Pharma sector earnings to remain flat on damp business in US, strong rupee

The Indian pharma sector's December quarter revenue is estimated to remain flat, while profits are likely to slip owing to decline in US businesses and a sharp appreciation in rupee, says a report.

According to an Edelweiss Securities report, though the October-December quarter was "action packed", earnings are likely to remain muted.

"The pharma sector's Q3FY18 (October-December quarter) revenue is estimated to remain flat year-on-year, while EBITDA and PAT are likely to decline 15 per cent and 19 per cent, respectively," it noted.

The domestic brokerage firm said weak US business and INR appreciation against US dollar/Brazilian Real/Japanese Yen/ South African Rand are expected to drag earnings of Indian pharma companies.

"US revenue expected to decline 11 per cent year-on-year for the sector in constant currency (CC), as faster approvals, heightened competition, and sustained pricing pressure to dent growth," it said.

The report, however, noted that domestic sales are expected to grow 12 per cent year-on-year on a low base.

During the October-December period, the USFDA granted the highest-ever approvals in a single quarter with 246 nods.

"But faster approvals have led to heightened competition and pricing pressure, suppressing overall sector's earnings," it noted.

Going ahead, Edelweiss Securities expects the financial year 2017-18 is expected to be a "challenging year".

The sector continues to grapple with structural challenges like further customer consolidation and rising competition in the US. Moreover, 2017-18 is likely to remain a disappointing year as appreciating INR will be aggravated by the US and domestic challenges, it said.

"Consensus downgrades continued, albeit tempered compared to previous quarters, with 2 per cent/3 per cent cut in FY18/19E earnings during October-December," the report added.