Cipla Limited (CIPLA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Cipla Limited Q1 and FY '27 Earnings Conference Call. We have with us today Mr. Achin Gupta, MD and Global CEO; Mr. Ashish Adukia, Global CFO; Ms. Diksha Maheshwari, Head, Investor Relations. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Diksha Maheshwari, Head, Investor Relations. Thank you, and over to you, ma'am.

Thank you, Danish. Good afternoon, and a very warm welcome to Cipla's Q1 FY '27 Earnings Call. I'm Diksha Maheshwari from the Investor Relations team of Cipla. Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are directions, projections or other estimates about future events. These estimates reflect management's current expectations of the future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Cipla does not undertake any obligation to publicly update any forward-looking statements, whether as a result of new confirmation, future events or otherwise. I hope you have received the investor presentation that we have posted on our website. I would like to request Achin to take over.

Thank you, Diksha. Good afternoon to all of you, and we appreciate you joining for our Q1 FY '27 earnings call. I'm delighted to share that we have delivered the highest ever Q1 revenue with revenues of INR 1,100 crores in this Q1. Achieving a record first quarter provides a strong start to the year. It reinforces the resilience of our business fundamentals the diversified nature of our business, and it strengthens our confidence in sustaining long-term growth. Coming to the business side performance. Our One India business achieved our highest ever quarter revenue with 12% Y-o-Y growth, reflecting a strong performance across key therapies and underscoring the strength of our transit in the IPM. Within this, the branded prescription business continued to witness strong momentum across chronic portfolio, delivering a market beating growth of 15.4% during the quarter as per IQVIA data. Key therapies registered strong double-digit growth. Respiratory grew at 15%, anti-diabetes 43%, Cardiac, 20% and Urology, double-digit, as per the IQVIA data for the quarter ended June '26. This performance was driven by a strong volume expansion, sustained brand strength,focus field execution and continued momentum from new product launches. Our overall chronic mix strengthened this quarter to 60.4% Y-o-Y. We added 2 new brands to the INR 100-plus crore, taking our total to 33. And our presence in the IPM top 300 brands remained strong with 23 brands reinforcing the depth and resilience of our portfolio. [indiscernible], which is our flagship inhalation brand continued to strengthen its leadership position as the #1 respiratory brand in the IPM while sustaining its status as an INR 1,000 crores plus franchise. Cipla continues to be the largest pharma company in terms of volume and the only player with 2 billion-plus unit sales in ITM as per IMAP June '26. Our new launch momentum also remains strong with the number of targeted infractions across key chronic specialty and wellness segments. In respiratory, we strengthened our portfolio with [indiscernible], a presaturated inhalation platform designed to enhance [indiscernible] the management of allergies and associated symptoms. In the obesity segment, following our entry into the segment through a collaboration with [indiscernible] for your peak in the previous quarter, the brand has continued to witness encouraging traction and delivered a strong performance during the quarter. In immunology, we launched a significantly strengthening our presence in chronic inflammatory and immune disorders and enhancing our ability to address patient needs and our rapidly evolving specialty segments. Additionally, biofilm, which is our nasal high teens in proton, our supportive care and wellness portfolio. Collectively, these launches reinforce our commitment to addressing evolving patient needs and to our presence in high opportunity chronic therapy areas and further strengthen the breadth and competitiveness of our portfolio. August, on the trade generic side, our business delivered a healthy growth during the quarter on the back of rigorous execution in distribution and new product launches. Expanding our portfolio remains a key growth driver with 3 new launches this quarter, addressing specific patient views. Our consumer health business continued its upward trajectory with [indiscernible] consolidating their respective #1 position in the segment. The business is driving healthy secondary growth and actively exploring opportunities to invest in products and channels to further expand our distribution. Operating profitability improved during the quarter, reflecting the strength and scalability of the consumer health strategy. In North America, we delivered quarterly revenue of INR 162 million, Cipla continues to hold the #1 position in the overall U.S. arbitral MDA market this quarter with our market share standing at 21% as per IQVIA data for the week ending June 26, 2026. One key highlight for the quarter was the successful launch of generic Ventolin in the U.S. following regulatory approval, which was received last quarter, we have commenced commercial shipments with volumes expected to increase as the supply is up. During the quarter, we further strengthened our portfolio with the launch of [indiscernible] in addition to some of the more recent launches like [indiscernible], which is expanding our presence in high-growth therapy areas and advancing the execution on our pipeline. Looking ahead, we expect North America business to continue sequential growth trajectory during the year, supported by the upcoming product launches and continued commercial execution. More details on the U.S. pipeline. As we mentioned earlier, our pipeline for the remainder of the year includes 4 significant launches comprising 3 respiratory assets, including generic Advair and the key peptide opportunity as well. Two of these 3 [indiscernible] U.S. manufacturing facilities, while the third has been filed from our facility. These launches are expected to strengthen our portfolio, enhance our respiratory leadership and also help us support our sustainable long-term growth in the North America business. Turning to South Africa. In the private market, we achieved strong secondary growth of 6.5%, outperforming the overall market growth of 5. 7% [indiscernible] continued to strengthen its position through solid performance in key therapies and successful new launches, reinforcing our presence across diverse markets. In EMU, we continued the growth trajectory with a 5% Y-o-Y growth in USD terms. This was fueled by execution across both BPM and B2B segments and our continued focus on deep market penetration has laid a strong formation for sustained growth. Notably, we maintained margin stability while effectively leveraging internal pipeline assets, demonstrating the strength and agility of our operating model. Finally, on the regulatory front, during the quarter, U.S. FDA completed a routine GMP inspection and PAI at our [indiscernible] facility. And subsequently, it was classified as -- and during this month, the U.S. FDA included a routine GMP inspection at Invagen facility in New York, which included with 1 Form 483 observations, which we are committing which we are committed to addressing within the stability time line. We are also expecting the reinspection of our indoor facility to take place any time. Now I would like to let Ashish to present the financial and operational performance.

Thank you, Achin. So I would like to now present the key financial highlights for the quarter. We reported a quarterly revenue of INR 7,119 crores with a 2% growth Y-o-Y. So there has been change in the presentation of the financials, which I would like to highlight. Effective this quarter, beginning 1st April 2026, the company presents certain marketing and proportional expenditures as a reduction from the revenue instead of operating expenditure. The game has been highlighted in the note to the consolidated financial statements. You may refer to Note 9. The EBITDA margin, excluding the other income stood at 16.7% for the quarter. As for practice, the EBITDA margin does not include the other income. The reported gross margin after material cost stood at 62.5%. It's incorporating the impact of the product mix, certain wall related costs some inventory rate charges and phasing of other incentives. The total expense for the quarter stood at INR 3,260 crore, reflecting a 8.3% increase over the previous quarter. This increase reflects our planned investment in upcoming product launches and enhancement of manufacturing readiness. We remain focused on innovation and future readiness. R&D investments for the quarter were INR 486 crores or 6.8% of revenue directed largely towards the product filing and key development programs. Popular tax for the quarter stood at INR 789 crores, representing 11% of sales and ETR for the quarter stood at 27%. Our free cash flow generation and operating efficiency continue to drive the healthy net cash position. As of 30th June 2026, the debt on our balance sheet, including lease liabilities, so that INR 600 crores with net cash equivalent balance at INR 9,494 crores, and this was after the dividend payment that we made this quarter of INR 1,050 crore. Looking ahead, our key priorities will include for One India, the aim is to focus on execution to sustain the growth momentum and outperform the market in branded generic trade generic as well as consumer wellness. We will further strengthen our presence in chronic therapies, while maintaining the robust trajectory we have built in respiratory. In North America, we'll remain focused on driving growth through new product introductions, including the key launches highlighted by Achin. In South Africa, our focus will be on continuing to grow faster than the market in the private sector. An EMU, the top priority is to drive top line growth while maintaining a strong margin trajectory. Lastly, before I hand over to the Q&A, as I transition into new role, I would like to thank all of you for asking perspective questions over the last 4 years. I would also like to welcome Dinesh Jain as the new Global CFO. He's been with the company for almost 30 years plus and he's sitting right next to me to take any questions or anything. So over to the moderator now for Q&A. Thank you.

[Operator Instructions] Our first question comes from the line of Saion Mukherjee from Nomura.

Can you talk about the accounting change that you mentioned? How has that impacted your growth rates if you can quantify for the branded markets, particularly India and South Africa?

Sure. So see, I think if you go through the note, Saion, you'll find the numbers mentioned out there for the previous Y-o-Y quarter as well. So you'll be able to calculate the growth and the growth would be somewhere around taking a budget for the previous year number as well.

Yes. That's right. I think I mean -- so you reported 2%, adjusted is 4%. I would assume the change would have impacted mostly the branded market. So I just wanted to understand that 12% growth in India and minus 5% that you reported in rupee terms in South Africa. Is there an adjusted number for these 2 market sectors?

Sure, sure. So without breaking it down into the markets, they are primarily to only -- but largely, it's on account of adjustment in South Africa.

Okay. So on India, the business has delivered 12% growth. In this quarter, you had tirzepatide as the Pfizer brand distribution and one small acquisition. So excluding the -- do you think -- can you just tell what the growth rate is overall in India? .

Achin here. On India, you see the IQVIA data, we were at 15.4% on the Rx part of it. And within that, as per IQVIA, approximately [indiscernible]. So the balance is -- I think that's what approximately 1.5% is attributable there. The rest is on account of the business. Some of it was licensed products, but a good healthy growth rate on all the rest of the base portfolio as well. that we've been now seeing for 3 quarters. So there is a momentum that's building up in terms of steadily delivering double-digit growth.

Okay. Because based on the disclosures that you made, I'm arriving at somewhere in that range of 7% to 8% year-on-year growth. Is that a wrong assessment, do you think? .

We've not broken down each of the 3 verticals. But I think IQVIA will give you a very more or less a detailed perspective. Also, the ILD becomes based over a period of time, right? So that's part of our strategy. We keep I'll be within a certain percentage. It's not very high, but it's like between 10% to 15% of our total business.

Just other question is on South Africa. So see, I mean, even if I -- because the currency has also been quite favorable, it's almost 23% on a year-on-year basis even if I were to sort of ascribe all that accounting is to South Africa, I just get 14% growth. So in constant currency, it seems your private market as well as tender has declined on a year-on-year basis. Is there something happening there if you can throw some light that we need to be aware of?

[indiscernible] I think tender business has indeed to decline for us. So that is one of the impacts that is there. And on the private market, there has been a growth, and there is, of course, a currency impact as well, which we had hedged. So I think it's a multitude of impact that is sitting out there in South Africa. But private market has grown faster than the market out there. As I highlighted in the speech as well that we achieved almost 6.5% growth in the secondaries outpacing the market growth of 5.7%.

Yes. So I think in the secondary is visible, but the reported number, it isn't. So that's what I was pointing.

Yes. The tender component is less, that is right.

Our next question comes from the line of [indiscernible] I'm sorry to interrupt you but your voice is breaking. Next question comes from the line of [indiscernible] with Phillip Capital. Our next question comes from the line of Damayanti Kerai with HSBC Bank.

So I just want to hear some update on the awaited launch for the U.S. market. So you mentioned we are going to have 3 more assets on the respiratory side, including [indiscernible] peptides. If I remember correctly, last call, when you had discussion on the upcoming launches. You mentioned you were anticipating [indiscernible]. So has there been any change on that part? And yes, I think that's the case, do you still maintain your [indiscernible] U.S. segment for FY '27? .

Okay. So we are seeing 3 respiratory launches, which are significant in addition to the Ventolin approval that we've got and one peptide, which is large. There are others which we've already launched like liraglutide will launch both the [indiscernible] doing well for us. So there are other peptides and other products, which are in the approval queue, but we've been highlighting the 3 SP and the one peptides, which are more [indiscernible] so yes, and that is the approval of these will give us a line of sight towards that million exit rate.

Okay. So you started the year with 12 million sales but in the consequent quarter, do you think we -- you can cover up enough to reach that 1 billion [indiscernible]

Yes. I think if you look at it as growth from new products because the base is not large enough to provide that kind of delta but the new products are pretty large. So this is the successful approval and launch of these and the scale up of Ventolin in the coming quarters, we will be able to get that visibility.

Sure. And similarly, if you can comment on your earlier guidance for the EBITDA margin of 18.5% to 20% for FY '27. Any change there? Or it again remains broadly unchanged?

Yes. So broadly unchanged.

Okay. And my last question is the recent inspection of the New York facility, will that be anyway tied to any of the upcoming launches for the U.S. we just got one observation. But nonetheless, if there is some delay in clearing that observation, will that hold us any of the upcoming launches? .

Only the smaller one. That unit is solid oral so that those are not the biggest launches. It's not part of the 3 that we spoke about. Those have obviously been [indiscernible]. .

Our next question comes from the line of Vishal Manchanda with Systematix.

Yes. On your gross margins, you highlighted certain inventory write-offs in your opening comments. So can you talk about that? How much was that? And also quantify the impact of the inflation on the gross margins?

Sure. So I think when you mean inflation, you need to say that the whole war impact that we're talking about. So I think overall, if you look at it as per current estimate, and it's very difficult to give a very firm guidance out there because the things are evolving. But if you could assume about to revenue in that kind of a range for the overall cost impact due to 4. In case of the other question that you had, the inventory charge, et cetera. So we have that for various reasons, either it is close to expiry or if we have orders, but the demand has not taken off or if there is any quality issues so that we charge off that inventory, which is very typical in pharma. So there has been a little higher than are normalized to -- that we budget for. And that is why -- why I called it out that there is a onetime kind of an inventory charge [indiscernible]

Would this be 100 basis points, a lower number?

Quantifying this. So the [indiscernible] of ag and amongst other provisioning that we take. So yes, I think that -- I called it out because it is slightly higher than the normal write-off that we take.

And on the incentives, do you kind of put that as part of operating revenue you deducted from the COGS?

Yes. So the PLI and our export incentive other operating income and yes, export area -- there's area incentive, sorry, [indiscernible] correct with me there. So that area incentive is now over. So it was sitting in the base and not now. And PLI, we -- this year, we are accruing it as we achieve the sales of molecules. So -- and that's why in this quarter, there is almost no PLI, but it will come in a phased manner into the later quarters.

Got it. And just one on the U.S. Ventolin, when do we expect the full ramp up there?

Yes. So that work is ongoing. We started supplying at the current scheme, but I think that will go towards the end of the financial year.

Will there be a gradual ramp-up? Or will kind of be steady for some time and then...

It's a mix because more start manufacturing at a higher scale, but then sell it when all the approvals are in place.

Okay. So more towards the end of this year, we'll see a ramp up. Is that...

Yes.

Our next question comes from the line of Bino Pathiparampil with Elara Capital.

Just a couple of follow-up questions. First, on South Africa, I assume you reply to your question that the decline in revenues loss of tender. Wanted to know is it the first quarter loss of tenders. So for the next 3 quarters, sales annualized, should we assume that there will be a dip in reported revenue because of this?

See, I think you see on tender, how you have to see it is that when we look at tenders. So it needs to be accretive to our margins, then accordingly, we bid for these tenders. So unfortunately, last year, we lost a tender which has a supply plan that is impacting this year. So in the coming quarters also, there will be that continuation of that impact that will come through. So yes, you will see a continuing impact of tender in South Africa private market, like I said, including OTC, is growing faster than the market. Due to a lot of currency fluctuations, some of it is not getting reflected, but it's a smart growth out there in South Africa private markets.

Got it. Just one follow-up on the U.S. as well. So this quarter, you have reported about $160 million. Your exit target of $1 billion means $250 million a quarter or roughly $90 million more per quarter. So if I annualize it, you have to have products which can give you $360 million a year. The current products which you have mentioned, are you confident they can annualize to $360 million, which is much more than you made in even Revlimid?

Yes, these are all very sizable opportunities. So I think that's how we are looking at the buildup. The assumes the competitive position that exists today. So obviously, that is one assumption from what we see today, we see large opportunity on this. And yes, I think we don't expect that competitive position to change in the next month. .

Our next question comes from the line of Shashank Krishnakumar with Emkay Global Financial Services.

My first one was on the consumer wellness growth in India. I think you mentioned that the accounting treatment adjustment impact was largely in South Africa. Consumer wellness, last year, 1Q, we were at INR 470 crores. And this year, I think we are at around INR 480 crores. So growth there has also been a bit muted. So are there any other factors which have impacted growth in this quarter?

I see, I think the last quarter had a very good growth in the consumer business. So I think the base itself was fairly strong. And that's why on a Y-o-Y basis, so you'll see a growth, which is not as high as typically what you would see in ACH in consumer business. .

I think there are 2 components to this, how we present the consumer. One is consumer internationally, which is mostly in South Africa. And the piece that Ashish explained is the consumer in India. So on the South Africa also there may be an impact of that presentation. Yes, yes. So in South Africa, there is impact of the facilitation change that I talked about earlier. But adjusting for that, South Africa had their normal good growth in [indiscernible]

Got it, sir. And secondly, can you just call out the growth in the trade generic business in India this quarter? Was it in double digits?

No. So we don't get the breakup of the 3 segments. Overall, India is at a 12% growth and trade generic is also fairly healthy.

And if I could just squeeze in one more. I think our inversion Unit 1 facility was inspected in Feb. And I think we had 2 observations. This was linked to Advair. So have there been any follow-up queries, oppose that inspection? Or is your finding broadly there in terms of getting past the finish line?

So it is on track. On that kind of inspection, ultimately, you will see the approval, right? So interim there is not much to read into it. So we are expecting approval to come on that, which should happen any time.

Our next question comes from the line of Surya Narayan Patra PhillipCapital. So I'm sorry, but again, your voice is breaking. Our next question comes from the line of Shyam Srinivasan from Goldman Sachs.

Just first one on the Yurpeak. You called out about INR 80 crores in quarter 1. Sir, how are we looking at that overall anti-obesity kind of a market, they are confusing or divergent signals, especially from sema generics as well. So what explains the trend? And how are you looking at like prescription behavior? And what do you think is the prognosis from here on?

So see, our bet has been fairly clear. We wanted to work with innovative product which has dual mode of action to receptors. So we've invested behind peptide. Our understanding is that this is a high vol therapy not just the straight for cell patient prescriber need to have a lot of genesis. And the condition needs to be managed properly for the right outcomes, right? So we are following that, plus we're expanding the distribution rate, and there's a lot of work that has been to get the right benefits for the patients, right? So -- and that is helping us grow. So we have reached #2 in the whole category. So after Manzaro and IQVIA, ERP is the second largest brand. Generics is a different piece because this is not only a price-driven market, right? Ultimately, the -- for that matter, for any therapy, the patient care is more about outcomes. So there is crowding also in that market. There may have been other issues. But for us, we see these different segments we exist, and we see good opportunity for us to keep growing as more patients get into the fold and also the comfort builds up in terms of prescriber and their ability to see which patients are eligible and how do they manage their conditions. So we are seeing a progressive growth despite all generics and we are expecting that to continue on the same growth trend.

Sir, this data point, how was Q4 for the INR 80 crores? Any direction there?

It has been growing month-on-month. So it was quite small on IQVIA reflections in Q4 of last year. How much was it? Yes. It has been growing. .

Got it. Got it, sir. Sir, second question is on your cash pile, right, close to more than USD 1 billion equivalent, right? So what are the ways that we are looking to kind of utilize this cash? You've already paid the dividend, maybe more is coming. But I just want to understand what are some of the capital allocation priorities for that cash pile.