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Pharma review: Good quarter, healthy prospects

Most major pharma companies turned out a strong performance in the quarter with results better than expectations.

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Aided by a weak rupee, sales from niche opportunities, product launches and strong base business Indian pharmaceutical majors reported a 30% revenue growth for the quarter ended September 2012. Most major pharma companies turned out a strong performance in the quarter with results better than expectations. While better product mix helped improve margins by over 200 points, sharp rise in interest and depreciation costs as well as taxes pegged back net profit growth which came in at 18.5%, according to a Sharekhan report. SBI Cap analysts say while recurring net profit was 15% if the base business is considered, they are up 26% if one-offs are taken into account. While operational performance has been good, the key overhang is on account of drug pricing. The sector had underperformed the broader markets in September but has since recovered. The BSE Healthcare has given 28% returns over the year as compared to 9% for the Sensex.

Given revenue visibility and product pipeline most analysts prefer Sun Pharma, DRL, and Ranbaxy as their top picks in the sector.

Going ahead, Sharekhan analysts believe that while growth may moderate in the December quarter (high domestic base) but strong pipelines, improved utilization and contribution from acquisitions would ensure long-term growth. Most companies with an exception of Divi’s have given strong guidance for FY13 revenues.

Weak rupee, one off push

One off opportunities, a 19% depreciation of the rupee and good base business momentum/product launches in the US market helped Indian companies register a 40% jump in revenue growth in the US market. Sales from Ranbaxy’s first to file Actos and Sun Pharma’s limited period opportunity for as well as strong revenues from Taro boosted export revenues. Product launches and existing business growth for Dr Reddy’s, and Glenmark also helped push up sales from the US market.
 
Domestic biz: Good show

A pick up in acute segment and enhanced field force helped the domestic formulations business put up a strong show growing 20% y-o-y in the quarter. Leading the growth charts were and recording 35% and 28% jump respectively. If the October numbers are any indication, the domestic segment is likely to grow at a good pace in the December quarter as well. Last month domestic sales grew by 17% y-o-y driven by anti-infectives, anti-malarials and diabetes.

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