US portfolio key to Cipla’s medium-term sales growth

It is likely to benefit from increased demand for Remdesivir

Near-term gains from the increased demand for Covidrelated drugs, medium-term traction from the chronics portfolio, and fresh launches in the US are expected to sustain the revenue and earnings growth trajectory for Cipla. These triggers, coupled with a preference for pharma and defensive stocks amid the second wave of Covid in India, saw Cipla gain nearly 25 per cent over the past month.

The immediate trigger is the rising demand for antiviral and other formulations used for the treatment of coronavirus infection. The company, which accounts for about half the Remdesivir (anti-viral) market in India, is doubling its production and is expected to be a beneficiary of the spike in demand. Analysts at Sharekhan say that in addition to Remdesivir, the company supplies Actemra (immunosuppressant) and Favipiravir, which can see a near-term spurt in sales.

In March, the company posted 14.3 per cent growth in sales, with most therapies -barring the respiratory segment -- contributing to this growth. While volumes remained muted, new product introductions and price increase helped the company. It has done better than peers over the last year with 7.1 per cent growth, against the pharma market’s 2.1 per cent.

Led by its chronics portfolio, analysts expect the domestic segment (40 per cent of revenues) to outperform the pharma market in the medium term.

The main trigger for the stock remains the prospects of its respiratory portfolio in the US market, which accounts for about a fifth of its overall sales. Kumar Gaurav of Kotak Institutional Equities says: “Cipla has displayed impressive execution in scaling up its respiratory franchise in the US and remains on track to achieve over $130 million of sales for FY21 with its product achieving about 14 per cent share of the overall albuterol (for asthma) market.”

In the medium term, the approval for the generic version of Advair (for asthma/copd), expected in FY23, will aid revenue growth as the market size exceeds $800 million. Analysts expect the sales potential in the first year of operations to be $100 million. Other products in its respiratory portfolio as well as the launch of cancer drug Revlimid will likely boost growth from FY23 onwards.

Given the multiple earnings triggers, analysts at Sharekhan expect the company’s net profit to grow 33 per cent between FY21 and FY23. At the current price, the stock is trading at just over 20x its FY23 earnings. Investors with a long-term perspective can consider the stock on dips.