Cipla share price falls 3% post Q4 earnings. Here's what brokerages say

Cipla LimitedPremium
Cipla Limited
 2 min read . Updated: 17 May 2021, 10:14 AM IST Saloni Kothari

Shares of Cipla Limited declined over 3% in Monday's trading session after the company on Friday announced its March quarter earnings below estimates. The drug major reported a 73% rise in consolidated net profit at ₹412 crore against ₹238 crore in the same quarter last year.

Total revenue from operations in Q4 increased 5% to ₹4,606 crore as compared with ₹4,376 crore year-on-year (YoY). The pharma company's North America business grew 17% in constant currency (CC) terms while emerging markets business witnessed a growth of 10% on a yearly basis.

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Cipla delivered a weaker-than-expected performance in 4QFY21, weighed by moderate YoY growth in India Domestic Formulation (DF)/South Africa and YoY decline in API sales for the quarter, analysts at Motilal Oswal said in the result note. Lower operating leverage has further affected profitability. ''We cut our EPS estimate by 12%/11% for FY22/FY23E, factoring in a) lower operating leverage, b) increased price erosion in the US base business, and c) inferior execution in the API segment.''

Motilal Oswal has maintained a Neutral stance on the stock as it said that while Cipla is building a complex product portfolio – comprising Respiratory/Injectables and strong traction from Covid drugs. The brokergae believes that the current valuations adequately factor in an upside in earnings.

ICICI Securities also believes that the recent rally in stock has capped the upside and hence has downgraded Cipla to Add from Buy. The brokerage said that the company reported weak Q4FY21 performance due to shelf stock adjustment of Albuterol in US and muted India growth. However, it believes th growth and margin would improve in coming quarters led by growth recovery in India and ramp-up in US sales.

Cipla's gross margin contracted 100 basis points (bps) on a yearly basis to 60.4% due to a change in the product mix. However, the EBITDA margin expanded 280 bps to 17.3% on lower other expenses/R&D spend.

Analysts at Emkay Global retain Buy stance on the stock, however, have lowered the target price to ₹1,000 apiece from ₹1,030. The brokerage has also reduced its FY22/23 core earnings estimates by ~2%/~4% to reflect Q4 miss.

The company indicated that products such as Nano-paclitaxel, Lanthanum Carbonate, g-Advair, and other niche products could potentially have a meaningful impact on the overall financial performance of FY23.

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