Results preview: Domestic dose likely to ease US drag for pharma firms

As the Indian drug industry braces for the impact of potential US tariffs, the sector is likely to end 2024-25 with revenue growth of 11-16 per cent, said several brokerages. 

According to them, this would largely be led by domestic formulations growth as US sales are expected to see a moderate rise.

Their profit after tax (PAT) is estimated to grow in the range of 10-18 per cent. 

Nuvama Institutional Equities said therapies like antidiabetic, anti-infective and respiratory had underperformed in the Indian pharma market. 

The pharma market grew by 6 per cent in Q4FY25, while the above therapies have grown in the range of 2.6-5.6 per cent.

However, companies like Dr Reddy’s Laboratories (DRL) (up 15 per cent), Ipca (13 per cent) and Torrent Pharma (12 per cent) may outperform the pharma market. Nuvama coverage companies — on an average — are likely to post domestic sales growth of 10 per cent year-on-year (Y-o-Y). 

As for the US market, generic Revlimid (cancer drug) offtake is expected, and US sales for Nuvama coverage universe is likely to grow 8 per cent, with Lupin and Zydus Lifesciences expected to witness high-teens growth. 

Zydus and Aurobindo will be key beneficiaries of generic Revlimid.  

Analysts are expecting companies like Lupin to benefit from the launch of generic Myrbetriq, a prescription medicine used to treat overactive bladder. 

However, after the generic manufacturers lost a patent battle against Tokyo’s Astellas Pharma in a US Federal Court, the drug firms had to withdraw their medicine. 

Nuvama felt that revenue for pharma companies will increase by 11 per cent while PAT can grow by 14 per cent. 

Gautam Duggad, research analyst, Motilal Oswal Research, pointed out that the domestic formulation space continued to be driven by higher offtake of chronic medicines, partly offset by weak consumption of medicines in acute therapies. 

“While US growth is soft for the quarter, the segment has benefited from favourable currency movement,” he said in his note. 

As for key drug companies, Sun Pharma is expected to deliver the highest growth (according to Centrum) at 12 per cent, thanks to its specialty portfolio. Cipla’s US sales are expected to remain under pressure, analysts felt. Centrum said that US sales would moderate at 5 per cent or so for the quarter. 

However, the Indian rupee’s depreciation is likely to be a positive contributor for growth in the quarter. In the domestic formulation segment, DRL is expected to grow 21 per cent, the brokerage said, driven by in-licensing sales. 

Nuvama noted that Sun Pharma’s specialty business could show a good performance in Q4 driven by US sales. The analysts, however, cautioned that large companies were now entering the final year of limited volume exclusivity in generic Revlimid (expires by January 2026). “According to our understanding, a large part of this opportunity would be over within the next two quarters, posing earning challenges in H2FY26E,” Nuvama said. 

Other brokerages agreed. BNP Paribas Exane, for example, highlighted that while Indian generics continud to reap the benefits of generic Revlimid over the near term, this would be short-lived as Revlimid would go off-patent in January 2026. 

“Consequently, focus will remain on new product approvals and integration of acquired assets,” the analysts said. 

They also pointed out that the Nifty Pharma index had declined by 11 per cent Y-o-Y (April) and one  could not completely rule out any future tariff imposition. “US business is expected to remain muted due to generic Revlimid erosion and lack of new product launches. DRL is our top candidate for negative surprise this quarter,” it said. 

As for the hospitals segment, revenue is likely to grow by 12-14 per cent. Nuvama said that hospitals would post ‘softer’ revenue growth, hurt by the lack of Bangladesh patients and festivals. As such, Fortis may grow at 14 per cent, while Apollo Hospital revenue growth is likely to be 10 per cent. 

Apollo’s occupancy could be muted at 67 per cent versus 68 per cent in Q3FY25, and average revenue per bed would grow by 4 per cent. The hospital segment’s earnings, before interest, tax, depreciation and ammortisation (Ebitda) growth is likely to be around 14 per cent. 

Diagnostics growth will also remain slow around 12.6 per cent, according to analysts, thanks to festivities and a weak acute season resulting in lower footfall. 

Vijaya Diagnostics is one of the fastest growing at 15 per cent, while Metropolis is estimated to grow at 13 per cent, Agilus at 4 per cent and Dr Lal Pathlabs may post 12 per cent Y-o-Y growth. 

“Sectoral margins may fall 80 basis points (bps) but will improve sequentially by 50 bps,” Nuvama said. 

Centrum analysts felt that sector Ebitda growth will be 12.5 per cent with margins remaining flat.