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Pharma sector: Maintaining growth on a high base

Buoyed by revenue growth and favourable currency, the margins are likely to improve on a y-o-y basis

Ram Prasad Sahu  |  Mumbai 

Despite the high base in the year-ago quarter, the pharmaceutical sector is expected to report a 20-22 per cent jump in revenue growth for the December quarter. Growth is expected to come largely from the international markets, on the back of a large number of product launches, as well as rupee depreciation.

The US, which accounts for about 30 per cent of overall revenue for most large pharma companies, has grown 56 per cent, according to Barclays’ Balaji Prasad and Hitesh Goel. Overall, international growth has been pegged at 26 per cent by analysts at Sharekhan. Domestic growth though, not as strong is expected to be about 14 per cent for the December quarter. Buoyed by revenue growth and favourable currency, the margins are likely to improve on a year-on-year basis. Earnings growth is likely to be upwards of 20 per cent, given revenue growth and favourable currency. Divi’s Labs (CRAMs business growth prospects), Sun Pharma (Taro performance and regulatory nod for Caraco) and Aurobindo (key approvals), according to Sharekhan analysts, are likely to outperform peers.

Strong revenue growth
Market share gains by Indian companies in the US market could help boost growth, though there were not many launches (except Lupin’s Tricor and Yasmin) in the quarter. US revenue growth would benefit from market share ramp-up in earlier launches in the first half of the year and higher realisations on exports as old hedges expire, especially for Dr Reddy’s and Cadila Healthcare, say analysts at Axis Capital. Expectations of Nomura analysts on revenue growth are, however, lower than most other brokerages. Revenue growth, according to Saion Mukherjee and Aditya Khemka, is likely to be muted as there are no major US launches, unlike in the year-ago period (Lipitor and Zyprexa), there’s expectation of a slowdown in the India pharmaceutical market and with currency tailwinds lower than in the previous four quarters. However, without the exclusivity factor, the two analysts expect 22 per cent and 32 per cent growth in aggregate revenue and Ebitda, respectively.

While growth in the US market is likely to be strong, there could be a slowdown in the domestic growth. Sales in the first two months of the December quarter have moved between four and 18 per cent. While this is likely to improve, uncertainty on pricing front due to new policy is likely to impact sales in FY14. According to Karvy Institutional Research analyst Rahul Sharma, the companies most impacted include GSK Pharma, Sanofi, Ranbaxy, Unichem Labs and Alembic Pharma. The earnings impact on these companies varies from 11 to 29 per cent, says the research firm.

STABLE GROWTH, MARGINS
In Rs crore Revenues % ch
y-o-y
Ebidta % ch
y-o-y
Ebidta
(%)
Net
profit
% ch
y-o-y
Cadila 1,674 21.0 321 21.8 19.18 184 23.4
Cipla 2,017 14.7 470 20.3 23.30 325 20.5
Dr Reddy’s 2,682 23.1 563 21.9 20.99 341 42.1
Lupin 2,256 27.4 416 14.0 18.44 284 14.0
Ranbaxy 2,861 34.7 343 69.5 11.99 223 43.7
Sun Pharma 2,475 21.5 940 5.7 37.98 701 14.8
Source: Motilal Oswal Securities, analyst reports

Margins to improve
Revenue growth, better product mix and rupee depreciation are likely to help most pharma companies report higher margins. What is likely to peg these back is the high base effect due to exclusivity sales of Lupin and Sun Pharma. The margins of the two companies could decline as compared to the other larger generic players.

Glenmark and Cipla are likely to be the biggest gainers in margin improvements on the back of licensing income and sales of allergic rhinitis drug Dymista, respectively.

Margins are likely to contract on a sequential basis, feel analysts at Nirmal Bang, due to falling sales of low competition or 180-day marketing exclusivity products, though these will be partially offset by a pick-up in the launch of new products.

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First Published: Fri, January 11 2013. 00:21 IST
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