Pharma result preview: US stable, India muted in the second quarter

Hospital occupancy rates rise 200-400 bps, while diagnostic sector sees seasonal benefits

Analysts are predicting pharmaceutical (pharma) companies to report a year-on-year (Y-o-Y) revenue growth in the range of 12-15 per cent, with earnings before interest, tax, depreciation, and amortisation growth estimated to be around 18 per cent for the second quarter (Q2) of 2023-24 (FY24). Hospital occupancies are expected to rise due to monsoon illnesses, benefiting diagnostic players as well.

Domestic growth is anticipated to be subdued, at around 8 per cent, due to a weak acute season and the impact of the National List of Essential Medicines, according to analysts at Nuvama.

Cipla and Torrent Pharmaceuticals are expected to perform well in the domestic market.

“We build in a 10 per cent Y-o-Y overall domestic sales growth for our coverage, following a slightly muted acute performance,” noted Kotak Institutional Equities (KIE).

Meanwhile, sales in the US are likely to remain stable, with high-value launches and softening freight and input costs expected to aid margins, observe analysts.

Nuvama analysts pointed out that despite lower shipments of generic Revlimid (cancer drug to treat multiple myeloma), the quarter-on-quarter (Q-o-Q) margin will remain in check.

The US is experiencing a volume uptick and stable price erosion, which may benefit Aurobindo Pharma.

Lupin has had successful launches of generic Spiriva (respiratory) and Darunavir (HIV/AIDS), gaining share in albuterol (respiratory), while Cipla secured a one-time contract in the US despite lower sales of generic Revlimid.

KIE stated that it expects a healthy Q2FY24 for the pharma sector, aided by improved stability in US generics pricing across injectables and oral solid dosages.

“Excluding generic Revlimid, we bake in a 12 per cent Y-o-Y (flat Q-o-Q) growth in overall US generic sales for our coverage. We expect Dr Reddy’s Laboratories and Cipla to report generic Revlimid sales of $85 million and $26 million,” it said.

Sun Pharmaceutical Industries, however, is expected to have a subdued performance in the US due to minimal supplies from Mohali. Analysts from Prabhudas Lilladher pointed out that Sun Pharma’s dependency on US generics has reduced in recent years, and the company’s growth is more functional on US specialty, rest of the world, and domestic pharma business, which continues to show strong growth visibility.

In the hospital sector, seasonality is expected to contribute to healthy growth.

Prabhudas Lilladher analysts anticipate a 200-400-basis point sequential improvement in occupancies (except HCG) due to increased patient volume from seasonal infections such as flu and dengue in Q2, a traditionally strong quarter.

“We foresee the average revenue per occupied bed (ARPOB) to remain higher on a Y-o-Y basis. However, we see some Q-o-Q moderation in ARPOB due to case mix,” they add.

Overall, a 12 per cent Y-o-Y growth in hospitals is expected, with Apollo Hospitals projected to post 12 per cent Q-o-Q and 7 per cent Y-o-Y growth in the hospital segment due to higher occupancies.

In the diagnostic sector, analysts expect Vijaya Diagnostic Centre to outperform with a 15 per cent non-Covid growth Y-o-Y, driven mainly by volume.

For Dr Lal PathLabs, Nuvama analysts expect non-Covid revenues to grow at 11 per cent Y-o-Y, propelled by a 9.5 per cent increase in sample growth and a 1.5 per cent rise in realisation due to price increases.

“The volume uptick is attributed to the strong season. Dr Lal PathLabs revenues are likely to grow at 12 per cent Y-o-Y and suburban at 3 per cent Y-o-Y and 7 per cent Q-o-Q,” they stated.