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Pharma · investment research

Cipla

CIPLA

Price & statements

Verdict

AVOID

low confidence · 3-5 years

Composite score

53/100

Weighted across all eight pillars

Business quality

54/100

Moat, returns, balance sheet, cash, management

Valuation score

33/100

At 72.3x against a sector median of 70.5x, the price embeds roughly 54% earnings growth. Anything less has to come out of the multiple.

Decision intelligence

Every conclusion states what would make it wrong

WHAT

Avoid for now — the business or governance risk outweighs the opportunity.

WHY

  • • Balance sheet scores 8/100 (deteriorating) — Leverage is high enough that a demand shock becomes a solvency question.
  • • Business & moat scores 89/100 (improving) — Deeply embedded systems make customer churn slow and expensive.
  • • Industry & macro scores 78/100 (improving) — Pharma (India) demand is improving.
  • • Valuation scores 33/100 (stable) — At 72.3x against a sector median of 70.5x, the price embeds roughly 54% earnings growth. Anything less has to come out of the multiple.

WHERE

Pharma · Mid cap · position sized to at most 0% of an equity portfolio.

WHEN

Re-run this analysis after the next quarterly result.

WHAT IF WRONG

  • • The thesis is wrong if ROCE falls below 16% or cash conversion stays under 70% for two straight quarters.
  • • Valuation support fails below ₹3,827 of fair value — a drawdown to that level is a re-underwrite, not automatically a buy.
  • • Watched risk: Leverage — Debt is 4.1x EBITDA.

WHAT NEXT

  • • Read the latest quarterly cash-flow statement alongside the P&L.
  • • Check USFDA actions — it moves the earnings base independently of execution.
  • • Compare against the sector peers listed below before sizing anything.

Cipla is a moat-protected pharma business compounding revenue at 9.2% and profit at 8.0%, earning 20.1% on capital. Quality scores 54/100 and valuation 33/100 at 72.3x. The decision is therefore avoid with low confidence — this is analysis for learning, not investment advice.

What does this business actually do?

Business understanding before ratios

Cipla operates in the Indian pharma sector with a mid-cap footprint and a listed market value of about ₹122k Cr.

Revenue is earned across 4 reported segments; profitability is driven by realisations, mix and operating leverage rather than one-off items.

Revenue drivers

  • • Volume growth in the core segment
  • • Realisation / pricing power
  • • Mix shift toward higher-margin lines
  • • Capacity utilisation

Cost drivers

  • • Raw material and input costs
  • • Employee cost inflation
  • • Interest cost on borrowings
  • • Distribution and marketing spend

Moat · 82/100

Switching costs

Deeply embedded systems make customer churn slow and expensive.

Segment mix

India formulations33%

Growth 22.9% · margin 20.7% — Fastest growing part of the mix — watch whether margins hold as it scales.

US generics25.6%

Growth 24% · margin 20.6% — Fastest growing part of the mix — watch whether margins hold as it scales.

Emerging markets21.8%

Growth 30.1% · margin 11.6% — Fastest growing part of the mix — watch whether margins hold as it scales.

API & CRAMS19.6%

Growth 24.3% · margin 23.9% — Fastest growing part of the mix — watch whether margins hold as it scales.

Analysis pillars

Score, trend and the drivers behind each — no bare numbers

Business & moat

89/100

Trend: improving · weight 14%

  • MoatSwitching costs

    Deeply embedded systems make customer churn slow and expensive.

  • Segment concentrationIndia formulations is 33% of revenue

    Revenue is spread across segments, which softens single-market shocks.

  • EBITDA margin34.0%

    Margin moved from 21.0% to 34.0% year on year.

Profitability & returns

61/100

Trend: improving · weight 16%

  • ROCE20.1%

    ROCE was 17.6% a year ago. Sustained ROCE above the cost of capital is what compounds value.

  • ROE19.4%

    Return on equity after leverage — read alongside debt levels.

  • Net margin21.8%

    Share of every rupee of revenue that reaches reported profit.

Growth quality

38/100

Trend: stable · weight 15%

  • Revenue CAGR (4y)9.2%

    Top-line compounding over the reported history.

  • Profit CAGR (4y)8.0%

    Profit lags revenue, so growth is being bought with margin.

  • Growth sourceAsset-light / incremental

    Capex is 5.0% of revenue this year.

Balance sheet

8/100

Trend: deteriorating · weight 12%

  • Debt / EBITDA4.06x

    Leverage is high enough that a demand shock becomes a solvency question.

  • Debt / equity1.16x

    Capital structure relative to shareholder funds.

  • Working capital43 days

    Cycle is tight, so growth is largely self-funding.

Cash conversion

45/100

Trend: stable · weight 13%

  • OCF / PAT64%

    Accounting profit is not fully turning into cash — the single most common early warning sign.

  • Free cash flow₹3,118 Cr

    Cash left after maintaining and expanding the asset base.

Management & governance

65/100

Trend: improving · weight 14%

  • Guidance delivery95% of last 8 quarters

    Whether management historically delivered what it promised.

  • Promoter holding18.6% (+0.78 y/y)

    Promoter ownership is stable or rising.

  • PledgeNo pledge

    No pledge disclosed in the sample data.

  • Institutional flowFII -0.93 · DII +1.79

    Direction of institutional ownership over the last year.

  • Capital allocationGrowth has been part-funded with debt; increment…

    Growth has been part-funded with debt; incremental returns need to clear the cost of that debt.

Industry & macro

78/100

Trend: improving · weight 8%

  • Demand trendimproving

    Pharma (India) demand is improving.

  • StructureFragmented

    Fragmented — share shifts are possible but price competition is real.

  • Competitive intensitymedium

    How hard it is to keep pricing and share.

  • Macro driversUSFDA actions, US price erosion, API input costs

    Variables that move the earnings base regardless of company execution.

Valuation

33/100

Trend: stable · weight 8%

  • P/E vs sector72.3x vs 70.5x

    At 72.3x against a sector median of 70.5x, the price embeds roughly 54% earnings growth. Anything less has to come out of the multiple.

  • Growth-adjusted8.98 (PE/growth)

    Below ~1.5 the multiple is supported by growth; above ~2.5 it depends on the market staying optimistic.

  • FCF yield2.56%

    Cash return on the current market value, before any growth.

Financial history

Profit, cash and returns over five reported years

YearRevenueEBITDAPATOCFFCFROCE
FY2022₹24,547 Cr₹7,855 Cr₹5,577 Cr₹3,123 Cr₹-314 Cr22.3%
FY2023₹27,143 Cr₹5,429 Cr₹2,226 Cr₹1,291 Cr₹-1,695 Cr16.7%
FY2024₹29,739 Cr₹8,030 Cr₹5,300 Cr₹3,180 Cr₹801 Cr14.1%
FY2025₹32,335 Cr₹6,790 Cr₹2,988 Cr₹1,853 Cr₹-410 Cr17.6%
FY2026₹34,931 Cr₹11,877 Cr₹7,601 Cr₹4,865 Cr₹3,118 Cr20.1%
  • ⚠ Operating cash flow is well below reported profit — check receivables and inventory.

Ownership & management

Who owns it, and have they delivered?

Promoter

18.6%

+0.78 y/y

Pledge

None

No disclosed pledge

FII

24.6%

-0.93 y/y

DII

6.4%

+1.79 y/y

Guidance delivered in 95% of the last eight quarters; average leadership tenure 5 years.

Growth has been part-funded with debt; incremental returns need to clear the cost of that debt.

  • ⚠ Related-party transactions at 7.4% of revenue

Industry & macro context

Pharma (India)

Demand trend

improving

Cyclicality

medium

Competition

medium

Regulatory pressure

medium

Fragmented — share shifts are possible but price competition is real.

Macro drivers: USFDA actions · US price erosion · API input costs

Valuation

fair versus the sector

P/E

72.3x

Sector median P/E

70.5x

P/B

10.76x

Earnings yield

1.38%

FCF yield

2.56%

PE / growth

8.98

Estimated fair-value band ₹3,827 – ₹4,890 , built on FY2026 EPS of ₹94.5. Gap to the current price: +187.5%. Ranges are a modelling output, not a target price.

At 72.3x against a sector median of 70.5x, the price embeds roughly 54% earnings growth. Anything less has to come out of the multiple.

Risk register

What can break the thesis, and how it is monitored

  • Leveragehigh

    Debt is 4.1x EBITDA.

    Monitor: Quarterly gross debt and interest coverage.

  • Cash conversionmedium

    Only 64% of profit converted to operating cash.

    Monitor: Receivable days and inventory in the next two quarters.

  • Governancehigh

    Related-party transactions at 7.4% of revenue

    Monitor: Annual report disclosures and auditor commentary.

  • Accounting qualitymedium

    Operating cash flow is well below reported profit — check receivables and inventory.

    Monitor: Cash-flow statement versus P&L each quarter.

Ongoing thesis monitoring

The thesis is a living position, not a one-time verdict

MetricCurrentlyThesis holds ifThesis breaks if
ROCE20.1%stays above 17%falls for two consecutive years
Cash conversion64%stays above 80%drops below 70% while revenue grows
Revenue growth9.2% CAGRtracks the 54% priced inslows for two quarters with no margin offset
Promoter holding18.6%stable or risingfalls sharply or fresh pledge appears

Peers in the same sector

Compare before sizing anything

Sun PharmaceuticalDr. Reddy's Labs

Data quality 58/100

Stated openly, as required by the product principles

  • • Fundamentals in this build come from a deterministic sample dataset, not licensed exchange filings.
  • • Segment, ownership and management figures are illustrative and must be verified against annual reports.
  • • Educational analysis only — not a recommendation to buy or sell any security.
  • • Accounting flags reduce the reliability of the reported profit base.