Mumbai-based Cipla Ltd., one of India’s largest pharmaceutical firms and a Nifty 50 constituent, is bracing for financial headwinds over the next two years. In its earnings call held on Tuesday, May 13, Cipla’s management revealed that its EBITDA margins will decline in both FY26 and FY27, due to the complete phase-out of gRevlimid, a key drug in its US business portfolio.

Margin Outlook for FY26 and FY27

Cipla guided that EBITDA margins in FY26 will be between 23.5% and 24.5%, a drop from 25.9% in FY25. This is significant given that gRevlimid has contributed heavily to its US revenues in recent quarters. Even more concerning for investors is the additional 300 basis points margin contraction expected in FY27, when the gRevlimid opportunity fully vanishes.

This erosion in margins has already become a point of concern among analysts, who now question whether Cipla’s upcoming launches like gAbraxane, gTasigna, and gAdvair will be able to adequately fill the revenue void left by gRevlimid.

Heavy Reliance on gRevlimid and Flat US Outlook

Cipla’s management was transparent about its dependence on gRevlimid during the call. The company acknowledged that its US business has been heavily reliant on the drug’s performance, and that its exit would leave a gap that might not be fully bridged by the incoming generics pipeline.

Adding to the worries, Cipla said its US revenue for the June quarter is expected to remain flat, a sign that the business might be entering a period of stagnation unless it accelerates other launches or finds new growth avenues.

Financial Performance: Q4FY25 Snapshot

Despite some concerns, Cipla managed to beat street expectations slightly in the US market for the March quarter. The company clocked $221 million in US revenue, slightly above analyst expectations of $218 million, though down from $226 million in the same quarter last year.

Meanwhile, Cipla’s consolidated profit in the March quarter benefited from two key factors:

• Lower tax outgo, which reduced overall liabilities

• Higher other income, providing a cushion to earnings

Still, despite a 140 basis point margin expansion, the figure remained below expectations of 24%, reinforcing fears that the company may struggle to maintain profitability in the near future.

Stock Market Reaction and Share Price Update

Cipla’s stock experienced high volatility post-earnings, eventually closing 0.6% higher at ₹1,520 on Tuesday. So far in 2025, the stock has shown little to no movement, staying largely flat amid broader market gains. This underperformance could reflect investor caution in light of the guidance warning and heavy dependency on one product.

New Launches May Not Be Enough

The management also discussed its pipeline of new drugs for the US market, including the highly anticipated gAbraxane, gTasigna, and gAdvair. However, it cautioned that these products are unlikely to compensate for the scale of revenue lost from gRevlimid’s exit.

Analysts interpret the company’s language around future topline growth as lukewarm, with a low single-digit to flat growth trajectory being the likely scenario in FY26.

Growth Outlook: Conservative but Realistic

Cipla’s decision to not provide a specific revenue growth target for FY26 was seen by analysts as a conservative but realistic approach. The company did signal a "continued growth trajectory", but this was interpreted more as stability than acceleration, at least in the near term.

This guidance, coupled with the phasing out of gRevlimid and flat US revenues, suggests that Cipla may be entering a transition period where innovation, new approvals, and business model shifts will play a larger role in shaping its financial future.

Investor Sentiment and Analyst Commentary

Market experts believe that Cipla’s guidance cut is a prudent move that aligns with evolving market dynamics in the generics industry, especially in the US. The competitive pricing pressures, combined with regulatory delays and fewer exclusivity windows, have made it difficult for companies like Cipla to replicate past high-margin wins.

Yet, some analysts remain cautiously optimistic, stating that Cipla’s diversification strategy across India, South Africa, and other emerging markets could help mitigate the impact from US revenue softness.

What Lies Ahead for Cipla?

Looking ahead, Cipla is likely to focus on the following priorities:

• Accelerating drug filings and approvals in the US

• Expanding branded formulations and specialty products in India and Africa

• Strategic partnerships and inorganic growth through M&As

• Technology investments to drive manufacturing efficiencies

While FY26 and FY27 may present margin challenges, the company’s long-term fundamentals, strong balance sheet, and global reach give it multiple levers to pull for a recovery beyond FY27.

In Summary:

• Cipla’s near-term profitability is under pressure as gRevlimid exits from its portfolio.

• The company is actively pursuing new launches, but their immediate financial impact may be limited.

• Flat growth outlook and margin contraction have made investors cautious, but Cipla’s diversified presence could act as a cushion over the medium to long term.

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