Q3 Preview: Strong domestic sales set to lift pharma revenues by up to 11%

Strong domestic demand is set to lift pharma revenues by up to 11% in Q3FY26, though pressure from generic Revlimid in the US may limit profit growth

Buoyant domestic sales are expected to lift revenues for pharma companies by 8–11 per cent in Q3FY26, even as declining generic Revlimid (cancer drug) sales in the US remain a key drag.

 

Most brokerages forecast a modest 2–4 per cent growth in profit after tax (PAT) for the quarter.

 

Hospitals and diagnostics companies, meanwhile, are likely to post much stronger numbers, with revenues seen growing 20–22 per cent year-on-year (Y-o-Y).

 

The Indian pharmaceutical market (IPM) continues to grow in double digits, led by cardiac therapies (16 per cent), oncology (26 per cent) and antidiabetics (14 per cent) during the quarter.

   

In contrast, anti-infectives (2 per cent), pain (7 per cent), gastro-intestinal and dermatology therapies (both 8 per cent) reported single-digit growth.

 

Nuvama analysts expect Lupin to deliver 8–10 per cent domestic growth, with ex-anti-diabetic therapies significantly outperforming.

 

Sun Pharma, Torrent Pharma and Dr Reddy’s Laboratories are likely to see over 12 per cent top line surge, while Cipla, Alkem and Zydus are expected to report 9–10 per cent growth in their domestic businesses.

 

In the US market, the impact of generic Revlimid remains the key monitorable, while contract development and manufacturing organisations (CDMOs) appear weak. This comes as Q3 marks the final limited-competition quarter for generic Revlimid.

 

The multi-billion-dollar generic Revlimid market has expanded in recent years following patent expiry, with players such as Teva, Natco, Dr Reddy’s, Cipla and Sun Pharma entering the space.

 

This has led to intense price competition and margin erosion for some companies, despite strong underlying demand.

 

The product has already seen significant price erosion, with companies liquidating leftover inventory ahead of heightened competition.

 

“Due to this, we expect cumulative US business of our universe to fall 5 per cent quarter-on-quarter (Q-o-Q). The US business of companies heavy on generic Revlimid (Dr Reddy’s, Zydus, Cipla and Natco) would post a decline,” Nuvama said.

 

It added that Lupin is likely to report strong growth in its US business (35 per cent Y-o-Y), driven by limited-competition products such as Tovaptan, Mirabegron and generic Spiriva.

 

Kotak analysts, however, highlighted that excluding generic Revlimid, overall US generics sales are expected to grow 2 per cent Q-o-Q.

 

“On an ex-gRevlimid basis, we bake in 2 per cent Q-o-Q growth in overall US generics sales for relevant companies in our coverage. This is led by volume growth in existing products and continued benefit from new launches in the earlier quarters for a few firms,” they said.

 

Systematix, a financial services firm, noted that Dr Reddy’s could see a steeper decline in the US compared to peers, while Lupin may emerge as the fastest-growing company in the geography.

 

For Sun Pharma, Systematix estimates high-single-digit Y-o-Y revenue growth. It may be led by sustained strength in India branded formulations and rest-of-the-world markets, alongside gradual improvement in its US specialty portfolio.

 

Nuvama forecasts Sun’s US business to grow 8 per cent Y-o-Y, driven by innovative products, primarily Ilumya and the addition of Leqselvi.

 

“We have built in $417 million of innovative specialty business for Sun Pharma during this quarter,” the brokerage said.

 

Within healthcare services, hospitals’ growth is expected to be driven largely by new bed additions. BNP Paribas analysts noted that despite Q3 being seasonally weak, capacity expansion will support strong growth.

 

Apollo Hospitals, Aster DM and Fortis Healthcare are estimated to post revenue growth of 11 per cent, 14 per cent and 18 per cent, respectively.

 

“We also expect hospital margins to be largely flat for both Apollo and Aster DM due to cash burn from these new greenfield hospitals. We expect Fortis Hospital margins to grow, led by a margin recovery for recently-launched brownfield hospitals,” BNP Paribas added.

 

Diagnostics is likely to see a mixed quarter. Dr Lal Pathlabs is expected to record 11 per cent revenue growth, while Metropolis Healthcare may report 15 per cent organic growth and 26 per cent overall growth. Core diagnostics is expected to drive margin expansion for Metropolis, according to BNP Paribas, while new initiatives are likely to weigh on Dr Lal Pathlabs’ margins. Nuvama estimates diagnostics revenues to grow 17 per cent, with PAT rising 25 per cent, driven by 13 per cent organic growth and the remainder from acquisitions. The brokerage added that Q3 performance is likely to exceed earlier expectations, supported by a pickup in specialty and allergy testing, a low base and favourable festival timing.

 

Nuvama also noted that Apollo Hospitals’ occupancy remained muted at 65 per cent compared with 68 per cent Y-o-Y, while average revenue per occupied bed (ARPOB) rose 13 per cent. Fortis’ occupancy is estimated at 67 per cent, with ARPOB growth of 5 per cent. For Max Healthcare, Nuvama expects subdued revenue growth of 10 per cent, impacted by a high dengue base last year, GST on oncology drugs, insurance-related issues and the full-year base effect of all hospitals, with EBITDA margins estimated at around 26.7 per cent, down 58 basis points.