Goa unit clearance brings cheer for Cipla, lifts earnings visibility

Brokerages on the Street have taken a U-turn with their growth outlook for Cipla just a few days after the company released its July-September numbers. The culprit here is the surprise regulatory clearance of Cipla’s Goa manufacturing facility.

The facility, poised to manufacture a key oncology drug for Cipla—Abraxane—was caught in regulatory hurdles after the US Food and Drug Administration issued six observations back in June. These regulatory challenges had derailed the launch timeline of Abraxane, which is now paved after the clearance of the facility.

The VAI (Voluntary Action Indicated) status paves the way for Cipla to launch pending ANDAs from this facility, mainly Abraxane, which could be around a $120 million opportunity at peak,” Nuvama Institutional Equities wrote in a note.

Opens bottleneck for major launches

Following the recent development, brokerages have gone gaga over Cipla’s improved earnings visibility. Cipla would be the second generic player to launch Abraxane in the US, after Sandoz’s launch a couple of weeks ago, Kotak Institutional Equities noted.

As per Nuvama’s estimate, the Goa unit would contribute $160–170 million to revenue (~20 percent/10 percent of US/consolidated revenue in FY24). To note, in FY20, around 2.5 percent of Cipla’s revenue had a single source filling from the Goa unit.

Meanwhile, the clearance of Goa improves the prospects of Cipla’s inhalers and injectables segment, with Nomura anticipating an upside from this business in FY25-27. Nomura also believes Cipla’s antiretroviral drugs (ARVs) will contribute materially beyond FY30.

Apart from Abraxane, KIE also anticipates a ramp-up in Lanreotide sales starting in Q4 FY25, along with the launch of Advair in Q2 FY26, and Symbicort and Qvar launches in FY27. “These factors are expected to drive a 4 percent compound annual growth rate (CAGR) in US sales over FY24-27. Consequently, we project Cipla’s US sales to reach around $944 million, $1,028 million, and $1,011 million in FY25, FY26, and FY27, respectively,” KIE wrote.

Brokerages lift estimates

Buoyed by the improved prospects, Nomura also upgraded Cipla to a ‘buy,’ giving it a price target of Rs 1,800, implying over a 15 percent upside in the stock.

Along similar lines, Kotak Institutional Equities raised Cipla’s FY25-27 earnings-per-stock estimates by 1-5 percent as it bakes in an earlier Abraxane launch. The brokerage also slightly raised its price target for the stock to Rs 1,750 while reiterating its ‘add’ call for Cipla.

Moving on, Incred Equities also highlighted the 13 percent underperformance of Cipla compared to the BSE Healthcare index over the past three weeks due to concerns surrounding production issues with the Lanreotide franchise and the potential adverse classification of the Goa plant.

However, with one of these overhangs now resolved and the production problem for the Lanreotide franchise expected to be temporary, Incred Equities believes the stock has significant potential for outperformance going forward. Consequently, the brokerage has upgraded the stock’s rating to ‘add’ from the previous ‘hold’ call while also lifting its price target for Cipla marginally to Rs 1,625.

The optimism emerging from Cipla’s improved earnings visibility has caused the stock to soar 10 percent in the last two sessions. Today as well, the stock was among the top three gainers on the Nifty 50 despite an overall weak market sentiment. Around noon, the stock was trading 1.4 percent higher at Rs 1,582 on the NSE.