Analysts feel December quarter earnings growth for the pharmaceutical sector would be tepid for major firms. The key reason is persisting issues with the US Food and Drug Administration. The US is Indian pharma’s most important export market.
The India market, however, has seen steady growth and is expected to boost their margins. Analysts expect the top companies to report five per cent sales growth from a year before, on a tough base. Year-on-year earnings growth should be around 1 per cent for the quarter. In contrast, domestic sales are likely to have seen growth of about 9 per cent from a year before, led by pricing growth across the board. This sales growth, however, would decline when compared to the September quarter, say analysts. Edelweiss Securities thinks domestic sales would decline by three per cent on a sequential basis, as the previous quarter’s sales were boosted by a strong flu season, during the monsoon.
The US, as mentioned earlier, is Indian pharma’s largest export market and Indian drugmakers account for a little over 30 per cent of generic drugs sold in that country. Of late, there has been ‘regulatory overhang’, with enhanced scrutiny by the FDA.
In a recent note, Edelweiss Securities said the US regulator’s observations on Sun Pharmaceuticals (Halol unit), Cipla (Patalganga), Aurobindo (units IV, V, and VIII), together with warning letters for Cadila Healthcare’s Moraiya plant, Torrent Pharma’s at Levittown and Glenmark’s Baddi units, show concerns remain on this front. The brokerage said that these actions continued to erode pharma valuations.
US sales are likely to have remained steady in the quarter, riding on the launch of some speciality products. Sun Pharma, the biggest, launched its Cequa treatment for dry eye disease in October. This was a delayed launch, with the company facing some challenges in manufacturing and the supply chain. Cequa is a key drug for the firm and expected to generate $100-125 million in peak sales. Some benefits from the proceeds would come in the quarter.
Source: ICICI Securities
However, analysts expect US sales growth to be only 1 per cent. ICICI Securities said Cipla, Sun Pharma, Aurobindo, Cadila, Alembic, and Torrent would have largely flat sales growth. DRL and Lupin, however, are likely to show growth in US sales.
There was a lack of meaningful approvals in the US generics segment during the quarter, say the brokerages. The regulatory overhang casts a shadow on new product approvals, despite a healthy pipeline. Also, say analysts at Motilal Oswal, there would minimal currency-led benefits, as the rupee remained largely stable.
Among major firms, DRL is likely to show strong growth in both the India and US markets. Edelweiss expects DRL’s US revenue to grow nine per cent over the previous one, and India revenue to grow 15 per cent, year-on-year (YoY). Cipla’s domestic sales is likely to be growing by 10 per cent yoy, after the company overhauled its distribution network. Sun Pharma is expected to see a decline in margins, thanks to higher research and development expenses in Q3.
Source: Business Standard
