Results preview: Pharma sales may be up 9-10% in Q2 on robust domestic biz

Domestic business and exports are expected to be a shot in the arm; hospitals and diagnostics to lag

Pharmaceutical revenues and earnings are likely to grow by 9-10 per cent year-on-year (Y-o-Y) in Q2FY26, riding on sustained domestic business as well as high single digit US market growth, despite price erosion in key cancer drug Revlimid.

 

Nuvama analysts forecast revenue and profit after tax growth of 9 per cent and 10 per cent, respectively Y-o-Y, and 3 per cent and 2 per cent, respectively quarter-on-quarter (Q-o-Q). 

Domestic business is expected to grow at 10 per cent during the quarter, with Ajanta Pharma, Alkem likely to outperform peers. However, GST rate cuts may cause some working capital issues due to an inverted duty structure with respect to domestic sales. US sales for most pharma companies are likely to grow at a decent 7 per cent rate, despite price erosion in generic Revlimid, the analysts noted. Margins are likely to benefit from the active-pharmaceutical-ingredient (APIs) price cuts by China, which may positively surprise formulation companies’ margins. 

Kotak Institutional Equities are expected to see continued traction across most markets that would drive 10 per cent overall sales growth and 8 per cent Ebitda growth in Q2. Domestic growth may be impacted by 50-200 bps on lower primary sales due to GST transition.

 

HDFC Securities noted that on a sequential basis, the US generics market is likely to see no growth due to lower sales from generic Revlimid – Dr Reddy’s Laboratories, Aurobindo and Zydus Lifesciences to see impact. However, this is partly offset by traction in key products like generic Jyanarque (Lupin) and generic Spiriva (Lupin) apart from generic Myrbetriq (for Lupin and Zydus), and specialty business scale-up (Sun Pharma).

 

The expected domestic business growth at 10 per cent will beat the domestic market growth of 7.7 per cent. Chronic segment has grown by 12 per cent, which was partly offset by 5 per cent growth in the acute segment.

 

 Eris and Mankind Pharma will see growth from M&As, Sun Pharma is likely to witness traction from specialty business and Torrent Pharma will see benefits from the chronic segment. On the other hand, muted growth in anti-infectives (Alkem, Mankind) could impact the overall growth momentum.

 

“For API companies under our coverage, we bake in Y-o-Y volume uptick for most companies, factoring in 6 per cent Y-o-Y overall sales growth in Q2FY26. Within the Contract Research Development and Manufacturing Organisation (CRDMO) segments for companies under our coverage, we expect strong Y-o-Y growth in Q2FY26 for Divi's, Laurus and Sai, while we expect a muted quarter for Syngene and Piramal Pharma,  largely due to inventory destocking for their key molecules. On the operating front, we build in 8 per cent Y-o-Y growth (3 per cent Q-o-Q) in overall reported Ebitda,” Kotak analysts said.

 

As for the hospitals and diagnostics companies, around 17 per cent Y-o-Y growth is expected to be driven by 18 per cent growth in hospitals and 12 per cent in diagnostics. The growth is lower than Q1 owing to low seasonal incidences, delayed elective surgeries due to extended monsoons and festivals and high base. Diagnostics will report 11-12 per cent organic growth, while hospitals remain soft, especially Apollo Hospitals (lower occupancy). Apollo’s hospital revenue growth is forecast soft at 8 per cent Y-o-Y, but margin to improve to 25 per cent. Occupancy muted at 67 per cent (versus 73 per cent Y-o-Y) with average revenue per occupied bed up 16 per cent Y-o-Y.

 

Nuvama analysts said, “We reckon Fortis, Max and Metropolis shall post good numbers, whereas Vijaya and Apollo Hospitals would post softness. Jupiter Life, Dr Lal Pathlabs, Medplus and Laxmi Dental remain on a firm path.”

 

Kotak analysts felt there would be a 16 per cent Y-o-Y and 9 per cent Q-o-Q sales growth for their hospital coverage in Q2, led by higher footfall in existing beds, new bed additions and a slight rise in average revenue per patient.  

 

“Overall, we expect an Ebitda growth of 13 per cent Y-o-Y (+10 per cent Q-o-Q) for our hospital coverage. For companies such as MEDANTA and KIMS, we expect additional Ebitda losses on newly added beds to impact profitability,” they said.