Cipla Q2 earnings preview: Margins under pressure as US, domestic sales outlook remains modest

Shares of Cipla dropped 3.55 percent, trading at Rs 1,450 on the BSE on Tuesday as investors await the company’s Q2 FY25 results scheduled for release today, October 29, 2024. Analysts expect muted growth in Cipla’s topline and bottomline, with challenges in US and domestic formulations potentially weighing on margins.

Revenue and earnings outlook

Zee Business forecasts indicate a three percent year-on-year revenue increase, with Cipla’s Q2 revenue expected at Rs 6,892 crore, up from Rs 6,678 crore in the same quarter last year. EBITDA is projected to remain relatively flat at Rs 1,720 crore, representing a slight 0.8 percent decline from Rs 1,734 crore year-on-year. Consequently, margins are likely to be impacted, narrowing to around 25 percent, compared to 26 percent in the prior year. Net profit, however, is estimated to see a rise, with profit after tax (PAT) projected at Rs 1,195 crore, marking a 5.7 percent year-on-year increase, buoyed by strong domestic growth.

Key growth drivers: Domestic performance and strategic portfolios

Cipla’s domestic sales are anticipated to climb by ten percent, with Zee Business highlighting that “domestic formulations are likely to drive incremental growth,” specifically noting that Sanofi’s CNS (central nervous system) portfolio will be a key contributor. In the US, sales are forecasted to reach $239 million, though competition and regulatory compliance measures are expected to keep the growth limited. Cipla’s inhalation and peptide assets will be closely watched, as market share expansion in these segments could provide some upside.

Regulatory compliance and market share targets

Investors are also keenly observing Cipla’s remediation measures for its Goa and Pithampur facilities, as USFDA compliance remains crucial for uninterrupted operations in its key US market. Zee Business experts also emphasize that Cipla’s efforts in resolving these regulatory issues will be a vital indicator of future growth stability.

In light of Cipla’s strategic focus areas and regulatory landscape, the Q2 earnings are likely to reflect both the company’s strengths in its domestic market and the persistent challenges in the international space.