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Propelled by higher sales in the US, major Indian drug makers such as Dr Reddy's, Lupin and Sun Pharma are expected to post sales growth of 12-15 per cent, year-on-year, for the June quarter.
The figure would be much higher, at about 20 per cent, if Ranbaxy was excluded from the list. The Indian subsidiary of Japan's Daiichi Sankyo raked in high revenues on the back of exclusivity sales (worth around $180 million) of cholesterol-lowering drug, Lipitor, in the year-ago quarter.
Hence, in the June quarter, Angel Broking's analysts expect Ranbaxy's revenues to decline by 10 per cent. While Dr Reddy's and Lupin's growth in the US will get a push from products, with limited competition and complex process, Sun Pharma's revenue growth will get a boost from integration of its acquisitions, DUSA Pharmaceuticals and URL Pharma. Analysts at BofA Merrill Lynch expect top pharma companies to sustain their growth trajectory in the quarter, led by niche launches in the US market, continued momentum in emerging markets and positive impact of rupee depreciation.
The 10 per cent rupee depreciation during the quarter is likely to be favourable for the generic drug makers which are net exporters. Operating profit growth for the top generic companies is likely to be 15 per cent due to higher sales of limited competition products, with margins remaining steady. While these gains are likely to show in the bottom line, lower taxes, especially for Cadila, are expected to help the sector register net profit growth of at 18 per cent.
Although growth in the US is expected to be strong, uncertainty on account of pricing policy will mean muted growth in the domestic segment. Apprehensions on a change in prices after implementation saw dealers and stockists maintain lower levels of inventory, impacting sales. IMS data for May indicates weak growth of seven per cent over the year-ago quarter and almost flattish growth over April. This, however, is likely to change, say analysts, given the onset of monsoon, resulting in an uptick in sales in the September quarter.
Among the pharma pack, multinational companies are facing a double whammy on the domestic front due to the pricing policy and also due to costly imports on account of a depreciating rupee. Unlike multinational firms, which get most of their revenues from the domestic market and price their products at a premium, Indian drug majors will be less impacted, given overseas exposure and the fact that pricing is not a key driver for their growth, according to Angel Broking.
According to analysts, in addition to companies such as GSK Pharma (double-digit impact on profits), Indian companies such as Cipla, Cadila and Ranbaxy will be impacted due to the pricing policy.
Edelweiss Securities' Perin Ali believes the sector will see continued earnings momentum, with incremental product pipeline opportunities in the US likely to sustain pharma large cap valuations at 18-19 times one-year forward.
