Posted on May 14, 2025, by Niftynews
Shares of Cipla Ltd, a major player in India’s pharmaceutical industry, have seen a dip despite reporting a 30% year-on-year increase in net profit for the Q4FY25. Cipla shares fell by 1.70% to ₹1,494.20, even though its net profit surged to ₹1,222 crore. Despite this profit growth, the stock performance has raised concerns among investors, primarily due to margin pressures and potential challenges in its North American business.
The company’s Q4FY25 revenue also grew by 9% YoY, totaling ₹6,729.69 crore, although it slightly missed brokerage estimates of ₹6,768 crore. Let’s take a closer look at why Cipla stock has been under pressure, despite its positive profit report, and whether it’s a good time to buy, sell, or hold the stock.
Cipla Q4FY25 Performance: A Mixed Bag for Investors
- Net Profit: ₹1,222 crore (30% YoY growth)
- Revenue from Operations: ₹6,729.69 crore (9% YoY growth)
- EBITDA: Fell 1.5% below expectations due to higher operational and employee costs
- Profit After Tax (PAT): 20% above estimates, indicating strong profitability despite margin concerns.
Despite impressive year-on-year profit growth, the quarterly revenue came in below expectations, leading to investor caution. EBITDA margins and PAT declined sequentially from the previous quarter, fueling concerns about Cipla’s ability to maintain profitability going forward, especially given the pressure on margins from both regulatory changes and product exclusivity losses.
Key Factors Impacting Cipla Stock Performance
1. Margin Pressures from Loss of gRevlimid Exclusivity
One of the main concerns for investors is the loss of exclusivity for gRevlimid, a key drug responsible for a significant portion of Cipla’s US revenue. gRevlimid is expected to phase out by FY26, which will put pressure on Cipla’s North American revenue. As Cipla transitions away from this drug, it is uncertain whether other upcoming product launches can offset the revenue decline. Management has cautioned that FY26 and FY27 margins will likely be lower than the current levels, primarily due to this loss.
2. Impact of US Drug Pricing Executive Order
Cipla’s management has also downplayed concerns regarding the US drug pricing executive order, which aims to reduce the cost of prescription medicines. Cipla MD and Global CEO Umang Vohra clarified that this order will mainly impact branded drugs, and Indian generics, including Cipla, will likely be unaffected. While this may be reassuring, it doesn’t fully mitigate concerns about regulatory challenges in the US market and their long-term impact on margins.
3. Sequential Decline in Profitability
Cipla quarterly results also showed a sequential decline in EBITDA, margins, and PAT, which raised alarms about the company’s ability to manage its cost structure. This decline, coupled with the upcoming exclusivity loss for gRevlimid, has dampened investor sentiment, contributing to the stock weakness.
Broker Insights: Mixed Opinions on Cipla Stock
Analysts are divided on the outlook for Cipla, with some maintaining positive ratings while others express concerns about near-term challenges.
Nuvama: Maintain Rating
Nuvama has maintained its ‘Maintain’ rating on Cipla, with a target price of ₹1,620, suggesting an upside potential of approximately 6.6%. Despite EBITDA falling short of expectations, Nuvama believes Cipla will continue to outperform the Indian Pharmaceutical Market (IPM) in the coming quarters, especially given the strength of its chronic portfolio and trade generics business. The brokerage also highlights opportunities in GLP-1 and future product approvals, which could drive growth in FY26 and beyond.
Choice Broking: Downgrade to ‘Reduce’
In contrast, Choice Broking downgraded Cipla to ‘Reduce’ with a target price of ₹1,445, implying a 5% downside from the stock’s current price. Choice Broking is concerned about sequential revenue declines and the margin pressure resulting from Cipla’s significant investment in R&D and capex. The brokerage also highlights the risk from the loss of exclusivity for gRevlimid and revised earnings estimates downward by 9% for FY26E and 7.7% for FY27E.
Nomura: Buy Rating
On the other hand, Nomura maintains a ‘Buy’ rating on Cipla with a target price of ₹1,780, reflecting an upside potential of over 17%. Despite Cipla’s weaker-than-expected Q4FY25 sales and EBITDA, Nomura points to a strong PAT beat driven by other income and a lower-than-expected tax rate. Nomura remains optimistic about Cipla’s performance in India, Europe, and Emerging Markets, believing that its strong portfolio will continue to drive long-term growth.
Should You Buy, Sell, or Hold Cipla Stock?
Buy
For long-term investors, Cipla remains a strong company with robust fundamentals in its core markets. Despite the challenges posed by gRevlimid’s loss of exclusivity, Cipla’s strategic focus on its chronic portfolio and global expansion could drive growth in the coming years. If you believe in Cipla’s ability to weather near-term challenges, this dip could present a buying opportunity.
Hold
For those already holding Cipla shares, it might be wise to hold while closely monitoring the company’s progress. Keep an eye on Q1FY26 results, particularly any updates on the gRevlimid phase-out and the launch of new drugs. If Cipla can successfully navigate these challenges, it could still provide good returns in the medium-to-long term.
Sell
Short-term traders or those nervous about the stock’s margin outlook and regulatory headwinds may want to consider selling or reducing exposure. Cipla’s near-term volatility could lead to further downside, especially if it struggles to meet market expectations in FY26.
Conclusion: Cipla Faces Short-Term Hurdles, but Long-Term Prospects Remain Strong
While Cipla has delivered solid earnings growth for Q4FY25, its margins and US business face significant challenges in the coming years. The loss of exclusivity for gRevlimid and pricing pressures in the US could weigh on the stock in the short term. However, Cipla’s strong product portfolio, focus on chronic diseases, and growth opportunities in emerging markets remain positives.
Investors should carefully evaluate their risk tolerance and time horizon before deciding whether to buy, sell, or hold. The stock’s potential remains, but the near-term outlook requires caution.
