YoY. Margin gains stemmed from a higher contribution of high-margin segments, including chronic therapies in India and differentiated products in North America.

Regional Performance Highlights

One Africa Segment Revenue from One Africa, including South Africa and North Africa, saw substantial growth of 23.9% YoY, reaching Rs 10,680 Mn. The expansion reflects strategic gains in the Direct-to-Market and Business-to-Business categories, along with significant vaccine tender wins.

India Segment Accounting for 41.8% of total revenue, Cipla’s India segment grew by 4.7% YoY. Growth was moderate due to seasonal variations impacting the acute category. However, Cipla expects a resurgence in respiratory products in Q3FY25 due to increased pollution and seasonal triggers.

North America Segment North America contributed 28.2% to total revenue, with a 5.2% YoY increase to Rs 19,860 Mn. This growth was supported by Cipla’s differentiated portfolio, particularly Albuterol and Lanreotide, despite some price erosion.

Emerging Markets and Europe Revenue from Emerging Markets and Europe grew by 19.1% YoY to Rs 8,060 Mn. Cipla continues to capture market share across these high-growth regions, contributing to its overall revenue expansion.

Enhanced Product Mix Drives Profitability

Cipla’s focus on high-margin product categories has driven gross margin growth, which increased by 226 bps YoY to 67.6%. The company’s strategic alignment towards chronic therapies in India and differentiated products in North America has bolstered profitability.

Key Business Drivers and Developments

R&D and Product Pipeline Cipla invested Rs 3,850 Mn in R&D in Q2FY25, with a focus on late-stage clinical trials, including the anticipated launch of a generic Advair in H1FY26E. This product is expected to further strengthen Cipla’s respiratory portfolio.

Albuterol and Lanreotide Market Share Albuterol achieved a market share of 19.0% in Q2FY25, reflecting Cipla’s effective positioning in this segment. Similarly, the Lanreotide franchise reached a 35.0% market share, with expectations of further recovery as supply chain issues are resolved by Q4FY25E.

Financial and Valuation Metrics

EPS and Profitability Projections KRChoksey has revised its EPS forecast for Cipla to Rs 62.2 for FY26E, based on the anticipated revenue growth and margin improvements. Cipla’s revenue is expected to grow at a CAGR of 9.0% from FY24 to FY26E, while adjusted PAT is projected to grow at a CAGR of 13.2% over the same period.

PE Valuation Cipla currently trades at a forward PE multiple of 25.7x (FY25E EPS) and 25.1x (FY26E EPS), which KRChoksey finds reasonable given the growth prospects. A target PE multiple of 27.0x has been assigned, arriving at the Rs 1,680 target price.

Investment Recommendation

KRChoksey maintains an "ACCUMULATE" rating for Cipla, highlighting its potential for steady growth and profitability. Investors are advised to consider Cipla as a stable, long-term investment option in the pharmaceuticals sector, with a projected 6.0% upside in the medium term.