Indiabulls :Pharmaceuticals preview: Expect mixed performance in 2QFY11

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We expect our pharma universe to show a YoY top-line growth of 13% in 2QFY11 to `28.8bn backed by ~33% YoY growth in Divi’s Labs and >20% growth in Biocon and Glenmark. We expect CRAMS recovery, which started in 1QFY11, to remain on track. We also expect the at-risk launch of generic Tarka in the US market to catalyse Glenmark’s US revenues. On the domestic front, the 20% overall market growth reported for 1HFY11, with the chronic segment leading over the acute, should find resonance in Glenmark’s domestic business. We reiterate our Outperform rating on Glenmark and the CRAMS companies under our coverage.
Top-line to grow at 13% YoY; Divi’s Labs to lead the pack with 33%
We expect the top-line of our pharma coverage companies to have grown at 13% YoY in 2QFY11 to `28.8bn. On QoQ basis, the top-line growth is likely to be 3% (in 1QFY11, the CRAMS space started recovering and Glenmark received US$20mn upfront by way of out-licensing income). We believe the rebound in CRAMS has likely enabled Divi’s Labs to lead the pack with ~33% YoY growth in top-line followed by Biocon (20.9% YoY), and Glenmark (20.5% YoY). We expect Dishman Pharma to register flat top-line growth due to slow recovery at its Swiss subsidiary, Carbogen Amcis.
EBITDA growth at ~13% to follow top-line growth
We believe our coverage companies’ EBITDA will show ~13% growth YoY with Biocon leading the pack with >27% followed by Divi’s Lab (~26%) and Glenmark Pharma (18%). We believe Dishman Pharma’s EBITDA will remain flat while that of Jubilant will decline 4% YoY. We expect a 100 bps expansion in Biocon’s EBITDA margin and a 240bps decline in the same for Divi’s Labs (because the expansion in 1QFY10 was quite high). Adjusted EBITDA margin for Jubilant is likely to expand by 121bps.
PAT to grow 25% YoY, but marginally decline QoQ
We expect the bottom-line of our coverage companies put together will increase by >25% on account of sales growth and decline in interest cost. We believe Jubilant would lead the pack with ~36% net profit growth in 2QFY11 due to significant (~24%) decline in interest cost and tax outgo. Divi’s Labs will follow with ~31% YoY net profit growth while Glenmark will grow at ~25% on the bottom-line. We expect Biocon’s bottom-line to show ~19% growth and Dishman’s a marginal decline.