Cipla Limited (CIPLA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Cipla Limited Q2 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. We have with us in today's conference, Mr. Achin Gupta, MD and Global CEO; Mr. Dinesh Jain, Global CFO; and Ms. Diksha Maheshwari, Head, Investor Relations. I now hand the conference over to Ms. Diksha Maheshwari. Thank you, and over to you, ma'am.

Thank you, [ Surya ]. Good afternoon, and a very warm welcome to Cipla's Q2 FY '27 Earnings Call. I'm Diksha Maheshwari from the Investor Relations team at Cipla. Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are predictions, 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 confirmations, 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 our Q2 FY '27 Earnings Call. We are pleased to report a revenue of INR 7,404 crores with a steady sequential growth of 4% Q-o-Q. This was supported by broad-based performance across our key businesses. One India recorded its highest ever quarterly revenue while our global portfolio continued to demonstrate resilience amid a dynamic operating environment. We continue to invest in pipeline, and we received key approvals including our first CPI approval of generic Advair in the U.S. . In line with our objective of strengthening biosimilar pipeline, we partnered with Qilu for [indiscernible] in North America, and we initiated clinical development for one more respiratory biosimilar assets out of our own pipeline. Together, these developments reinforce our confidence in the long-term opportunities across our markets and portfolios. Coming to business-wide performance. One India delivered 12% Y-o-Y growth sustaining its track record of consistent double-digit growth over the last few quarters, driven by strong execution across key therapies and the resilience of our franchise in the IPM. In our branded prescription business, we continue to outperform the market, delivering 15% growth, which was led by the chronic portfolio as per IQVIA YTD September '26. Our key chronic therapies continue to grow ahead of their respective market with respiratory growing 11%. Anti-diabetes grew 50%, including the GLP, urology, 11%; and dermatology, 16%. This was underpinned by strong brand equity, robust volume growth, effective field execution and sustained momentum from new product introduction. Our overall chronic mix stood at 60.3% as per IQVIA MAT September '26. Our launch momentum remains strong. During the quarter, we strengthened our portfolio through targeted launches across key therapies, including Devismart in respiratory Galves DM and SRN anti-diabetes, [indiscernible] in cardiovascular and [indiscernible] anti-infectives. These launches collectively underscore our focus on deepening our presence in priority therapy areas and further add to the breaks and competitiveness of our portfolio as we continue to lead IPM in terms of volume share. We also entered into an exclusive licensing agreement with CTTQ, Sino Biopharm Group Company for an asset novel assets HER2-biospecific antibody drug conjugate. This partnership further strengthens our innovative oncology portfolio and expands our presence in the next-generation targeted cancer therapies. On our trade generic business, delivered a strong double-digit Q-o-Q growth. Expanding the portfolio remains a key goal driver here with 15-plus new launches this quarter. On our Consumer Health business, we continued the upward trajectory with Nicotex, Omnigel and Cipladine, consolidating their leadership positions in their segments. The business is driving healthy secondary growth and actively exploring opportunities to invest in products and channels to further expand the distribution. Operating profitability improved, reflecting the strength and scalability of our consumer health strategy. Coming to North America. We delivered a quarterly revenue of $172 million in Q2, which represents a $10 million improvement versus previous quarter. We remain confident of furthering this momentum through the remainder of this year, supported by our launch pipeline and scale up of these new assets. Cipla continues to hold the #1 position in overall U.S. albuterol India market this quarter as well with our market share of 22% as per IQVIA data for last week of September '26. So far this year, we have secured approvals for 2 fee respiratory products, with generic ventolin approved in Q1 and generic were approved in Q2. Notably, generic Advair approval marked our first DPI approval from U.S. rate manufacturing network, further validating our differentiated respiratory capabilities and reinforcing our commitment to complex rescue therapies. Another important strategic milestone during the quarter was our exclusive partnership with [indiscernible] for the U.S. commercialization of a biosimilar to [indiscernible]. Looking ahead, we remain focused on enhancing the performance of our North America business through a combination of new product launches and disciplined commercial execution. A quick update on our pipeline. Our pipeline for this financial year includes 3 additional significant launches for the U.S., which is in line with our previous guidance. This includes 2 more respiratory assets and one key peptide opportunity. Additionally, we have 4 biosimilar programs under development for global markets, which continue to advance heavily through fee development milestones. Alongside these efforts, we remain focused on strengthening our R&D capabilities particularly for the U.S. market. We are progressing well on the organic pipeline development with approximately 45 to 50 filings planned over the next 3 years. In South Africa, private market, we achieved a strong secondary growth of 6.5%, which outperformed the market of 5% as per IQVIA MAT August '26. On Africa business continued to strengthen its position through solid performance in key therapies and successful new launches, reinforcing our presence across diverse markets. In EMU, we delivered revenues of $101 million during the quarter, while the business operated in a challenging geopolitical environment, and there were certain market-specific headwinds. We demonstrated resilience through strong execution and cost discipline across both TTM as well as B2B segment. A word on the regulatory front. We continue to make steady progress across our global manufacturing network. During the last quarter, U.S. FDA classified the inspection at our Invagen Unit 3 facility in New York as a voluntary action indicated VAS. And during the current month, U.S. FDA conducted a routine GMP inspection at our inversion manufacturing facility in Long Island, New York, which concluded with 0 on 43 observations. As you're aware, U.S. FDA also conducted a follow-up GMP inspection at our [indiscernible] facility in India in this previous quarter and issued 7 observations in [indiscernible]. We continue to engage constructively with the FDA and remain committed to maintaining the highest standards of quality and compliance across our network. Overall, we continue to focus on sustained growth in our core businesses, improving productivity and strengthening our pipeline in order to serve the patients with trusted high-quality medicine. Now I would like to invite Dinesh to present the financial and operational performance.

Thank you, Achin. I would like to present the key financial highlights for the quarter. We reported a quarterly revenue of INR 7,404 crores, with a sequential growth of 4% quarter-on-quarter. The EBITDA margin, excluding the other income stood at 18.7% for the quarter, reflecting a sequential improvement of 200 basis points. This performance is in line with the guidance of sequential margin expansion, and we remain confident of continuing this trajectory over the remainder of the year. The reported gross margin after metal costs stood at 64.4%, up 7% quarter-on-quarter, supported largely by an improved product mix. Total expense for the quarter stood at INR 3,382 crores, reflecting an increase of 4% quarter-on-quarter. This increase reflects our current investment in the upcoming product launches and enhance manufacturing readiness. We remain focused on innovation and future readiness. R&D investments for the quarter were INR 423 crores or 5.7% of the revenue [indiscernible] largely towards the forward filing and key development programs. We continue to guide for the full year R&D expense in the range of 6% to 7% of the revenue. Profit after tax for the quarter stood at INR 878 crores, [indiscernible] 11.9% of the sales with a sequential improvement of 77 basis points. The ETR for the quarter stood at 27.2%. Now coming to our free cash generation and operating efficiency that continue to drive a healthy net price position. As of 30th September, the debt on our balance sheet including lease liabilities stood at INR 699 crores with a net cash equivalent balance of INR 9,823 crores. Looking ahead, our key priorities will include on India, the aim is to focus on the execution to sustain the growth momentum and outperform the market in the branded prescription, trade generics and consumer wellness. We Will further strengthen our presenting chronic therapy while maintaining the robust territory we have built in exploratory. In North America, we will remain focused on driving growth through new product introductions, including the key launches. We continue to maintain the guidance to exit this fiscal year with a $1 billion annualized revenue run rate. In South Africa, our focus will be on continuing to grow faster than the market in the private sector. In emerging market in Europe, the top priority is to drive top line growth while maintaining a strong margin trajectory. I would like to thank you for your attention, and we will request the moderator to open the session for question and answer.

[Operator Instructions] The first question is from the line of Surya Narayan Patra from PhillipCapital India Private Limited.

Sir, so now for the second half, you have reiterated in the opening remarks...

Sorry to interrupt, sir. Sir, could you give a bit distance from your device?

In the opening remarks, you have pointed out about your target -- U.S. revenue target of around exiting the year with a kind of $1 billion kind of run rate. So now it is relatively close by, if you can give some sense, some color what is bridging this gap from the current 170-odd levels to 250 kind of levels, that would be helpful, sir.

Yes, sure. So we have guided to a sequential improvement this year. And we had mentioned that there are 4 big respiratory for approval and one big peptide approval that we are expecting this year. So our revenue guidance is a function of upswing, which will come from these launches as we get the approval and as we scale up these products to gain greater share in the market. We have different pathways to get there. And therefore, we are maintaining the same guidance at this point in time.

Sir, just one clarification, whether we are in any manner thinking about resume of [indiscernible] or even progression of the [indiscernible] as 2 incremental component to achieve this kind of a time line means revenue number?

So regarding the 2 products that you mentioned, Ventolin will be a big driver for us towards the as we progress in the year. And as the product scales up, Ventolin will be a big contributor [indiscernible], we don't anticipate being back for this financial year. We are pursuing 2 parallel park [indiscernible] for their remediation and representing back to the FDA [indiscernible] the second is a new site, which we are working in North America to [indiscernible], right? So both of these are not included in our guidance of $1 billion [indiscernible]

Sure. My second question is about the domestic business. It seems that the GLP-1 portfolio, largely led by [indiscernible] is about 10% of your domestic sales currently. This could be because of the kind of first year kind of a penetration, what we are seeing in the GLP-1 products in India. But is there any sense of what could be the growth in this GLP-1 portfolio? Or is there a possible growth that one should think for the next year? Because the adherence of the kind of a product for the therapy among the kind of patient population may not be great the way it is visible currently? And also, if you can include your smart launch time line and hence, what growth that you are thinking about this GLP-1 portfolio in the next year?

So we are seeing very good adoption of GLP-1 as a therapy, particularly on tirzepatide as a molecule where supply is playing and we are seeing month-on-month growth rates of somewhere between 5% to 10%. So we expect that trajectory to continue. [indiscernible] become the second largest brand in the rankings on GLP. And I think we don't expect any saturation on this front. We expect a steady growth in the months to come.

Okay. Just one more point, sir. See, in fact, the trade margin cap what we have seen on the oncology portfolio. So can you see right now, the supply into the kind of [indiscernible] the price point of the suppliers that is not getting impacted. But whether this is likely to create a kind of a competition among the suppliers?

So I think this discussion is still ongoing. The one thing which the government had announced was around margin cap on high-priced oncology products which we -- which will benefit the patients, and we don't believe it will have any significant impact on our business. Anything else which comes out through these discussions and rolling, then we'll have to wait and see what the directive is before we can comment on the impact.

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services Limited.

Sir, just on generic Advair, is this product launch?

Tushar, this is getting launched in Q3. You'll see Q3, Q4 revenues building up.

So we had approval in July. And so could you just explain like is this a normal time line to launch the product or this product is setting a little longer time?

As we have explained last time, we have put up a new plant in the U.S. So this is actually the first DPI to come out of that facility. So therefore, I mean you're right. Normally, we expect to launch immediately upon approval. It has taken a couple of months longer.

And secondly, sir, with respect to the investments in the biosimilars. First, like how much would have been the overall investment in the biosimilar space [indiscernible]. And secondly, where is respective [indiscernible] biosimilar agreement, if you could just share where does the clinical development as of the product from a pharma.

So on biosimilars, the investment that we have is in 4 assets, which are currently under development. All of these assets are part of the R&D expenditure that we report. So I think it's subsumed within that. and we are guiding towards a 6% to 7% R&D expenditure on an ongoing basis. So it will be part of that. On the pembrolizumab biosimilars that we've recently licensed for North America, we are expecting it to be amongst the first [indiscernible] launch and therefore, make a very significant contribution to our North America business once [indiscernible]

The next question is from the line of Dr. Kunal Dhamesha from Macquarie Capital Limited.

The first one on the U.S. business. If you could provide some details on the U.S. ramp that we are expecting in the second half from the $172 million, the exit rate of $1 billion. If I were to split this ramp-up between the existing products and new products, which are yet to get approval, how should we think about that?

So the ramp-up is a function of new launches this year, which includes Ventolin, which was approved already, Advair, which was approved in Q2. So these 2 ramping up will have a significant contribution. And then we have 3 big opportunities: 2 respiratory products and one [indiscernible] opportunity, which will also help in this transition. Further [indiscernible] multiple pathways to get to that exit run rate. We are working towards delivering that kind of exit.

Sir, I understand that. I just want that the $80 million ramp-up that we are expecting of that potentially what proportion is going to come from the products that we are already got an approval or once? And what proportion would come from the 3 approvals that we are waiting?

See, it's a little bit hard for us to keep product-wise side. But as I said, Ventolin will be a big part of this [indiscernible] will contribute significantly and some of the new products that we are talking about are also very significant drivers. So we have different ways of raising that exit run rate, but each of these individually is a very large opportunity for us, and that's how we're looking at delivering the growth rate that we're talking about.

Just on Ventolin, we have launched this product in quarter 1, right? And we also have a [ PDT ]. So what is be leading to a ramp-up being related to H2 for [indiscernible] Are these like contracts that we're waiting for in terms of renewals or is the supplies from our side, which is ramping up, how to think about this?

Yes, Kunal, these are from our North America manufacturing site. This is still a new facility. So it is a function of the supply ramp-up, which are happening. And as we are able to fully ramp up, you will see a significant growth in the remaining part of this year.

And it would not be -- a lot would not be a function of the usual respiratory uptick that we see in U.S. business [indiscernible] that is not a big part of our calculation.

No, because if you see in a crowded arbitral market, on the other preventive generics, we are holding on to a very healthy leading market share. So commercial, share-wise, we are very confident, and we have all the right relationships to get to that share. But we need to ramp up on the supply.

And not disclosing the numbers on supply, but let's say, if you are manufacturing certain quantity, where do you think that, that quantity would be like 2x, 3x, 4x by second half?

This is approximately a 24 million unit market, right? So we can get to much higher share of that market compared to Proventil given that we are the only generic in this. So it's probably not 2, 3, 4. It will be an exponential increase from where we are.

And one last question on the straight generics business. So we have said that there is a strong double-digit growth on a sequential basis in if you could provide how the business has panned out on a year-on-year basis and also the disruption that we had in Q1. Would you say quarter 2 is more of a normalized run rate? Or it's the quarter 3 where we would be at a normalized quarterly run rate in that business?

So on the trade generic front, it had good growth from last quarter to this quarter. But if you compare Y-o-Y, this is mid-single digits, and that's a function of some seasonality and also some cost-related factors, which have come in. But we expect a steady growth in this business like we've delivered in the past year. So there is no change in the thesis on the trade generics, which has been a very steady performer for us over the year.

The next question is from the line of Damayanti Kerai from HSBC Bank.

First, as you retain your guidance for U.S. run rate exit candidates, do you retain the guidance for EBITDA margin also, which you indicated earlier, 18.5% to 20% range?

Yes. So mainly for the -- we are maintaining both the guidance, but actually for the U.S. would be INR 1 billion. And for the EBITDA guidance for the full year, it will be 18.5% to 50%. We are not thinking the guidance.

My first question is on the awaited launches for the U.S. So as you indicated, 3 significant launches still remaining for second half. So my question is specific to the peptide opportunity and Symbicort desperately inhaler. So in your observation, how far you are from the final approval? And how confident are you about launching these products so that they can contribute towards the second half ramp up?

We are confident about the approval. We are getting closer to launch, but I think the exact time line is more a function of how the FDA reviews these 5. But we are confident of the approval.

And again, it's safe to assume you have goal date for both the products in coming months, where we will hear back from the MTA. Then my second question is on your bundling opportunity, which -- where you have launched and as we are discussing in ramp-up phase. When I think I look at the market share gain so far still like single digit and you are indicating significant comport in the second half. So it's just a matter of ramping up supply from your end, right? We have enough visibility on the market demand and your penetration within the channel sector, which can make it a successful launch?

Yes, exactly. We are dealing with the same set of customers. We have very strong relationships on the rest of our portfolio, including another very similar in failure. So we are very confident about the commercial strategy and our teams are in touch with the [indiscernible] That would not be a problem.

Okay. And then my last question is on [indiscernible] FD observation. So this plant, I think, has been under upgrade and improvement, et cetera, for quite some time. So what actually has, I think, like to say 7 observations, I think that seems below expectation. So how do you see that scenario?

So we had received an OAI on this facility approximately 3.5 years back. And that's the normal time it takes for the FDA to revisit. This time, as we had shared previously, we did not have any repeats and we did not have any DI. We are working on resolving these. And we remain committed to getting these out of the [indiscernible]

Okay. But you have like done this mitigation for most of your key approvals in near to medium term. That's safe to assume, as you indicated earlier, like you will do a dual site filing, et cetera.

Yes. So if you see the new approvals have all been mitigated. They're coming from U.S. sites or if you see for the last several years of the orders we've had, we have been coming out with AI and with good responses. So I think the team is working on it, and we don't see any downside at this point from the indoor audit. If the site gets converted to BI, it will open up further opportunities for us going forward.

The next question is from the line of Neha Manpuria from Bank of America.

I think just to clarify, the 2 respiratory approvals and the peptide approval, did I hear correctly that we expect the approval, the goal date for these products is in third quarter? Or would it be [indiscernible]

We are expecting these to be approved in this financial year. I think that's part of what we have guided. The exact dates are not 100% in our control, so we announce them as soon as they get approved.

Understood. And my second question is for the respiratory launches once we get approval, is it fair to assume that the time to ramp up probably wouldn't be as much as what we have taken for Advair in Ventolin? Are these also from the U.S. facility? Or are these files from our India facility, I think one of them is third party, right?

Yes. So one of these partner assets is from the Goa facility, which has been manufacturing MDIs for quite some time. So there's no ramp up involved there. And the other one is from the U.S. facility.

Understood. So would the ramp up for that is also be more gradual like we have seen for Ventolin [indiscernible]

No. See, some of this was a function of all the remediations that we've done in the last 3 to 4 years. And these were the first launches out of -- I mean, Ventolin and Advair were the first launches out of these units. But now the team is there and they have the experience of working on these products. So we don't expect similar kind of challenges on future launches.

Understood. My second question, Dinesh, on the other expenses in the quarter, there seems to be a very sharp jump that we have seen quarter-on-quarter. Just wanted to get a sense, is there any one-off there in that number that is there in the second quarter?

There is no one-off person. So if you look at sequentially also our normally -- our quarter 2 expense base is always higher than the quarter 1. And as we have guided earlier also as Achin mentioned just now, our launches ramp-up is going to happen subsequently. But our investment has already happened happening on that. So I think that is one play which is happening here.

Okay. Okay. Understood. And my last question, tax rate for the full year would be closer to the 25% level or this 27% that we have reported in the first half?

[indiscernible] in the range of 27% to 27.5%.

The next question is from the line of Bino Pathiparampil from Elara Capital Private Limited.