Growth in pharma sector likely to remain moderate in Q2: BoAML

The growth momentum of domestic pharma sector is likely to remain moderate, with 8 per cent overall sales growth in Q2 of this fiscal, says a report by Bank of America Merrill Lynch (BoAML.
However, the momentum is expected to pick up from the second half of FY16.
A higher base, fewer launches and incremental competition in some key high-value products are impacting revenue growth, the report said.
The profit after tax growth may be hit by price erosion in base portfolio, higher R&D cost and EM currency woes, it said.
The domestic pharma firms' sales in the US market have been impacted over the past few quarters because of slow approvals.

Higher base effect, price erosion in base portfolio, incremental competition in some of the key high-value products and lack of new approvals, are factors impacting the growth in the US market, the report said.

However, the growth momentum is expected to pick up from second half of FY16 as domestic players' US business is expected to ramp up following acceleration in Abbreviated New Drug Application (ANDA) approvals.
"We expect the US business for pharma firms to ramp up from 2HFY16 given the acceleration in ANDA approvals. Recent data shows that in the past six months, US approval have picked up substantially, with 75 ANDA approvals in April-September 2015 as against 72 approvals in FY15," BoAML said.

It pointed out that the weakening Indian rupee value is positive for the pharma sector, but it will hurt the exposure to emerging markets (EM).
The strengthening of dollar against Indian rupee may act as a positive catalyst for the domestic pharma universe's earnings, with an estimate of 45-50 per cent of revenues coming from the US. Even 5 per cent rupee movement would have a 2.4-5.6 per cent impact on the domestic pharma universe earnings per share (EPS).
"At the same time, we see headwinds to earnings growth from EM exposure as 15-20 per cent of revenues for Indian firms. The sharp depreciation in various EM currencies and relative strength in rupee value have led to 11-38 per cent appreciation of Indian rupee vs other EM currencies over the past 12 months," the report said.

Pharma firms exposed to Russia/CIS, Venezuela, Brazil and South African markets are more vulnerable to this. Dr Reddy's and Glenmark Pharma are the most hit due to their Russia/CIS and Venezuela markets, it said.