Whalesbook
Profit Hit by US Sales and Costs
Cipla is set to report a sharp 42% year-on-year decline in profit after tax to ₹700 crore for the fourth quarter of fiscal year 2026. This downturn is primarily driven by a significant drop in U.S. sales and increasing operational expenses. While the company's domestic formulations business shows steady growth, it is not enough to fully offset the international market pressures and rising costs that are impacting overall profitability, with EBITDA expected to fall 35%.
US Market Decline Hits Hard
The company's U.S. market performance is the main factor behind the weaker Q4 FY26 outlook. Revenue from gRevlimid has ceased following its patent expiry, creating a substantial loss. Sales of Lanreotide have also fallen due to supply chain issues. This decline in its largest market, which is experiencing evolving pricing pressures and inventory shifts, is a key reason for the projected 0.9% year-on-year dip in overall revenue to ₹6,665 crore. Brokerage estimates predict a sequential drop in U.S. sales, with Kotak Institutional Equities forecasting a 19% decline to $136 million and Antique Stock Broking projecting a 21% year-on-year decrease to $174 million.
Rising Costs Squeeze Margins
Beyond product-specific challenges, Cipla is facing increased operational costs. Its EBITDA is expected to decrease by approximately 35% year-on-year to ₹1,000 crore. Analysts attribute this margin pressure to an unfavorable product mix and higher spending on marketing for recent GLP launches. Additionally, escalating freight costs, influenced by global geopolitical tensions, are adding to expenses. These factors are projected to reduce the EBITDA margin, with Kotak Institutional Equities forecasting a decline of 820 basis points year-on-year to 14.6%.
Domestic Business Offers Support
Cipla's domestic formulations segment is anticipated to remain strong, with healthy traction expected, partly driven by products like Yurpeak. Domestic sales are projected to grow by about 12% year-on-year. This domestic growth serves as an important offset to the declining international revenues, but it is insufficient to fully compensate for the significant downturn in the U.S. market, leading to a marginal overall revenue decline.
Analyst Views and Valuation
Analyst sentiment on Cipla shows some divergence. As of early May 2026, the average 12-month price target is around ₹1,431. Forecasts vary, with ICICI Securities upgrading the stock to 'Buy' with a ₹1,550 target, anticipating benefits from new generics. Morgan Stanley, however, maintains an 'Underweight' rating due to execution risks. Cipla's Price-to-Earnings (P/E) ratio is currently around 23-24x, which is below its three-year average of 27.4. This suggests the market may be factoring in potential recovery despite current earnings pressure.
Execution Risks and Downgrades
Despite future growth prospects, the company faces execution risks. It has encountered setbacks, such as Brazil's Anvisa rejecting its liraglutide generics on technical grounds. New product launches, including generic Advair, will likely face strong competition. These ongoing challenges and market dynamics have led some analysts to express caution, with MarketsMOJO downgrading the stock to 'Sell' in early 2026.
Outlook for FY27
Management commentary at the upcoming earnings call will be key to understanding the expected recovery in U.S. sales and the market reception of recent GLP launches in India. Analysts forecast a potential rebound in FY27, anticipating normalized Lanreotide supply and contributions from new products. However, near-term profitability is likely to remain subdued. Brokerages project earnings per share for FY27 to be around ₹50-₹52, a decrease from the estimated ₹56-₹60 for FY26, indicating a gradual path to recovery. Cipla's ability to manage these challenges and leverage its domestic strengths will be crucial for its performance in the next fiscal year.