Cipla Limited (CIPLA) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to SIPLA Limited Q1 and FI27 on a conference call. We have with us today Mr. Arshin Gupta, MD and Global CEO, Mr. Ashish Adukia, Global CFO, Ms. Diksha Maheshwari, Head Investor Relations. As a reminder, all participant line will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchdown phone. 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.

I am Diksha Maheshwadi from the Investor Relations Team at Zibla. Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are predictions, predictions, 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. SIPLA does not undertake any obligation to publicly update any forward-looking statement, 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 Achim to take over.

Thank you, Diksha. Good afternoon to all of you, and we appreciate you joining for our Q1 FY27 earnings call. I am delighted to share that we have delivered the highest ever Q1 revenue with revenues of 7,100 crore 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 its strengthens our confidence in sustaining long-term growth. Coming to the business-wise performance, our One India business achieved its highest ever quarterly revenue with 12% YOY growth, reflecting a strong performance across key therapies and underscoring the strength of our franchise 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 growth at 15%, anti-diabetes Urology is 43%, cardiac 20%, and urology a double digit. As per the IQBR data for the quarter ended June 26. This performance was driven by a strong volume expansion, sustained brand strength, focused field execution, and continued momentum from new product launches. Our overall chronic mix strengthens this quarter to 60.4% viable. We added two new brands to the 100-plus crore INR club, taking our total to 33, and our presence in the IPM Top 300 brands remains strong with 23 brands, reinforcing the depth and resilience of our portfolio. Porocort, which is our flagship inhalation brand, continue to strengthen its leadership position as the number one respiratory brand in the IPM. While sustaining its status as an INR 1,000 crore plus franchise, Zipla continues to be the largest pharma company in terms of volume and the only player with 2 billion plus unit sales in IPM as per IQ they are matched June 26th. Our new launch momentum also remains strong with a number of targeted introductions across key chronic specialty and wellness segments. In respiratory, we strengthen our portfolio with dole and synchro freeze, a breast-actuated inhalation platform designed to enhance ease of use and adherence, and BillaFab M for the... In the obesity segment, following our entry into the segment through our collaboration with Eli Lilly for your peak in the previous quarter, the brand has continued to witness encouraging traction. Immunology. Thank you very much. This is June 26th. Thank you. The dividend payment that we made this quarter of 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 trade genetic as well as consumer wellness. We will further strengthen our presence in chronic therapies while maintaining the robust trajectory Three weeks, we have. In North America, we'll remain focused on driving growth through new product introductions, including the key launches highlighted by our team. In South Africa, our focus will be on continuing to grow faster than the market in the private sector. In EMEU, 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, you know, transition into new role, I would like to thank all of you for asking prospective questions over the last four years. I would also like to welcome Dinesh Chan as a 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 and offer Q&A. Thank you.

Thank you so much, sir. Ladies and gentlemen, we will now begin with a question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question.

Ladies and gentlemen, we'll wait for a moment while the question co-assembles.

Our first question comes from the line of Sayan Mukherjee with Nomura. Please go ahead.

Yeah, thanks for taking my question. Can you talk about the, you know, 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?

If you go through the note, Shahan, you'll find the numbers mentioned out there for the previous YOY quarter as well. So you'll be able to calculate the growth, and the growth would be somewhere around 4% if you just adjust for the previous year number as well.

Yeah, that's right, Ashit. 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 like 12% growth in India and minus 5% that you reported in rupee terms in South Africa. You know, is there an adjusted number for these two markets at least?

So, without breaking it down into the markets, there are primarily two only, but largely it's on account of...

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

On India, you see the IQPR data, we were at 15.4% on the... And within that, as per IQVIA, approximately 80 CR was from your peak, right? So the balance is, I think that's what approximately one and a half percent is attributable there. The rest is on account of the business. 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 7-8% year-on-year growth. Is that a wrong assessment, you think?

Thank you very much. A very, you know, more or less detailed perspective. Becomes B. Okay. That's part of our strategy. We keep it.

Okay. The 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 change to South Africa, I just get 13% growth. So in constant currency, it seems your, you know, private market as well as tender has declined on a year on year basis. Is there something happening that if you can throw some light that we need to be aware of?

So see, I think tender business has indeed declined 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, you know, currency impact as well, which we had hedged. So I think it's a multitude of impacts that is sitting out there in South Africa. But private market has grown faster than the market out there. As I had highlighted in the speech as well, that we achieved almost 6.5% growth in the market, in the secondaries, outpacing the market growth of 5.7.

Yeah, that's true. I think in the secondary, it's visible, but on the reported number, it isn't. So that's what I was wondering.

The gender component is less.

Okay, thank you and enjoy.

Thank you.

Our next question comes from the line of Parth Soda with three other asset managers. Please quit.

Hello. Hello.

Yes, Fath, you may please proceed.

Good evening.

Fath, I'm sorry to interrupt you, but your voice is breaking. Fath, you may please rejoin the queue, but your voice is breaking, so you can rejoin the queue. Next question comes from the line of Suri, Narayan, Patra with Philip Capital. Please go ahead. Thank you. Surya, you may please proceed with the question. So it has left the queue. Our next question comes from the line of Damayanthi Kerae with HSBC Bank. Please go ahead.

Hi, thank you for the opportunity. 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 three more assets on the respiratory side, including Adbaya and one peptide asset. If I remember correctly, last call, when we had discussion on the upcoming launches, you mentioned you were anticipating four peptide products. So has there been any change on that part? And yeah, I think if that's the case, do you still maintain your 1 billion exit run rate for US segment for FY27? Okay, so you started the year with 162 million sales, but in the consequent quarter, you think you can cover up enough to reach that 1 billion exit rate? That remains a change.

God.

Sure. And similarly, if you can comment on your earlier guidance for the EBITDA margins of 18.5% to 20% for FI27, any change there? Or it again remains 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 US? You just got one observation, but nonetheless, if there is some delay in clearing that observation, will that hold up any of the upcoming launches?

Only the smaller ones. You know, so that is...

Thank you, great. Thanks. I'll get back in with you.

Thank you. Our next question comes from the line of Vishal Manchanda with Systematics. Please go ahead.

Yeah, thanks for the opportunity. 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?

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 1 to 2% of revenue in that kind of a range for the overall cost impact. In case of, you know, the other question that you had, the inventory charge, etc. So, we have that, you know, for various reasons, either it is close to expiry, or if we have, you know, ordered, but the demand has not taken off, or if there is any quality issues, so then we charge off that inventory, which is very typical in pharma. So, there has been... And that is why I called it out that there is a one-time kind of a...

So would this be 100 basis point a lower number?

So, this all sits as part of COGS and amongst other provisionings. I thought because it is slightly higher than with a normal.

On the incentives, do you kind of put that as part of operating revenue, or you deduct it from the COGS?

Yes, so the PLI. So it was sitting in the base and not now. And PLI, we, you know, this year we're accruing it as we achieve the sales of our PLI molecules. So that's why in this quarter, there is almost no PLI, but it will come in a phase manner into the later quarters.

Got it. And this one on the US, when do we expect a full ramp up there? Will there be a gradual ramp-up or we'll kind of be steady for some time and then? Okay, so more towards the end of this year, we'll see a ramp up is that Got it. Thank you.

Thank you. Our next question comes from the line of Binu Pathi Parampil with Ilara Capital. Please go ahead.

Hi, good afternoon all. Just a couple of follow-up questions. First one, South Africa. I assume you replied to a question that the decline in revenue is because of loss of tender. I wanted to know if this is the first part of loss of tender, so for the next three quarters till this annualized, should we assume that there will be a dividend report revenue because of this?

No, see, I think, see, and tender, how you have to see it is that, So yeah, you will see the continuing impact of tender in South Africa, but private market, like I said, Including OGC is growing faster in 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 some ways.

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 analyze 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 know, you may need an event travel event. Understood. Thank you.

Thank you. Our next question comes from the line of Shashank Krishna Kumar with MK Global Financial Services. Please go ahead.

Hi, thanks for taking my question. 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. But consumer wellness, last year, 1Q, we were at 470 crore, and this year, I think we are at around 480 crore. So, growth there has also been a bit muted. So, are there any other factors which have impacted growth in this quarter?

The last quarter had a very good growth in the... So I think the base itself was fairly strong. And that's why in a YOY basis, you'll see a growth which is not as high as typically what And because you love us. South Africa, there is impact of the presentation change that I talked about earlier, but, you know, adjusting for that South Africa had their normal growth.

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

No, so we don't give the break-up of the three segments. Overall, India is at 12% growth and trade-generic is...

And if I could just reason one more, I think our inversion unit one facility was inspected in FEM, and I think we had two observations. This was linked to Adware. So have there been any follow-up queries post that inspection or is your filing broadly there in terms of getting past definition?

It is on track. You know, on that kind of section, ultimately you will see the approval.

So, interim...

Thank you and all the best.

Thank you. Our next question comes from the line of Surya Narayan Patra with Philip Captor. Please go ahead. Surya, I'm sorry, but again your voice is breaking. If you are wearing Bluetooth or headset, can you just remove that? No, sir. I guess you're not in the network, so we are not able to hear you.

Okay, I'll come back there.

Our next question comes from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

Yeah, thank you for the opportunity. Just first one on the year peak, you called out about 80 crores in quarter one. Sir, how are we looking at that overall anti-obesity kind of market? There are confusing or divergent signals, especially from semi-generics as well. So what explains the strength and how are you looking at life prescription behavior and what do you think is the prognosis from here on?

Yeah, I was, um, Your understanding is that this is a high-involvement therapy. We are following that.

Sir, just data point, how was Q4 for the 80 crore? Any direction there?

It has been growing month on month, so it was quite small on IQVI reflections in Q4 of last year. Yeah, it has been, it has been growing.

Got it. So second question is on your cash pile, right? Close to more than a billion US dollars equivalent, right? So what are the ways that we are looking to kind of utilize this cash? You've already paid a dividend, maybe more is coming, but just want to understand what are some of the capital allocation priorities for that cash pile?

See, I think from what we had mentioned earlier in the last water, it remains the same where, you know, we've increased our capex, which is going towards organic growth. We are focusing a lot on R&D, biosimilar, on organic side. We are looking at some very, you know, differentiated portfolio. Either to acquire or to in-license as well. In-license also requires sometimes upfront to be paid. So there is some capital allocation going towards that. We continue to look at M&A opportunities both for U.S. for certain differentiated products, but also Europe to develop some of the deep markets. So, you know, we've been fairly conservative on our approach on these acquisitions. And therefore, you have not seen many, but I think we're constantly deploying capital towards small capital towards many such initiatives that I talked about. This will continue. And if we find any, you know, larger opportunity, of course, we will.

Got it. Just in last housekeeping, again, back on the US billion dollar guidance exit, right? Should I be looking at it 250 per quarter or should I be looking at 80 per month? Which would be more the right one to aim for?

I think, see, it depends on the timing of new launches, like Achin said. So...

Thank you. Our next question comes from the line of Vivek Agrawal from Citigroup. Please go ahead.

Yeah, thanks for the opportunity. One question on gross margin. You mentioned that this quarter have been impacted by some higher than expected or normal inventory write-offs. I just want to understand how to look at gross margin trajectory in coming quarters, and you can also help us understand what can be the right number or approximate number to work base for FY21 as far as gross margins are concerned. Thank you.

See, this is not a significant impact. Okay, so, if the... It was just more of an explanation around the...

What we are making up for in corresponding period last year, you know, they all had high margins.

Understood. One question is on bentolin as well as one peptide product that you classify as a large product. So, two questions related to these two products. One, what kind of the competition you see in these couple of products, let's say, if you are there in the market for next one year? And second, what kind of the fair market share you are capable of to achieve in these products, let's say, once the products are mature? And so in these products, is it fair for you that you can, given that the kind of competitive intent, the dynamics that are there at play, you can get, let's say, around 40-50% kind of market share once the products are there for the one year?

Could you repeat the question?

Yeah, so again, just a question around market share. In these two products, given that you may be for a time being of the only player to be there in the market, so is it fair to assume that, can you take around a 40, 50% kind of market share in these products? So, maybe in the next three, four quarters, monthly products are there in the market?

Then, yes, we can. Have you done that?

Understood. And just one last question, if I can question. In respiratory, you talked about that two filings are there from U.S. And there's one out of three products, two are from U.S. So the one filing that you talk about that is only filed from India or contingent on indoor clearance. Is that correct?

Yeah, we mentioned that.

Okay, thank you. That's from my side. Thank you.

Thank you. Our next question comes from the line of Tushar Mazudani with Mozilla for Financial Services. Please go ahead.

Thanks for the opportunity. So, just on this potential peptide product, the launch is subject to or contingent on any litigation or patent expiry or the product pure simple approval from the S&D.

Not really the system.

Patent expiry is not the constraint per se. This is already off patent product, is it?

We can lock this one as you can.

Yeah, but it is an opinion product. I meant to ask, is this off-fitting product? Is this an off-fitting product? Or is it something where you have won the litigation and hence approval is pending?

It says we can launch at...

And, sir, secondly, on the India side, like, if you could just share the number of MRs, and how do we intend to scale up for, let's say, next one to two years?

Actually, we're not looking at any... And wherever required.

Got it. And so, just lastly, in terms of IQ, are you also experiencing the same in the SIPLA's acute portfolio?

He lost you for a bit. Can you repeat your question?

Sir, I meant to ask, as per IQ here, in acute therapies has shown a very strong pickup over the last 3 to 5 months. Is the same getting reflected in CIPLA's acute portfolio as well?

Yeah, we are in line with the market. Mention on respiratory, we have a strong. Acute we are more or less in line.

Got it, sir. Thank you.

Thank you.

Our next question comes from the line of Abdul Qadir Puranwala with ICIC Securities. Please go ahead.

Yeah, hi sir. Thank you for the opportunity. So, my first question is with regards to your billion dollar revenue guidance. So, if I look at your current run rate of say 162 million, what you have done for this quarter. What we are basically talking about is close to, say, an addition of $400 million, at least, to happen with the four new launches. So, within that, you know, how should we look at products like Edware where there is some significant contribution? Do you still perceive this product to be a $100 million plus kind of an opportunity now?

No, I didn't. We have across this portfolio and also Ventolin, you know, also will ramp up. So we see this opportunity across these five products, right? That's B and the 1-5-8. So a little bit will come from the others as well, which will add to the steady base, but I think a lot of investments over the years have been made into these big-ticket products, so this will basically, you know, drive the meaningful growth.

Understood. And second one on Landreotide, any further development you would like to highlight with the same partner or on the side transfer process? Where are we right now?

Amartin has, you know, worked on a lot of remediation at their end.

Thank you. The next question comes from the line of Jarul Agarwal with Bofa Securities. Please create. Charol, you may please proceed with the question. There's no response, Samshar. We'll move forward to the next participant. Next question comes from the line of Malik with 361 Capital. Please go ahead.

Hi, thank you for the opportunity. Just one question. So, as compared to 4Q, our other expenses have broadly come down. So, what is the reason for this cost control? Can you highlight something?

We are taking measures to control costs.

Okay. Okay. Thank you. Thank you. Thank you.

Next question comes from the lineup. Forum Parikh with Bank of Baroda Capital. Please go ahead.

Thank you for the opportunity. My first question is on EBITDA margin. Since we are retaining EBITDA margin, I did the firm down 20%. So, just wanted to, and which is subject to these new launches, so just wanted to understand hypothetically, if we get delayed by, you know, for these launches, so what can be the EBITDA margin without Lanviotide and And the new launches.

For the year is to focus on new launches, and with the approvals coming through, based on that, we have budgeted our internal estimates of this 18.5 to 20%. So it's based on a plan. Of course, if there's change in the plan due to any reason, then there can be risk to this margin. Including that of new launches, what you said.

Yeah, but is there a threshold level beyond which, you know, we cannot go? So, if you can just guide us on the threshold level that we can look at?

We had...

Sure. And my second question is on the domestic side. So now our chronic portfolio has reached 60%. So again, here with the growth in Europe, and how do we see, you know, scaling up of chronic segment? Again, is there a level that we can quantify in next two, three years time?

Yes, so strategically, you know, we are growing respiratory. That's obviously one-third of our total business. And then we are focusing a lot on diabetes, cardiology, urology, dermatology. You are seeing in the last quarter market-beating growth, and as we continue that trajectory, we are gaining ranks as well. So it will increase as a percentage of our total business. Antidiabetic to the...

Sure, but if we have to put in a number, can we work out with like 65% kind of as a first, you know, milestone to achieve for the chronic business within two to three years? Oh, that would be a little ambition.

I think we are also strong and acute, and that's a base, a large base that sits out there, which will also keep growing, right? So, it will not be, so the whole focus is that new growth that we are adding from new products, etc., will be oriented towards chronic, and we want to go there. Create that momentum, but, of course, you can't ignore the strong acute that is sitting out there.

Sure, got it. Thank you. Thank you.

A nice question comes from the line of Vivek Agarwal with Citigroup. Please go ahead.

Yeah, thanks for the follow-up question. So, if you look at EBITDA margin this quarter, right, it's around 16.7%, and the margins have fallen even below pre-rev limit level, right? So, given that company has a strong India business, 50% of the business come from India, the margin doesn't look great, right? So, just want to understand where we are bleeding. Is it like that US business has done loss-making after we lost the revlimit sales, or is it like that some of the other markets, like India or any other market, that is where I think there's kind of a dip in margins in the last couple of years? I just want to understand and help you understand.

Thank you. We will see a sharp improvement there. Secondly, as we had mentioned, temporarily there is some impact of war as well, which is sitting in the numbers. It's hard to predict how long and I think maybe a one to two percent. So, I think with these kind of things, Thank you. Thank you.

Understood. And when you talk about that launch-related expense, so it's like the products like Europe, that's where you have spent significant amount of money, or it's like even in the U.S. you are building up launch-related expenses for some of the major products that you're talking about?

It is not. So, most of the margin, you know, is on account of the U.S. product and launch it because we have facilities, you know, ...which are staffed up, taking batches, ready to launch products, but the revenue you're not seeing yet because of the approval. Even on R&D, if you see... We are looking at this in a way that we can build sustainable... This is not our...

And just lastly, if I try to look at, let's say, a 22-23% kind of EBITDA margin, so when you can reach at that level, maybe 28 or 29, what would be the right time frame? Perfect.

Thanks. Great work. Thank you so much. Ladies and gentlemen, due to the time concert, that was the last question for today. I now hand the conference over to Ms. Diksha Maheshwari, Head Investor Relations. Thank you for the closing remarks. Thank you and over to you, Diksha.

Thank you, everyone, for joining me. And if you have any further questions, please write it to investor.relations at the ratesupport.com.

Thank you. Thank you. Thank you, everyone.

Thank you, team. Ladies and gentlemen, on behalf of Supply Limited, let's conclude this conference. Thank you for joining us, and you may now disconnect your lines.