Prabhudas Lilladher has reaffirmed its BUY recommendation on Cipla, driven by the company's strong financial performance and strategic growth initiatives. With a target price of Rs 1,730, Cipla is poised to capitalize on upcoming niche product launches in the U.S. market and sustained growth in its domestic portfolio. Despite supply chain challenges, Cipla has demonstrated resilience through improved margins and a robust cash position, ensuring flexibility for mergers and acquisitions.

Q3FY25 Financial Performance: Revenue and Profit Growth

Cipla's Q3FY25 results exceeded expectations, with EBITDA at Rs 20 billion and operating margins of 28.1%, surpassing estimates by 14%. The company's net sales increased 7% year-on-year (YoY) to Rs 70.7 billion, driven by strong growth in both domestic and export markets.

Key Highlights:

Domestic formulation sales grew by 10% YoY, surpassing the projected 8.5%.
U.S. sales were $226 million, slightly lower than the $237 million reported in the previous quarter due to Lanreotide supply issues.
Strong growth in One Africa operations contributed to a 9% YoY increase in revenue in U.S. dollar terms.
Active Pharmaceutical Ingredient (API) revenues rose by 17% YoY.
Cipla's performance was bolstered by a better product mix, resulting in a gross margin of 67.5%, up by 160 basis points (bps) YoY.

Key Business Segments: Domestic and International Growth Drivers

Cipla's growth is underpinned by a balanced portfolio, with key contributions from both the domestic and international markets.

Domestic Market Performance:

Major therapeutic areas such as Respiratory, Urology, and Acute witnessed above-market growth.
Chronic therapies continued to dominate, accounting for 61.5% of Cipla's Q3FY25 domestic sales.
The trade generics business rebounded with improved performance, supported by the launch of 18 new products in 9MFY25.
International Business:

The U.S. market maintained steady revenues from gRevlimid, with an increase in market share for gAlbuterol to 21%.
The company expects gAdvair to launch by H1FY26 and gAbraxane within six months of FDA approval.
Strong growth in One Africa markets was driven by new product launches and a focus on over-the-counter (OTC) offerings.

Supply Chain Normalization and Future Product Pipeline

Cipla faced temporary setbacks in the U.S. market due to Lanreotide supply issues but anticipates resolution by Q4FY25. Looking ahead, the company is optimistic about several high-value launches in FY26 and FY27, particularly in the respiratory and peptide categories.

Key Pipeline Products:

gAdvair (Respiratory): Expected launch in early H2FY26.
gAbraxane (Oncology): Anticipated within six months of regulatory approval.
Continued expansion in gAlbuterol and other respiratory generics.
These launches will be critical for sustaining growth and mitigating any potential impact from gRevlimid's revenue decline.

Financial Strength and Strategic Outlook

Cipla's net cash position of approximately Rs 89.5 billion strengthens its ability to invest in strategic mergers and acquisitions. The company aims to surpass its EBITDA margin guidance of 25.5% for FY25.

Key Financial Metrics:

R&D spending was Rs 3.6 billion, representing 5.1% of revenue and reflecting a YoY decline of 10%.
Other expenses increased 8% YoY but declined 2% sequentially.
PAT for the quarter rose 26% YoY to Rs 15.8 billion, with earnings per share (EPS) of Rs 19.5.
Prabhudas Lilladher has made minor adjustments to its FY26 and FY27 estimates, with EBITDA and EPS increasing by 1-3%.

Technical Analysis: Support, Resistance, and Key Price Levels

Cipla's stock currently trades near Rs 1,421, with technical indicators suggesting potential upside toward the target price of Rs 1,730.

Support Levels:

Rs 1,380
Rs 1,350
Resistance Levels:

Rs 1,500
Rs 1,620
A recent Bullish Engulfing pattern indicates strong buyer interest, and sustained trading above Rs 1,450 could trigger further upward momentum.

Bottomline for Long Term Investors

Cipla's Q3FY25 performance underscores its strategic focus on high-margin products, robust domestic growth, and upcoming U.S. launches. With a strong cash position and sustained operational efficiency, the company is well-positioned to capitalize on emerging opportunities. Prabhudas Lilladher's BUY recommendation, with a target price of Rs 1,730, highlights Cipla's potential to deliver attractive returns for investors in the medium to long term.