Cipla, one of India’s leading pharmaceutical companies, has now entered the spotlight after the company announced its Q3 results. The brokerage house, Nuvama, has reiterated a ‘Reduce’ rating on Cipla in its latest report. The brokerage has set a target price of Rs 1,280. This implies a downside of roughly 2.7%.
The downgrade follows a weaker-than-expected third-quarter performance, marked by pressure on margins and a miss on key financial metrics.
Let’s take a look at the key reasons why the brokerage house Nuvama has a reduce rating on this pharmaceutical stock and what is the rationale behind it –
Nuvama on Cipla: Earnings fail to meet expectations
Cipla’s performance for the Q3FY26 fell short of market expectations on several counts. As per the brokerage report, the company’s revenue, Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA), and adjusted Profit After Tax (PAT) missed consensus estimates by 6%, 28%, and 29%, respectively.
Overall revenue remained largely flat year-on-year at Rs 7,070 crore. However, profitability took a hit. EBITDA margin dropped to 17.7%.
As per the brokerage report, this was driven by higher research and development spending and a weaker contribution from gRevlimid, a generic oncology drug that had supported earnings earlier.
Nuvama on Cipla: Rising costs squeeze margins
One of the key pressure points highlighted in the report is the sharp rise in research and development expenses. Cipla’s research and development spend increased 37% year-on-year to Rs 490 crore, accounting for 7% of sales.
EBITDA declined 37% year-on-year and 34% quarter-on-quarter to Rs 1,260 crore. Adjusted Profit After Tax also fell sharply, dropping 37% year-on-year and 35% sequentially to Rs 880 crore. According to the brokerage report, the adjusted figures factor in an exceptional item of Rs 280 crore linked to the implementation of India’s new labour codes.
Nuvama on Cipla: gRevlimid decline and supply concerns add pressure
The brokerage noted that the fall in gRevlimid contribution has emerged as a headwind for Cipla’s near-term profitability. In addition, uncertainty around the supply chain of Lanreotide, a key complex injectable product, is adding to concerns.
As per the brokerage report, “Cipla’s Q3FY26 margin was a negative surprise for us.” It further stated, “With gRevlimid ending and Lanreotide supply issues, we think Cipla’s profitability faces a near-term challenge.”
Nuvama on Cipla: Pipeline strength offers some support
The brokerage report pointed out that Cipla’s medium term product pipeline remains active, particularly in the United States market. Cipla has several complex products lined up in the respiratory and peptide segments for FY27-28.
According to the brokerage report, Cipla’s disclosed respiratory launches for FY27 include generic versions of Symbicort and Advair. Additional inhaler products are also expected, along with peptide launches such as generic Victoza in the fourth quarter of FY26.
The brokerage also noted that Cipla’s acquisition of full rights to Galvus could add between 0.5% and 1% to EBITDA in FY27. However, it cautioned that uncertainties remain.
“We await more clarity on Lanreotide supply chain as well as re-inspection at Indore facility,” the brokerage said, adding that visibility on margins and the United States outlook for FY27 is still limited.
Nuvama on Cipla: EPS cuts
The brokerage has revised its estimates downward. The brokerage house in its report noted, “We have lowered our earnings per share estimates for FY26 and FY27 by 10% and 5%, respectively.”
The brokerage added, “We downgraded the stock to ‘Reduce’ on earnings concerns and revised the target price to Rs 1,280 (earlier Rs 1,360).”
Conclusion
At the current market price, Cipla is trading at 24 times its estimated earnings for FY27 and 21 times for FY28, valuations that the brokerage believes leave limited room for upside unless earnings improve meaningfully.
As per the report, the stock’s near-term direction will depend on how quickly margin pressures ease, clarity on regulatory inspections emerges, and new product launches begin to contribute.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.