Cipla (NSE: CIPLA) shares are up around 10% today on the back of their announced results. Which is an interesting change - far too much of today's market price movement is about what might happen, or what people think could happen and so on. Speculation in short. So it's a refreshing change to see a share price moving on what the business has actually managed to do, has been able to achieve. But that is what seems to be happening here.
The most important part of the results at Cipla: “Drug major Cipla posted a 45.1% rise in its consolidated net profit in Q1FY24 at ₹995.7 crore as compared to ₹696.4 crore in the corresponding quarter of the last year.” That 10% is something of a fall back from the days highs: “Cipla's stock price has surged above its highest level in the past 52 weeks, reaching Rs 1219.4. This represents a significant increase of 14.12% compared to the previous trading day's closing price.” But that's the sort of thing to be expected when unusual news hits the market - a certain amount of variance over time about what it all means.
Cipla share price from National Stock Exchange
As to the background that is causing this: “ Shares of Cipla climbed 9 per cent in Thursday's trade after analysts raised earnings estimates for the drug maker on reduced competition in the US generics segment, better visibility for niche launches in North Amarica and better operating leverage. US revenues for Q1 were the highest ever. Despite limited period gRevlimid cash flow, Cipla has other growth drivers, analysts said. That said, post Thursday's rise, the share price targets for Cipla suggests limited upside ahead.”
Well, we'll have to see whether there is more upside or not. We tend to think that the American use of more generics is a structural change, not a cyclical one. These generics also being an area where the Indian companies - including Dr Reddy and so on - have a distinct cost advantage.
On the other hand generics are indeed about manufacturing costs and only manufacturing costs. So margins tend not to be that wide. Rather the point of them is that there's no brand and therefore no price premium. We tend to think that the price movement is about right for now but it'll be interesting to see what happens in the run up to the next set of results.
