Cipla Q2FY26: Revenue Rises, But Margins Squeeze Amidst Higher R&D Spend; Brokerages Divided

Cipla Limited's financial performance for the second quarter of FY2026 (Q2FY26) presented a mixed picture for investors. The company announced consolidated revenue from operations of ₹7,589 crore, marking an 8% increase compared to ₹7,051 crore in the same quarter last year. Consolidated net profit also saw an 8% rise, reaching ₹1,351 crore from ₹1,303 crore in Q2FY25. However, Earnings Before Interest, Tax, Depreciation, and Amortisation (Ebitda) showed only a marginal 0.5% year-on-year growth to ₹1,895 crore. Consequently, Ebitda margins declined by 178 basis points to 25% from the previous year's period.

Segment-wise, Cipla's India formulations business grew by 7% to ₹3,146 crore. The One Africa business reported a 5% increase to $134 million, and Emerging Markets and European business saw a 15% year-on-year growth to $110 million. The US business, however, declined by 2% due to price erosion of generic Revlimid (gRevlimid).

Brokerage reactions were varied. Choice Institutional Equities downgraded Cipla to 'Reduce' citing limited near-term catalysts and moderating margins. They expect Ebitda margins to fall to around 23% in FY26 from 25-25.5% in H1FY26, as R&D expenses are set to rise to 7% of sales from 5.5% in FY25. Nuvama Institutional Equities retained a 'Hold' rating, highlighting sustained revenue growth and potential from new launches in GLP-1s (drugs for diabetes and weight loss) and biosimilars as long-term drivers. They noted that while the domestic business was slightly below expectations, performance in Africa and emerging markets compensated for the US decline.

Impact This news has a moderate impact on the Indian stock market, particularly on the pharmaceutical sector. The mixed results and analyst downgrades may create short-term caution for Cipla's stock, while positive long-term growth drivers suggest potential for recovery. The focus on R&D spending and the impact of generic competition are key factors investors will monitor. Rating: 7/10.

Difficult Terms Explained: Ebitda (Earnings Before Interest, Tax, Depreciation, and Amortisation): A measure of a company's operating performance before accounting for financing costs, taxes, and non-cash expenses like depreciation and amortisation. Basis points: A unit of measure equal to 1/100th of a percentage point. For example, 100 basis points equals 1 percentage point. Revlimid/gRevlimid: Revlimid is a brand-name drug. gRevlimid refers to its generic version, whose introduction often leads to significant price reductions. GLP-1s (Glucagon-like peptide-1 receptor agonists): A class of medications primarily used to treat Type 2 diabetes and, increasingly, for weight management. Biosimilars: Medicines that are highly similar to approved biologic medicines and have no clinically meaningful differences in terms of safety, purity, and potency. Formulations business: Refers to the business segment involved in the manufacturing and sale of finished pharmaceutical products ready for patient use.