Shares of Cipla gained over 5 percent on Monday, reacting to higher-than-expected profit during the April-June quarter. After market hours last Friday, the company reported a 4 percent year-on-year decline in net profit, but they were up 10 percent from Street estimates.

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At 11:12 IST, the drugmaker's shares were trading 2.7 percent higher at Rs 1,004.05 on the BSE.

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Cipla net profit slips 4% in June quarter, R&D investments up 4%

Results were ahead of CLSA’s estimates, too, mainly due to a lower-than-expected decline in India sales and lower research and development and selling, general and administrative costs.

CLSA said the June quarter saw healthy underlying growth in India (9 percent YoY) and the US (11 percent in US dollar terms), while South Africa should pick up in the next quarter.

The brokerage firm pointed out that the big-ticket US launches are on track for the second half of FY23, which should accelerate earnings growth in FY24, while Peptide injectable filings should enable medium-term growth in the US.

“We tweak our estimates and increase our target price to Rs 1,190 from Rs 1,150,” said CLSA while retaining its ‘buy’ rating.

Meanwhile, DAM Capital Advisors highlighted that over the last couple of years, Cipla has been one of the most consistent performers amongst Indian pharmaceutical companies, driven by its success in comprehensively responding to the Indian market’s COVID treatment needs and launches in the US.

“This has been backed up by significant cost savings accentuating profitability growth,” DAM Capital Advisors said and added, “It gives significant comfort on Cipla’s ability to keep growing its generic business over 3-5 years. In our view, Cipla has potentially the best US growth outlook amongst large generic players with the possibility for significant positive surprises.”

Revenue break-up (Source: Exchange filing)

Analysts also added that a strong balance sheet provides flexibility to pursue strategic mergers and acquisition options.

Morgan Stanley said there is good visibility of 2-3 complex launches every year for the next three years. Nomura highlighted that the company had maintained margin guidance of 21-22 percent for FY23, reassuring the investors of the growth trajectory. HSBC said that focusing on cost efficiencies should sustain margin growth.

However, Goldman Sachs expects headwinds to the operational performance in the form of higher raw material and logistics costs.

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